+91 76790 91881

Responding to Notice under Section 143(2) Income Tax Act

Receiving a Notice under Section 143(2) of the Income Tax Act can be a daunting experience for any taxpayer. It signals that the Income Tax Department intends to scrutinize your tax return closely to verify its accuracy and completeness. Here’s a comprehensive guide on how to navigate this process effectively:

Understanding Notice under section 143(2)

A Notice under Section 143(2) of the Income Tax Act is issued by the assessing officer when further investigation is deemed necessary following an initial notice under Section 142(1) of the Act or due to discrepancies identified in your tax return. This typically necessitates the submission of supporting documents and evidence for the claims made in your return. Income tax scrutiny involves a meticulous review and verification of a taxpayer’s income tax return. This scrutiny is conducted by various income tax authorities and other principal officers, or through Computer-Assisted Scrutiny Selection. On 3rd May 2024, the Central Board of Direct Taxes (CBDT) issued new guidelines concerning the mandatory selection of returns for comprehensive scrutiny during the financial year 2024-25 and the procedures for such selection and transfer. As part of this process under Section 143(2) of the Income Tax Act the notice is to be issued in cases selected for mandatory scrutiny by 30 June 2024.

Types of Scrutiny

  • Limited Scrutiny: This focuses on specific aspects such as particular deductions or income sources. It typically targets specific areas of the tax return where discrepancies or inconsistencies may have been identified.
  • Complete Scrutiny: This involves a thorough and comprehensive review of your entire tax return along with all supporting documents. It aims to verify the accuracy and completeness of all reported income, deductions, and taxes paid.
  • Manual Scrutiny: Selection for this type of scrutiny is based on criteria defined by the CBDT which may vary from year to year. It involves a detailed examination conducted manually by assessing officers, focusing on cases that require in-depth scrutiny beyond the scope of automated selection processes.

Purpose of Scrutiny

The primary objective of scrutiny under Section 143(3) of the Act is to ensure the accuracy of your reported income, legitimacy of deductions claimed, and correctness of taxes paid. This scrutiny aims to verify that:

– Your income has not been understated,

– Excessive losses have not been computed,

– Taxes have not been underpaid in any manner.

Issuance Timeline

The notice under Section 143(2) of the Income Tax Act must be issued within three months from the end of the relevant assessment year, provided that you have filed your return.

Notice under section 143(2) is issued by the Income Tax Department to initiate this scrutiny process. Such notices can be issued within three months from the end of the relevant financial year in which you filed your tax return. This notice is a precursor to the detailed assessment under Section 143(3) of the Income Tax Act, where your tax return is thoroughly examined and verified by the assessing officer.

What you must know

  • You might receive a notice in PDF format via email.
  • If you have not filed your Income Tax Return (ITR), then you cannot receive a notice under Section 143(2) of the Income Tax Act. In such cases, the assessing officer first issues a notice under Section 142(1) of the Income Tax Act, which requires you to file your returns.
  • Upon receiving a notice under Section 143(2) of the Income Tax Act, you are required to provide all documents supporting deductions, reliefs, allowances, exemptions, and other claims made in your returns.
  • You must provide proof of all your income sources.
  • The assessing officer conducts a detailed inquiry based on the notice.

Here’s how notice under section143(2) works:

  • Step 1: The assessing officer issues a notice under Section 143(2) of the Income Tax Act within three months from the end of the financial year in which you filed your return, initiating scrutiny under Section 143(3) of your income tax return.
  • Step 2: You or your tax representative present arguments and submit evidence as required before the assessing officer. Alternatively, you can respond online by uploading the necessary evidence and arguments.
  • Step 3: After considering all the evidence presented in response to the notice under Section 143(2) of the Income Tax Act, the assessing officer will pass an assessment order under Section 143(3). This order determines the total tax payable or refundable to you based on the evidence provided.

Consequences of Non-compliance:

Ignoring a notice under Section 143(2) of the Income Tax Act from the Income Tax Department can lead to serious consequences. Here’s what non-compliance can entail:

  1. Penalties: Failure to comply with the notice may result in penalties under Section 271(1)(b) of the Income Tax Act. Penalties typically amount to Rs. 10,000, though for Assessment Years starting from April 1, 2017, penalties are levied under Section 272A(1) of the Income Tax Act.
  2. Prosecution: Deliberate non-compliance or providing false information may lead to prosecution under Section 276D of the Income Tax Act. This can involve monetary fines and, in severe cases, imprisonment.
  3. Best Judgment Assessment: If the taxpayer doesn’t respond to the notice or provide necessary information, the Assessing Officer can proceed with a Best Judgment Assessment under Section 144. Here, the AO determines the taxpayer’s income based on available information and relevant material.
  4. Other Consequences: Non-compliance can delay the finalization of your tax assessment, impacting your tax liabilities or refunds. It may also subject you to increased scrutiny in future assessments by tax authorities.

How to Respond to Notice under section 143(2)

Step 1: Understand the Notice

  • Carefully review the notice to understand the specific reasons for its issuance. This information is typically provided in the Annexure or the body of the notice itself.
  • Identify the areas of your tax return that are under scrutiny, including income sources, deductions claimed, investments, and other relevant details.

Step 2: Gather Documents

  • Collect all necessary documents that support the claims made in your tax return. This includes income proofs, investment details, deductions claimed, and any other requested information.
  • Ensure that the documents are accurate, up-to-date, and relevant to the queries raised in the notice.

Step 3: Prepare a Response

  • Draft a comprehensive response to the notice under a cover letter. Provide detailed explanations for each query raised in the notice.
  • Answer truthfully and provide all required information in a clear and legitimate manner.
  • Make sure to include references to specific sections of the Income Tax Act or relevant case laws if necessary to support your explanations.

Step 4: Submission

  • Log in to your Income Tax Department’s e-filing portal under the e-proceeding section.
  • Upload your response along with the cover letter and all supporting documents. Ensure that the submission is complete and addresses all points raised in the notice.
  • If physical submission is required, ensure timely delivery to the designated authority within the specified timeframe.

Step 5: Attend Hearings (if required)

  • If summoned, attend hearings before the assessing officer as per the notice.
  • Present your case clearly and concisely, providing additional clarifications or documentation as requested by the assessing officer.
  • Be prepared to explain any discrepancies or provide further evidence to support your claims.

Step 6: Await Assessment Order

  • After reviewing your response and conducting necessary inquiries, the assessing officer  will issue an assessment order under Section 143(3) of the Income Tax Act.
  • The assessment order will determine your final tax liability or refund based on the information provided and the assessing officer’s findings.

Tips for Effective Response

  • Accuracy: Ensure that all information provided in your response is accurate and supported by authentic documents.
  • Timeliness: Respond within the stipulated timeframe mentioned in the notice to avoid penalties or adverse judgments.
  • Compliance: Adhere strictly to all instructions and requirements outlined in the notice to demonstrate cooperation and compliance with tax laws.
  • Professional Assistance: Consider seeking guidance from a qualified tax professional or consultant such as at InstaFiling, especially for complex tax matters or if you are unsure about how to respond effectively.

Frequently Asked Questions

Is notice under section 143(2) related to notice under section 142(1)?

Yes, notice under Section 143(2) of the Income Tax Act often follows notice under Section 142(1) of the Income Tax Act. The latter requires taxpayers to submit financial documents for preliminary investigation. If discrepancies are found or the Assessing Officer is unsatisfied, a detailed scrutiny notice under section 143(2) of the Income Tax Act may be issued.

What are common reasons for receiving an income tax notice?

Common reasons include inconsistencies in Tax Deducted at Source reported, inaccuracies on tax returns, failure to submit required documents, non-filing of tax returns, undisclosed investments, unreported high-value transactions, random selection for scrutiny, undisclosed long-term capital gains, failure to declare income, and using incorrect income tax return forms.

What is the final order under section 143(3)?

If a notice under Section 143(2) of the Income Tax Act has been issued to you by the assessing officer for the production of evidence, and after considering the evidence and hearing, the assessing officer will assess your total income or loss. Additionally, the officer will determine any tax payable by you or refundable to you by passing an order under Section 143(3) of the Income Tax Act.

Conclusion

Responding promptly to a Notice under Section 143(2) of the Income Tax Act requires diligence, transparency, and adherence to procedural norms. By understanding the process and preparing a thorough response, you can navigate this phase effectively, ensuring compliance with tax laws and safeguarding your financial interests. InstaFiling can simplify this process by facilitating accurate and timely submission of required documents and information. We ensure that all necessary legal provisions are thoroughly followed, reducing the risk of errors and potential legal issues.

Request A Callback





    You may Also Call Us At

    +91 76790 91881
    Scroll to Top