Receiving a Notice under Section 143(2) of the Income Tax Act: Here's the Solution

Receiving a notice from the income tax department, particularly under Section 143(2) of the Income Tax Act, 1961, can be unsettling for any taxpayer. This notice signifies that 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). In this article, we will discuss all about Sec 143(2) notice issued under the Faceless Assessment scheme, assessment orders, timelines for issuing notices and orders, and more.

1. What is a Notice u/s 143(2) and Why Have You Received This Notice?

When the department selects your Income Tax Return for detailed scrutiny assessment u/s 143(3), they issue a notice under Section 143(2). The scrutiny assessment is carried out by the department to confirm the correctness and genuineness of various deductions, claims, etc., made by the taxpayer in the ITR. Common reasons for receiving a Notice u/s 143(2) include errors related to TDS, under-reporting of income, over-reporting of losses, mismatches in income figures, incorrect claims for deductions or exemptions, high-value transactions, defects in ITR, or sometimes general issues requiring clarification.

It serves as a preliminary step before the final assessment under Section 143(3) is conducted. The assessment unit may request documents and proofs related to your income sources, deductions, exemptions, and other claims made in your return by issuing a questionnaire notice u/s 142(1). Under the Faceless Assessment Scheme, notices are uploaded directly on the income tax portal, with intimation sent through email and SMS. However, it may also be sent to your postal address.

To download a notice u/s 143(2), follow these steps:

1. Navigate to the Income Tax portal: https://eportal.incometax.gov.in/iec/foservices/#/login, and log in with your credentials.
2. Go to the "Pending action" tab and click on the "e-Proceedings" tab.
3. Look for the "Assessment Proceeding u/s 143(3)" tab for your relevant assessment year (AY) and click on "View Notices/Orders."
4. Inside this tab, you will find the notice issued under section 143(2) and the order issued u/s 143(3).
5. Click on the Notice/Letter PDF and then click on the "Download" button to download the notice or order.

2. Time Limit to Issue Notice u/s 143(2)

The notice under Section 143(2) must be issued within three months from the end of the financial year in which the tax return is filed.

Example: If an assessee filed their return for FY 2022-23 in June 2023 (FY 2023-24), the time limit to issue notice u/s 143(2) would be within three months from the end of FY 2023-24, i.e., by 30th June 2024.

3. How to Respond to a Notice Issued u/s 143(2)?

Responding to the notice promptly and accurately is crucial to avoid penalties and ensure a fair assessment. Normally, the taxpayer is allowed 15 days to respond to the notice issued under section 143(2) or section 142(1). Here are the major points to note while responding to a notice issued u/s 143(2) or 142(1) for faceless scrutiny assessment:

1. Check if any specific discrepancies or issues are highlighted by the income tax department and gather all relevant documents.
2. If you have not received a Sec 142(1) questionnaire notice, you may ask the department to issue such a questionnaire for specific documents or clarification needed.
3. Draft a comprehensive response addressing each point mentioned in the notice. Provide explanations supported by documents to clarify any discrepancies identified by the department.
4. Submit your response along with all supporting documents to the income tax department within the stipulated timeframe mentioned in the notice under the e-proceedings tab of the e-filing portal.
5. Keep track of any further communications or requirements from the department as, in a scrutiny assessment, the department issues many notices to seek clarifications.

To file an online response to a notice u/s 143(2), follow these steps:

1. Navigate to the Income Tax portal: https://eportal.incometax.gov.in/iec/foservices/#/login, and log in with your credentials.
2. Go to the "Pending action" tab and click on the "e-Proceedings" tab.
3. Look for the "Assessment Proceeding u/s 143(3)" tab for your relevant assessment year (AY) and click on "View Notices/Orders."
4. Click on the "Submit response" button and then click on "Continue."
5. Select "Partial response" or "Full response" as per the available data and add written response/remarks, and attach supporting documents.

4. 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. Failure to respond to the notice within the specified timeframe can lead to serious consequences, including:

• Penalties: A penalty of Rs. 10,000 may be imposed under Section 272A for each failure to respond.
• Best Judgment Assessment: Under Section 144, the assessing officer can make an assessment based on the available information, potentially resulting in a higher taxable income and additional tax liabilities.
• Legal Consequences: Non-compliance could lead to prosecution, including imprisonment in severe cases.

5. Time Limit to Issue Final Assessment Order u/s 143(3)

The assessment unit shall evaluate the assessee’s Income Tax Return and the evidence provided by the taxpayer to ensure the accuracy and correctness of the information and shall complete the scrutiny assessment determining Total Income and Tax liability within the timeline specified under section 153 and shall pass the final assessment order u/s 143(3).

During the scrutiny process, the assessing officer gives an opportunity of being heard to the assessee to submit clarification, supporting documents, or evidence in support of their Income Tax Return.

Time Limits specified u/s 153 for completion of assessment u/s 143(3) are as follows:

• For the AY 2017-18 or before: 21 months from the end of the relevant assessment year (AY).
• For the AY 2018-19: 18 months from the end of the relevant assessment year (AY).
• For the AY 2019-20 onwards: 12 months from the end of the relevant assessment year (AY).

Note: For the purpose of completion of assessment u/s 143(3) in case of an updated return filed under section 139(8A), the time limit of 12 months shall be counted from the end of the financial year (FY) in which the updated return was filed.

Conclusion

Don’t panic when you receive a notice under section 143(2). If you have filed correct information in your ITR, then you will not face any consequences. You just have to prove the genuineness of the information through a detailed response and documentary evidence. File an accurate response to ensure compliance with tax regulations and mitigate any potential penalties or legal actions. Remember, timely compliance and transparency are key to resolving any issues raised by the income tax department.

DISCLAIMER: This publication is intended as a general guide for knowledge purposes only. All references and content are for educational purposes and do not constitute legal advice. We do not accept any liabilities for losses caused directly or indirectly by the use or reliance on any information or conclusions contained in this publication. Prior to acting on this information, you are advised to seek professional advice.