Income Tax Scrutiny Assessment Under Section 143(3)
Updated: Oct 22
The income tax assessment is a critical procedure conducted by the Income Tax Department to authenticate the details furnished by taxpayers in their tax returns. In this blog, we will explore the specifics of the scrutiny assessment as per Section 143(3) of the Income Tax Act, 1961. This assessment is designed to verify the precision and legality of the assertions, deductions, and other particulars provided by taxpayers in their returns.
Table of Content
What is Income Tax Assessment?
In the context of income tax, the procedure by which the Income-tax Department assesses a taxpayer's income return is referred to as a "assessment." The purpose of this assessment is to confirm that the taxpayer's information on their income tax return is accurate and correct. The evaluation procedure uses a number of techniques, such as:
Periodic evaluations check the accuracy of the information provided in the taxpayer's return.
Reassessment may take place under certain circumstances as stipulated by the tax rules.
When a taxpayer violates certain tax law requirements, the Assessing Officer's best judgement is utilised to determine the assessment under Section 144, which is based on that officer's judgement.
Significantly, Section 143(3A) of the Finance Act of 2018 established an electronic assessment system for routine assessments conducted in accordance with Section 143(3). To enhance this further, the Finance Act 2020 encompassed e-assessment in Section 144's best judgement evaluations. E-assessment strives to make the entire process less laborious and more efficient by utilising digital platforms.
What is Scrutiny Assessment under Section 143(3) of the Income Tax Act?
A scrutiny assessment may be initiated under Section 143(3) in the following scenarios:
1. When a taxpayer has filed a Section 139 income tax return or responded to a Section 142 income tax notice.
2. When the Assessing Officer or Income Tax Authority deems it necessary to conduct an audit to ensure the accurate reporting of income and taxes paid.
Types of Scrutiny Assessments
Under the Income Tax Act, there are two types of scrutiny assessments. These are:
Manual Scrutiny Assessments: These are chosen based on particular criteria, and each case is considered separately. Assessors who use caution and diligently adhere to tax regulations and filing procedures can frequently avoid manual inspection.
Compulsory Scrutiny Assessments: Assessments subject to compulsory scrutiny are unavoidable and beyond the assessee's control. They are typically required by precise standards established by the tax authorities.
Potential Reasons for Scrutiny Selection
Income tax return (ITR) not filed
People must file an ITR if their gross income exceeds the exemption limit, which is Rs 2,50,000 for those under the age of 60.
Regardless of income level, residents who possess international assets or have control over foreign bank accounts are required to file an ITR.
It is still required to file even if the employer has withheld TDS.
TDS-Related Errors
When TDS amounts on the Traces website and those reported in the ITR differ, there may be cause for concern.
Failure to Declare Additional Income
Reporting requirements apply to all forms of income, including interest from savings accounts and regular and term deposits.
When TDS is withheld at a rate that is less than the assessee's tax slab, problems occur.
Abnormal or Expensive Transactions
Transactions that are much more than the reported income may come under investigation. For instance, making large contributions into bank accounts that don't match the income that is stated.
Banks and other financial institutions frequently notify the tax authorities about these transactions.
Errors in the Income Tax Return
A notification may be sent for filing errors, such as utilising the incorrect ITR form or leaving out important information.
To fix any errors, the tax agency may require the filing of a revised return under Section 139(9).
Income Tax Notice under Section 143(2)
To start a scrutiny assessment, the Income Tax officer must issue an income tax notice under Section 143(2). This notice requests the taxpayer to provide necessary information and documents either in person or through e-assessment. It should be served within six months from the end of the financial year in which the return was filed.
The Scrutiny Assessment Hearing
During the scrutiny assessment, the taxpayer has the opportunity to present their case before the Assessing Officer, either in person or through an authorised representative. They can provide arguments, facts, and other materials requested by the Assessing Officer. They can:
Accept the Income Tax authority's order, make any required tax payments, receive a refund, or accept the calculated loss.
Make a claim under Section 154 for payment if the clerical error persists.
They can, in line with Section 263/264, file an updated application to the Commissioner of Income Tax.
Actions After Scrutiny Assessment
After the scrutiny assessment, the taxpayer has several options:
1. Accept the order issued by the Income Tax authority and pay any outstanding taxes or claim a refund.
2. If there's a clerical error, submit a claim for reimbursement under Section 154.
3. Submit a revised application to the Commissioner of Income Tax under Section 263/264.
4. Appeal the judgment if necessary.
Time Limit for Scrutiny Assessment
According to Section 153, the timeframe for conducting a scrutiny assessment under Section 143(3) varies as follows:
Within 21 months following the assessment year’s end, when the income was originally taxable. [For the evaluation year 2017–18 or earlier]
18 months following the conclusion of the evaluation year during which the earnings were initially assessable. [For the 2018–19 evaluation period]
12 months after the evaluation year in which income was initially deemed taxable. [For the assessment period beginning in 2019–20]
Conclusion
Income tax scrutiny assessment is critical to ensure tax compliance and accuracy in financial reporting. Understanding the nuances of Section 143(3) is essential for taxpayers to navigate this aspect of the tax system effectively. If you need expert guidance on Section 143(3) scrutiny assessment, consult our legal team at Taxbuddy for professional assistance.
FAQs
Q1. What documentation should be prepared for Scrutiny Assessment u/s 143(3)?
Ans. It's essential to maintain all relevant financial documents, including income statements, expense receipts, investment proofs, and any other documents related to your income and deductions. These documents will be essential if you are selected for a Scrutiny Assessment.
Q2. What is a scrutiny assessment, and how does it differ from other types of income tax assessments?
Ans. A scrutiny assessment under Section 143(3) involves a detailed examination of a taxpayer's return to validate various claims and deductions. It aims to prevent understated income, excessive loss claims, or underpayment of taxes.
Q3. When does the Income Tax Department conduct a scrutiny assessment under Section 143(3)?
Ans. A scrutiny assessment is initiated when a taxpayer has filed a return under Section 139 or in response to a notice under Section 142(1), and the assessing officer deems it necessary to verify the financial details.
Q4. How is a scrutiny assessment initiated, and what is the role of an income tax notice under Section 143(2)?
Ans. A scrutiny assessment begins with the issuance of an income tax notice under Section 143(2). This notice requests the taxpayer to provide important information and documents for determining taxable income and tax payable.
Q5. Is a Scrutiny Assessment the same as an Audit?
Ans. While both a Scrutiny Assessment and an audit involve a thorough examination of your financial information, they are not the same. A Scrutiny Assessment is typically a routine verification of your return, while an audit is usually conducted when the tax authority has specific concerns or doubts about your financial transactions.
Q6. What happens during a scrutiny assessment hearing, and how can taxpayers cooperate with the tax officer?
Ans. During a scrutiny assessment, taxpayers have the opportunity to present their case, provide documents, and cooperate with the tax officer to ensure a fair assessment.
Q7. What are the options available to taxpayers after the Assessing Officer passes an order following a scrutiny assessment?
Ans. After the Assessing Officer's order, taxpayers can choose to accept the order, pay any tax due, and claim refunds. They can also apply for corrections in case of clerical errors or file a revision application or appeal if they disagree with the assessment.
Q8. What is the time limit for completing a scrutiny assessment under Section 143(3)?
Ans. The time limit for scrutiny assessments varies depending on the assessment year, ranging from 12 to 21 months from the end of the relevant assessment year.
Q9. Can taxpayers request a scrutiny assessment on their own if they suspect errors in their tax return?
Ans. No, taxpayers cannot initiate a scrutiny assessment themselves. It is conducted by the Income Tax Department as part of their routine verification process.
Q10. How can taxpayers ensure a smooth scrutiny assessment process and minimize potential issues?
Ans. To navigate the scrutiny assessment process smoothly, taxpayers should keep accurate records, respond to notices promptly, and cooperate fully with tax authorities to provide the necessary information and documents.
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