Income Tax Scrutiny Notices on the Rise: Top Reasons & way forward

Over the last few months, there’s been a noticeable surge in scrutiny notices issued by the Income Tax Department – even to salaried individuals and small businesses. This shift reflects the increasing use of data analytics and AI by the department to match disclosures with third-party data.

Here are some common triggers for scrutiny:
Mismatch in Form 26AS vs ITR (TDS not claimed/disclosed properly)
High-value transactions not explained (property, crypto, shares)
Reporting discrepancies in GST vs ITR for businesses
Non-disclosure of foreign assets/income
Claims of losses or deductions without proper backing

How to stay prepared:
File returns with complete and accurate disclosures
Reconcile 26AS, AIS & TIS before filing
Maintain documentation  especially for capital gains, business income, and deductions
Respond promptly and professionally to notices
As professionals, it’s not just the role to file returns but to proactively protect clients from unnecessary litigation.

Let us know more about it hereunder:

let’s decode why these notices are being issued in large numbers, what it means, what you should do (and not do), and whether there is any fault in filing the income tax return which has invited this notice?

 

What is Section 143(2) – A Gentle Knock or a Warning Bell?

Section 143(2) is a notice issued by the Income Tax Officer (AO) when your return has been picked for scrutiny assessment. It’s like the tax department saying “You said this… now prove it.” Notices under this section are sent after processing under 143(1)(a)  is completed. It indicates the AO wants to dig a bit deeper into certain aspects of your return — maybe your income, deductions, exemptions, or some juicy-looking transactions.

Why You Might Have Received a 143(2) Notice?

Contrary to common belief, receiving a scrutiny notice may not be as a result of mistake or error in filing the ITR. With the evolving IT infrastructure and better data-matching, your return could be flagged even if it’s technically flawless. Some common triggers include:

• Mismatch between TDS/TCS and reported income;
• Claiming large deductions /Exemptions;
• Significant capital gains or frequent share transactions not matching with the ITR data;
• Non-Reporting of foreign income, remittances, or assets abroad;
• Donations to political parties beyond the expected norms (yes, the taxman reads between the lines here)
• High addition in earlier years vis a vis same issue in the current year, etc.

What’s New This Year? CBDT’s Mandatory Scrutiny Guidelines:

In June 2025, CBDT issued fresh compulsory scrutiny guidelines for FY 2024–25. As per these guidelines, the department must select returns for scrutiny in certain cases, including:

1.  Search or survey cases (Section 132 / 133A)

2.  High-value political donations

3.  Cases flagged for tax evasion by income tax or any other Government agency

4.  Information from law enforcement, GST authorities, or foreign agencies.

In short, if you’re caught in the net, it may not be your fault in filing but it could be the system-based selection or policy-driven compulsory scrutiny.

Why Contact Details on the Portal Matter More Than Ever:

Many taxpayers never check their e-filing portal and often rely on the registered contact info belonging to a retired accountant or an office staffer from five years ago. Let’s be clear:

• Notices are now mostly served electronically.
• If your email ID or mobile number is outdated, you might miss the deadline for responding to various notices/communication.

Precaution: Keep your contact details updated. Also, ask your CA to keep you in the loop if you’ve used their credentials in the past.

What Should You Do If You Receive a 143(2) Notice?:

Step 1: Don’t panic. Read the notice carefully.

Step 2: file the reply asking for the details that are required for the scrutiny case or forward it to your CA or consultant immediately for replying.

Step 3: Try to understand the purpose and reason behind selection of case U/s 143(2). You may also ask the AO for the reason.

Step 4: Collate documents supporting the queries — donations, capital gains, investments, etc.

Step 5: File a timely and proper response via the e-proceedings portal & keep tracking if any further notices are being issued.

And no, saying “I forgot” won’t help. Nor will uploading a shopping bill from Amazon when asked for a house property agreement!

 

Why Are My Returns Picked Every Year?

Many taxpayers feel they’re being watched by the department like reality TV contestants. Common reasons for repeated scrutiny year after year:

• Running a business with fluctuating or suspicious cash flows
• Claiming same high-value deductions repeatedly
• Earning capital gains and not showing matching investments
• Being in a “high-risk” category (like heavy cash transactions persons, builders, credit societies, etc)
• History of non-compliance or litigation in earlier years

Relax. It’s not personal. It’s just that the system finds you “interesting” enough to keep revisiting — like a mysterious plot in a soap opera.

What Happens If You Ignore or Mishandle the Notice?

This is where things get dangerous. If you ignore the 143(2) notice, the AO can go ahead with a best judgment assessment under Section 144 — where your silence is taken as a confession and the taxman becomes judge, jury, and calculator. Consequences include:

• Heavy tax additions;
• Disallowance of deductions/exemptions;
• Interest and penalties;
• Triggering future scrutiny again.

A well-replied 143(2) notice, however, can even close the scrutiny with zero addition — if supported by genuine documentation.

Is This Notice due to my Consultant’s fault?

Most likely, it is not so. Scrutiny notices are often based on:

• Automated data-matching
• AI-based red flags
• CBDT’s annual guidelines

Blaming your consultant is like blaming your courier guy for delivering your exam results. Still, ensure your consultant is proactive, keeps track of notices, and doesn’t miss response deadlines. You need a professional who understands both the tax law and the tax officer’s mindset.

Final Words: Stay Calm, Stay Informed:

Receiving a 143(2) notice is not a judgment — it’s just an invitation for clarification. It’s scrutiny, not surgery. If you’ve filed your return honestly and have the documents to back it up, you have nothing to fear. With the right paperwork and professional help, you can turn this tax tremor into just another line item in your fiscal diary.

So, if you have a notice under section 143(2), relax, take a deep breath & gather all your documents. Remember, even the taxman appreciates transparency — and maybe a little patience.