Income Tax Notices

Income Tax Notice u/s 143(2) for Scrutiny Assessment - How to Respond?

The Income Tax notice u/s 143 (2) of Income Tax Act is issued with the aim of ensuring that the taxpayers have not understated any income or shown excessive loss, or have not paid lower tax.

To carry out an assessment under section 143(3), the Assessing Officer shall serve notice in accordance with provisions of section 143 (2) of Income Tax Act. The Assessment u/s- 143(3) is a scrutiny assessment, and a detailed assessment is carried out at this stage. Moreover, notice u/s 143(2) can only be issued if the taxpayer has filed an income tax return.

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Updated on: 12 Jul, 2024 03:42 PM

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 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.

So How Does Notice u/s - 143(2) Work?

Step 1 A notice under section 143(2) is issued to you by the AO within 3 months from the end of FY in which a return was filed to carry out scrutiny of your income tax return u/s 143(3).

Step 2 You or your tax representative will appear before the AO to place your arguments and evidence as required by the assessing officer.
Alternatively, you can submit an online response to notice under section 143(2) by uploading your evidence and arguments.

Step 3 After hearing all the evidence, as produced by the assessee as per notice u/s 143(2), AO will pass an assessment order determining the total tax payable or refund to the assessee after taking into account produced evidence.

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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

Types of Notices u/s 143(2)

  • Limited Scrutiny: This includes a computer-assisted scrutiny selection (CASS). The scrutiny cases are selected based on set parameters. Only cases with inaccurate returns and information mismatches are selected. Also, limited scrutiny entails the scrutiny of a limited area, as mentioned in the notice, for example, the sale of property or foreign tax credit.
  • Complete Scrutiny: Complete scrutiny is carried out on the entire ITR filed, including the supporting documents. These cases are identified based on the reports of CASS. The scope of this type of scrutiny might also include checking the returns of previous years.
  • Manual Scrutiny: The cases for scrutiny are selected on the basis of the parameters defined by the Central Board of Direct Taxes (CBDT). These criteria keep changing and can vary frm year to year.

How Will I Receive this Notice u/s 143(2)?

Generally, you will receive this notice via email in a PDF format on your email id registered with the Income Tax Department. However, it will also be sent to your postal address.

If I haven’t filed my return, will I get a notice u/s 143(2)?

No, since you furnished no return, a notice u/s 143(2) cannot be issued to you, and no scrutiny of your records can be done. In such a case, section 144 shall apply to you for the best judgment assessment of your records. Also, an assessment can be done as per the provisions of section 147 in this case.

What are the consequences of not complying with the notice issued u/s 143(2)?

If you receive a notice from the Income Tax Department, you should always reply to it and never ignore it. But in case of any such default, you may be liable for the following:

  • Penalty u/s 271(1)(b) amounting to Rs. 10,000 and even prosecution. However, for the A.Y commencing on or after the 1st day of April 2017 the penalty shall be levied in Sec 272A(1).
  • The best judgment assessment u/s 144 can be made.

Is the notice u/s 143(2) a consequence of notice u/s 142(1)?

A notice is issued to you u/s 142(1) for the production of books of accounts, income statement, and statement of assets and liabilities for preliminary investigation. If the AO is not satisfied with the information you reproduce, a notice u/s 143(2) may be issued to you for scrutiny of accounts.
Also, practically it is seen that whenever a taxpayer receives notice u/s 143(2), he also receives notice u/s 142(1) for submission of the necessary information/papers.

Have you received a tax notice u/s 143(2)? This is a scrutiny notice, and prompt response is important to avoid any further consequences.

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Sample scrutiny notice looks like

Sample Income Tax Notice u/s 143(2) for Scrutiny Assessment u/s 143(3)

Remember, no wonder a notice sends shivers down your body, but there’s no need to worry! Just read, understand, and reply! And in case you need expert assistance, feel free to contact us at +91-9660996655 or [email protected] or simply book an eCA from Tax2win.

FAQs on Notice u/s 143(2) for Scrutiny Assessment

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).
The time limit to issue notice u/s 143(2) is within 3 months from the end of the financial year in which the return was filed.
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.
Limited Scrutiny cases shall remain confined only to the specific reasons/issues for which the case has been picked up for scrutiny.
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.
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.
The time limit is only up to a period of 3 months from the end of the financial year in which the assessee filed his return.
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.
CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.