Income Tax Section 143(2) Scrutiny Notice: A Human is Reviewing Your Return

Source: Section 143(2), Income Tax Act, 1961.

• •High-value deductions relative to income: Large 80C investments, substantial HRA claims, or home loan deductions that seem disproportionate to income.
• •Significant year-on-year variation in income: A large dip or spike in income without an obvious reason.
• •GST and income tax turnover mismatch: Your business income in ITR is significantly lower than turnover in GST returns.
• •Cash deposits inconsistent with income: Bank account cash deposits shown in your AIS that do not match your declared income profile.
• •Large capital gains claimed as exempt or with indexation: Especially on property sales.
• •High-value foreign transactions: LRS transactions, foreign investments, or NRI status claims.
• •Sector-specific scrutiny: The CBDT periodically selects specific business sectors for systematic scrutiny.
• •Third-party data mismatch: Information from banks, registrars, stockbrokers that does not reconcile with your ITR.

• •Notice under 143(2): The officer specifies what documents and information they want and sets a date for you to respond. The notice must be issued within 3 months from the end of the financial year in which the return was filed.
• •First response: You submit the requested documents. This is usually a mix of financial statements, bank statements, investment proofs, and specific explanations.
• •Questionnaire / further queries: The officer reviews your submission and sends follow-up questions, often in the form of notices under Section 142(1).
• •Examination of accounts: The officer may call you or your CA for an in-person discussion or the examination of specific records.
• •Show cause notice before addition: Before making any addition to your income or disallowing a deduction, the officer is required to give you a specific show cause notice under Section 144B (faceless assessment process). You must respond to this.
• •Draft assessment order: Under the faceless assessment scheme, you receive a draft order before the final order. You have 30 days to respond.
• •Final assessment order under Section 143(3): The conclusive order. Any additional tax demand, penalty, or clean chit from the scrutiny.

The entire scrutiny must be completed within 18 months from the end of the relevant assessment year (12 months for returns filed on time).

• •Engage a CA immediately: Scrutiny assessment is not a DIY process. The officer is a trained professional who scrutinises returns all day. You need someone who knows the system on your side.
• •Respond fully and on time: Partial responses and missed deadlines create negative impressions and invite harder follow-up queries.
• •Do not over-share: Only answer what is asked. Do not volunteer information that was not requested and that might open new lines of enquiry.
• •Document everything: Keep a log of every document submitted, every query answered, and every communication with the officer. Get written acknowledgements.
• •Understand what the officer is looking for: Most scrutiny notices focus on one or two specific issues. Understanding the officer's concern early helps you address it effectively.
• •Do not make verbal commitments: Everything in a scrutiny proceeding should be in writing. If you make a verbal statement that is later used against you, you have no record to contest it.

• •You do not need to appear before an officer in person. All communication is through the income tax portal.
• •The officer reviewing your case may be in a different city from you. This is by design to reduce corruption.
• •You submit all documents digitally through the portal.
• •The draft assessment order is sent to you electronically with a 30-day response period.
• •The final order is also issued electronically.
• •Conventional (non-faceless) scrutiny applies to certain categories of high-complexity cases, international taxation, and cases involving search and seizure.