How to Respond to Notice Under Section 143(2)

Are you confused because you filed your Income Tax Returns (ITR) and still received a notice under section 143(2) of the 1961 Income Tax Act from the IT Department? Firstly, one must understand the differences between the two words, intimation and notice. A notice can be issued to highlight an issue in your assessment or laws. On the other hand, an intimation is an outcome that requires your actions on the issued notice. An intimation will list which area of the IT Act you need to take action for. Therefore, let’s know more about Section 143(2), notice under Section 143(2) in this article.

What is Notice under Section 143(2)?

You may receive a notice that the income tax department has completed its assessment of your ITR and has issued a refund. This notice is an intimation that requires action only if you disagree with the contents therein. You may also receive intimation under Section 143(2) of the Income Tax Act intimating you that the ITR filed claims excessive losses, has taxes due or that your income has been understated. This notice has to be acted upon within a specific period. Therefore, it's important to know about Section 143(2) of Income Tax Act and the various sections under which the IT Department generally issues intimations and what they mean. 

Now, let us understand Section 143(2) of Income Tax Act. Whether you need to reply and act depends on the type of intimation you have received. Therefore, knowing about the contents is crucial since the differentiating lines between the two terms, notice and intimation, are extremely thin. Thus, an understanding of the various sections used for notifications and intimations needs a thorough understanding.

What does a notice u/s 143(2) mean?

After you file your ITR, the assessment process b egins with limited scrutiny. In that case, notice is issued under the Income Tax Act Sec 143 2. These discrepancies may be the over-reporting of losses or the under-reporting of income, causing the tax paid to be less than the assessed ta x. Suppose the income tax department finds any major or minor discrepancies in it, then the notice is issued to ensure that the taxes paid are as per the IT Department’s assessment, and you can act on it if you differ, by making an appropriate reply.

What to expect in the notice under section 143 2?

Here are what you need to check on and adhere to for IT notices and intimations.

• An IT notice is sent to your registered email in PDF form and in a paper format to your postal address.
• Such notices and intimations generally follow your filing of your ITR. If for some reason, you have not filed or are yet to file your returns for a financial year (FY), the IT Assessing Officer (AO) cannot use the post-assessment income tax notice 143 2. In such cases, they will resort to issuing a notice under Section 142(1) to have you file your IT returns.
• A notice u/s 143(2) mandates that you produce all supporting documents for the exemptions, deductions, relief, and allowances claimed in your ITR filing.
• All income sources will also need to be proven through documentary evidence.
• The AO (Assessing Officer) must conduct a detailed enquiry on the issue and resolve the discrepancies by either confirming or correcting the assessment order.

How to respond to a notice from the income tax department?

The responding process to a notice under Section 143(2) of Income Tax Act is as follows:

• You or your tax representative file your ITR.
• The concerned AO or Assessing Officer issues a notice under Section 143 2.
• Your tax representative or you will place your arguments substantiating your claim and information in the ITR before the Assessing Officer with all declarations and documents required by him.
• On considering the submissions and substantiating your claims, a final assessment order is issued under Section 143(3) of Income Tax Act which also states whether the tax is to be paid or refunded.

The notice from income tax department under Section 143(2) can be categorised into the following three types given below:

• Limited Scrutiny is a Computer-Assisted Scrutiny Selection (CASS) notice, in which cases having specific sets of parameters are automatically selected. Such returns have a mismatch of reported information and inaccurate or inconsistent returns information in them notified under 143(2) of Income Tax Act. The scrutiny is limited since it is related to information in a particular area of the mentioned ITR. Such notices are typically issued after the sale of a property or credit of foreign funds in the returns.
• Complete Scrutiny is the process where complete assessment or scrutiny is done on an ITR filed with all supporting proof of claim and related documents such as PAN, Aadhar etc. Such cases are already CASS flagged, and the scope of scrutiny is unlimited. The Assessing Officer of such a claim has to restrict the document verification process only to the relevant ITR assessment year (AY) and not beyond it.
• Manual Scrutiny is another type of assessment process under Section 143(2). The  complete scrutiny cases selected are manually assessed for their correctness and veracity of claims under the CBDT or the Central Board of Direct Taxes criteria for that particular year. The criteria are subject to change and could vary from year to year.

Also Read: TDS On Salary Under Section 192

What is the time limit for issue of notice u/s 143(2)?

The Section 143(2) income tax notice can be issued up to a time limit of 6 months from the start of the relevant FY but after you file the income tax return. For example, Mr Raj files his ITR on the 31^st of July 2018 for the financial year 2017-18. The AO can issue a Section 143(2) notice until the 30^th of September 2019, 6 months from 1^st April 2019, the start of the relevant FY. 

What if you do not respond to notice u/s 143(2)?

You should never ignore the notice under income tax section 143 (2) beyond the notice’s stipulated period for the following reasons:

• Under the notice under section 143 2 and U/S 272A, you may be subject to a penalty of Rs.10000/- for your failure to reply.
• The AO can close the assessment process with unchallenged information under Section 144.
• The AO could consider a higher taxable income, and you may have to bear a high penalty and tax.
• When you dispute the demand for higher taxes in 143(2) of income tax, at least 20% of the assessed tax has to be paid before appealing to the higher IT authorities.
• You may be prosecuted if guilty, and this could lead to imprisonment.

The time limit for final assessment order issue:

After issuing of notice under Sec 143(2) of Income Tax Act, the assessment order must be issued within the time limit given below.

Other important notices:

Let us now learn a bit about the other intimations or notices issued by the income tax department.

Intimation U/S 143(1)

The Central Processing Centre (CPC) electronically processes your ITR. The income is automatically calculated after making the following adjustments to the income reflected in your ITR. It checks for: 

• ITR arithmetic errors;
• ITR inaccurate claims in the filed information;
• Inaccurate expenses and losses claimed;
• And any income source not disclosed in the ITR.

On the processing, CPC issues intimation U/S 143(1) in the following three situations:

• Tax liability is considered pending;
• A tax refund has been awarded;
• There is no demand or refund but the losses reported have been decreased or increased.

When a tax demand is determined, intimation should be issued within 12 months from the end of the year of the tax return is filed.

Notice U/S 148:

An AO may claim that the income disclosed in your ITR is inaccurate and hence the taxes paid are lower or higher, or you probably have not filed your ITR as required by law. The AO must then issue notice to the taxpayer to furnish the income return correctly U/S 148.

The timelines for notice issuance U/S 148 were changed with effect from 1st April 2021 under the Finance Act 2021. Here’s the latest update regarding the assessment and reopening of cases under the Income Tax Act. The 2021 Union Budget clarified in its update that the time limits under the Income Tax Act 1961 to reassess and open assessment cases are reduced from 6 years to 3 years. Also, serious tax evasion cases where more than 50 lakh income has been concealed may be reopened in 10 years.

The concerned AO can reopen the taxpayer assessment as given below:

• Normal cases may be reopened up to 3 years from the end of the relevant AY. 
• Beyond 3 and not greater than 10 years if the AO has evidence that an income greater than 50 lakh has escaped assessment for a Financial Year (FY).
• Up to 4 years from the end of the Assessment Year (AY) notices are to be issued by an  Assistant or Deputy Commissioner’s directions by the AO who should record his reasons for doing so. 
• The Commissioner or Chief Commissioner can issue directions to the AO to reopen escaped income assessments for an FY where income chargeable to tax was Rs 1 lakh or more for a period of 4 and up to 6 years from the end of the relevant AY.

Under the Finance Bill passed in March 2021 under the Income-tax Act 1961, changes to the time limits are tabulated below:

Notice U/S 245:

Suppose the AO assesses that there are taxes unpaid in the previous years and that the current year refund will be offset. In that case, a demand notice U/S 245 is issued, ensuring that a proper refund and demand notices have been issued and an opportunity given to the taxpayer to respond to it. The notice timeline to reply is one month from receipt of such notice.  When there is no reply afforded the AO proceeds with the assessment.

Notice U/S 142(1):

A section 142(1) notice is issued when: 

• You file the ITR, and the AO needs substantiating documents or information of the claims;
• You have not filed an ITR for an FY, and the AO needs you to file such an ITR.

The reply helps the AO make a fair assessment. A lack of reply may be penalised with:

• Rs 10,000 penalty for each failure to file ITRs;
• Prosecution with imprisonment up to 1 year;
• And/or both.

Also Read: Salary Calculator 2020-21 - Take Home Salary Calculator India

Conclusion:

Notice u/s 143(2) should never be ignored even if you have filed your Income Tax Returns or ITR. It may be because of discrepancies in the filing or other issues. For trouble in filing ITRs properly, you should consult your tax practitioner. To avoid such inaccuracy and issues in filing ITRs, you can use accounting software. Using such software makes it easy to develop reports,  file tax returns among other tasks.

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