Income Tax Notice u/s 143(2): Understanding Scrutiny and Deadlines

Introduction

Receiving an income tax notice can cause stress. However, knowing its purpose and what it means helps you respond calmly. Among the different notices from the Income Tax Department, the one under Section 143(2) of the Income Tax Act, 1961, is particularly important. This notice indicates that your Income Tax Return (ITR) has been chosen for a detailed examination, known as scrutiny assessment.

But what does a 143(2) notice mean for you? What deadlines should you keep in mind? And most importantly, what steps should you take if you receive one? Let’s explore the details.

What is an Income Tax Notice u/s 143(2)?

A notice under Section 143(2) serves as communication from the Income Tax Department to a taxpayer. It lets them know that their filed Income Tax Return has been selected for an in-depth review, or scrutiny assessment. The main goal of this scrutiny is to confirm that the taxpayer’s reported income, claimed deductions, and calculated tax are all correct and comply with the Income Tax Act.

It's essential to understand that getting a 143(2) notice does not imply any wrongdoing. It simply indicates that the department wants to verify the information in your ITR.

Purpose of Scrutiny Assessment

• Verification of Information: To check the details in your ITR against other available information, such as the Annual Information Statement (AIS), Taxpayer Information Summary (TIS), and third-party data.
• Ensuring Compliance: To confirm that taxpayers are following all tax laws, rules, and regulations.
• Detecting Discrepancies: To find any inconsistencies, under-reporting of income, over-claiming of deductions, or incorrect tax calculations.
• Promoting Voluntary Compliance: The chance of scrutiny encourages taxpayers to be diligent and precise in their filings.

Types of Scrutiny Assessment

There are generally two main types of scrutiny assessments that start with a Section 143(2) notice:

Limited Scrutiny (CASS - Computer Assisted Scrutiny Selection)

• Most common type, selected based on risk factors by the CASS system.
• Focuses only on specific issues flagged, such as high-value transactions or claimed deductions.
• The notice usually specifies the reason for selection.

Complete Scrutiny

• Thorough examination of all aspects of the return.
• Usually applies to complex transactions or significant discrepancies.
• Notice typically does not limit the scope of assessment.

Common Reasons for Receiving a 143(2) Notice

• High-Value Transactions
• Mismatch in Data
• Significant Deductions or Exemptions
• Past Non-Compliance
• Foreign Assets or Income
• Business Losses
• Specific Intelligence
• Random Selection

Key Deadlines to Remember

Deadline for Issuance of Notice

A notice under Section 143(2) can be issued within six months from the end of the financial year in which you filed your return. For example, if you filed for AY 2024-25 on July 31, 2024, the notice can be issued until September 30, 2025.

Deadline for Responding to the Notice

Usually 15 to 30 days from the date of receipt. Extensions may be requested from the Assessing Officer in writing.

Deadline for Completion of Assessment

For AY 2022-23 and later, the assessment must be completed within 24 months from the end of the assessment year. E.g., for AY 2024-25, the deadline is March 31, 2027.

What to Do If You Receive a 143(2) Notice

1. Don't Panic: It’s a routine verification.
2. Understand the Notice: Read carefully to identify the AY, scope (limited/complete), deadline, and AO details.
3. Gather Relevant Documents: ITR copy, Form 16/26AS, bank statements, investment proofs, etc.
4. Consult a Tax Professional: For guidance, preparation, and representation.
5. Prepare and Submit a Detailed Response: Address all points, attach documents, and keep acknowledgment copies.
6. Attend Hearings (if required): Be ready for any clarifications or document submissions.

Consequences of Non-Compliance

• Best Judgment Assessment (Section 144): Leads to higher tax demand based on AO's assumptions.
• Penalties:
  • Section 271(1)(b): ₹10,000 per failure.
  • Section 270A: 50% to 200% penalty for under-reporting/misreporting.
• Prosecution: In severe cases of evasion or deliberate non-response.

Prevention is Better Than Cure: Tips to Avoid Scrutiny

• File Accurate Returns
• Reconcile Data
• Keep Proper Records
• Respond Promptly to All Communications
• Seek Professional Help

Conclusion

A notice under Section 143(2) is a key part of the income tax assessment process. While it might seem intimidating, understanding what it means, meeting deadlines, and responding with accurate and complete information can lead to a smooth assessment. Staying compliant and keeping proper records is your best defense against potential tax issues.

Need Expert Assistance with Your Income Tax Notice or ITR Filing?

Don’t handle the complexities of tax notices alone. Our team of experienced tax professionals at MyITROnline can provide full support, from understanding your notice to preparing and filing a strong response.

Visit: https://www.myitronline.com
Call us: 9971055886, 8130309886
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