Scrutiny Notice Under Section 143(2): What Happens Next

Short answer: A notice under Section 143(2) of the Income-tax Act, 1961, informs you that your income tax return has been selected for a detailed examination, known as scrutiny. This is not a demand for tax but a formal start to an assessment proceeding. You must respond within the specified time by providing all requested documents and explanations to substantiate the income, deductions, and exemptions claimed in your return to avoid an adverse order.

What is a scrutiny notice under Section 143(2)?

A Section 143(2) notice is a formal communication from the Income Tax Department indicating your case has been picked for a detailed audit. Unlike the initial automated processing under Section 143(1), which is a preliminary check for arithmetic errors, a scrutiny assessment is a thorough verification of your return against information available with the department. The goal is to ensure you have not understated your income, overstated losses, or claimed excessive tax deductions. This notice is issued only after a preliminary inquiry suggests potential discrepancies.

Why did I receive a Section 143(2) notice?

Your return may be selected for scrutiny through a computer-assisted process or by manual selection. The Income Tax Department uses a system called Computer Assisted Scrutiny Selection (CASS), which flags returns based on certain risk parameters and data analytics.

Common triggers include:

• Significant variance between your declared income and data from your Form 26AS, AIS, and TIS.
• High-value transactions, such as large cash deposits, property purchases, or significant investments in shares and mutual funds.
• Claiming unusually high deductions or exemptions compared to your income level.
• Consistently reporting business losses.
• Non-disclosure of income from foreign assets.
• Cases involving tax audits where the auditor has made adverse observations.
• Random selection to ensure overall compliance.

What is the time limit for issuing a Section 143(2) notice?

A notice under Section 143(2) must be served on you within three months from the end of the financial year in which you furnished the income tax return. For instance, if you filed your return for the Assessment Year (AY) 2025-26 on July 31, 2025, the financial year of filing is 2025-26, which ends on March 31, 2026. The department must issue the notice by June 30, 2026. If you filed a belated return on, say, July 15, 2026, the notice can be issued up to three months from the end of FY 2026-27, i.e., by June 30, 2027.

What happens after I receive the notice?

Receiving the notice initiates the scrutiny assessment process, which typically follows these steps:

1. Receive the Notice: The notice will be delivered to your registered email ID on the income tax portal and may also be sent by post. It will specify the issues for which your case has been selected (limited scrutiny) or state that a complete scrutiny will be conducted.
2. Prepare Your Response: Carefully review the notice and gather all necessary documents to support the claims made in your ITR. This is the most critical step. Reconcile your bank statements, investment proofs, and transaction records with your ITR and AIS.
3. Submit the Response: You must submit your reply electronically through the income tax e-filing portal within the deadline mentioned in the notice. The response should be clear, concise, and supported by documentary evidence.
4. Further Inquiries: The Assessing Officer (AO) may issue further notices under Section 142(1) asking for more specific information or documents.
5. Hearing: The AO may call for a personal hearing (usually conducted via video conferencing) to discuss the case.
6. Assessment Order: After examining your submissions, the AO will pass a final assessment order under Section 143(3). This order will either accept your return as filed, create a tax demand, or determine a refund.

Comparing Key Income Tax Notices

It's important to distinguish a scrutiny notice from other communications from the tax department.

Feature	Sec 143(1) Intimation	Sec 142(1) Inquiry Notice	Sec 143(2) Scrutiny Notice	Sec 148 Reassessment Notice
Purpose	Preliminary check for arithmetical errors.	To ask for information or documents before or during an assessment.	To start a detailed scrutiny of the ITR.	To assess income that has escaped initial assessment.
Nature	Automated communication.	A specific inquiry, can be part of a scrutiny.	The formal start of a scrutiny assessment.	Reopens a completed assessment.
When Issued	After filing and processing the ITR.	Can be issued even if you haven't filed a return.	After ITR is picked for scrutiny.	When AO has reason to believe income was not taxed.
Action Needed	Verify calculations. Pay demand or await refund.	Furnish the specific documents or information requested.	Prepare a detailed submission with evidence to defend your ITR.	File a return for that year and justify the original filing.

What documents are typically requested?

The documents requested depend on whether it's a 'limited scrutiny' (focused on specific points) or a 'complete scrutiny'. Common requests include:

• Bank account statements for all accounts (savings, current, NRO/NRE).
• Credit card statements, especially for high-value purchases.
• Proof of deductions and exemptions claimed (e.g., Section 80C, HRA receipts, donation receipts).
• For salaried individuals: Form 16 and salary slips.
• For capital gains: Sale and purchase deeds, proof of acquisition cost, and evidence of improvement costs.
• For share transactions: Broker statements (P&L and transaction history).
• For business income: Complete books of accounts, bills, invoices, and bank reconciliation statements.
• Details of loans taken or given.
• Source of large cash deposits or gifts received.

Worked example

Ms. Priya, a tech consultant in Bengaluru, filed a belated income tax return for AY 2025-26 (FY 2024-25) on 10th July 2026. In her return, she declared a salary of ₹25,00,000.

• The Transaction: In FY 2024-25, she sold shares of a listed company for ₹8,00,000 which she had bought for ₹4,50,000 two years ago. She forgot to report this in her ITR.
• The Notice: In September 2026, she receives a notice under Section 143(2) for limited scrutiny. Her Annual Information Statement (AIS) showed the share sale of ₹8,00,000, which was missing from her ITR. The notice asks her to explain the source of this transaction.
• The Response: Priya approaches SP & SC for assistance. We help her prepare the following response:

1. Acknowledge: Acknowledge receipt of the notice.
2. Explanation: State that the ₹8,00,000 credit is from the sale of listed equity shares held for more than 12 months.
3. Calculation: Submit a clear computation of the Long-Term Capital Gain (LTCG).
   • Sale Consideration: ₹8,00,000
   • Less: Cost of Acquisition: ₹4,50,000
   • Long-Term Capital Gain: ₹3,50,000
4. Tax Calculation: Calculate the tax liability on this gain. (Note: The first ₹1 lakh of LTCG is exempt under Sec 112A).
   • Taxable LTCG: ₹3,50,000 - ₹1,00,000 = ₹2,50,000
   • Tax Due @ 12.5%: ₹2,50,000 * 12.5% = ₹31,250 (plus applicable cess and interest).
5. Corrective Action: Along with the submission, we advise Priya to pay the tax of ₹31,250 plus interest and file an updated return (ITR-U) to include the capital gains income. This proactive step demonstrates cooperation and helps mitigate potential penalties.

Common mistakes

1. Ignoring the notice: This is the worst mistake. It will lead to a 'Best Judgement Assessment' under Section 144, where the AO assesses your income based on available information, which is almost always unfavourable and results in a high tax demand and penalties.
2. Providing incomplete information: Submitting vague or partial replies can lead to more questions and suspicion from the AO.
3. Missing the deadline: Always respond within the time limit. If you need more time, submit a formal request for an adjournment through the portal.
4. Not reconciling your data: Before replying, ensure your response is consistent with information in your AIS, TIS, Form 26AS, bank statements, and ITR.
5. Handling a complex case alone: If the notice involves complex issues like business income, capital gains, or international transactions, trying to handle it without professional help can lead to costly errors.

How SP & SC helps

Navigating a scrutiny assessment requires careful documentation, precise communication, and a deep understanding of tax law. SP & SC Legal and Taxation Services provides end-to-end assistance for all tax notices and assessments. We review the notice, analyze your financial data, prepare a robust and legally sound submission, and represent you before the tax authorities. Our goal is to resolve the scrutiny with a favourable order, minimizing your tax liability and preventing penalties. For expert tax consultation and representation, entrust your case to our experienced CAs and tax lawyers.

Frequently asked questions

Q1. Is a scrutiny notice a sign that I have committed tax evasion?

Not necessarily. While discrepancies can trigger a notice, selection can also be based on random sampling or specific departmental parameters. A notice is an opportunity to verify and confirm the details you have already filed.

Q2. Can I ignore a scrutiny notice from the Income Tax Department?

No. Ignoring a notice under Section 143(2) will result in the Assessing Officer making a Best Judgement Assessment under Section 144, likely leading to a high tax demand and penalty.

Q3. How are scrutiny cases selected?

Most cases are selected by CASS (Computer Assisted Scrutiny Selection) based on pre-defined risk criteria. A small number of cases may be selected manually by senior tax officials for specific reasons, such as tax evasion petitions or complex transactions.

Q4. Can I request more time to respond to the notice?

Yes, you can file a request for an adjournment through the e-filing portal, stating the reason for the extension and the additional time required. It is at the discretion of the Assessing Officer to grant it.

Q5. What is the difference between 'limited scrutiny' and 'complete scrutiny'?

'Limited Scrutiny' focuses only on the specific transactions or claims mentioned in the notice (e.g., mismatch in HRA claim). 'Complete Scrutiny' allows the Assessing Officer to examine every aspect of your income tax return without any restrictions.

Get a fixed-fee quote

Received a notice from the Income Tax Department? Don't panic. Share the notice and relevant documents with us for a thorough review and a written fixed-fee quote. We handle everything from drafting the initial response to representing you before the tax authorities, ensuring a smooth and successful resolution. Connect with us on WhatsApp at +91 90356 74566 or Contact SP & SC to get started.