Scrutiny notice under section 143(2): check the service date first

Check the service date before you answer anything

This is the first thing to do and almost nobody does it. The provision requires the notice to be served within three months from the end of the financial year in which the return was furnished. Not three months from filing — three months from the end of that financial year.

So a return filed in July 2025 falls in financial year 2025-26, which ends on 31 March 2026. Three months from that is 30 June 2026. A notice served on 24 August 2026 is nearly two months outside the limit.

That is not a technicality about form. Service within the period is what gives the officer jurisdiction to make the assessment at all, and a notice served outside it is open to challenge on that basis. It is also a point that weakens with delay: answering on the merits for months before taking it invites the argument that you submitted to the jurisdiction. Take it in writing at the first opportunity, while reserving your position on the facts.

Why your return was selected

The triggers are mechanical, and one of them is nothing at all.

• A mismatch between your return and the tax credit statement or the Annual Information Statement — the largest single category.
• Turnover reported under GST that does not agree with turnover in the return or in the tax audit report.
• Deductions or exemptions that are disproportionate to the income declared. This is a ratio, not a judgment about you.
• A high-value transaction reported to the department that does not appear in the return — a property sale being the commonest.
• A property transaction visible from the registrar's reporting and absent from the return.
• Random selection under the computer-assisted scrutiny selection system, with no adverse trigger, and nothing to read into it.

How a faceless scrutiny actually runs

There is no officer to go and see. The case is allocated electronically, the unit examining it is anonymous, and every communication goes through your account on the portal. That has advantages and one significant disadvantage: nothing is resolved by explanation in a room, so what you write is the whole of your case.

1. 1The notice arrives in your e-filing account and by email. Everything from here happens under Pending Actions, then e-Proceedings.
2. 2You file a written response with attachments. This is the substance of the case, and it is worth taking seriously — the reply is read by someone who knows nothing about you beyond what is on the file.
3. 3If you need longer, request an adjournment through the same screen, before the date given rather than after. Adjournments are commonly granted once and less commonly twice.
4. 4Further questions may follow, sometimes several rounds. Each has its own date.
5. 5Before any addition is made, a show-cause is issued setting out the proposed variation and inviting your objection. This is the most important document in the whole process.
6. 6You may ask for a hearing by video. Ask through the portal, and ask early rather than after the show-cause.
7. 7The assessment order follows, with a demand notice if anything is added.

How to answer, and what makes an answer work

The single commonest failure is not a bad argument but a thin one: a two-line reply saying the transaction was genuine, with nothing attached. Nobody is going to telephone you for the documents.

• Answer the question asked. A response that restates your return without engaging with the specific issue is treated as no response at all.
• Attach the evidence rather than describing it. Bank statements, invoices, agreements, confirmations — the reply is read cold, by someone who cannot ask you a quick question.
• Explain the commercial reality in plain words. Faceless units see a number without a context, and the context is usually the answer.
• Keep it within the issues named in a limited scrutiny. Volunteering material about other years or other transactions widens the enquiry.
• Meet the date, or ask for more time before the date. Silence is the one response with no upside.
• Where a third party has to confirm something, start that on the day the notice arrives — confirmations take longer than the period given.

What happens if you do not answer

The assessment does not lapse. It proceeds without you, on the material the officer has — which is the reported information that triggered the selection, and nothing that explains it. That is a best judgment assessment, and it is generally the most expensive way for a scrutiny to end.

Separately, there is a penalty for failing to comply with the notice itself, distinct from anything to do with the tax. And an addition made in a best judgment assessment carries the ordinary consequences: a demand, its own thirty days, interest, and the possibility of a penalty for under-reporting on top.

The escalation from there is an appeal against the assessment order, which costs a fee and takes years — against a response that would have cost an afternoon.

When to bring in a professional

Against that: a limited scrutiny on a single documented issue, where you hold the papers and the explanation is straightforward, is frequently answered perfectly well without help. The selection is not evidence that anything is wrong.

• Any year involving capital gains, foreign assets or foreign income, or a business you would struggle to reconstruct from documents you still hold.
• Where the amount at issue is large enough that a penalty for under-reporting — 50% of the tax, or 200% if it is treated as misreporting — would be material.
• Where the notice is a complete scrutiny rather than a limited one, or a limited scrutiny has been expanded.
• Where the service date looks to be outside the three-month window, because the objection has to be framed properly and taken at the right time.
• Where a show-cause proposes an addition you cannot immediately explain, because that is the last stage at which the assessment can be shaped rather than appealed.

Worked examples