Why Section 143(2) Income Tax Scrutiny Notices Flooded Taxpayers in 2025, Steps to be taken before March 31st

In 2025, large number of taxpayers got scrutiny notices under Section 143(2) of Income-tax Act, 1961. These notices issue across different income groups and not limit to any one issue like foreign remittance. The increase happen because of statutory deadlines, compulsory scrutiny rules, and more data visibility with Income Tax Department.

Section 143(2) allow Assessing Officer to check return to make sure income not understated, losses not overstated, and tax not underpaid. Once they notice issue, the case go into scrutiny assessment process.

Why mass notices issue around June 2025

The main reason for surge was time limit under Section 143(2). The proviso say no notice can serve after three months from end of financial year in which return file. For returns file during FY 2024–25, last date for notice was 30 June 2025. This deadline force Department to issue all pending scrutiny notices before that.

Many taxpayers notice these communications in July 2025. In most cases, portal show notice issue on or before 30 June, which meet statutory requirement.

How cases are selected for scrutiny

Scrutiny selection does not follow a closed list. Selection happens through two routes.

The first route is compulsory scrutiny based on CBDT guidelines. These cases include surveys under Section 133A, search and seizure actions, reassessment cases under Section 148, exemption or registration matters, and information received from investigation or enforcement agencies.

The second route is risk-based scrutiny through CASS. This selection relies on data signals and mismatch analysis. Common triggers include mismatch between ITR and AIS, capital gains inconsistencies, large cash transactions, turnover differences, high-risk deductions, and foreign remittance data.

Why foreign remittance became a frequent trigger

Foreign remittance emerged as a major theme during the 2025 scrutiny cycle. The Department now has direct visibility of such transactions through AIS, Rule 37BB filings, and SFT reporting.

For individuals, scrutiny focused on outward remittances under the Liberalised Remittance Scheme (LRS). Notices sought explanation of source of funds, linkage with returned income, and TCS treatment under Section 206C(1G).

For businesses and professionals, scrutiny focused on payments to non-residents. The key issue was whether the payment was chargeable to tax in India. Where taxability existed, the Department examined compliance with Section 195, DTAA provisions, and Form 15CA/15CB requirements.

Two tax lenses applied by the Department

Outward payments are examined through two separate tax lenses, which often overlap.

The first lens applies to individuals. The focus is on source of funds, LRS limits, and TCS linkage. The Department seeks reconciliation between remittance value and disclosed income.

The second lens applies to businesses. The focus shifts to characterisation of payment, taxability under Section 9, DTAA analysis, and withholding obligation under Section 195. The Supreme Court principle in GE India applies, where withholding arises only if the sum is chargeable to tax.

Nature of notice determines response strategy

Taxpayers received different types of communications.

Some cases involved Compliance Portal verification requests. These required submission of explanation and documents.

Other cases involved statutory notices under Section 142(1). These required detailed reconciliation and evidence.

In certain cases, foreign remittance data was used as “information” for reassessment proceedings under Section 148A. These cases require strict procedural compliance.

Steps to Be Taken Before March 31

The date 31 March is important for all ongoing scrutiny cases under Section 143(2). The Assessing Officer must complete the assessment within the statutory time limit. Taxpayers must complete their compliance before this date to protect their position.

The first step is to check the scope of scrutiny on the income tax portal. Taxpayers must identify whether the case is limited scrutiny or complete scrutiny. The response must stay within the permitted scope unless the case is converted through due process.

The second step is AIS and TIS reconciliation. Every transaction appearing in AIS must match the income tax return. Any difference must be explained with documents. Unreconciled entries weaken the defence and invite additions.

The third step is collection of documents. Taxpayers must compile bank statements, transaction proofs, contracts, invoices, and tax payment records. Foreign remittance cases require remittance advice, purpose codes, and source-of-funds evidence.

Individuals must keep proof for education payments, medical treatment, travel, or family maintenance abroad. TCS paid under Section 206C must match AIS data.

Businesses must keep agreements, invoices, DTAA analysis, and withholding tax workings. Form 15CA and Form 15CB must support non-resident payments where applicable.

The fourth step is filing replies on the compliance portal. Responses must be clear and supported by documents. All submissions must be uploaded within the time allowed by the notice. Delay leads to adverse inference.

The fifth step is review of draft additions or proposed disallowances, if any communication is received. Taxpayers must counter incorrect assumptions with law and facts before the assessment order is passed.

The sixth step is tax demand planning. If additional tax is payable, taxpayers must decide payment, rectification, or appeal strategy before year-end. Interest exposure increases after assessment.

The final step is record preservation. All submissions, acknowledgements, and evidence must be saved. These records are required for appeal or rectification proceedings.

Failure to complete these steps before 31 March results in loss of opportunity. A complete and timely response controls litigation risk and protects the taxpayer from unnecessary additions.

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