What Is Scrutiny Assessment?
Scrutiny assessment is the detailed examination of a taxpayer's return and supporting material to determine the correct total income or loss and the resulting tax liability or refund. It is fundamentally different from the limited processing of a return.
Under the Income-tax Act, 2025, Section 270(8) authorises a scrutiny notice where the Assessing Officer or prescribed income-tax authority considers it necessary or expedient to ensure that the assessee has not understated income, computed excessive loss or under-paid tax.
Scrutiny Notice under Section 270(8)
The notice may require the assessee, on the date specified, either to attend before the Assessing Officer or to produce, or cause to be produced, evidence on which the assessee relies in support of the return.
Time limit for service: Section 270(9) states that a notice under Section 270(8) cannot be served after three months from the end of the financial year in which the return is furnished.
Procedure for Scrutiny Assessment
- Return filed: The taxpayer furnishes the return under the applicable return provision.
- Selection for scrutiny: The return may be selected under applicable risk-management criteria, statutory powers and administrative instructions.
- Scrutiny notice: A notice under Section 270(8) is served within the statutory limitation period.
- Information and evidence: The taxpayer furnishes explanations, accounts, documents and other evidence relevant to the issues examined.
- Further inquiry: The Assessing Officer may seek evidence on specified points and take into account relevant material gathered during the proceedings.
- Opportunity of hearing: Adverse material or proposed variations must be dealt with in accordance with the applicable statutory procedure and principles of natural justice.
- Assessment order: Under Section 270(10), the Assessing Officer makes a written assessment of total income or loss and determines the amount payable or refund due.
What May Be Examined in Scrutiny?
Depending on the issues and scope of selection, scrutiny may involve examination of income, deductions, exemptions, business expenses, investments, loans, creditors, bank transactions, purchases and sales, TDS/TCS credits, capital gains, depreciation, foreign transactions, related-party transactions, audit particulars, losses and other information relevant to determining taxable income.
The taxpayer may be asked for books of account, bank statements, invoices, agreements, confirmations, investment records, expenditure details, supporting documents for deductions, debtor and creditor details, audit reports and other relevant evidence.
Scrutiny Does Not Automatically Mean an Addition
A scrutiny assessment may accept the returned income, make additions or disallowances, determine a different loss, or result in additional demand or refund. Any variation must rest on the applicable law and relevant material.
Time Limit for Completing Scrutiny Assessment
For assessment orders under Section 270(10) of the Income-tax Act, 2025, the limitation is governed by Section 286. The table in Section 286(1) provides a general period of one year, calculated from the end of the financial year succeeding the relevant tax year for which the assessment is made.
Special rules apply where an updated return is furnished or where an assessment is made in consequence of a specified order. Section 286 also contains detailed exclusions and extensions.
Faceless Scrutiny Assessment
Section 273 of the Income-tax Act, 2025 provides the statutory framework for faceless assessment in specified cases. It permits the Board to establish the National Faceless Assessment Centre and assessment, verification, technical and review units.
The official provision states that an assessment unit may analyse material, identify issues relevant to liability, seek information or clarification, determine proposed variations and make an assessment after taking relevant material into account and giving the assessee an opportunity of being heard.
Scrutiny Assessment Compared with Return Processing
| Particular | Return processing | Scrutiny assessment |
|---|---|---|
| Current provision | Section 270(1) to (7) | Section 270(8) to (10) |
| Nature | Limited statutory processing | Detailed examination |
| Evidence | Primarily return and processing information | Documents, accounts and other evidence may be examined |
| Notice | Processing/intimation framework | Notice under Section 270(8) |
| Result | Intimation | Written assessment order under Section 270(10) |
Legacy Section 143(2) and Section 143(3) of the Income-tax Act, 1961
For assessment years and proceedings that remain governed by the Income-tax Act, 1961, the familiar framework continues to apply: Section 143(2) deals with the scrutiny notice and Section 143(3) with the scrutiny assessment order.
For the legacy regime, the current statutory time limit for serving a Section 143(2) notice is generally three months from the end of the financial year in which the return is furnished. The general completion limit for assessments for AY 2022-23 onwards under Section 153 is 12 months from the end of the relevant assessment year, subject to statutory extensions, exclusions and special rules.
Legacy Section 143(1), 143(3) and 144 Compared
| Provision | Nature | Purpose |
|---|---|---|
| Section 143(1) | Processing / intimation | Limited statutory processing and permitted adjustments |
| Section 143(3) | Scrutiny assessment | Detailed examination and determination of total income or loss |
| Section 144 | Best-judgment assessment | Assessment where specified filing or compliance failures occur |
What Should a Taxpayer Do after Receiving a Scrutiny Notice?
- Check the tax year or assessment year and the statutory provision under which the notice has been issued.
- Verify the date and mode of service and the applicable limitation period.
- Identify whether the scrutiny is limited to specified issues or is wider in scope.
- Reconcile the return with books, financial statements, tax-credit information and supporting records.
- Collect documents supporting income, expenditure, deductions, exemptions, investments and other claims under examination.
- Respond within the prescribed time and retain acknowledgements or proof of electronic submissions.
- Examine any proposed adverse variation and respond with facts, evidence and applicable legal provisions.
Official References
Income Tax Department - Section 270, Income-tax Act, 2025
Income Tax Department - Section 273, Faceless Assessment
Income Tax Department - Section 286, Time Limit for Assessment
Income Tax Department - Income-tax Act, 2025 and Rules, 2026
Frequently Asked Questions
What provision now governs scrutiny assessment?
For current tax years under the Income-tax Act, 2025, Section 270(8) provides for the scrutiny notice and Section 270(10) provides for the resulting assessment order.
What is the time limit for a scrutiny notice under the new Act?
Three months from the end of the financial year in which the return is furnished.
Is scrutiny assessment the same as processing of a return?
No. Return processing is limited and largely computational. Scrutiny involves detailed examination of the return, evidence and relevant material.
Does Section 143(3) still matter?
Yes. It remains important for earlier assessment years and proceedings governed or preserved under the Income-tax Act, 1961.
Can scrutiny assessment be conducted facelessly?
Yes, where the faceless-assessment framework under Section 273 applies.