Every assessee, who earns income beyond the basic exemption limit in a Financial Year (FY), must file a statement containing details of his income, deductions, and other related information. This is called the Income Tax Return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are occasions where, based on set parameters by the Central Board of Direct Taxes (CBDT), the return of an assessee gets picked for an assessment.
Income tax assessment is the process of verification of the information a taxpayer has provided in the returns submitted by a taxpayer to the income tax department. An assessment is carried out by the Income Tax department after the filing of an income tax return by an assessee. The purpose of conducting the assessment is for the Income Tax department to verify the return filed for correctness with respect to the amount of taxable income declared and tax paid. There are various types of income tax assessment. In this article, we briefly discuss the concept of a scrutiny assessment under Section 143(3). You can learn about income tax notice under Section 143(1) here.
Scrutiny Assessment
Scrutiny assessment under Section 143(3) is a detailed assessment of an income tax return filed by a taxpayer. In a scrutiny assessment, a tax officer would perform various tests and processes to confirm the correctness and genuineness of various claims, deductions, and so on, made by the taxpayer in the income tax return. The objective of a scrutiny assessment is to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.
Scrutiny assessment under Section 143(2) would be applicable for the following scenarios:
- An income tax return has been filed under Section 139 or in response to an income tax notice under Section 142(1).
- The Assessing Officer or Income Tax Authority deems it necessary or expedient to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not under-paid income tax in any manner.
After submitting an income tax return, an Income Tax Officer may be assigned by the Income Tax Department to assess the tax filing. The taxpayer is informed of this through an Income Tax Notice under Section 143(2). The officer may request information, documents, and books of accounts for scrutiny assessment, which will be thoroughly examined. The officer then calculates the income tax payable by the taxpayer, and if there is a mismatch between the income and the tax due, the taxpayer can either pay the extra amount or receive a refund.
If the taxpayer is not satisfied with the assessment, they can apply for recitation under Section 154 or submit a revision application under Section 263 or Section 264. If the Scrutiny Assessment order is still considered invalid, the taxpayer can appeal to higher authorities such as CIT (A), ITAT, High Court, and The Supreme Court, in that order.
Scrutiny Assessment u/s 143(3)?
A scrutiny assessment may be initiated under Section 143(3) in the following scenarios:
- When a taxpayer has filed a Section 139 income tax return or responded to a Section 142 income tax notice.
- When the Assessing Officer or Income Tax Authority deems it necessary to conduct an audit to ensure the accurate reporting of income and taxes paid.
Income Tax Notice u/s 143(2)
To initiate a scrutiny assessment, the concerned Income Tax officer must first issue an income tax notice under Section 143(2). In the income tax notice under Section 143(2), the Assessing Officer would request the taxpayer to appear in person or complete the process through e-Assessment and/or produce information and documents which the tax officer ascertains to be important for determining the taxable income and tax payable. An income tax notice under Section 143(2) should be served within a period of six months from the end of the financial year in which the return is filed. For example if an income tax return is filed on 2nd November 2018, notice under Section 143(2) can be served on the assessee up to September 30, 2019. If the notice is issued on 29th September 2019 and is received by the assessee after 30th September 2019, it is not a valid notice.
The taxpayer or his/her authorised representative can appear before the Assessing Officer and will place his arguments, supporting evidence, and so on, on various matters/issues as required by the Assessing Officer.
Time Limit for Scrutiny Assessment
As per Section 153, the time limit for making scrutiny assessment under section 143(3) is:
- Within 21 months from the end of the assessment year in which the income was first assessable. [For the assessment year 2017-18 or before]
- 18 months from the end of the assessment year in which the income was first assessable. [For the assessment year 2018-19]
- 12 months from the end of the assessment year in which the income was first assessable [For the Assessment year 2019-20 and onwards]
Scrutiny Assessment Hearing
While conducting a scrutiny assessment, the concerned tax officer will provide ample opportunity for the assessment to be heard and to produce documents or evidence to support the information filed in a tax return. In case of failure to produce information or non-cooperation by the taxpayer, the tax officer is empowered to complete the best judgement assessment under section 144.
In case of co-operation of the taxpayer and submission of information, after hearing/verifying such evidence and taking into account all the information produced by the taxpayer, the Assessing Officer would pass an order. On the passing of the order by the Assessing Officer, the assessee has one of the choices below:
- To agree with the order passed by the Income Tax authority and pay any tax demand or receive a refund or accept the loss determined
- Make an application for a refund under Section 154, if any clerical error persists
- Can make a revision application to Commissioner of Income Tax under section 263/264
- Appeal the order
Actions After Scrutiny Assessment
After the scrutiny assessment, the taxpayer has several options:
- Accept the order issued by the Income Tax authority and pay any outstanding taxes or claim a refund.
- If there’s a clerical error, submit a claim for reimbursement under Section 154.
- Submit a revised application to the Commissioner of Income Tax under Section 263/264.
- Appeal the judgment if necessary.
FAQs
Q: What is limited scrutiny?
Limited Scrutiny cases shall remain confined only to the specific reasons/issues for which the case has been picked up for scrutiny.
Q: What is the assessment order u/s 143 (3)?
This is a comprehensive assessment known as a scrutiny assessment. A careful examination of the return of income will be performed at this step to validate the veracity and credibility of numerous claims, deductions, and so on made by the taxpayer in the return of income.
Q: What is the meaning of intimation u/s 143 (1)?
Assessment under section 143(1) is a preliminary review of an income tax return. At this point, no comprehensive assessment of the income return is performed. A summary of the assessment under Section 143(1) can be completed without calling the assessee.
Q: What happens if I don't respond to the notice within 30 days?
If you do not answer within 30 days, your income tax return will be processed after making the relevant adjustments for which the notice has been sent. The assessing officer may close the assessment with the information he has with the best judgment under Section 144.
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