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Hello,
I had a fight with my wife, she called the police and police came to our home. When police arrived, she calmed down she said she is fine, police took note of the incident and thats it, no official paper no arrest no official warning no paperwork
Question: " Do I need to mention this in my citizenship application under good character section? If yes, will it be a reason to refuse my application
thanks for your answers

I would mention it, it won't have an effect on your good character as you were not arrested. Is this your only close encounter with police enforcement?

Yes, that is the only one.
Under what section would I mention it? other?
I was planning not to as there has been no official procedure undertaken - no document signed etc

It won't have an effect on your application. I would disclose just for transparency. You can mention it in the good character section or in any other section, or in a cover letter.

What happens if I do not disclose? I do not want to complicate the application

Disclosing it reduces the risk if anything, as if you don't disclose it and any other issue may arise, it may be seen as wanting to hide things. Just write a letter and describe what happened.