Section 143(3) – Assessment Order after Scrutiny

The Income Tax Act, 1961, ensures a robust system for verifying the accuracy of filed tax returns through various assessment procedures. While most returns are processed summarily under Section 143(1), some are selected for detailed examination, known as a scrutiny assessment, initiated by a notice under Section 143(2). The culmination of this rigorous process is the issuance of an assessment order under Section 143(3).

What is a Section 143(3) Assessment Order?

A Section 143(3) assessment order is the formal legal document issued by the Assessing Officer (AO) after conducting a comprehensive scrutiny assessment of a taxpayer's Income Tax Return. This order signifies the conclusion of the scrutiny proceedings, which were initiated by a notice under Section 143(2).

The primary objective of this order is to:

• Determine the accurate total income of the taxpayer for the relevant Assessment Year.
• Compute the correct tax payable, including any interest and penalties.
• Ensure that the taxpayer has complied with all provisions of the Income Tax Act.

The order may either accept the income declared in the return as correct, or it may make additions to the income and/or disallowances of expenses/deductions, leading to a revised tax liability.

Key Elements of a Section 143(3) Order

A comprehensive Section 143(3) order typically includes the following critical components:

• Basic Details: Assessment Year (AY), Permanent Account Number (PAN) of the taxpayer, and date of issue.
• Reference to Notice: A reference to the Section 143(2) notice that initiated the scrutiny proceedings.
• Summary of Proceedings: A brief overview of the scrutiny process, including the notices issued, submissions made by the taxpayer, and any virtual hearings conducted.
• Points of Disagreement/Additions: Details the specific issues or discrepancies identified by the AO during scrutiny that led to a modification of the returned income.
• Reasons for Additions/Disallowances: Clear, concise, and well-reasoned justifications for why certain income was added or certain expenses/deductions were disallowed. These reasons must be based on facts, evidence, and relevant legal provisions.
• Final Computation of Income: A detailed calculation of the total income assessed after considering all additions and disallowances.
• Final Tax Liability: Computation of the total tax payable on the assessed income, including applicable surcharge, cess, and any interest levied (e.g., under Sections 234A, 234B, 234C).
• Penalty Initiation: If applicable, the order may also mention the initiation of penalty proceedings (e.g., under Section 270A for under-reporting or misreporting of income).
• Demand or Refund: The final amount of tax demand (if any, typically accompanied by a Section 156 Notice of Demand) or the refund due to the taxpayer.
• Signature: While electronic, it carries the legal authority of the Assessing Officer.

Time Limit for Completion of Assessment

The Income Tax Act prescribes specific timelines for the completion of scrutiny assessments and the issuance of orders under Section 143(3). Generally, an assessment order under Section 143(3) must be passed within 12 months from the end of the Assessment Year in which the income was first assessable. For instance, for the Assessment Year 2025-26 (which relates to Financial Year 2024-25), the assessment order must typically be passed by March 31, 2027.

It's important to note that these timelines can be extended in specific circumstances, such as when the case is referred to Transfer Pricing Officer, or for search assessments etc.

What to Do After Receiving the Order

Upon receiving a Section 143(3) order, especially if it results in a higher tax demand, it is crucial to take the following steps:

1. Thorough Review: Carefully read and understand every part of the order, particularly the additions/disallowances and the reasons provided by the AO.
2. Verify Computations: Cross-check the computation of total income, tax liability, interest, and penalties mentioned in the order against your own records and calculations.
3. Consult a Tax Professional: Immediately consult your tax advisor or Chartered Accountant. They can help you understand the legal implications of the order, evaluate the validity of the additions, and advise on the best course of action.
4. Check Demand Notice: If the order results in a tax demand, a Section 156 Notice of Demand will also be issued. Note the due date for payment, typically 30 days from the date of service of the demand notice.
5. Plan Future Action: Based on the professional's advice, decide whether to accept the order and pay the demand or to challenge it.

Options After Receiving an Adverse Order

If the assessment order results in an unfavorable outcome (e.g., increased tax demand or penalty), taxpayers have several legal avenues:

• Appeal to Commissioner of Income Tax (Appeals) [CIT(A)]: This is the first level of appeal. If you are aggrieved by the order, you can file an appeal with the CIT(A) within 30 days from the date of service of the demand notice.
• Rectification of Mistake (Section 154): If there is a mistake apparent from the record (e.g., a clerical error, a computational mistake, or an obvious factual error), you can file an application for rectification with the Assessing Officer.
• Revision by Commissioner (Section 264): In certain cases, a taxpayer can apply to the Commissioner of Income Tax for revision of the order if they believe it is prejudicial to their interests and no appeal has been filed with the CIT(A).

Consequences of Non-compliance with Demand

If a tax demand is raised in the Section 143(3) order and remains unpaid:

• Further Interest: Interest will continue to accrue on the outstanding demand.
• Recovery Proceedings: The Income Tax Department can initiate various recovery proceedings, including attaching bank accounts, adjusting refunds from other assessment years (Section 245), attaching salaries, or even attaching and selling property.
• Penalty for Default: Penalties may be levied for non-payment of tax demand.

Conclusion

The Section 143(3) assessment order is the conclusive outcome of a scrutiny assessment. It reflects the Income Tax Department's final determination of your tax liability for a given year. Understanding its contents and knowing your rights and options post-receipt are critical for effective tax compliance and management. Given the complexities, seeking professional guidance is not just advisable but often essential to ensure that your interests are protected.