Section 143(3) of the Income Tax Act: Scrutiny Assessment

Introduction

Section 143(3) of the Income Tax Act provides for a detailed examination of an income tax return by the Assessing Officer. It is commonly known as a scrutiny assessment or regular assessment. Unlike routine return processing, scrutiny allows the tax authority to verify income, deductions, exemptions, losses, expenses and tax payments reported by the taxpayer.

 

The Income-tax Act, 2025 came into force on April 1, 2026 and repealed the Income-tax Act, 1961. However, Section 143(3) of the Income Tax Act continues to apply to proceedings concerning tax years beginning before April 1, 2026. The scrutiny process for later tax years is mainly covered by Section 270 of the new Act.

 

 

What Is Section 143(3) of the Income Tax Act?

Section 143(3) of the Income Tax Act authorises the Assessing Officer to make a written assessment of the taxpayer’s total income or loss. The officer considers evidence produced by the taxpayer, evidence required on specified points and other relevant material gathered during the proceeding. The order also determines the amount payable by the taxpayer or the refund due.

 

The Income Tax Department describes scrutiny assessment as a detailed examination carried out to confirm the correctness and genuineness of claims, deductions and other particulars reported in the return. Therefore, Section 143(3) of the Income Tax Act is different from the preliminary processing of a return under Section 143(1).

 

 

Purpose of Scrutiny Assessment

The purpose of Section 143(3) of the Income Tax Act is to ensure that the taxpayer has not understated income, computed an excessive loss or underpaid tax.

 

Under Section 143(3) of the Income Tax Act, the Department may verify whether:

• All taxable income has been disclosed;
• Expenses are genuine and properly supported;
• Deductions and exemptions are legally available;
• Capital gains and high-value transactions are correctly reported;
• Losses are accurately calculated; and
• Tax payments and credits match departmental records.

Selection under Section 143(3) of the Income Tax Act does not itself establish concealment or tax evasion. It only means that selected issues, or sometimes the complete return, require closer verification.

 

 

How Does Scrutiny Assessment Begin?

Proceedings under Section 143(3) of the Income Tax Act generally begin with a notice under Section 143(2). The notice requires the taxpayer to attend the proceeding or produce evidence in support of the return.

 

A notice under Section 143(2) cannot be served after three months from the end of the financial year in which the return was furnished. The taxpayer should identify the matters selected for verification and respond within the time stated in the notice.

 

Taxpayers may seek Ebizfiling’s assistance to reply to a scrutiny notice under Section 143(2).

 

 

Reasons a Return May Be Selected for Scrutiny

A return may be selected through Computer-Aided Scrutiny Selection or another permitted process. Illustrative risk indicators include:

• Mismatch between the ITR, AIS and Form 26AS;
• A large refund or loss claim;
• Significant cash deposits;
• High-value property or investment transactions;
• Foreign income or foreign assets;
• Mismatch in capital gains;
• Unusually high deductions or expenses; and
• Differences in information reported to different authorities.

These examples are not automatic or exhaustive statutory grounds for assessment under Section 143(3) of the Income Tax Act. Actual selection depends on departmental instructions, risk parameters and information available with the Income Tax Department.

 

 

Limited and Complete Scrutiny

For administrative purposes, cases under Section 143(3) of the Income Tax Act may be classified as limited scrutiny or complete scrutiny.

 

Limited Scrutiny

Limited scrutiny generally focuses on the specific issues communicated to the taxpayer. The examination ordinarily remains restricted to those issues unless the case is converted into complete scrutiny by following the applicable procedure.

Complete Scrutiny

Complete scrutiny allows wider examination of the return and supporting records. Income, expenses, deductions, losses, transactions and other relevant particulars may be examined.

 

These classifications define the scope of examination. They do not create separate statutory assessments outside Section 143(3) of the Income Tax Act.

 

 

Procedure Under Section 143(3) of the Income Tax Act

1. Filing and Processing of Return

The taxpayer files the applicable income tax return. It may first be processed under Section 143(1), but such processing does not prevent the return from being selected for scrutiny later.

2. Issue of Notice

A notice under Section 143(2) asks the taxpayer to support the return with evidence. A valid notice is an important procedural requirement for completing scrutiny.

3. Request for Information

During Section 143(3) of the Income Tax Act proceedings, the authority may issue a notice under Section 142(1) or exercise other information-gathering powers available under the Act.

 

The taxpayer may be asked to provide:

• Books of account;
• Bank statements;
• Invoices and expense records;
• Agreements and confirmations;
• Property documents;
• Investment records; or
• Explanations for differences in reported information.

The information-gathering powers do not arise only from Section 143(3). Depending on the case, the Assessing Officer may use powers available under Section 142 and other applicable provisions.

4. Submission of Response

The taxpayer should prepare an issue-wise response and attach relevant, readable and properly identified documents. A vague explanation or unorganised document upload may delay proceedings under Section 143(3) of the Income Tax Act.

5. Verification of Evidence

The Assessing Officer examines the return, the taxpayer’s response and other relevant material. Additional information or clarification may be requested if a transaction or claim remains unexplained.

6. Opportunity to Respond

Where a variation prejudicial to the taxpayer is proposed, the applicable assessment procedure requires the taxpayer to be given an opportunity to respond before the final order is passed.

7. Assessment Order

After considering the evidence and relevant material, the Assessing Officer passes an order under Section 143(3) of the Income Tax Act determining:

• The total income or loss;
• Additions or dis-allowances, if any;
• The tax and interest payable; or
• The refund due to the taxpayer.

The statutory language requires the order to be made in writing after considering the evidence produced and the relevant material gathered during the assessment.

 

 

Documents submitted under Section 143(3) of the Income Tax Act

Documents required in Section 143(3) of the Income Tax Act proceedings depend on the issues mentioned in the notice. Common records may include:

• ITR acknowledgement and computation of income;
• AIS, TIS and Form 168 (earlier Form 26AS);
• Bank statements;
• Books of account and financial statements;
• Tax audit report, where applicable;
• Sales and purchase invoices;
• Expense bills and vouchers;
• TDS certificates;
• Loan confirmations and agreements;
• Investment and deduction proofs;
• Property purchase or sale documents;
• Capital gains calculations; and
• Foreign income or foreign asset records.

Documents submitted under Section 143(3) of the Income Tax Act should be indexed and connected to the relevant explanation. Unrelated records should not be uploaded merely to increase the volume of the response.

 

 

Powers of the Assessing Officer

The final assessment power is contained in Section 143(3) of the Income Tax Act, while information-gathering powers may arise under Section 142 and other applicable provisions.

 

During scrutiny proceedings, the Assessing Officer may:

• Examine evidence submitted by the taxpayer;
• Seek further accounts, statements or explanations;
• Require evidence on specified points;
• Verify deductions, exemptions and expenses;
• Consider relevant information gathered during the proceeding;
• Make an addition to taxable income;
• Disallow an unsupported claim;
• Reduce a declared loss; and
• Determine tax payable or refund due.

The taxpayer should be allowed to respond to material proposed to be used adversely before the final order is passed.

 

 

Rights and Responsibilities of the Taxpayer

A taxpayer facing Section 143(3) of the Income Tax Act proceedings may submit evidence, explain differences and respond to proposed additions.

 

In faceless proceedings, notices, replies and orders are generally exchanged electronically. Where variations are proposed, the taxpayer may request a virtual hearing in accordance with the applicable procedure.

 

A request for additional time or adjournment should be properly supported. Its acceptance depends on the circumstances and the authority handling the case.

• The taxpayer is also responsible for:
• Providing complete and accurate information;
• Responding within the prescribed time;
• Avoiding contradictory explanations;
• Submitting legible supporting records; and
• Preserving acknowledgements of every response.

 

Possible Outcomes under section 143(3) of Income Tax Act

An order under Section 143(3) of the Income Tax Act may result in one or more of the following outcomes.

 

Acceptance of Returned Income: The Assessing Officer may accept the income, loss and tax position reported in the return.

 

Addition to Taxable Income: An amount may be added where income was not disclosed or a transaction was not satisfactorily explained.

 

Dis-allowance of an Expense: An expense may be disallowed where it is not supported by adequate evidence or is not allowable under the law.

 

Rejection of a Deduction or Exemption: A deduction or exemption may be rejected if the eligibility conditions are not satisfied.

 

Reduction of Declared Loss: Business loss, capital loss or other loss claimed in the return may be reduced.

 

Tax Demand or Refund: The order may create an additional demand, confirm the returned position or determine a refund.

 

The result of Section 143(3) of the Income Tax Act depends on the facts, applicable law and supporting evidence.

 

 

Consequences of Non-Compliance

Failure to comply with a notice under Section 143(2) may result in a best judgment assessment under Section 144. The Assessing Officer may then determine the taxpayer’s income using the information and material available.

 

Failure to comply with a notice under Section 142(1) or Section 143(2), or with a direction under Section 142(2A), may also attract a penalty of ₹10,000 for each failure under Section 272A. Notices connected with Section 143(3) of the Income Tax Act should therefore not be ignored.

 

 

Difference Between Section 143(1) and Section 143(3)

 

Basis	Section 143(1)	Section 143(3)
Nature	Processing of return	Detailed scrutiny assessment
Scope	Specified adjustments	Examination of evidence and relevant material
Documents	Mainly return information	Supporting records may be requested
Interaction	Generally automated	Detailed explanations may be required
Result	Intimation	Written assessment order

 

 

Section 143(3) of the Income Tax Act involves a deeper examination than processing under Section 143(1).

 

Taxpayers may also read about Ebizfiling’s reply service for Section 143(1) intimation to understand the difference between routine processing and scrutiny.

 

 

Remedies Against the Assessment Order

A taxpayer who disagrees with an order under Section 143(3) of the Income Tax Act may consider the following remedies.

 

Rectification: A mistake apparent from the record may be addressed through the prescribed rectification procedure.

 

Appeal: Additions, dis-allowances, computation errors or disputed legal findings may be challenged before the appropriate appellate authority.

 

Stay of Demand: Where the tax demand is disputed, the taxpayer may seek a stay of recovery, subject to the applicable conditions.

 

Revision: Revision may be available where the statutory requirements of the relevant provision are satisfied.

 

The appropriate remedy depends on the nature of the dispute. Ebizfiling can assist with an appeal to the Commissioner of Income Tax and with a reply to scrutiny assessment under Section 143(3).

 

 

Assessment Stage Under the Income-tax Act

The Income-tax Act, 2025 reorganises return processing and scrutiny under Section 270.

 

Assessment stage	Income-tax Act, 1961	Income-tax Act, 2025
Processing of return	Section 143(1)	Section 270(1)
Scrutiny notice	Section 143(2)	Section 270(8)
Time limit for notice	Proviso to Section 143(2)	Section 270(9)
Scrutiny assessment order	Section 143(3)	Section 270(10)
Best judgment assessment	Section 144	Section 271

 

 

Which Law Applies After April 1, 2026?

Section 536 of the Income-tax Act, 2025 contains the repeal and savings provisions.

 

The Income-tax Act, 1961 continues to apply to:

• Proceedings pending on April 1, 2026; and
• Proceedings initiated on or after April 1, 2026 concerning a tax year beginning before that date.

Such proceedings include notices, assessments, reassessments, re-computations, rectifications, penalties, revisions and appeals.

 

Therefore, Section 143(3) of the Income Tax Act continues to govern scrutiny assessments for the preserved earlier periods. For tax years beginning on or after April 1, 2026, Section 270(8) governs the scrutiny notice, Section 270(9) governs its time limit and Section 270(10) governs the final scrutiny order.

 

 

Professional Support for Section 143(3) Scrutiny Assessment

Ebizfiling can help taxpayers prepare a clear and evidence-based response to scrutiny proceedings under Section 143(3) of the Income Tax Act. Our team can review the notice, identify the issues raised and prepare a document checklist for each query.

 

We can also assist with:

• Reconciling the ITR with AIS, Form 168 (earlier Form 26AS) and financial records
• Preparing issue-wise explanations and supporting documents
• Responding to follow-up queries or proposed additions
• Submitting the response through the income tax portal
• Reviewing the final order for rectification or appeal

Received a scrutiny notice? Get expert assistance from Ebizfiling for a properly documented and timely response.

 

 

Conclusion

Section 143(3) of the Income Tax Act enables the Income Tax Department to conduct a detailed examination of a return and determine the correct income, loss, tax liability or refund. A timely, accurate and evidence-based response helps the taxpayer explain differences and reduce avoidable additions.

 

Although the Income-tax Act, 2025 has replaced the earlier law, Section 143(3) of the Income Tax Act remains applicable to preserved proceedings involving earlier tax years. Under the new Act, the scrutiny notice is covered by Section 270(8), the notice time limit by Section 270(9), and the final assessment order by Section 270(10).

 

 

Frequently Asked Questions