Income Tax

SCRUTINY ASSESSMENT UNDER SECTION 143(2)

by TaxAcumen Team

Filing your Income Tax Return (ITR) is an essential responsibility for every taxpayer. Even when the return is filed correctly, the Income Tax Department may at times select it for additional verification. This process is known as scrutiny assessment under Section 143(2) of the Income Tax Act. Receiving such a notice can be stressful, but with proper understanding and preparation, it can be handled easily.

WHAT IS A SCRUTINY ASSESSMENT UNDER SECTION 143(2)

A scrutiny assessment is a detailed examination of your ITR to confirm that all information provided is accurate and complies with tax laws. The Assessing Officer (AO) issues a notice under Section 143(2) to verify whether:

  • Income has been correctly reported.
  • Losses are not exaggerated.
  • Deductions and exemptions are genuine.
  • High-value transactions are properly reported.
  • Tax liability has been correctly calculated.

This process helps the department ensure that taxpayers are paying the correct amount of tax.

WHY DOES THE INCOME TAX DEPARTMENT SELECT AN ITR FOR SCRUTINY?

Not all returns are selected for scrutiny. Selection is based on specific criteria and risk factors, such as:

  • High-value transactions not matching the reported income
  • Large deductions or exemptions that appear unexpected
  • Major changes in income compared to earlier years
  • Inconsistency between data in Form 26AS, AIS, and the ITR filed
  • Many changes of the return

WHEN IS THE NOTICE UNDER SECTION 143(2) ISSUED?

The notice is issued only if an ITR has already been filed. It is delivered within three months from the end of the financial year in which the return was filed.

For example, if you filed your ITR on 31 July 2024, the financial year ends on 31 March 2025, and the notice can be issued anytime up to 30 June 2025.

TYPES OF SCRUTINY ASSESSMENTS

Scrutiny assessments are classified into three types:

  1. Limited Scrutiny—Focuses on specific issues identified by the system, such as property sales, foreign income, or unusual deductions.
  2. Complete Scrutiny—Covers a detailed review of the entire return, including all income sources and claims.
  3. Manual Scrutiny—Cases selected based on special criteria issued by the CBDT, usually involving high-risk profiles.

HOW TO HANDLE A NOTICE UNDER SECTION 143(2)?

Receiving the Notice

  • The notice is sent to your registered email and is also available on the Income Tax e-filing portal.
  • It mentions the reason for scrutiny and lists the documents that are required.

Reacting to the Notice

  • Log in to the e-filing portal to read the notice carefully.
  • Collect and prepare all supporting documents, such as:
  • Salary slips, Form 16, and bank statements
  • Proofs of deductions (like 80C, 80D, HRA)
  • Investment statements and business expense records (if applicable)
  • Submit the documents online or appear before the AO as directed.

Assessment and Final Order

After reviewing the evidence, the AO passes an order under Section 143(3), which may confirm your return, demand additional tax, or grant a refund.

TIME LIMIT FOR COMPLETING SCRUTINY ASSESSMENT

The Income Tax Department must complete the assessment within the following time limits:

Assessment Year (AY)Time Limit from End of AY
Up to AY 2017–1821 months
AY 2018–1918 months
AY 2019–20 onwards12 months

SCRUTINY FOR TAX REFUND CASES

High refund claims generally lead to scrutiny. In such cases, you may be asked to provide:

  • Salary proofs and Form 16
  • Deduction receipts
  • Investment details
  • Bank statements showing refund credits

If errors are found, the refund may be delayed or denied.

CONSEQUENCES OF IGNORING A NOTICE

Failing to respond to a scrutiny notice can lead to serious penalties:

  • Penalty of ₹10,000 under Section 271(1)(b).
  • Best judgement assessment under Section 144, where the AO decides tax liability without your participation.
  • In extreme cases, prosecution, which may involve fines or imprisonment.

HOW TO AVOID SCRUTINY NOTICES?

To reduce the chances of scrutiny:

  • Report income from all sources accurately
  • Match ITR data with Form 26AS and AIS before filing.
  • Claim deductions only with valid documents.
  • Avoid unnecessary revisions to your return.

Disclose all high-value transactions correctly.

Conclusion

A Section 143(2) notification does not necessarily indicate misconduct. It just indicates that the authorities want to confirm specific information. You can manage the process with confidence if you react promptly, keep accurate records, and adhere to tax regulations. Seeking advice from a tax expert can assist in preventing mistakes and fines in complicated situations.

Disclaimer:

This article is only for education purpose. One must consult a tax expert / professional for the response and proper guidance for such notice from the department.

In case of any query, one can reach out to our professionals

+91-9267970588 or TAXACUMEN.CONSULTANCY@GMAIL.COM