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.
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:
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.
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.
| 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 |
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:
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.
Cases involving:
initiated on or after 1 April 2024 are covered under CS-02.
These proceedings generally involve examination of:
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.
Any return connected with reassessment proceedings initiated through a notice under Section 148 falls under CS-03.
Typical reasons include:
The reassessment must be supported by legally sustainable information, and the taxpayer should have access to the material relied upon by the Department.
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.
This category covers reassessment proceedings unrelated to search or survey operations.
Examples include:
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.
This category applies where entities claim exemption despite issues relating to registration or approval under provisions such as:
Scrutiny may arise if:
However, if appellate authorities subsequently restore the registration or approval, such cases are generally excluded from this category.
Returns may be selected where an issue has repeatedly resulted in additions in earlier assessment years.
Common recurring issues include:
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 covers cases where credible information indicating possible tax evasion is received from:
Typical situations include:
Importantly, routine notices arising merely from:
do not automatically result in compulsory scrutiny unless supported by specific evidence pointing towards tax evasion.
The CBDT has clarified that cases handled by:
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.
Taxpayers should remember the following:
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.
How can we help? *
