Section 143(2) of Income Tax Act: Meaning, Types of Notices & How to Respond

With increasing use of data analytics and AI by the Income Tax Department, scrutiny notices under Section 143(2) of the Income Tax Act, 1961 are being issued more frequently to verify the correctness of income tax returns filed by taxpayers. These notices are part of the department’s effort to ensure transparency and reduce tax evasion.

If you’ve received a notice under Section 143(2), this guide will help you understand its meaning, types, timelines, response process, and how to handle it professionally and without panic.

What is a Notice Under Section 143(2)?

Section 143(2) empowers the Income Tax Department to scrutinize a return of income if the Assessing Officer (AO) considers it necessary to ensure that the taxpayer has not understated income, claimed excessive loss, or underpaid tax.

The notice is issued after the return is filed and processed under Section 143(1). It is not an automatic notice; it indicates that your return has been selected for scrutiny assessment.

Types of Scrutiny Notices under Section 143(2)

Depending on the case and the method of scrutiny selection, the notice issued under Section 143(2) can fall into one of the following three categories:

1. Limited Scrutiny

In this case, the scrutiny is restricted to specific issues or mismatches, such as discrepancies in AIR (Annual Information Return), Form 26AS, or TDS mismatch.
Example: Mismatch between reported interest income and bank-reported interest.

2. Complete Scrutiny

This involves a detailed examination of the entire return, including all income sources, deductions, exemptions, and bank transactions. It may be selected due to large financial transactions or risk-based profiling.

3. Manual Scrutiny

In rare cases, scrutiny is done manually under guidelines issued by the CBDT. These are often based on specific red flags like ongoing litigation, unusual deductions, or high-value transactions.

Timeline for Issuing Notice under Section 143(2)

• A notice under Section 143(2) must be issued within 3 months from the end of the financial year in which the return is filed.

• For example, if the return is filed on July 10, 2024, the notice under Section 143(2) must be issued on or before June 30, 2025.

Failure to issue the notice within this period makes any subsequent scrutiny assessment invalid.

What Triggers a 143(2) Scrutiny Notice?

A return may be picked for scrutiny based on one or more of the following:

• Mismatch in income reported vs. TDS/26AS/AIS/TIS

• High-value cash transactions or property purchases

• Sudden large deductions or losses claimed

• International transactions or income from foreign sources

• Suspicion of undisclosed income

• Claims under exempt income sections, like agricultural income, which appear exaggerated

What Should You Do After Receiving a Notice under 143(2)?

1. Don’t Panic: Receiving a 143(2) notice does not automatically mean you’ve done something wrong.

2. Read Carefully: Check the type of scrutiny and the information or documents requested.

3. Gather Documents: These may include:

   • Income computation

   • Form 16/Form 16A

   • Bank statements

   • Purchase/sale bills for investments

   • Proof of deductions (80C, 80D, HRA, NPS, etc.)

   • AIS/TIS summary

4. Reply Promptly via E-Filing Portal:

   • Log in to the Income Tax e-Filing portal

   • Go to ‘e-Proceedings’ and select the relevant notice

   • Submit your response and upload supporting documents

5. Seek Professional Help: If your case involves complex issues or significant tax implications, it’s best to consult a Chartered Accountant or tax expert.

Consequences of Ignoring or Delaying Response

Failing to respond to a Section 143(2) notice within the stipulated time may result in:

• Ex parte assessment under Section 144

• Disallowance of exemptions/deductions

• Additional tax demand, penalties, or interest

• Further scrutiny or audits in future years

Online Scrutiny Through e-Assessment Scheme

Under Section 144B, most scrutiny proceedings today are handled through faceless assessments. This means:

• No physical appearance is required

• All communication is via the e-filing portal

• Assessment Units handle the scrutiny independently and anonymously

Tips to Avoid Scrutiny in Future

• Report all income, including small savings interest or capital gains

• Avoid claiming unjustified deductions

• Match your income with Form 26AS and AIS/TIS

• File returns on time and maintain proper records

• Disclose foreign income and assets if applicable

FAQs

1. What is the difference between Section 143(1) and 143(2)?
143(1) is an intimation issued after basic processing of the return. 143(2) is a scrutiny notice for detailed verification of your return.

2. Does receiving a notice under 143(2) mean I made a mistake?
Not necessarily. It only means that the department wants to verify certain details.

3. Can I revise my return after receiving a 143(2) notice?
No. Once you receive a 143(2) notice, the return cannot be revised.

4. How long does scrutiny under 143(2) take?
The assessment must be completed within 12 months from the end of the assessment year.

5. What documents should I keep ready?
Bank statements, Form 16, proof of deductions, TDS certificates, AIS/TIS, etc.

6. What if I disagree with the final order?
You can file an appeal with the Commissioner of Income Tax (Appeals) or higher authorities.

7. Is physical appearance required during scrutiny?
Not in faceless assessments. You can respond online through the income tax portal.

8. Can salaried individuals also receive 143(2) notices?
Yes, especially if there’s a mismatch in TDS, excessive deductions, or unexplained income.

9. Is scrutiny based on random selection?
Yes, some cases are selected through computer-assisted selection to ensure fairness.

10. How can Tradeviser help with a 143(2) notice?
Our team of Chartered Accountants and tax experts can assist you in drafting replies, compiling documents, and ensuring timely and compliant responses.

Need Help Replying to an Income Tax Notice?

At Tradeviser, we assist taxpayers in handling income tax notices professionally—from drafting replies to representation before the department. Don’t risk a penalty due to a missed or mishandled notice.

Talk to our experts today and respond to your tax notice with confidence.