Income Tax Scrutiny Assessment
An income tax scrutiny assessment is the Department’s detailed examination of a return it has selected. An officer, or a faceless assessment unit, checks whether the income, the deductions, and the tax paid in that return are supported by the papers. Selection for scrutiny is a direction to explain the points in the notice. It is not, by itself, a finding that income was concealed.
Two statutes now meet on this subject, and the notice tells you which one applies. The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the Income-tax Act, 1961. Section 536(2)(c) of the 2025 Act keeps the 1961 Act in operation for a proceeding that was already pending on that date, and for a proceeding started on or after that date, when the tax year began before 1 April 2026. In its published transition answers, the Central Board of Direct Taxes says that a scrutiny notice under section 143(2) for assessment year 2026-27, or for an earlier year, is completed under the 1961 Act. A tax year that begins on or after 1 April 2026 is dealt with under the 2025 Act, and the notice prints the section that applies. Read that section before you answer.
Under the 1961 Act, the usual path is a notice under section 143(2), followed by an assessment order under section 143(3). The rest of this article uses those section numbers, because that is the law for assessment year 2026-27 and earlier years. If your notice uses a section of the 2025 Act, follow the number on the notice. The work of lining up the year, the return, and the statements is the same.
A scrutiny notice is its own document
After a return is filed, the Centralised Processing Centre may send an intimation under section 143(1). That intimation can correct an arithmetical error or an incorrect claim that is apparent from the return itself. It is a processing of the return. It is a different step from an inquiry into your books.
A notice under section 142(1) calls on you to file a return, or to produce accounts, documents, and information. It can arrive on its own. It can also arrive during a scrutiny, when the unit wants a particular paper. A reassessment, under sections 147 to 151 of the 1961 Act for a tax year that began before 1 April 2026, is a further separate proceeding, about income the Department says was not assessed. Keep the 143(1) intimation, the 142(1) letter, and the 143(2) scrutiny notice apart, and reply to each one on its own record.
How a return is selected
The Department does not scrutinise every return. One route is Computer Assisted Scrutiny Selection, usually called CASS. The computer flags a return against risk rules. Those rules are not published in full. A figure in the return that does not match Form 26AS, the Annual Information Statement, or the Taxpayer Information Summary is a common reason a case is flagged. Another route is compulsory selection. Each financial year the Board issues a guideline that lists cases to be taken for complete scrutiny. Survey and search cases have appeared in those guidelines. The list changes from year to year, so the guideline for the year of selection is the one that matters. A mismatch on the Annual Information Statement does not, by itself, tell you that the case is on the compulsory list. The notice, and the record in your e-filing account, show how the case was picked.
Limited scrutiny and complete scrutiny
Where CASS has picked a case for limited scrutiny, the inquiry is meant to stay on the issues that caused the selection. The Board’s instructions provide that a limited case is widened into a complete scrutiny when the officer records why a wider look is needed and obtains the administrative approval the instruction requires. The taxpayer is to be told of that conversion. If your notice says “limited scrutiny”, answer those issues in full. In the same reply, ask for the scope to be kept to those issues unless you have already been told that the case has been converted. A complete scrutiny can range across the return for that year. In either kind, the year on the notice is the year you open. Papers from another year help only when they explain a figure in the year under check.
What the notice should show
The notice should name you, the year, the section, and the date by which a reply is due. Many notices also list the issues. The date printed on that notice is the date that binds you. A general impression that notices allow about a fortnight is not a substitute for the date on the letter. Check that the same notice is visible in your e-filing account under e-proceedings. A communication from the Department carries a Document Identification Number, and the portal copy is the one to answer. If a PDF arrives by email and the portal does not show it, sign in and confirm the notice before you treat the email as the proceeding.
There is an outer date for serving a notice under section 143(2). The proviso says that no such notice shall be served after three months from the end of the financial year in which the return was furnished. From 1 April 2021 that period is three months. It was six months before that date. A return furnished between 1 April 2025 and 31 March 2026 can be served with that notice only up to 30 June 2026. A return furnished between 1 April 2026 and 31 March 2027, where the 1961 Act still governs the year, can be served only up to 30 June 2027. If the notice was served after that outer date, say so in the first reply, and attach the filing acknowledgement and the date of service.
The Supreme Court, in CIT v. Laxman Das Khandelwal, held that section 292BB cures some defects in the manner of service when a person has taken part in the proceeding. It does not cure a case in which the notice was never issued. That judgment is about the absence of a notice. A notice that is present on your e-filing account is a notice to answer.
Faceless assessment
Most eligible scrutiny cases under the 1961 Act are made faceless, under section 144B. The National Faceless Assessment Centre allocates the case through an automated system to an assessment unit. Notices go out through the Centre, and the reply goes back through the Centre. On the screen, that is the e-filing portal. A verification unit can check a fact. A technical unit can be asked for a specialist view. Before a variation is made to the returned income, the procedure gives you a chance to respond to what is proposed. Where a personal hearing is allowed, it is by video conference. You ask for it in the response window.
Some cases stay with a jurisdictional charge. Compulsory-selection guidelines have kept international taxation charges and central charges on those charges. If your notice names a faceless centre, reply on the portal. If it names an officer, a ward, and a charge, follow the address and the mode printed on the notice. Do not send the working papers only to a local office when the proceeding is faceless, and do not ignore a local notice on the assumption that every case is faceless.
How long the assessment may run
The time for passing the order under section 143(3) is in section 153, and it depends on the assessment year. The Department’s published answer on its website states the limits, counted from the end of the assessment year in which the income was first assessable. For assessment year 2017-18 or earlier, the limit is 21 months. For 2018-19 it is 18 months. For 2019-20 it is 12 months. For 2020-21 it is 18 months. For 2021-22 it is 9 months. For assessment year 2022-23 and later years, it is 12 months. If the case is referred to a Transfer Pricing Officer, that published answer says the time is extended by 12 months. A return furnished because of an order under section 119(2)(b) is given, on the same page, 12 months from the end of the financial year in which that return is furnished.
These periods can be affected by a stay or by a special provision for the year in question. Use the year on your notice. Do not borrow the limit from a neighbouring year, and do not treat the outer date for serving the 143(2) notice as the date by which the order must be passed. Those are two different clocks.
Papers to line up
A useful reply is a reconciliation. Start with the year on the notice and open the return for that year only. Set the returned income beside Form 26AS, the Annual Information Statement, the Taxpayer Information Summary, and your books. A salary figure, a dividend, a property sale, or a bank-interest item may sit in a statement and also in the return under a different schedule. Tax deducted at source may already have been claimed. A receipt may belong to the next year. An amount may have been offered under another head. Write one note for each issue the notice names, and attach the page that proves it: the computation, the matching line from Form 26AS, the broker’s capital-gains statement, the bank credit, the donation receipt, or the invoice.
If a figure in a statement is wrong, say what is wrong and show the paper that corrects it. If a figure was left out of the return, say so in plain words. A reply that leaves a receipt out, or that moves a document to an earlier date, is not a reconciliation. Business and professional returns often draw questions on cash, creditors, expenses, and stock. A salaried return more often draws questions on Form 16, a second employer, interest, or a capital gain. A small difference can be the flagged issue. Answer that difference. A bundle of unrelated years, with no note of which page meets which issue, leaves the unit to guess.
How to reply
File the reply on the e-proceedings screen for that notice, before the date the notice states. Upload a clear PDF, name each file for the issue it answers, and keep the acknowledgement. If you need more time, ask for it on the same screen before the date passes, and say which paper is still to come. In a faceless case, an email to a local office does not stand in for the portal response.
The Department asks for records. It does not ask you to hand over a bank password, a one-time code, or remote access to an account. A message that asks for those things is not the way an assessment is conducted. Confirm any such message on the e-filing portal before you act on it.
If there is no reply
If you do not comply with the notice under section 143(2), or with a notice under section 142(1), the assessment can be completed under section 144 to the best of the judgment of the officer, on the material the Department already holds. That material may be the statements, without your explanation of them. An addition made that way can become a tax demand, with interest, and it can be followed by a penalty notice. Under-reporting and misreporting are dealt with under section 270A. If a penalty notice comes, it names the section and the amount proposed. Reply to that notice on its own. Leaving the scrutiny notice unanswered is not a way through the proceeding.
The order, the demand, and an appeal
The order under section 143(3) states the income assessed and the tax. It may accept the return, make an addition, disallow a deduction, or reduce a loss. A notice of demand then asks for the sum due. Section 220 requires the amount in a demand notice to be paid within thirty days of service, unless the notice gives a shorter period and records the reason. Read the order and the demand together. An amount you have already paid, or a refund already adjusted, should be pointed out with the challan number.
If you disagree with the order, two routes are ordinary. A mistake that is apparent from the record can be taken for rectification under section 154. A disagreement on the merits is an appeal to the Commissioner (Appeals) under section 246A. Section 249 sets a period of thirty days, counted from the service of the demand or the communication of the order, as that section states for the kind of order you hold. The order prints the appeal path for that case, including where the appeal is faceless. A delay can be asked to be excused, and the request needs reasons. File within the time the order prints. A further appeal to the Income Tax Appellate Tribunal, under section 253, is a later step and has its own period. This page does not draw the grounds of appeal.
What this page does
This tool reads the notice and the tax records you drop, lines the figures up, and guides you on what the papers show. It does not sign in to the income tax portal, and it does not submit a response. The reply you send is yours. Check it against the notice, the year, and the documents before you file it.
Sources
- Income Tax Department, time limit for an assessment under section 143(3) (opens in a new tab).
- Central Board of Direct Taxes, questions on the transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 (opens in a new tab), including the answer on a section 143(2) notice for assessment year 2026-27.
- The Income-tax Act, 2025 (opens in a new tab), which came into force on 1 April 2026.
- Income-tax Act, 1961, sections 142, 143, 144, 144B, 153, 154, 220, 246A, 249, 253, 270A, and 292BB.