Scrutiny Assessment under Income Tax – Notice, Procedure & Reply

Scrutiny Assessment is a detailed examination of an Income Tax Return by the Income Tax Department to verify the correctness of the income declared, deductions or exemptions claimed, losses reported and taxes paid by the taxpayer.

Under the Income-tax Act, 2025, which applies from 1 April 2026, scrutiny proceedings are covered by section 270. Where the prescribed income-tax authority considers it necessary to verify that income has not been understated, excessive loss has not been computed or tax has not been underpaid, a notice may be issued under section 270(8). After considering the taxpayer’s evidence and other relevant material, the Income Tax assessment may be completed under section 270(10).

For proceedings relating to earlier tax years, references to scrutiny notices and assessments under sections 143(2) and 143(3) of the Income-tax Act, 1961 may continue to remain relevant under the applicable transitional provisions.

This article explains what Scrutiny Assessment is, how a scrutiny notice is issued, the assessment procedure, documents generally required and how a taxpayer should respond to scrutiny proceedings.

1. Self-Assessment under Section 140A
2. Summary assessment under Section 143(1)
3. Scrutiny assessment under Section 143(3)
4. Best Judgment Assessment under Section 144
5. Protective assessment
6. Re-assessment or Income escaping assessment under Section 147
7. Assessment in case of search under Section 153A

In this article we are discussing in detail about one of the most prominent assessment under Income Tax that is the Scrutiny Assessment prescribed under Section 143(3) of the Income Tax Act, 1961.

What is Scrutiny Assessment?

Scrutiny Assessment is a detailed examination of the Income Tax Return filed by a taxpayer to verify whether the income, deductions, exemptions, losses, expenses and tax liability reported in the return are correct and supported by appropriate evidence.

Under section 270(8) of the Income-tax Act, 2025, a scrutiny notice may be issued where the income-tax authority considers it necessary to ensure that the taxpayer has not:

• understated income;
• computed excessive loss; or
• underpaid tax in any manner.

During the scrutiny proceedings, the taxpayer may be required to furnish explanations, books of account, bank statements, invoices, agreements, confirmations and other supporting documents relevant to the issues under examination.

After considering the taxpayer’s evidence and other relevant material, the Assessing Officer may complete the assessment and determine the total income or loss and the amount of tax payable or refund due.

For earlier tax years and proceedings continuing under the Income-tax Act, 1961, scrutiny assessment may continue to be referred to under sections 143(2) and 143(3), subject to the applicable transitional provisions.

How Are Cases Selected for Scrutiny Assessment?

Not every Income Tax Return is selected for scrutiny. A return may be selected on the basis of risk parameters, information available with the Income Tax Department or specific criteria prescribed by CBDT.

Broadly, scrutiny cases may arise through:

1. Risk-based or system-based selection – Returns may be identified for scrutiny through computerised risk analysis and information available with the Income Tax Department.
2. Limited Scrutiny – Only specific issues identified for examination are considered. The enquiry ordinarily remains restricted to those identified issues. The Income Tax Department continues to recognise Limited Scrutiny and Complete Scrutiny as the two principal forms of scrutiny examination.
3. Complete Scrutiny – The return may be examined comprehensively where the case is selected under the applicable criteria.
4. Compulsory Scrutiny – CBDT issues guidelines specifying categories of cases that must be selected for complete scrutiny for the relevant year.

For FY 2026-27, CBDT’s compulsory scrutiny guidelines include, among others, specified cases relating to surveys, searches or requisitions, certain reassessment cases, withdrawal/non-grant of specified registrations or approvals, recurring additions above prescribed thresholds, and cases involving specific information regarding tax evasion.

The criteria for compulsory scrutiny may change from year to year. Therefore, the applicable CBDT guidelines for the relevant year should always be checked.

Scrutiny Assessment Notice – What Should a Taxpayer Do?

On receiving a scrutiny assessment notice, the taxpayer should carefully review the issues raised and respond within the time specified in the notice.

The following steps should generally be followed:

1. Review the notice carefully – Check the relevant tax year, issues under scrutiny, information required and the due date for submission.
2. Reconcile the Income Tax Return – Verify the figures reported in the return with books of account, Form 26AS, AIS/TIS, bank statements, GST records and other relevant documents, wherever applicable.
3. Prepare an issue-wise reply – Each query raised in the notice should be answered separately with a clear explanation and appropriate supporting documents.
4. Submit the response electronically – Notices and responses can generally be viewed and submitted through the e-Proceedings facility on the Income Tax e-Filing portal.
5. Seek additional time, if required – Where more time is genuinely required to compile information or documents, an adjournment request may be submitted through the e-Proceedings facility, wherever available.
6. Keep proof of submission – Preserve the acknowledgement, transaction ID and a complete copy of the reply and documents submitted for future reference.

A scrutiny notice should not be ignored. An incomplete or unsupported response may result in further queries, proposed additions or an adverse assessment order.

Documents Required for Scrutiny Assessment

The documents required during a Scrutiny Assessment depend upon the issues raised by the Income Tax Department and the nature of the taxpayer’s income and transactions.

Depending on the case, the taxpayer may be required to submit:

• Copy of the Income Tax Return and computation of income
• Audited financial statements, where applicable
• Books of account and relevant ledgers
• Bank statements
• Form 26AS and AIS/TIS reconciliation
• Details of income, expenses, deductions and exemptions claimed
• Purchase and sales invoices
• GST returns and reconciliation, where relevant
• Loan and creditor confirmations
• Investment and property-related documents
• Agreements, contracts and supporting correspondence
• TDS certificates and tax payment challans
• Any other evidence specifically requested in the scrutiny notice

Each document should be properly reconciled with the Income Tax Return and should directly support the explanation submitted in response to the notice.

Where a particular document is not available, the taxpayer should explain the reason and provide alternative supporting evidence, wherever possible.

Scrutiny Assessment Procedure – Step by Step

The Scrutiny Assessment procedure broadly involves the following stages:

1. Issue of Scrutiny Notice – Where the Income Tax Department considers detailed verification of the return necessary, a scrutiny notice may be issued requiring the taxpayer to furnish evidence in support of the return.
2. Examination of Issues and Documents – The taxpayer should identify the matters under examination and prepare the relevant explanations, reconciliations and supporting documents.
3. Submission of Reply – The taxpayer submits an issue-wise response together with supporting evidence through the Income Tax e-Filing portal within the time specified in the notice.
4. Further Information or Verification – During the proceedings, further information, clarification, documents or verification may be sought where required.
5. Opportunity of Being Heard – Before completing the assessment, the taxpayer must be given an opportunity to explain the relevant facts and evidence. In cases covered by the faceless assessment framework, communications and proceedings are generally conducted electronically through the National Faceless Assessment Centre and the e-Proceedings facility.
6. Passing of Assessment Order – After considering the taxpayer’s submissions, evidence and other relevant material, the assessment is completed by determining the total income or loss and the resulting tax payable or refund due.

If the taxpayer is aggrieved by the assessment order, the appropriate rectification, appeal or other remedy may be considered depending upon the nature of the issue.

Common Issues Examined During Scrutiny Assessment

The issues examined during a Scrutiny Assessment depend upon the facts of the case and the reasons for which the return has been selected. Common areas of examination may include:

• Mismatch between income reported in the Income Tax Return and Form 26AS/AIS/TIS
• Large or unusual bank deposits and financial transactions
• Deductions or exemptions claimed in the return
• Business expenses and their supporting evidence
• Loans, unsecured creditors and other liabilities
• Share capital or investments received
• Purchase and sales transactions
• Capital gains arising from sale of shares, securities or immovable property
• Property transactions and valuation issues
• TDS/TCS mismatches
• GST turnover or transaction differences, where relevant
• Foreign income, assets or remittances
• Losses claimed or carried forward
• High-value transactions reported by third parties

The taxpayer should respond only to the issues raised in the notice and support the explanation with appropriate documentary evidence. In a Limited Scrutiny case, the examination ordinarily remains confined to the specific issues identified for scrutiny.

Note on Income-tax Act, 2025:

The Income-tax Act, 2025 came into force from 1 April 2026. However, Income Tax assessment and other proceedings relating to earlier tax years may continue under the Income-tax Act, 1961 in accordance with the repeal, saving and transitional provisions under section 536 of the Income-tax Act, 2025. Accordingly, references to sections 143(2), 143(3), 144B and other provisions of the Income-tax Act, 1961 may continue to remain relevant for such proceedings.

Last Updated: August 2026