Got an Income Tax Scrutiny Notice? Do THIS Now

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Receiving an income tax return scrutiny notice can be unsettling, but it’s a situation many taxpayers are facing. In 2025, the Income Tax Department has significantly ramped up its scrutiny efforts, with a surge in notices being issued under Section 143(2). Understanding why this happens and how to respond correctly is key to resolving the matter smoothly.

This guide provides a clear, step-by-step action plan based on the latest guidelines from the Central Board of Direct Taxes (CBDT) for the Financial Year 2025-26.

Why Did You Receive a Scrutiny Notice?

A scrutiny notice under Section 143(2) means the tax department has selected your return for a detailed review. This doesn’t automatically imply wrongdoing; it’s often a verification process. The selection can be triggered by several factors, many of which are now automated.

The CBDT has outlined specific categories that lead to compulsory scrutiny. If your return falls into any of the following, it will be mandatorily examined:

  • Survey Cases: If a survey was conducted on your business on or after April 1, 2023.
  • Search & Seizure Cases: If a search action was conducted between April 1, 2023, and March 31, 2025.
  • Invalid Exemption Claims: For entities like trusts filing ITR-7 and claiming exemptions without a valid or active registration.
  • Recurring Past Issues: If you have a recurring issue from past assessments (like a disallowed expense) that was confirmed on appeal and involves ₹50 lakh or more (₹20 lakh for non-metros).
  • Tax Evasion Alerts: If a law enforcement or intelligence agency provides credible information about potential tax evasion.

Beyond these compulsory categories, most notices are issued via the Computer-Assisted Scrutiny Selection (CASS) system, which uses data analytics to flag returns for common discrepancies, such as:

  • Mismatch between your ITR and Form 26AS or AIS (Annual Information Statement).
  • Unreported income, such as interest, dividends, or capital gains from mutual funds and cryptocurrencies.
  • High-value transactions that don’t match your reported income.
  • Disproportionate deduction claims.
  • GST return mismatches.

Your Step-by-Step Action Plan for the Scrutiny Notice

When you receive the notice, it’s crucial to act methodically. Under the Faceless Assessment scheme, the entire process is conducted online, and you will not need to visit a tax office in person.

Step 1: Don’t Panic and Read the Notice Carefully

First, do not ignore the notice. Failure to respond can lead to a penalty of ₹10,000 and an ex-parte “best judgment assessment” under Section 144, which often results in a higher tax demand. Carefully review the notice to understand the Assessment Year, the reason for scrutiny, the specific information/documents required, and the deadline for response.

Step 2: Log in to the Income Tax Portal

Access the official e-filing portal at incometax.gov.in. Navigate to the ‘e-Proceeding’ tab (sometimes found under ‘Pending Actions’ or ‘Worklist’) to view the official notice and submit your response.

Step 3: Gather Your Supporting Documents

Organize all documents that support the claims in your tax return. Commonly requested documents include:

  • Financial Records: Bank statements, books of accounts, and financial statements.
  • Income Proof: Form 16, rent agreements, interest certificates, and capital gains statements.
  • Deduction Proof: Receipts for investments under Section 80C (like LIC or PPF), health insurance premiums under Section 80D, and home loan statements.
  • Business Documents: GST returns, tax audit reports, and purchase/sale invoices.

Ensure all documents are scanned and saved in the recommended format (usually PDF).

Step 4: Submit a Point-by-Point Response

Upload your documents and provide a clear, written explanation addressing each query raised by the tax department. Your response should be factual, polite, and backed by evidence. You will be required to state whether you ‘Agree’ or ‘Disagree’ with the department’s observations and provide your reasoning.

Step 5: Seek Professional Help if Needed

If the case is complex, the amounts are significant, or you are unsure about the legal procedures, it is highly advisable to consult a Chartered Accountant (CA) or a tax professional. They can help you draft a technically sound response, represent you, and ensure all procedural safeguards are followed.

What Are the Deadlines?

Adhering to timelines is critical. For returns filed in the Financial Year 2024-25 (Assessment Year 2025-26), the key deadlines are:

  • Issuance of Scrutiny Notice u/s 143(2): The department must issue the notice by June 30, 2025.
  • Your Response: You typically have 15 to 30 days to respond from the date of the notice. Always check the deadline mentioned in your specific notice.

Frequently Asked Questions (Q&A)

Q1: Is a scrutiny notice a sign that I have done something wrong?

Not necessarily. A notice under Section 143(2) is an invitation to provide more information. It is a part of the verification process to ensure the income declared and taxes paid are correct. Many cases are closed after the taxpayer provides satisfactory documentation.

Q2: What is the difference between a notice under Section 143(1) and 143(2)?

Section 143(1) is an intimation for summary assessment. It is an automated check for mathematical errors, incorrect claims, or mismatches with pre-filled data. Section 143(2), on the other hand, is a notice for a detailed scrutiny assessment, requiring you to submit documents and explanations for a thorough review.

Q3: What happens if I completely ignore the scrutiny notice?

Ignoring the notice is very risky. The Assessing Officer can complete the assessment based on the information they have (Best Judgment Assessment under Section 144), which will likely lead to a higher tax demand, penalties of ₹10,000, and interest charges. In severe cases, it can even lead to prosecution.

Q4: Can I handle the scrutiny process myself, or do I need a CA?

For simple cases with clear documentation, you can handle it yourself. However, for complex issues involving large sums, business accounts, or legal interpretations, hiring a CA is strongly recommended. A professional understands the technicalities, can raise valid legal objections, and ensures your rights are protected throughout the process.

Conclusion: Compliance is Key

Receiving an income tax return scrutiny notice is a serious matter, but it is manageable with a calm and compliant approach. The key is to respond promptly, be transparent, and provide accurate documentation. By treating the process with the importance it deserves, you can navigate the scrutiny and achieve a favorable outcome, ensuring your peace of mind and financial compliance.