Scrutiny Notice Under Section 143(2): What It Means and How to Respond

After processing (the 143(1) stage), some returns are selected for scrutiny assessment, mostly by a computer-based risk system and sometimes on specific information. The notice under section 143(2) tells you the return has been selected and asks you to produce evidence supporting it.

• Limited scrutiny: only the issues named in the notice are examined, such as a large deduction, a cash deposit or a capital gain.
• Complete scrutiny: the whole return is open to examination.

Assessments for years up to FY 2025-26 (AY 2026-27) continue under the Income-tax Act, 1961, so notices for those years still cite section 143(2) even though the Income-tax Act, 2025 is now in force.

A 143(2) notice served after its time limit is invalid, which is a point worth checking with your adviser. Check that the notice is genuine by matching its Document Identification Number (DIN) on the e-filing portal.

Scrutiny is now handled through the faceless assessment system. You don't visit an office or meet an officer:

1. The notice and every follow-up arrive in e-Proceedings on the e-filing portal, with an email and SMS alert.
2. Questionnaires usually follow under section 142(1), asking for specific documents. See our guide to section 142 notices.
3. You upload replies and documents on the portal. Each upload is final, so prepare them properly.
4. If the department proposes additions, you get a show-cause notice with a draft order and a chance to object.
5. You can request a personal hearing by video conference at the show-cause stage.
6. The final assessment order and any demand notice are issued online.

• Read the reasons for selection. For limited scrutiny, the notice names the issues. Answer those, fully, and don't volunteer unrelated material.
• Reconcile first. Match your return with AIS, Form 26AS, bank statements, GST returns and books. Most additions come from unexplained differences between these.
• Write a short covering note for each issue: the claim, the law it relies on, and an index of the attached evidence.
• Organise the evidence: invoices, ledgers, sale deeds, loan confirmations with the lender's PAN and bank statement, gift deeds, investment proofs.
• Be consistent. What you say in the first reply is compared with everything that follows.

Common scrutiny triggers include large cash deposits (see cash deposit notices), high-value property deals, big refund claims, capital gains on unlisted shares, and deductions out of line with income.

Ignoring a scrutiny notice allows the officer to make a best judgement assessment on the information available, usually with additions you could have avoided, and invites penalties for non-compliance. Under-reported income draws a penalty of 50% of the tax on it, rising to 200% for misreporting.

If the final order makes additions you disagree with, you can appeal to the Commissioner (Appeals) within the time allowed, and in some cases seek a stay of the demand. Paying a demand doesn't stop you from appealing.

Scrutiny is where professional help pays for itself. TaxQue's income tax notice service reconciles your records, drafts the replies and represents you through the faceless process. The general steps for other notices are in the income tax notice guide.