Income Tax Scrutiny Notice Under Section 143(2) — What It Means and How to Respond

Receiving an income tax scrutiny notice is one of the most unsettling experiences for any taxpayer. The immediate reactions — panic, confusion about what went wrong, worry about whether you owe additional tax — are entirely natural. However, a Section 143(2) notice is not a finding of guilt or an accusation. It is a formal communication that your income tax return has been selected for detailed examination.

Understanding what the notice means, what type of scrutiny applies to your case, and how to respond methodically is the most effective approach. This guide explains the process clearly and factually.

What is a Section 143(2) Scrutiny Notice?

A notice under Section 143(2) of the Income Tax Act, 1961 (corresponding to Section 244 of the Income Tax Act, 2025 for cases from April 2026 onwards) is issued when the Income Tax Department selects your filed return for a scrutiny assessment. The Assessing Officer (AO) examines your ITR in detail — verifying income, deductions, exemptions, investments, and disclosures against supporting evidence.

The notice typically arrives through two channels: email to your registered email address, and directly to the e-Proceedings section of your income tax portal account at incometax.gov.in. From 2023 onwards, all scrutiny assessments are conducted under the Faceless Assessment Scheme — there is no in-person interaction with an AO. All communication, submissions, and responses are through the online portal.

Why Was Your Return Selected for Scrutiny?

The Central Board of Direct Taxes (CBDT) specifies criteria for scrutiny selection annually. Common reasons include:

• Income mismatch: Significant difference between income declared in ITR and income reported in Form 26AS, AIS, or TIS
• High-value cash transactions: Large cash deposits in bank accounts not adequately explained by declared income
• Property transactions: Sale or purchase of property at a value different from the stamp duty valuation, or gains not declared
• Unusually high deductions: Deductions claimed that appear disproportionate to income level
• Turnover mismatch: Difference between turnover declared in ITR and turnover reported in GST returns
• Incorrect ITR form: Filing ITR-1 or ITR-4 when the nature of income required a different form
• CASS selection: Computer-Assisted Scrutiny Selection — system-based random or parameter-based selection
• Survey, search, or specific intelligence: If the department conducted a survey of your business premises or received specific information about your income

Types of Scrutiny

Limited Scrutiny

The most common form. The notice clearly specifies the particular issue selected for scrutiny — for example, "mismatch in income from house property" or "capital gain on sale of shares not declared." The Assessing Officer can only examine the stated issue and cannot expand the scope without prior approval from higher authorities. Most CASS-selected cases fall under limited scrutiny.

Complete Scrutiny

The notice does not specify a particular issue, and the AO can examine any or all aspects of your return — income, deductions, exemptions, investments, and business transactions. Complete scrutiny is generally reserved for cases with larger potential tax impact, survey cases, or cases involving specific intelligence.

Manual Scrutiny

Selected by senior tax officers based on specific criteria issued by CBDT — typically involving very high-value transactions, particular industries, or cases where prior assessments showed additions.

Time Limit for Issuance — How to Verify Your Notice is Valid

A notice under Section 143(2) is valid only if issued within three months from the end of the financial year in which you filed your return.

If a notice is received after the prescribed time limit, it is legally invalid and can be challenged. Check the date of the notice carefully against these deadlines.

How to Respond — Step by Step

Step 1: Read the Notice Carefully

Download the notice from the e-Proceedings section of your income tax portal. Identify: the Assessment Year under scrutiny, whether it is limited or complete scrutiny, the specific issues mentioned (for limited scrutiny), and the response deadline.

Step 2: Verify the Notice is Valid

Check that the notice was issued within the prescribed time limit. Verify your PAN and assessment year on the notice are correct. Confirm it arrived through official channels — portal and registered email only.

Step 3: Conduct an Internal Review

Before preparing any response, review your ITR for the relevant AY as if you were filing it fresh. Reconcile your income with Form 26AS, AIS, and TIS. Review bank statements, investment proofs, and any transaction that the notice might be questioning. This preparatory step prevents errors in the response itself.

Step 4: Compile Supporting Documents

Gather all documents relevant to the issues raised. Organise them systematically — separate folders for income documents, investment proofs, property transaction documents, and bank statements.

Step 5: Draft Your Response

For each issue raised, prepare a point-by-point, factual reply. Attach supporting documents for every claim. The response must be honest and accurate — do not dispute a discrepancy you cannot explain, and do not submit documents that do not support your stated position.

Step 6: Submit Online via e-Proceedings

Log in to incometax.gov.in → Pending Actions → e-Proceedings → Select the relevant notice → Submit Response. Upload all supporting documents in PDF format, within the file size limits. Save the acknowledgement number after submission.

Documents Commonly Required in Scrutiny

For All Cases

• ITR acknowledgement (ITR-V) for the relevant AY
• Computation of income for the AY
• Form 26AS and AIS for the AY
• Bank statements for all accounts — full financial year

For Salaried Individuals

• Form 16 (Part A and Part B) from employer
• Salary slips for the year
• Investment proofs for deductions claimed — LIC receipts, PPF passbook, ELSS statements, home loan certificate, HRA rent receipts
• Landlord's PAN (if HRA claimed and annual rent exceeds ₹1 lakh)

For Business / Professional Income

• Audited financial statements (P&L and Balance Sheet)
• GST returns — GSTR-1 and GSTR-3B for all months of the year
• Purchase and sales registers with supporting invoices
• Tax audit report Form 3CA/3CB + 3CD (if applicable)
• Cash book and bank reconciliation

For Capital Gains

• Capital gains statement from broker or CDSL/NSDL
• Purchase and sale deeds for property transactions
• Stamp duty valuations at time of purchase and sale
• Details of improvement costs with supporting invoices

Consequences of the Assessment Order

After reviewing your submissions, the AO passes an assessment order under Section 143(3). This order may:

• Accept your return as filed — no additional demand
• Make additions to income — resulting in additional tax demand plus interest under Section 234B
• Disallow certain deductions — increasing taxable income
• Levy penalties in addition to tax if the AO finds concealment of income or furnishing of inaccurate particulars

If You Disagree with the Assessment Order — The Appeal Process

If the assessment order raises an unreasonable or incorrect tax demand, you have the right to appeal:

Filing an appeal does not automatically stay the demand. To prevent recovery proceedings while the appeal is pending, a stay of demand must be separately applied for at the CIT(A) or ITAT level, typically by paying 20% of the disputed demand in advance.