SUMMARY
| For returns filed during FY 2025-26, the department had to issue the Section 143(2) notice on or before 30 June 2026. After that date, the selection is not valid.
CBDT prescribed six compulsory selection categories, CS-01 to CS-06, through its guidelines dated 4 June 2026. A return you filed in reply to a routine Section 142(1) data letter does not become compulsory scrutiny on that basis alone. The draft assessment order decides the outcome, not the first notice. The objection window there is commonly three to seven days. Your open assessment years sit under the 1961 Act. Your current compliance sits under the Income-tax Act, 2025. Both apply to the same file at the same time. Tax advisory services change outcomes by moving work forward, not by arguing harder at the end. |
DIRECT ANSWER
| What do tax advisory services do during an income tax scrutiny?
Tax advisory services handle four things once your company is under income tax scrutiny. They measure your exposure across open years before a notice arrives. They build the reply to Section 143(2) and Section 142(1) queries in the right evidentiary order. They rebut the draft assessment order point by point inside the objection window. And they run the appeal decision as a financial calculation rather than an instinct. |
Your company received a notice under Section 143(2). The reply window opened the day it landed in the e-Proceedings tab, not the day somebody in accounts mentioned it to you.
If your registered email still routes to a manager who left last year, the clock has been running for two weeks and nobody in your finance function knows it yet. That is how a defensible position becomes an addition. Not through a weak argument. Through a window that closed while the file sat unopened.
The dates that decide whether the notice is even valid
Precision matters more here than anywhere else in the process, because two of these dates are absolute.
For returns filed during FY 2025-26, the department had to issue the Section 143(2) notice on or before 30 June 2026. Once that date passed without a notice, the selection cannot be made. A notice issued after it fails on limitation regardless of what the file contains.
Your objection window on the draft assessment order runs a few days, commonly three to seven. Your appeal window under Form 35 runs thirty days from the order.
Two of those three windows are shorter than a single board meeting cycle. Plan the calendar around them before you plan the argument.
Six triggers CBDT set for this cycle
CBDT issued the parameters on 4 June 2026 under Section 536(2)(c) of the Income-tax Act, 2025. Six categories, coded CS-01 to CS-06. Selection under most of them happens centrally through the Systems Directorate rather than through your jurisdictional officer, which means no local discussion changes it.
| Trigger | What it looks like in your company | First document to pull |
| Survey under Section 133A | The department visited a premises on or after 1 April 2024, other than a Section 133A(2A) case | The survey statement and every impounded record |
| Search or requisition | Proceedings under Section 132 or 132A began on or after 1 April 2024 | Seizure inventory and the panchnama |
| Cancelled registration | A registration or exemption got withdrawn while the return still claims the benefit | The cancellation order and the exemption working |
| Recurring additions | The same issue was added in an earlier year and your position has not changed since | The earlier assessment order and any appeal outcome |
| Enforcement information | A law enforcement, intelligence or regulatory agency passed on specific evasion information | Nothing yet. Take advice before filing anything further |
| Central and international charges | Your case sits with a Central Circle or International Taxation charge and gets picked on the same parameters with prior approval | The complete transfer pricing and foreign remittance file |
What a Section 142(1) data letter is not
CBDT clarified this directly, and it saves finance teams a fortnight of wasted effort.
A return you filed in reply to a routine Section 142(1) notice, generated from the NMS cycle, AIS, SFT or CPC TDS data streams, does not become compulsory scrutiny on that basis alone. It qualifies only if it independently meets one of the six prescribed parameters.
So a data mismatch letter and a scrutiny selection are different events with different consequences. Teams that treat them identically exhaust their capacity on the wrong one, then have nothing left when the real notice arrives.
The exposure your own operations create
The CBDT list covers how you get selected. What actually gets added usually comes from inside the business, and it accumulates quietly across the year.
- Related party and intercompany pricing documented as a number rather than as a rationale. Everyone in the room knows the price is fair. Nobody wrote down why, and the file has to make the case without them.
- Cross border payments where withholding was decided on treaty rate assumptions that were never papered with the residency certificate and Form 15CB trail.
- TDS deducted late or not at all, which brings a flat 30 percent disallowance of the linked expense.
- MSME payables cleared past the deadline. The Central Processing Centre matches what your tax audit report declared against what your return actually added back. A gap between the two gets flagged without a human reading anything.
- Weak internal financial controls across multiple locations, where the same plant or branch produces a different reconciliation depending on who ran it. A query about one location becomes a query about all of them.
Two statutes, one open file
The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the 1961 Act. That creates a working condition your team has not dealt with before.
Your open assessment years get defended under a statute that has been repealed. Your current compliance runs under the new one. The notice quotes one set of section numbers. Your current advice quotes another. Both are correct simultaneously, and finance teams routinely read the mismatch as an error in the notice.
The practical consequence sits in your own documentation. Take the MSME payment provision that everyone knows as Section 43B(h). Under the 2025 Act it carries a different number. Your team searches internal notes and standard operating procedures for 43B(h), finds nothing, and concludes the requirement lapsed. It did not lapse.
Faceless assessment moved in the same direction. It used to operate through scheme notifications. It now sits in the statute itself, and the right to request a personal hearing before the designated officer is written into law rather than granted administratively. Ask for it in writing and retain the acknowledgement.
Where the case is actually won
Most content on this subject stops at the notice. The notice is the least consequential document in the sequence.
After your replies go in, the assessment unit issues a draft assessment order proposing additions, recomputed tax and interest under Sections 234A, 234B and 234C. You get a few days to file written objections. A structured rebuttal at this stage, mapped point by point against each proposed addition and supported by documents, precedent and CBDT circulars, gets proposed additions reduced or dropped. No response at all, and the draft becomes your binding final order.
Three practical constraints shape what you can actually file in that window.
The portal caps you at ten attachments per submission and 5 MB per file, so a full ledger extract does not upload. Somebody has to decide what answers the question and what merely feels reassuring. Volume reads as noise, not cooperation.
Documents rebuilt after the query read like documents rebuilt after the query. Fonts shift, numbering breaks, signatures appear on records that never carried them. Officers see hundreds of these each year.
And an answer to a question nobody asked opens a line of enquiry you had already closed.
Can our finance team handle this internally?
This is the question worth answering honestly, because the answer is partly yes.
Your team should own the documents. Reconciling books to the return, to Form 3CD, to GST filings and to the AIS is internal work, and nobody outside your company will do it faster or better. Routine Section 142(1) data replies, vendor confirmations, ledger extracts and the variance sheet all belong in house. Paying for that is paying twice.
Where it goes wrong is narrower and more specific.
It goes wrong at the draft order stage, where the objection has to be drafted, evidenced and filed inside a window measured in days by someone who has argued the same point before. It goes wrong in how an addition gets characterised, because characterisation drives the penalty band, and misreported income can carry penalty at 200 percent. It goes wrong on positions that straddle both statutes, where the section in the notice and the section in current law are not the same section. And it goes wrong on transfer pricing and cross border queries, where the documentation standard is different from anything in your domestic file.
Most in house teams have handled a handful of assessments across an entire career, and none of them recently under a new Act. That is a matter of exposure, not competence.
For context on what depth looks like on the technical side, PKC contributed subject matter expertise to the development of ITR-6 on the Government of India income tax portal, working on how company taxation provisions map into the structure of the return itself. Reading a query about a schedule in that return is a different exercise for a team that worked on how the schedule was built.
The 21 day readiness plan
Run this without a notice in hand. Companies with open years across multiple locations should run it now rather than in the selection window.
| Week | What happens | Owner | Output |
| Week 1 | Reconcile books to the return, tax audit report, GST filings and AIS across every open year and every registration | Finance controller | A written variance sheet with an explanation against every gap above your materiality threshold |
| Week 2 | For the ten largest transactions in each open year, assemble the file a stranger would need to understand them, including related party and cross border items | Accounts manager | An indexed evidence folder organised by issue, not by year |
| Week 3 | Draft the answer to the three questions you least want asked. Then fix authority | Finance head with advisor | A named file owner, a portal access list covering at least two people, and a signed delegation for submissions |
None of it depends on a section number, which is why it survives the transition between statutes.
What it costs when this goes wrong
Put real figures against each of these before you decide the readiness work is not worth the time.
Working capital sits frozen against a demand while interest accrues on the disputed amount. Penalty exposure scales with characterisation rather than with quantum. Two quarters of finance leadership attention gets consumed, and that has a measurable revenue cost in a business your size. An open assessment surfaces in every lender covenant review and every investor diligence, which lengthens the process and affects the terms. And unresolved matters compound, because a position added in one year becomes a recurring additions trigger in the next.
Common mistakes to avoid
- Leaving portal access and the registered email with one person. Keep access with at least two, and verify the registered email every quarter.
- Replying to the first notice before establishing what the department already holds.
- Uploading everything available because volume feels like cooperation.
- Answering a question that was not asked.
- Scheduling travel or board commitments during the draft order window. Block that period the moment your replies go in.
- Treating a Section 142(1) data letter as a full scrutiny selection.
- Deciding to appeal on principle. Run quantum, characterisation, cost of capital and likely timeline first.
- Waiting for a notice before fixing documentation habits.
Start with your open years
If you are not certain which of your open assessment years carry positions that would survive a direct question, that is the fastest thing to establish first. Schedule an Appointment and PKC will work through your open years with you.
Frequently asked questions
When must the department issue a Section 143(2) notice?
For returns filed during FY 2025-26, the notice had to be issued on or before 30 June 2026. Once that date passes without a notice, the scrutiny selection is not valid. Check the registered email and the e-Proceedings tab rather than assuming nothing arrived.
Does an AIS or SFT mismatch put my return into scrutiny?
No. CBDT clarified that a return filed in reply to a routine Section 142(1) notice generated from NMS, AIS, SFT or CPC TDS data does not become compulsory scrutiny on that basis alone. It qualifies only if it independently meets one of the six prescribed parameters.
How long do I get to respond to a draft assessment order?
Commonly three to seven days. This window decides most cases. A structured point by point objection here gets proposed additions reduced or dropped, and no response means the draft becomes your binding final order.
Can I request a personal hearing under faceless assessment?
Yes. The right to request a hearing before the designated officer at the National Faceless Assessment Centre now sits in the Income-tax Act, 2025 rather than in a scheme notification. Request it in writing and retain the acknowledgement.
Which assessment years get defended under which Act?
Open years continue under the Income-tax Act, 1961 provisions that applied when the return was filed. Compliance from 1 April 2026 runs under the Income-tax Act, 2025. The same file can carry both, which is why section numbers in the notice may not match section numbers in current advice.
What happens if we simply pay the demand instead of appealing?
Sometimes that is the correct commercial decision. Run it as a calculation covering quantum, how the addition was characterised and the penalty band that follows, your cost of capital on the disputed sum, the likely timeline, and the strength of precedent on the specific issue.
EDITORIAL FLAGS
These sit outside the article. Do not publish this page.
- Audience definition conflict. The ICP guide defines the tax buyer as Rs 100 crore plus turnover with Rs 3 crore plus annual tax spend, decided by CFO, Finance Director, Head of Tax, Finance Controller or MD. The original draft was written for and titled around Indian SMEs and promoters. Title, slug and audience framing moved upward to comply. If SME was a deliberate keyword decision that overrides the ICP, all three need reverting.
- Content type conflict. The BOFU guide assumes PKC owned content. It prescribes the Schedule an Appointment CTA and applies the delete every mention of PKC test. The original draft was built as a guest post for third party publication. This version is written as on site BOFU. If it still goes to Taxmann, Taxguru or CFO India, the CTA and the PKC references have to come out and an author bio block goes in.
- Removed content, deliberately. BOFU guide Section 7 prohibits superlatives, comparisons to other firms and sales pressure on ICAI registered content. Removed: the Who to call when the notice lands section, the five option ranking, the option comparison table, the resolved more than 80 percent of tax cases claim, and the named client testimonial. Roughly 900 words. This conflicts with the brand at position one instruction from the earlier brief. The guide was treated as taking precedence.
- Removed the first person anecdote. The draft opened with a personal account of a promoter finding a notice nineteen days late. It was a placeholder, not a verified PKC engagement. Replace with a real anonymised engagement if the narrative opening is wanted back.
- Unverified statutory detail. The renumbering of the MSME payment provision and the faceless assessment sections under the Income-tax Act, 2025 need checking against the bare act before publication. The text is written around the exact new section numbers rather than asserting them.
- ICP services not yet covered. The ICP lists Forensic Audit, M&A tax advisory and FEMA or RBI compliance as core tax offerings. This article touches transfer pricing and cross border withholding only. Those three are better served by separate BOFU pieces.