How to Respond to Income Tax Scrutiny Notices: A Step-by-Step Guide

Introduction

Receiving an Income Tax Scrutiny Notice can be unsettling for any taxpayer. However, it’s essential to understand that these notices are a routine part of the tax compliance process by the Income Tax Department of India. The key to successfully handling them lies in timely response, complete documentation, and professional guidance.

In this step-by-step guide, Makwana Sweta & Associates, your trusted Chartered Accountant Services in Mumbai, explains how to professionally and legally respond to scrutiny notices.

What Is an Income Tax Scrutiny Notice?

A scrutiny notice is issued under Section 143(2) of the Income Tax Act, 1961. It means your income tax return has been selected for detailed examination. The notice will typically ask for clarification or documents to verify your income, deductions, or claims.

Types of Notices:

Limited Scrutiny: Focused on specific aspects like capital gains or foreign income.
Complete Scrutiny: Entire ITR under examination.
Manual Scrutiny: Cases selected manually by the assessing officer for detailed audit.

As per recent CBDT data, over 95% of notices are resolved without penalties if handled correctly.

Step 1: Don’t Panic, Understand the Notice

Read the notice carefully and check:

The section under which it is issued (143(2), 139(9), 148, etc.)
The reason for scrutiny (mismatch, high-value transactions, etc.)
Deadline to respond
Mode of submission (usually online via Income Tax portal)

Step 2: Gather Necessary Documentation

Documents typically requested include:

PAN, Aadhaar, ITR acknowledgment
Form 16, Form 26AS, Annual Information Statement (AIS)
Bank statements, salary slips, rent receipts
Investment proofs (80C, 80D, etc.)
Loan certificates, capital gains statements
Business income and expense proofs

Ensure that all documents match the details declared in your ITR.

Step 3: Log in to the Income Tax e-Filing Portal

Respond digitally through the official portal:

Visit: https://www.incometax.gov.in
Log in using your PAN and password
Navigate to “e-Proceedings” and click on “Submit Response”
Upload the required documents in PDF format

Keep document size under the portal limit (usually 5MB per file).

Step 4: Draft a Clear and Concise Response

Always be polite and factual
Avoid unnecessary information
Address each point raised in the notice
Attach a table summarizing documents submitted

Tip: Include a cover letter signed by your Chartered Accountant for a professional touch.

Step 5: Submit Response Before Due Date

Timely submission helps avoid further complications like reassessment or penalties. Note:

Response window: Usually 15-30 days from the date of notice
Failure to respond: May lead to best judgment assessment under Section 144

Step 6: Track Status of the Notice

After submission:

Check Acknowledgment Receipt under “View Submissions”
Look out for updates in the Worklist section
Await further clarification or closure letter

Step 7: Seek Professional Help If Required

If the scrutiny is complex (e.g., involving foreign income, crypto, or business audits), consult a qualified CA in Mumbai. At Makwana Sweta & Associates, our team of expert Tax Consultants in Mumbai can assist in:

Preparing technical responses
Representing you before the AO
Filing revised returns or rectification applications

Best Practices for Avoiding Scrutiny in Future

File accurate ITR with matching AIS/Form 26AS
Avoid cash transactions > Rs. 2 lakh
Maintain proper records of high-value transactions
Declare all income sources (interest, dividends, capital gains)
File ITR on time and verify it digitally

Final Thoughts

Income Tax Scrutiny is a legal process, not a punishment. Timely action, honest disclosure, and professional handling are your best tools for resolution. If you’re facing a notice or expect one soon, consult a professional today.

At Makwana Sweta & Associates, we offer end-to-end CA Services in Mumbai and across India, including scrutiny handling, representation, and tax compliance support.

Useful Links

Outbound: CBDT e-Verification Guidelines
Inbound: Notice Handling Services