Regular / Scrutiny Assessment [Section 143(3)]

A scrutiny (regular) assessment under Section 143(3) is a comprehensive evaluation of a taxpayer’s return by the Assessing Officer (AO). The goal is to ensure that income has not been understated, excessive loss has not been claimed, and tax has not been underpaid. This process is significantly more detailed than the preliminary review done under Section 143(1).

Purpose

• Verify the correctness and authenticityof various claims, deductions, and disclosures made in the return.
• Detect cases of potential tax evasion, concealment, or misreporting.

Procedure for Scrutiny Assessment

Selection for Scrutiny

• Cases are selected based on predefined risk parameters or through random selection.
• The process officially starts with a notice under Section 143(2), which must be served within 6 months of the end of the financial year in which the return is filed.

Notice to the Assessee

• The AO issues a notice requiring the taxpayer to appear or to produce relevant accounts, documents, or evidence supporting the return of income.

Opportunity to Present Evidence

• The assessee (or their authorized representative) can submit explanations, evidence, and documents in support of the return.
• The AO may request additional information if deemed necessary.
• The assessee has the right to be heard and to respond to any findings or discrepancies pointed out by the AO.

Consideration of All Material

• The AO assesses all submissions and evidence provided by the assessee, as well as any additional material gathered independently.
• The AO may accept or reject any claim after due consideration and may seek further clarifications or order independent inquiries if required.

Assessment Order

• After examining the return, evidence, and all relevant material, the AO passes a written assessment order.
• The order determines:
  • The total income or loss,
  • The tax or refunddue, and
  • Specifies the basis of determination.

Key Features

• Detailed Examination:Every claim, deduction, exemption, and computation in the return is subject to verification.
• Additional Evidence:The AO can consider not only the return and enclosures but also any fresh or additional evidence furnished during the assessment.
• Time Limits:The law prescribes a maximum period (ordinarily 12 months from the end of the relevant assessment year for recent years) for completing such assessments.

Rights and Duties

• The assessee must co-operate and provide the requested documents and clarifications.
• The AO must offer a fair hearing and record reasons for any adjustments or additions.
• If the assessee fails to comply, the AO may move to a best judgment assessment under Section 144

1.  Compulsory Service of Notice [Section 143(2)]

Section 143(2) of the Income Tax Act, 1961 mandates the Assessing Officer (AO) to issue a compulsory notice before conducting a scrutiny assessment. This ensures taxpayers receive proper intimation and an opportunity to respond. Below is a detailed breakdown of its provisions, timelines, and legal implications.

1. When is a Section 143(2) Notice Issued?

The AO issues this notice if:

• The return has been filed(under Section 139 or in response to a notice under Section 142(1)).
• The department selects the case for scrutiny(either randomly or based on risk parameters).
• Additional verification of income, deductions, or exemptionsis required.

2. Key Requirements of the Notice

(A) Mandatory Time Limit

• For Normal Scrutiny: Notice must be served within 6 monthsfrom the end of the financial year in which the return was filed.
  • Example: For AY 2024-25 (FY 2023-24), the deadline is 30 September 2024.
• For Search/Reassessment Cases: Different timelines apply under Sections 153A/148.

(B) Valid Modes of Service

1. Electronic Communication(via email/e-filing portal) – Primary mode since 2022.
2. Registered Post(with acknowledgment due).
3. In-Person Delivery(served directly to the taxpayer or authorized representative).

(C) Contents of the Notice

• PAN & Assessment Yearunder scrutiny.
• Reasons for scrutiny(if applicable).
• List of documents/information required.
• Deadline for response(typically 15–30 days).

3. Consequences of Non-Compliance

• No Response: AO may proceed with a best judgment assessment (Section 144), often leading to higher tax demands.
• Invalid Notice: If not served properly (e.g., wrong address), the assessment can be quashed in appeal.

4. How to Respond?

1. Log into the e-filing portal.
2. Navigate to “e-Proceedings” → “View Notices”.
3. Submit:

• • Requested documents(bank statements, invoices, etc.).
  • Written explanationsfor discrepancies.

4. Seek Time Extension(if needed) via the portal.

2.  Amendments to Section 282A: Authentication of Notices and Other Documents

Section 282A of the Income Tax Act, 1961, governs the authentication and service of notices, summons, orders, and other documents issued by income tax authorities. Recent amendments have modernized the process to align with digital communication standards. Below is a detailed breakdown of the key changes and their implications:

1. Key Amendments to Section 282A

(A) Digital Authentication Mandate

• Notices/documents can now be authenticated electronicallyunder Rule 127A, ensuring legal validity without physical signatures.
• Methods of authentication:
  • Email: Must be sent from the designated email ID of the tax authority, with the issuing officer’s name and office details in the body/attachment.
  • Income Tax Portal: Notices uploaded must display the authority’s name and office in the electronic record.

(B) Expanded Modes of Service

• Electronic modes:
  • Registered email(as per PAN database).
  • Income Tax e-filing account(via portal notifications).
  • SMS alerts(for high-priority notices).
• Traditional methods:
  • Registered post (with acknowledgment).
  • In-person delivery (for legal summons).

(C) Address Validity Rules

• Notices are valid if sent to:
  • PAN-registered address.
  • Last ITR-filed address.
  • MCA-registered office(for companies).

2. Impact of Amendments

(A) Efficiency Gains

• Faster communication: Eliminates delays in physical dispatch.
• Reduced disputes: Digital timestamps provide clear audit trails.

(B) Taxpayer Obligations

• Must update contact details(email/address) in PAN/ITR records.
• E-verificationof notices within 15 days to avoid penalties.

(C) Legal Safeguards

• Invalid notices: If authentication lacks the officer’s name/office, taxpayers can challenge them in appeals.

3. Comparison with Old Rules

3.  Section 292BB: Notice Deemed Valid in Certain Circumstances

Section 292BB was introduced by the Finance Act, 2008, to address disputes arising from technical defects in the service of notices during income tax proceedings. It prevents taxpayers from challenging the validity of notices after participating in proceedings without earlier objections.

1. Key Provisions

(A) Deemed Valid Notice

If a taxpayer:

1. Participatesin assessment/reassessment proceedings or
2. Cooperateswith inquiries (e.g., submits documents, attends hearings),

then any notice required under the Act is deemed validly served, even if:

• It was not receivedby the taxpayer.
• It was served lateor improperly (e.g., wrong address).

(B) Exception

The taxpayer can challenge the notice only if:

• The objection is raised before the assessment/reassessment is completed.

2. Purpose

• Reduces litigationover procedural defects (e.g., postal delays, clerical errors).
• Ensures substantive justiceby focusing on the merits of the case rather than technicalities 4.

3. Judicial Interpretation

(A) Scope

• Applies only to service defects, notto cases where no notice was issued.
  • Example: If the Assessing Officer (AO) never issuesa notice under Section 143(2), Section 292BB cannot cure this jurisdictional flaw.
• Does not protectnotices issued to deceased persons (legal heirs can challenge).

(B) Key Rulings

1. Laxman Das Khandelwal (2019, SC):
   • Section 292BB does not validatea complete absence of notice.
2. Delhi High Court (2022):
   • The provision cannot condone delaysin issuing notices (only service defects).

4. Practical Implications

(A) For Taxpayers

• Update contact details(PAN/ITR records) to avoid disputes.
• Raise objections immediatelyif a notice is defective (do not wait until completion).

(B) For Tax Authorities

• Must attempt reasonable service(email, SMS, postal) before invoking Section 292BB

4.  Consequences of Failure to Comply with Notice Under Section 143(2)

Failing to respond to a scrutiny notice under Section 143(2) of the Income Tax Act, 1961, can lead to severe financial and legal repercussions. Below is a detailed breakdown of the potential consequences:

1. Best Judgment Assessment (Section 144)

• The Assessing Officer (AO) will determine your taxable income based on available records(e.g., Form 26AS, AIS, bank statements) without your input.
• Outcome:
  • Higher tax liability: Deductions may be disallowed, and unexplained income may be added.
  • Example: If you claimed ₹2 lakh in HRA without proof, the AO may add it back to your income.

2. Penalties

• Section 272A: ₹10,000 penalty for each default(e.g., non-response to multiple queries).
• Section 270A: 50%–200% penalty on underreported incomeif discrepancies are found.

3. Interest Charges

• Section 234A: 1% monthly interest on unpaid tax from the due date.
• Section 234B/C: Interest for advance tax shortfalls.

4. Prosecution (Section 276C)

• Willful evasion: May lead to imprisonment (6 months–7 years)+ fines if concealment exceeds ₹25 lakh.

5. Refund Freeze & Adjustments

• Pending refunds may be adjusted against demanded taxes