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Issuance of notice under section 143 (2)

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The notice under section 143 (2) is the second chance given to the assesse to explain why the income tax department finds some minor or major discrepancies in the income tax return of the assesse.

The discrepancies can be in the form of:

  • Under reporting of income, or
  • Over reporting of losses

On the receipt of such notice the assesse (i.e. the individual) must timely respond to the income tax department along with appropriate proof to defend themselves.

Reason for the issuance of notice
Income Tax Department issues notice u/s 143(2) when Income Tax Return is designated for persual assessment or complete assessment u/s 143(3). Scrutiny assessment or precise assessment u/s 143(3) means scrutiny carried out to argue the accruracy and genuineness of various claims, deductions, etc., made in Income Tax Return. The basic cause of this scrutiny assessment is to certify that assessee has filed the return with the correct income and paid the tax accordingly.

Time limit for issuance of notice
The assessing officer can issue a notice within 3 months from the end of the financial year in which the income tax return is filed. Example: Income tax return for FY 2020-2021 is filed on 25/07/2021, i.e. in the FY 2021-2022; hence, the notice should be issued by 30/06/2022, i.e. 3 months from 31/03/2022.

Types of scrutiny

  • Limited Scrutiny
    This is a Computer-Assisted Scrutiny Selection (CASS) where instances are determined occupying on set parameters. The scrutiny will be restricted to the particular return area raised in the notice. An example of this scrutiny can be a inconsistency in tax credits, inaccurate information, etc.
  • Complete Scrutiny
    A complete persual is carried out on the return filed and all supporting documents. Cases are indicate based on CASS. Scope of scrutiny is not restricted in these types of notices. However, the assessing officer cannot confirm documents beyond the particular assessment year.
  • Manual Scrutiny
    Cases are determined for complete scrutiny based on the Central Board of Direct Taxes; the criteria may vary every year.

How does it work?
Assessing officer can issue notice u/s 143(2) within 3 months from the end of the Financial Year in which the assessee filed his return to carry out survey of income tax return u/s 143(3). The assessee or his tax representative will have to merge before the AO to place arguments and pieces of confirmation as needed by the assessing officer. Alternatively, the assessee can relent an online response to notice u/s 143(2) by uploading verification and your arguments. After looking over all the evidence, AO will pass an assessment order determining total tax payable or replacing to the assessee after taking into account produced proof. 

Consequences of not complying with the notice
If the assessee receives a regard from the Income Tax Department, and there is any , he/she may be liable for the following:

  • Penalty u/s 271(1) (b) adding to Rs. 10,000 and even prosecution if found guilty. However, for the AY commencing on or after April 1st, the penalty shall be charged in Sec 272A (1).
  • AO can do the best judgment assessment u/s 144 for the assessee.

Questions that might come to mind

Q1 Is it possible to receive a notice if you have not filed a return?
It is not possible to receive the notice when the return is not filed, but you can receive a notice u/s 142(1) asking to file a return. 

Q2 How will I receive the notice?
The notice is received generally via:

  • E-mail in a pdf format; and
  • At the postal address of the assessee

Q3 What is the final order u/s 143(3)?
After the issue of notice u/s 143(2), for the production of evidence, the assessing officer will assess total income or loss and determine any sum payable by assessee or due for refund to the assessee passing the order u/s 143(3).

What happens if you fail to respond?
You cannot take the notice timidly and ignore it. If you do not greet to the department within the stipulated period:

  • You may be content to a penalty of Rs. 10,000 under Section 272A for each failure to greet.
  • The assessment officer may exact the assessment with the information with the best judgment under Section 144.
  • A higher taxable income can be examined, resulting in a higher tax.
  • If you choose to discourse the higher tax demand, a minimum of 20% of the tax due must be paid before you file an entice with higher authorities.
  • It may lead to prosecution; if found liable, it may result in imprisonment.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, ITR filings, tax advisory, and other related service by providing them with adequate support and guidance from our end. If you have any questions or wish to know more about section 143 (2) issuance of notice, kindly contact us.

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