CBDT Compulsory Income Tax Scrutiny Guidelines FY 2026-27: Understanding CS-01 to CS-06 and When Your ITR Can Be Selected
The Central Board of Direct Taxes (CBDT) has issued fresh guidelines for the compulsory selection of Income Tax Returns (ITRs) for Complete Scrutiny during Financial Year (FY) 2026-27. These instructions apply to returns filed during FY 2025-26 and specify the circumstances in which the Income Tax Department must conduct a detailed assessment.
Unlike computer-assisted risk selection, compulsory scrutiny is triggered by predefined events such as search, survey, reassessment proceedings, cancellation of exemption registrations, recurring tax disputes, or credible tax evasion information.
However, taxpayers should understand that selection for scrutiny does not automatically mean additional tax liability. It simply authorizes the Assessing Officer (AO) to examine the return in greater detail while following due process prescribed under the Income-tax Act.
What is Complete Scrutiny?
Complete Scrutiny is a comprehensive examination of an Income Tax Return to verify the correctness of income, deductions, exemptions, losses, books of account, investments, and other financial transactions disclosed by the taxpayer.
Unlike processing under Section 143(1), where returns are processed electronically with limited adjustments, scrutiny assessment involves detailed verification by the Assessing Officer or the National Faceless Assessment Centre (NaFAC).
During scrutiny, the Department may examine:
- Income disclosed in the return
- Business and professional books
- Bank transactions
- Capital gains
- Investments
- Tax deductions and exemptions
- High-value transactions
- Third-party information
- Supporting documents
Legal Framework Behind the Guidelines
The CBDT has issued these instructions through F. No. 225/56/2026/ITA-II dated 04 June 2026 for compulsory scrutiny of returns filed during FY 2025-26.
The guidelines categorize compulsory scrutiny into six specific codes (CS-01 to CS-06), each covering a different type of case requiring detailed examination.
Why Notice Under Section 143(2) is Crucial
Even if a return falls under compulsory scrutiny, the Department cannot proceed unless a valid notice under Section 143(2) is served within the statutory time limit.
For returns filed during FY 2025-26, the prescribed last date for serving notice is 30 June 2026.
The Supreme Court has consistently held that issuance of notice under Section 143(2) is a mandatory jurisdictional requirement for scrutiny assessments.
CBDT's Six Categories for Compulsory Scrutiny
| Code | Category | Trigger |
|---|---|---|
| CS-01 | Survey Cases | Survey conducted under Section 133A |
| CS-02 | Search/Requisition Cases | Search under Section 132 or requisition under Section 132A |
| CS-03 | Reassessment Cases | Notice issued under Section 148 |
| CS-04 | Registration/Approval Cases | Exemption claimed despite cancellation or denial of registration |
| CS-05 | Recurring Addition Cases | Similar tax issue added in earlier assessment years |
| CS-06 | Specific Tax Evasion Information | Credible information received from investigation or enforcement agencies |
CS-01: Survey Cases Under Section 133A
Returns become eligible for compulsory scrutiny where a survey has been conducted under Section 133A on or after 1 April 2024.
This category generally covers situations involving:
- Excess stock
- Cash discrepancies
- Unrecorded purchases or sales
- Loose documents found during survey
- Suppression of business receipts
- GST and Income Tax turnover mismatches
- Admissions of undisclosed income
It is important to remember that conducting a survey alone is not enough to justify an addition. The Department must establish actual discrepancies and quantify their tax implications.
CS-02: Search and Requisition Cases
Cases involving:
- Search under Section 132, or
- Requisition under Section 132A
initiated on or after 1 April 2024 are covered under CS-02.
These proceedings generally involve examination of:
- Undisclosed cash
- Jewellery
- Unaccounted investments
- Seized documents
- Digital evidence
- Property transactions
- Accommodation entries
- Foreign assets
Selection for scrutiny does not automatically establish concealment. The Department must correlate the seized material with the relevant assessment year and provide the taxpayer an opportunity to explain the evidence.
CS-03: Reassessment Cases Under Section 148
Any return connected with reassessment proceedings initiated through a notice under Section 148 falls under CS-03.
Typical reasons include:
- Escaped income
- High-value property transactions
- Large cash deposits
- Undisclosed capital gains
- Share trading transactions
- AIS or SFT-based information
- Bogus deduction claims
The reassessment must be supported by legally sustainable information, and the taxpayer should have access to the material relied upon by the Department.
CS-03(i): Search or Survey-Based Reassessment
This sub-category covers reassessment proceedings arising from earlier search or survey actions.
The Department must establish a clear nexus between the material discovered and the income alleged to have escaped assessment.
General allegations or third-party statements without corroborative evidence cannot independently justify additions.
CS-03(ii): Other Reassessment Cases
This category covers reassessment proceedings unrelated to search or survey operations.
Examples include:
- AIS mismatches
- SFT reporting
- Property transaction information
- TDS mismatches
- Bank transaction reporting
- Foreign remittance information
A mere data mismatch is insufficient by itself. The taxpayer may demonstrate that the transaction is already disclosed, exempt, jointly owned, or otherwise correctly reported.
CS-04: Trusts, Charitable Institutions and Approved Entities
This category applies where entities claim exemption despite issues relating to registration or approval under provisions such as:
- Section 12A
- Section 12AB
- Section 10(23C)
- Section 35
Scrutiny may arise if:
- Registration has been cancelled
- Approval has been withdrawn
- Registration was never granted
- Exemption is nevertheless claimed in the return
However, if appellate authorities subsequently restore the registration or approval, such cases are generally excluded from this category.
CS-05: Recurring Additions from Earlier Years
Returns may be selected where an issue has repeatedly resulted in additions in earlier assessment years.
Common recurring issues include:
- Bogus purchases
- Cash credits
- Transfer pricing adjustments
- Section 14A disallowances
- Section 40(a)(ia) disallowances
- Depreciation disputes
- Related-party transactions
The CBDT has prescribed monetary thresholds:
| Jurisdiction | Minimum Earlier Addition |
|---|---|
| Metro Charges | Above ₹50 lakh |
| Other Charges | Above ₹20 lakh |
Even then, each assessment year remains independent, and taxpayers can distinguish the current year’s facts from earlier years.
CS-06: Specific Information of Tax Evasion
CS-06 covers cases where credible information indicating possible tax evasion is received from:
- Investigation Wing
- Intelligence agencies
- Regulatory authorities
- Law enforcement agencies
- Other Government departments
Typical situations include:
- Accommodation entries
- Bogus purchases
- Shell company transactions
- Fake donations
- Suspicious banking activities
- Undisclosed investments
- GST-related intelligence inputs
Importantly, routine notices arising merely from:
- AIS
- SFT
- CPC-TDS
- NMS
- Directorate of I&CI
do not automatically result in compulsory scrutiny unless supported by specific evidence pointing towards tax evasion.
Separate Treatment for International Taxation and Central Charges
The CBDT has clarified that cases handled by:
- International Taxation Units
- Central Charges
may also be selected under the same compulsory scrutiny parameters.
Such cases continue to remain under their respective specialized jurisdictions and are not routed through the National Faceless Assessment Centre.
Key Compliance Takeaways
Taxpayers should remember the following:
- Compulsory scrutiny is based on predefined CBDT parameters.
- Selection does not automatically result in additions.
- The Assessing Officer must follow principles of natural justice.
- Every taxpayer must receive a valid notice under Section 143(2).
- Evidence relied upon by the Department should be disclosed wherever required.
- Each assessment year is evaluated independently.
- Routine AIS or SFT mismatches alone do not trigger compulsory scrutiny unless covered under CS-06.
Conclusion
The CBDT’s compulsory scrutiny guidelines for FY 2026-27 provide greater transparency regarding the categories of returns that will undergo detailed examination. By clearly defining six scrutiny parameters—ranging from survey and search cases to reassessment proceedings, exemption-related issues, recurring disputes, and credible tax evasion information—the Department has established a structured framework for scrutiny selection.
For taxpayers, the key takeaway is that scrutiny is a verification process, not a presumption of wrongdoing. A valid notice under Section 143(2), adherence to statutory procedures, and the opportunity to present explanations remain fundamental safeguards throughout the assessment process. Understanding these guidelines enables taxpayers and professionals to prepare appropriate documentation, respond effectively to departmental notices, and ensure compliance with the provisions of the Income-tax Act.
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