Income Tax Scrutiny Notice u/s 143(2) Explained (AY 2024–25)

Facing a Section 143(2) scrutiny notice can feel daunting, but with the right guidance, you can navigate it confidently. This comprehensive guide is designed to help everyday taxpayers—salaried individuals and small business owners—understand what a scrutiny notice is, why you might receive one, and how to respond effectively using the Income Tax Department’s faceless e‑Filing portal. By the end, you’ll know every step of the process, common pitfalls, and best practices to ensure a smooth resolution.

Introduction

In June 2025, the Income Tax Department issued roughly 165,000 scrutiny notices under Section 143(2) for the Assessment Year 2024–25, marking a slight uptick from previous years due to enhanced data analytics and tighter compliance frameworks. Although this represents less than 1% of the approximate 80 million returns filed, it underscores the importance of accurate reporting. A scrutiny notice does not equate to wrongdoing; it is a verification mechanism designed to confirm that your tax filings align with third‑party records and legal provisions.

This article delves into:

• The essence of Section 143(2) and how it differs from routine processing under Section 143(1)
• The faceless assessment framework (Section 144B) and how it streamlines scrutiny
• Common triggers for scrutiny selection
• Step-by-step guidance to respond via the e-Filing portal
• Detailed checklist of documents to prepare
• Consequences of non-compliance and appeal options
• Final tips to manage your case efficiently

1. What Is a Section 143(2) Scrutiny Notice?

When you file your Income Tax Return (ITR), the Centralized Processing Centre (CPC) conducts an automated initial check under Section 143(1). If everything aligns, you receive an intimation. However, if discrepancies or specific data points trigger alarms—such as high-value transactions, mismatches, or unusual deductions—the CPC flags your return for deeper examination under Section 143(2).

A scrutiny notice is essentially a formal inquiry. It lists items from your return that require clarification and specifies a deadline to respond. While it may sound intimidating, consider it an opportunity to present your supporting evidence and finalize your tax position accurately.

1.1. Legal Basis

Section 143(2) empowers the Assessing Officer (AO) to issue a notice within the prescribed time limit (by 30 June of the relevant assessment year) when they intend to examine the return in detail. Failure to comply can lead to a Best Judgment Assessment under Section 144.

1.2. Timeline

For AY 2024–25, the last date to issue such notices was 30 June 2025. Notices received after this date are considered invalid unless a valid extension or shift of time limit under special provisions applies.

2. Section 143(1) vs. Section 143(2) vs. Faceless Assessment (144B)

2.1. Section 143(1) – Intimation

After you file your ITR, CPC sends an automatic intimation under Section 143(1). It confirms whether your return’s arithmetic and tax details match CPC records. If discrepancies exist—such as TDS mis‑match—you receive a refund or demand notice for minor changes. This process is entirely automated and does not involve any manual intervention.

2.2. Section 143(2) – Scrutiny

When the CPC detects significant inconsistencies or triggers, it refers the case to the AO for detailed examination—hence, Section 143(2). Unlike the routine intimation, this is a *show‑cause notice* requiring you to explain or substantiate specific items in your return.

2.3. Faceless Assessment (Section 144B)

Since the introduction of the National Faceless Assessment Centre (NFAC), all scrutiny assessments operate online. Under Section 144B:

• Notices are issued electronically via the e-Filing portal.
• Taxpayers and AOs never meet in person; all communications—queries, replies, hearing—are via the portal.
• A Dispute Resolution Panel (DRP) is available for draft assessments.

This shift enhances transparency, reduces bias, and speeds up resolution times.

3. Why Did I Receive a Notice? Common Triggers

The Computer Assisted Scrutiny Selection System (CASS) uses risk parameters, historical data, and random sampling to pick returns. Key triggers include:

• High-Value Transactions: Large bank deposits or property deals not reflected in your ITR.
• Income Mismatch: Discrepancies between Form 26AS/AIS and return figures.
• Excess Deductions: Unusually large claims under Sections 80C, 80D, HRA, or education loan interest without clear proofs.
• Repeated Refund Claims: Frequent refunds above ₹2 lakh.
• GST vs. ITR Difference: Business turnover reported in GST returns not tallying with ITR.
• Random Selection: A small percentage of returns is chosen each year for quality checks irrespective of risk.

Example: If you claimed ₹2.5 lakh refund for TDS but your Form 26AS shows only ₹1.8 lakh, a scrutiny notice is likely.

4. Initial Steps After Receiving the Notice

1. Verify Authenticity: Log in to the official portal (www.incometax.gov.in) and navigate to e-Proceedings › View Notices.

2. Read Carefully: Note the assessment year, the due date for response, and specific queries.

3. Engage Early: Forward the notice PDF to your tax advisor if using one; inform family if jointly filing.

4. Gather Records: List all documents related to the highlighted issues (salary slips, bank statements, investment proofs, etc.).

5. Option to Revise: If you spot a genuine mistake, file a revised return before submission to reduce queries.

5. How to Respond Online: Step-by-Step

1. Login → Dashboard → Pending Actions → e-Proceedings.
2. Select the notice under 143(2) → Click View Notice → Download PDF.
3. Click Submit Response; choose Full Response or Partial Response.
4. For each query, type your explanation in the text box.
5. Upload the supporting documents by selecting the correct category (Income, Deductions, Others).
6. After attaching all files, click Submit. Note the acknowledgment number.
7. If more time is needed, use Seek Adjournment with valid reasons (e.g., awaiting audit reports).

6. Document Checklist

Document	Description
Form 16	Employer’s TDS certificate showing salary and tax deducted.
Form 26AS & AIS	Third-party TDS/TCS summary and reported high-value transactions.
Bank Statements	Proof of interest income, large deposits/withdrawals.
Salary Slips	Monthly breakdown for the assessment year.
Rent Receipts / Lease Agreement	Evidence of rent paid when claiming HRA.
Loan Interest Certificate	Home loan interest statements for deduction claims.
PPF/LIC/ELSS Receipts	Proofs for Section 80C deductions.
Medical Bills / Insurance Premiums	Evidence for Section 80D deductions.
Business P&L & Balance Sheet	Accounts for self-employed/business income.
GST Returns & Invoices	Reconcile business turnover with ITR.
Property Sale Documents	Sale deeds and computation for capital gains.
Audit Reports	Statutory audit for businesses above threshold.

7. Consequences of Ignoring the Notice

Failure to respond can lead to a Best Judgment Assessment (Section 144), where the AO estimates your income without your inputs—often resulting in inflated demands. Penalties under Section 271(1)(b), interest under Sections 234A/B/C, and prosecution provisions (Section 276D) may apply. Always respond within the stipulated time to avoid these outcomes.

8. Appeal Process

If dissatisfied with the AO’s order under Section 143(3), you can appeal:

1. To the Commissioner of Income Tax (Appeals) by filing Form 35 within 30 days of order receipt.
2. Subsequent appeal to the Income Tax Appellate Tribunal (ITAT) within 60 days of CIT(A) order.
3. Further appeals can be made to the High Court (on substantial question of law) and then to the Supreme Court.

Note: Under faceless assessment, you may also request a Dispute Resolution Panel (DRP) review for draft assessments prior to the final order.

9. Final Tips for Tax Notice Management

• Stay Organized: Maintain digital folders for all tax documents and correspondence.
• Check Regularly: Monitor your e-Filing account for alerts under Pending Actions.
• Be Transparent: Disclose all relevant information—even if you think it might reduce your refund.
• Meet Deadlines: Early responses reflect cooperation and reduce penalty risks.
• Professional Advice: For complex transactions or large claims, engage a CA or tax lawyer.
• Avoid Common Missteps: Don’t upload unrelated documents; follow the categories. Don’t ignore partial responses if requested.

With careful preparation and timely action, a Section 143(2) notice is just a procedural step toward confirming your correct tax liability. Use the official portal, stay factual, and you’ll find the process straightforward.