Scrutiny-Assessment

Section 143(3) Scrutiny Assessment

Section 143(3) Scrutiny Assessment

Income tax assessment is the process of verification of the information a taxpayer has provided in the returns submitted by a taxpayer to the income tax department. An assessment is carried out by the Income Tax department after the filing of an income tax return by an assessee. The purpose of conducting the assessment is for the Income Tax department to verify the return filed for correctness with respect to the amount of taxable income declared and tax paid. There are various types of income tax assessment. In this article, we briefly discuss the concept of a scrutiny assessment under Section 143(3). You can learn about income tax notice under Section 143(1) here.

Scrutiny Assessment

Scrutiny assessment under Section 143(3) is a detailed assessment of an income tax return filed by a taxpayer. In a scrutiny assessment, a tax officer would perform various tests and processes to confirm the correctness and genuineness of various claims, deductions, and so on, made by the taxpayer in the income tax return. The objective of a scrutiny assessment is to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.

Scrutiny assessment under Section 143(2) would be applicable for the following scenarios:

  1. An income tax return has been filed under Section 139 or in response to an income tax notice under Section 142(1).
  2. The Assessing Officer or Income Tax Authority deems it necessary or expedient to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not under-paid income tax in any manner.

Income Tax Notice u/s 143(2)

To initiate a scrutiny assessment, the concerned Income Tax officer must first issue an income tax notice under Section 143(2). In the income tax notice under Section 143(2), the Assessing Officer would request the taxpayer to appear in person or complete the process through e-Assessment and/or produce information and documents which the tax officer ascertains to be important for determining the taxable income and tax payable. An income tax notice under Section 143(2) should be served within a period of six months from the end of the financial year in which the return is filed. For example if an income tax return is filed on 2nd November 2018, notice under Section 143(2) can be served on the assessee up to September 30, 2019. If the notice is issued on 29th September 2019 and is received by the assessee after 30th September 2019, it is not a valid notice.

The taxpayer or his/her authorised representative can appear before the Assessing Officer and will place his arguments, supporting evidence, and so on, on various matters/issues as required by the Assessing Officer.

Scrutiny Assessment Hearing

While conducting a scrutiny assessment, the concerned tax officer will provide ample opportunity for the assessment to be heard and to produce documents or evidence to support the information filed in a tax return. In case of failure to produce information or non-cooperation by the taxpayer, the tax officer is empowered to complete the best judgement assessment under section 144.

In case of co-operation of the taxpayer and submission of information, after hearing/verifying such evidence and taking into account all the information produced by the taxpayer, the Assessing Officer would pass an order. On the passing of the order by the Assessing Officer, the assessee has one of the choices below:

  • To agree with the order passed by the Income Tax authority and pay any tax demand or receive a refund or accept the loss determined
  • Make an application for a refund under Section 154, if any clerical error persists
  • Can make a revision application to Commissioner of Income Tax under section 263/264
  • Appeal the order

Time Limit for Scrutiny Assessment

As per Section 153, the time limit for making scrutiny assessment under section 143(3) is:

  • Within 21 months from the end of the assessment year in which the income was first assessable. [For the assessment year 2017-18 or before]
  • 18 months from the end of the assessment year in which the income was first assessable. [For the assessment year 2018-19]
  • 12 months from the end of the assessment year in which the income was first assessable [For the Assessment year 2019-20 and onwards]

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