The process of verifying the data a taxpayer has supplied in the returns they have filed to the income tax department is known as income tax assessment. Following the submission of an assessee’s income tax return, the Income Tax department conducts an assessment. The assessment is being done so that the Income Tax department may check the return that was submitted to make certain that the amount of taxable income stated and tax that was paid were accurate
Income Tax Assessment
The term “assessment” in the context of income tax refers to the process where the Income-tax Department evaluates a taxpayer’s return of income. This evaluation is done to verify the accuracy and correctness of the information provided by the taxpayer in their Income tax return. The assessment process involves various methods, including:
- Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
- Re-assessment might occur in specific situations as specified by the tax laws.
- Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.
Notably, the Finance Act of 2018 introduced Section 143(3A), which implemented an e-assessment scheme for regular assessments carried out under Section 143(3). Further expanding this, the Finance Act 2020 included the best judgment assessments under Section 144 within the scope of e-assessment. By leveraging digital platforms, E-assessment aims to make the entire process more efficient and less cumbersome.
Scrutiny Assessment Under Section 143(3)
A thorough review of an income tax return that has been filed by a taxpayer is a scrutiny assessment in income tax Under Section 143(3). During a scrutiny assessment, a tax officer will carry out numerous tests and procedures to verify the accuracy and legitimacy of the taxpayer’s claims, deductions, and other items in their income tax return. A scrutiny assessment in income tax aims to make sure that the taxpayer hasn’t understated their income, calculated an excessive loss, or underpaid their taxes in any other way.
For the following situations, scrutiny evaluation on Section 143(2) would be appropriate:
- A Section 139 income tax return or a Section 142 answer to something like an scrutiny assessment in income tax notification has been submitted (1).
- In order to make sure that the taxpayer hasn’t underestimated their income, calculated an excessive loss, or underpaid their income taxes in any way, the Assessing Officer or Income Tax Authority believes it essential or expedient to conduct an audit.
Scrutiny Assessment in 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. If the notification is sent out on September 29, 2019, and the assessee receives it after September 30, 2019, it is not really a legitimate notice.
When is Notice u/s 143(2) Issued?
Notice u/s 143(2) is issued to you by the Income Tax Department when your Income Tax Return is selected for scrutiny assessment or detailed assessment u/s 143(3).
In simple words, Scrutiny assessment or detailed assessment u/s 143(3) means scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by you in your Income Tax Return. The basic purpose of this scrutiny assessment is to ensure that you have filed the return with the correct income and paid the tax accordingly.
The objective of this scrutiny is to check that:
- You have not understated your income
- You have not computed excessive loss
- You have not underpaid the tax in any manner
- Any mismatch in Income figures
- High value transactions
- Or any other defect in the ITR
So, we can conclude to carry out scrutiny u/s 143(3) of the Income Tax Act, notice u/s 143(2) is issued by the Income Tax Department. Such notice can be issued within three months from the date on which the financial year ends.
What is the Time Limit for Issuance of Notice u/s 143(2)?
A notice u/s 143(2) of the income tax act for scrutiny assessment can only be issued up to a period of three months from the end of the financial year in which you furnished the return. (before 1 st April 2021, the limit was six months from the end of the financial year)
For example, Ms. Sharma filed her return on 25.07.2022 for the financial year 2021-2022. In such a case, the notice u/s 143(2) of the income tax act can be issued to Ms. Sharma only up to 30.06.2023(being the end of three months period from FY 2022-2023 in which the said return was filed).
What Exactly is a Scrutiny Assessment?
A scrutiny assessment, as defined under section 143(3), involves a detailed examination of the income tax return. During this assessment, the tax authorities meticulously check the authenticity and accuracy of various claims, deductions, and other details you have provided in your return.
Scope of Assessment under Section 143(1):
The assessment under Section 143(1) is essentially a preliminary check of the income tax return filed by the taxpayer. At this stage, the focus is not on detailed return scrutiny. Instead, it involves a basic verification process where certain adjustments may be made to the income or loss reported by the taxpayer. These adjustments include:
- Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
- Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
- Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
- Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
- Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
- Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.
What Should You Know About Notice u/s 143(2)?
- You might receive a notice in PDF format via email.
- If you have not filed your ITR, then you cannot receive a notice under section 143(2). The assessing officer first has to issue a notice u/s 142(1), under which you might be asked to file returns.
- After receiving a notice u/s 143(2), you have to produce all the documents supporting deductions, reliefs, allowances, exemptions, and other claims made while filing returns.
- You have to provide proof of all the income sources.
- The assessing officer performs a detailed enquiry of the notice.
What is the Final Order u/s 143(3)?
If notice under section 143(2) of the income tax act was issued upon you by the AO for the production of evidence on the specified day and after taking into account such evidence and hearing the same, the AO will assess your total income or loss and also determine any sum payable by you or due to you by passing the order u/s 143(3).
Is There Any Time Limit for Issuance of the Final Assessment Order u/s 143(3)?
A notice under Section 143(2) can be issued after an income tax return has been filed but within three months from the end of the financial year in which the return was filed. For example, if Mr. Ram filed his return on July 31, 2023, for the financial year 2022-23, the assessing officer can issue a notice under Section 143(2) only until June 30, 2024. This is because the notice must be issued within three months from the end of the financial year 2023-24, the year in which Mr. Ram filed his return.
| Assessment Year (AY) | Time limit from the end of the (AY) |
|---|---|
| 2017-18 or before | 21 months |
| 2018-19 | 18 months |
| 2019-20 onwards | 12 months |
FAQs
What is notice u/s 143(2) of The Income Tax Act?
Receiving an income tax notice u/s 143(2) means the tax authorities have identified certain issues in your Income tax return (ITR) on which further clarification is required and intend to conduct a scrutiny assessment u/s 143(3).
What is the procedure adopted for making the assessment under section 143(3), i.e., scrutiny assessment?
The tax officer would perform tests and processes to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the income tax return, and to initiate a scrutiny assessment, the Income Tax officer must first issue an income tax notice u/s 143(2). The time limit to issue notice is three months from the end of the relevant F.Y. in which the return is filed.