Regarding Intimation received by  Assessee for Completion of Assessment in Accordance with the Procedure of Section 144B of the Income Tax Act and Notice under section 143(2) of the Income-tax Act, 1961 for AY 2024-25

As the Income Tax Department begins issuing scrutiny notices for Assessment Year 2024-25, many taxpayers are receiving communication under Section 143(2) of the Income Tax Act, 1961. If you’ve received such a notice, it’s a sign that your return has been selected for regular assessment (scrutiny) and requires careful attention.

At Balakrishna & Co., Chartered Accountants, we specialise in representing clients before the Income Tax Department in scrutiny and assessment matters. Here’s a detailed overview of why returns are selected, what the process involves, and how we can help.

If you are salaried tax payer looking for step by step procedure to handle scrutiny notice visit this page: Scrutiny Notice Under Section 143(2)? A Guide for Salaried Taxpayers

What is a Notice under Section 143(2)?

A notice under Section 143(2) is issued by the Income Tax Department to a taxpayer whose return has been selected for detailed scrutiny assessment. This means the Assessing Officer (or Faceless Assessment Unit) intends to verify the accuracy of income declared, deductions claimed, and overall compliance.

This notice is typically followed by a more detailed questionnaire under Section 142(1), requesting explanations and supporting documents.

Why Are Returns Selected for Scrutiny?

The Income Tax Department uses an automated system called Computer Aided Scrutiny Selection (CASS) to identify tax returns for detailed scrutiny. Some common reasons for selection include:

1. High-value transactions, such as purchase of immovable property, large cash deposits, or foreign asset investments.
2. Mismatch in income or TDS details – discrepancies between the Income Tax Return (ITR) and data reported in Form 26AS, Annual Information Statement (AIS), or Taxpayer Information Summary (TIS).
3. Claim of capital losses or F&O trading losses – especially if claimed without proper substantiation or reporting in audited statements.
4. Excessive or unusual deductions – under sections such as 80C, 80D, 80GG, 80E, etc., beyond typical benchmarks.
5. Unsubstantiated claims under HRA or LTA – such as claiming house rent allowance without supporting rental agreements or LTA without proof of travel.
6. Mismatch with GST returns – for businesses where the income reported in ITR does not align with GST filings.
7. Random selection – purely for verification purposes, even if no anomaly is detected, as per CASS sampling guidelines.

Timeline and Process for Assessment

Once selected for scrutiny, the assessment process follows a structured timeline under the faceless assessment scheme:

1. Issuance of 143(2) Notice: The first notice confirming that your case is selected for scrutiny.
2. Detailed Questionnaire under Section 142(1): This is the main notice where the department asks specific questions and requests supporting documents.
3. Timeline to Respond: Generally, 7 to 15 days are provided to submit responses online. Extensions can be requested, but prompt compliance is always advisable.
4. E-Proceedings All communications are done online via the income tax e-filing portal.

Why You Should Take Scrutiny Notices Seriously – Especially Notices under Section 142(1)

Once your return is selected for scrutiny, the Income Tax Department will issue a notice under Section 142(1), asking you to furnish additional documents or provide clarifications. This is a critical step in the faceless assessment process.

Failing to respond to a 142(1) notice within the prescribed time or submitting incomplete/incorrect information can lead to serious consequences under the Income Tax Act.

What Happens If You Don’t Respond to a 142(1) Notice?

If the taxpayer fails to comply with the requirements of a notice issued under Section 142(1), the Assessing Officer (or the Faceless Assessment Unit) is empowered to complete the assessment as per Section 144 – Best Judgment Assessment.

Under this, the officer will assess your income based on whatever information is available with the department, including:

• TDS returns filed by deductors
• AIS/TIS data (high-value transactions)
• Bank statements, property transactions, and third-party data

This often leads to unfavourable outcomes, such as:

1. Additions to Total Income

In the absence of documentary proof or explanation:

• Deductions claimed (e.g. 80C, 80D, HRA, home loan interest) may be disallowed
• Business or capital losses reported may be rejected
• Expenses claimed in business income may be added back as income
• Unexplained credits in bank accounts may be treated as unexplained income under Section 68

2. Higher Tax Liability

Based on the additions, your total taxable income increases. Tax is then recomputed as per applicable slab or rate:

• If added income is treated as normal income, slab rates will apply
• If treated as unexplained cash credits or undisclosed income, then Section 115BBE applies – flat 60% tax + surcharge + cess, resulting in 78% effective tax excluding interest

3. Interest on Tax Payable

Under Section 234A/B/C, interest is levied:

• 1% per month (or part) for delayed return filing or shortfall in advance tax
• This continues until the tax is fully paid

In scrutiny cases, especially when additions are made retrospectively for prior years, interest may apply for up to 2 years or more from the end of the relevant financial year, significantly increasing your liability.

4. Penalty for Non-Compliance

In addition to tax and interest:

• Penalty under Section 271(1)(b): ₹10,000 for each instance of failure to respond to notice u/s 142(1)
• Penalty under Section 270A: Ranges from 50% to 200% of tax on underreported income
• In extreme cases of concealment or intentional evasion, prosecution under Section 276C may apply (up to 7 years imprisonment)

Example 1 – Missed Response on Deductions and Business Loss

Let’s say you claimed a business loss of ₹8 lakhs and deductions under 80C and 80D of ₹1.5 lakh and ₹50,000 respectively.

If you fail to respond to the scrutiny and Section 142(1) notice:

• Business loss may be disallowed
• Deductions may be denied
• Total additions = ₹10 lakh
• Additional tax liability (assuming 30% slab) = ₹3,00,000
• Interest (assumed for 2 years @ 1% per month) = ₹72,000
• Penalty (50%) under Section 270A = ₹1,50,000 T
• Total cost of non-compliance = ₹5.22 lakh (excluding possible prosecution in severe cases)

Important: Interest liability can increase further if assessment is completed at a later date, and this does not include further penalties or prosecution risks in case of serious non-disclosure.

Example 2 – Addition of ₹10 Lakh as Unexplained Cash Credit (Section 68, Taxed under 115BBE)

Let’s assume ₹10 lakh deposited in your bank account is treated as unexplained income under Section 68 due to no proper response under Section 142(1):

• Tax under Section 115BBE (60%): ₹6,00,000
• Surcharge (25%) on tax: ₹1,50,000
• Health and Education Cess (4%) on above: ₹30,000
  Total Tax Liability = ₹7,80,000

Interest under Section 234B/C (assuming 2 years @ 1% per month): ₹1,87,200
Penalty under Section 270A (50%): ₹3,00,000

Total Payable = ₹12.67 lakh on a ₹10 lakh addition.

Important: In such cases, the cost of non-compliance is often higher than the addition itself due to cumulative impact of tax, surcharge, interest, and penalty. In some instances, the final liability could be nearly 125% of the unexplained amount.

How Balakrishna & Co. Helps You Handle Scrutiny Cases

We understand that scrutiny notices can be stressful and time-consuming for taxpayers. Our experienced team of Chartered Accountants and tax consultants ensure complete handholding throughout the process. Our services include:

• Reviewing your return, AIS/TIS, and Form 26AS to identify potential issues
• Drafting point-wise responses to Section 142(1) and 143(2) notices
• Compiling and uploading required supporting documents via the e-Proceedings portal
• Handling representations before the Faceless Assessment Unit
• Communicating with the department on your behalf
• Appeal support, if required, post-assessment

With Balakrishna & Co. by your side, your scrutiny case is managed professionally, accurately, and in full compliance with all regulations.

Have You Received a Scrutiny Notice? Take Action Today.

If you’ve received a notice under Section 143(2), don’t delay. Forward the notice to us, and our team will take it from there.

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Balakrishna & Co. | Chartered Accountants
Trusted Tax Advisors for Scrutiny Matters and Complex Income Tax Cases