How to Address a Notice Under Section 143(2) Effectively?

What is Notice u/s 143(2) of the Income Tax Act?

A notice under Section 143(2) is issued by the Income Tax Department when your Income Tax Return is selected for scrutiny assessment, specifically detailed assessment under Section 143(3). This scrutiny aims to verify the correctness and genuineness of claims, deductions, and other details in your return, ensuring there is no understated income, excessive loss, or underpayment of tax. The notice is typically issued within three months from the end of the financial year in which you filed the return.

You will typically receive this notice in the form of a PDF sent to your registered email address, along with a postal copy. Income tax notices under the Faceless Assessment Scheme are uploaded straight onto the income tax site, which you can access by signing into your account. A notification via email and SMS regarding the issuance of said alerts will also be sent to your registered email address and registered mobile number.

·         Upon receiving a Section 143(2) notice, you must provide supporting documentation for the deductions, exemptions, allowances, reliefs, and other claims made in your tax returns.

·         Proof of all your sources of income is essential.

Process of Responding to a Section 143(2) Notice

1. You have filed your Income Tax Return

2. The assessing officer issues a Section 143(2) notice.

3. You or your tax representative present arguments and submit required documents to the assessing officer.

4. After reviewing all submissions, a final order under Section 143(3) is issued, determining the tax payable or refund due.

Types of Section 143(2) Notices

Limited Scrutiny:

Cases selected through Computer-Assisted Scrutiny Selection (CASS) based on specific parameters. These cases involve inaccuracies or discrepancies in returns, and scrutiny is confined to particular areas, like foreign tax credit claims or property sales.

Complete Scrutiny:

A thorough examination of the filed return and all supporting documents, flagged based on CASS. Although this type has a broader scope, the assessing officer's document review is limited to the specific assessment year.

Manual Scrutiny:

Cases selected for comprehensive scrutiny according to criteria set by the Central Board of Direct Taxes, with variations each year.

Consequences of Ignoring the Notice

Ignoring a Section 143(2) notice is not advisable. Failure to respond can lead to:

·         A penalty of Rs. 10,000 under Section 272A for each non-compliance.

·         The assessing officer closing the assessment based on the information available, utilising the best judgment under Section 144.

·         A potential adjustment of your taxable income, resulting in higher taxes and penalties.

·         If you dispute the increased tax demand, you must pay at least 20% of the tax owed before filing an appeal with higher authorities.

·         Prosecution, and if found guilty, possible imprisonment.

Understanding the Final Order Under Section 143(3):

When a notice is issued under Section 143(2) of the Income Tax Act, it signifies a preliminary stage where the assessing officer requests the taxpayer to produce evidence related to their tax returns. Following this stage, the assessing officer evaluates the evidence presented and holds a hearing. Subsequently, the final order is issued under Section 143(3). This order serves to assess the taxpayer's total income or loss and determines any amount that is payable by the taxpayer or due to them based on the evidence and proceedings.

Conclusion

In essence, the final order under Section 143(3) is the concluding step in the scrutiny assessment process. It quantifies the taxpayer's tax liability or refund after a comprehensive evaluation of the provided evidence and a fair hearing.