Notice under section 143(2) of Income Tax Act, 1961

Notice under Section 143(2) of the Income Tax Act is the second chance to assessee after Income Tax Department find major or minor discrepancies in the tax return. The discrepancy can be in the form of under-reporting the income or over-reporting of the losses. On receipt of a notice, an individual must timely respond to the tax department along with the supporting proof to defend themselves.

Reasons for issuance of notice u/s 143(2)

Income Tax Department issues notice u/s 143(2) when Income Tax Return is selected for scrutiny assessment or detailed assessment u/s 143(3).

Scrutiny assessment or detailed assessment u/s 143(3) means scrutiny carried out to confirm the correctness and genuineness of various claims, deductions, etc made in Income Tax Return. The basic purpose of this scrutiny assessment is to ensure that assessee has filed the return with the correct income and paid the tax accordingly.

Time limit for issuance of notice u/s 143(2)

AO can issue notice u/s 143(2) for scrutiny assessment only up to a period of six months from the end of the financial year in which the assessee filed his return.

For example, Ms. X filed her return on 25.07.2020 for the financial year 2019-20. In such a case, the notice u/s 143(2) AO can issue notice to Ms. X only up to 30.09.2021 being the end of six months period from the FY 2020-21 in which the said return was filed.

Types of notices u/s 143(2) of Income Tax Act

There can be 3 types of following notices under Section 143(2): 

Limited Scrutiny: This is a Computer-Assisted Scrutiny Selection (CASS) where cases are selected based on set parameters. The scrutiny will be limited to the particular area of return mentioned in the notice. An example of this scrutiny can be a mismatch in tax credits, inaccurate information, etc.

Complete Scrutiny: A complete scrutiny is carried out on the return filed along with all supporting documents. Cases are flagged based on CASS. Scope of scrutiny is not limited in these types of notices. However, the assessing officer cannot verify documents beyond the particular assessment year. 

Manual Scrutiny: Cases are selected for complete scrutiny based on the criteria defined by the Central Board of Direct Taxes; the criteria may vary every year.

How does this works?

AO can issue notice u/s 143(2) within 6 months from the end of FY in which the assessee filed his return, to carry out scrutiny of income tax return u/s 143(3).

The assessee or his tax representative will have to appear before the AO to place arguments and pieces of evidence as required by the assessing officer. Alternatively, the assessee can submit an online response to notice u/s 143(2) by uploading evidence and your arguments.

After looking over to all the evidence, AO will pass an assessment order determining total tax payable or refund to the assessee after taking into account produced evidence.

Time limit for issuance of the final assessment order u/s 143(3)

Time Limits are as below as per section 153

* For Assessment year 2017-18 or before 21 months from the end of the assessment year
* For Assessment year 2018-19 18 months from the end of the assessment year
* For Assessment year 2019-20 and onwards 12 months from the end of the assessment year

Consequences of not complying with the notice issued u/s 143(2)

If the assessee receives a notice from the Income Tax Department, and there is any default, he/she may be liable for the following:

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

FAQs

Is it possible to receive notice u/s 143(2) if I have not filed my return?

No it is possible to receive notice u/s 143(2) if I have not filed return. You might receive a notice u/s 142(1) asking for filing the return.

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. You will also receive this notice at your postal address.

What is the final order u/s 143(3)?

If AO issues notice u/s 143(2) for production of evidence and after taking into account such pieces of evidence and hearing the arguments, the AO will make an assessment of total income or loss and also determine any sum payable by assessee or due to assessee by passing the order u/s 143(3).

e-Assessment Scheme 2019 of Income Tax

The Finance Minister Nirmala Sitharaman introduced a faceless e-assessment scheme in the Union Budget 2019. It reduces human interaction between the taxpayer and the Income Tax Department (ITD).

The E-Assessment Scheme was launched on 7th October 2019 under the Income Tax Act, 1961. The new e-assessment scheme is expected to improve transparency and aid faster disposal of cases.

What is e-Assessment?

e-Assessment Scheme is a process for faceless scrutiny of Income Tax Returns. It eliminates physical interference between the taxpayer and the assessing officer.

Under the new scheme, all communication between the Income Tax Department(ITD) and the taxpayer will happen electronically. All internal communication within the ITD for a particular case will happen electronically.

National e-Assessment Centre (NeAC) is set up to facilitate the new scheme. This NeAC can assign the case to any Regional e-Assessment Centre(ReAC) through an automated allocation system

Process of e-Assessment

The step-by-step process under e-assessment:

  1. Notice u/s 143(2) will be served.

    The Notice under section 143(2) served by the NeAC will specify the issues for the selection of the case for assessment.

  2. The taxpayer will have fifteen days to submit a response for scrutiny with the NeAC.

    The NeAC will assign the case to an assessment unit in any of the ReAC, through an automated allocation system.

  3. After the case is assigned, the Regional Centre can request the NeAC for:

    1. Information like: documents or evidence from the taxpayer or any other person
    2. Conducting certain verification or enquiry
    3. Technical assistance from the technical unit

  4. If the NeAC, accepts the regional unit’s request for documents.

    They will forward it to the taxpayer.

  5. After gathering the required information, the assessing unit will pass a draft order, by either:

    1. Accepting the ITR prepared of the taxpayer,
    2. Or modifying the ITR of the taxpayer and send a copy to the NeAC. The assessing units will mention penalty proceeding – if any.

  6. The NeAC will review and examine the draft assessment using an automated examination tool, and decide to:

    1. Finalize the assessment order and serve the demand notice to the assessee,
    2. Provide the assessee an opportunity to present their case. They will have to explain – why the assessment should not be completed as per the draft assessment order.
    3. Assign the order for a review to another Regional e-Assessment Centre through an automated allocation system

  7. The NeAC after completion of the assessment will transfer all the electronic records of the case to the Assessing Officer when:

    1. Imposition of Penalty
    2. Collection or Recovery of demand
    3. Rectification of mistake
    4. Submission of any reports – like remand report, etc.
    5. Proposal seeking sanction for the complaint before the court.
    Note: The NeAC can reassign the case to the Assessment Officer having jurisdiction over such cases at any stage of the assessment if it feels necessary.

The Income Tax Department has selected 58,322 cases for scrutiny under the newly launched e-Assessment Scheme 2019.
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The Income Tax Department has selected 58,322 cases for scrutiny under the newly launched e-Assessment Scheme 2019.

Highlights of e-Assessment Scheme

  • Use of an automated examination tool for Risk Management. The ITD stated they will use Artificial Intelligence and Machine Learning to view the scope of discretion of the Income Tax officers.
  • Team-based assessment with dynamic jurisdiction is expected to increase efficiency and standardize processes.
  • The NeAC i.e. National e-Assessment Centre is based in Delhi headed by Principal Chief Commissioner of Income-Tax.
  • The NeAC will assign the cases using automated allocated systems to the Regional e-Assessment Centre (ReAC).
  • ReAC will comprise of Assessment unit, Review unit, Technical unit, and Verification unit.
  • 8 ReACs are set up across India in:
    • Delhi
    • Mumbai
    • Chennai
    • Kolkata
    • Ahmedabad
    • Pune
    • Bengaluru
    • Hyderabad

Benefits of e-Assessment Scheme

The expected benefits of the e-Assessment Scheme 2019:

  • Higher Transparency
  • Increased Efficiency
  • Lower litigations
  • Faster disposal of cases

A fully automated process with almost no human interaction. It is expected to ease compliance. This will further reduce the cost and anxiety for the taxpayer.

FAQs

Whether the TP assessment will also be falling under the scope of E Proceedings?

In terms of Notification No. 62/2019 dated 12th September 2019, the provisions of section 92CA shall apply to the assessment made in accordance with the E-Assessment Scheme 2019.

How do I submit e proceedings?

After logging in to the Income Tax Portal, select the ‘e-Proceedings’ link from under the ‘e-Proceeding’ tab, where you will be able to submit your e-proceedings.