Scrutiny Assessment under Income Tax u/s143(3)

Scrutiny Assessment under Income Tax u/s143(3)

The phrase “income tax scrutiny” can be scary and confusing for most Indian taxpayers. For those who know exactly what they need to do and how to do it, though, the process can go easily. The Income Tax Act of 1961, Section 143(3) collaborates with the main types of inspection. This is called the inspection Assessment. This blog aims to explain the idea, purpose, process, and taxpayer duties connected to Section 143(3) for scrutiny assessment under income tax. File your returns on time and meet a smooth compliance with TaxDunia.

What does Scrutiny Assessment mean?

A scrutiny review closely examines a taxpayer’s income tax return. The Assessing Officer (AO) looks over the return to make sure the client didn’t lie about their income, claim too many losses, or not pay enough tax.

A preliminary assessment under Section 143(1) is an automated check. A Section 143(3) assessment, on the other hand, is a manual or semi-automated process that may include in-depth questions, document checks, and in some cases, meetings in person.

At its core, the goal is to make sure that the taxpayer’s stated income and deductions are correct, real, and clear.

When does the Scrutiny Take Place?

Not all returns are looked over under Section 143(3). It only applies to cases that have been marked for further study. The choice could be

Manual: based on specifics or warning signs.

Computer Assisted Scrutiny Selection (CASS) is a method that uses algorithms to find tax returns that need more attention based on risk factors. It is used by the Income Tax Department.

For instance, unusually high deductions, TDS data that doesn’t match, big refunds, or financial data that changes from year to year could lead to more investigation.

Take note of Section 143(2)

The AO has to send out a notice under Section 143(2) before a scrutiny report under Section 143(3) can happen. This letter lets the taxpayer know that their tax return has been chosen to be looked over more closely.

Important things to know about Notice u/s 143(3)

It has to be sent out within three months of the end of the tax year for which the return was made.

The scrutiny assessment under Section 143(3) is not valid if the letter is not sent out within this time frame.

The letter usually tells the taxpayer to show proof of the income, deductions, or exemptions they claimed on their tax return.

What Happens During Scrutiny Assessment?

The taxpayer will have to take part in the assessment process once they receive the scrutiny warning. This is how it usually goes:

1. Giving the Documents

The AO will tell you what papers are needed to back up the claims you made in your return. Some of these are:

• Bills from banks
• Charges or bills
• Records of money
• Proofs of investment
• Forms for loans
• Proof of reductions made under sections 80C, 80D, and other laws.

Most of the time, you can send these online through the e-proceedings link on the website for e-filing your taxes.

2. Court Hearings (if needed)

The AO may sometimes call the taxpayer in for a hearing in person or via video chat. When the case is important or complicated, this happens more often.

3. More Information

The AO may ask for more information or details about any problems or contradictions that were found during the review. At this point, it’s very important to respond quickly and honestly.

4. Order for Assessment

The AO will make an assessment order under Section 143(3) after taking all of the submissions into account. This order can: Take the back as it is,

• Add to your income (which means you’ll have to pay more tax),
• Not letting some deductions or allowances happen,
• Put in place punishments for people who hide or falsely report their income.

What can taxpayers do?

During the review process, taxpayers have certain rights and duties.

Rights:

• The right to be treated fairly and to know what’s going on.
• The right to ask for a delay if they have a good reason.
• The right to be represented by a professional and experienced Chartered Accountant or a lawyer.
• Right to challenge the assessment order if they don’t agree with it.
• Accountants must work with tax authorities and react quickly to notices.
• Send in papers that are correct and honest.
• Keep track of all the messages and entries you send.
• Don’t give out fake or misleading information.

How to Handle Scrutiny Well?

Make sure you keep good records: Even for years past, you should always keep proof of your income, spending, investments, and tax deductions.

• Quick response: Don’t ignore tax notices or wait too long to speak to them.
• Help from a professional: If you need help with a complicated audit, talk to a trained tax professional.
• Do not worry, scrutiny does not always mean crime; it is a thorough check.
• Carefully return the file: Before you file your taxes, make sure that all of your entries, TDS data, and claim numbers are correct.

Consequences 

• With Section 144, the AO can use its best judgment if the taxpayer does not use the scrutiny method.
• Section 271(1)(c) says that people who lie or don’t tell the truth can be punished.
• In the worst situations, people can be charged under Section 276C for deliberate evasion.

Get Started with TaxDunia 

A tax inspection may sound scary, but it’s part of the Income Tax Department’s plan to make things clearer and stop people from not paying their taxes. You can handle Section 143(3) scrutiny assessments with trust and peace of mind if you keep good records, respond on time, and get the right advice. Reach out to TaxDunia to understand such notices better and meet the compliance smoothly.