Scrutiny Notice Response under the Income-tax Act, 2025
Quick Answer
A scrutiny notice under the Income-tax Act, 2025 (the Sec 143(2) equivalent) must be served within three months from the end of the tax year in which the return was filed. It is processed entirely through faceless assessment under Chapter XVI. The taxpayer must upload documents, respond through the e-filing portal, and can request a video hearing. Non-compliance triggers best judgment assessment, penalty and prosecution. Appeal lies with CIT(A), ITAT, High Court and Supreme Court.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
From 1 April 2026, scrutiny assessments are governed by the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 after receiving Presidential assent on 21 August 2025. The new statute retains the core idea of a scrutiny notice but reframes it inside a single, unified Chapter XVI on assessment procedure. Taxpayers who receive their first scrutiny notice under the new framework often feel unprepared because the old section numbers no longer appear in the notice. This guide walks a taxpayer through exactly what the new scrutiny notice looks like, how long is available to respond, what documentary record must be built, how the faceless hearing works in practice, and how to preserve appeal rights. It is written for individuals, professionals, small businesses and mid-market companies whose tax year 2026-27 returns may come up for examination in 2027 and 2028.
Definition — Scrutiny Notice: A written notice issued by the Faceless Assessment Unit under the Sec 143(2) equivalent of the Income-tax Act, 2025 informing a taxpayer that the return for a particular tax year has been selected for detailed examination, requiring the taxpayer to produce evidence and explanations through the e-filing portal.
Read the notice carefully and identify whether it is a limited scrutiny (confined to specific flagged issues) or a complete scrutiny. Check that the notice was served within three months from the end of the tax year of filing — if not, it is time-barred. Download the filed return, Form 26AS, AIS/TIS, bank statements and supporting vouchers for the tax year. Upload a point-wise response on the e-filing portal before the deadline. Preserve every acknowledgement. If oral clarification is needed, request a video hearing in writing. When the Faceless Unit issues a draft assessment order, file objections within 15 days. Pay any undisputed tax to avoid interest build-up. Retain a Chartered Accountant early — the scrutiny record is the foundation of every subsequent appeal.
Table of Contents
- Overview of the scrutiny regime under the 2025 Act
- Time limit for issuing a scrutiny notice
- Limited scrutiny vs complete scrutiny
- The faceless assessment mechanism
- Step-by-step response procedure
- Document checklist
- Common queries raised in scrutiny
- Video hearing procedure
- Draft assessment order and objections
- Finalisation and order of assessment
- Consequences of non-response
- Appeal rights under Chapter XVIII
- Expert Insight
- Key Takeaways
- Frequently Asked Questions
Overview of the scrutiny regime under the 2025 Act
Scrutiny assessment is the mechanism through which the Income Tax Department verifies whether a return of income truly reflects the taxpayer’s financial reality. Under the Income-tax Act, 2025, the scrutiny notice provision is housed in Chapter XVI (Procedure for Assessment), which runs from Sec 355 to Sec 399 in a single continuous structure. The 2025 Act does not abolish the substantive grounds of scrutiny — under-reporting, mismatched TDS credits, suspicious cash transactions, misclassified capital gains, bogus deductions and high-value foreign remittances remain the primary triggers. What the new Act does is bring the notice, the hearing, the draft order and the final order into one unified chapter so that a practitioner can read the complete procedure end-to-end in a single section of the statute.
The substantive shift is conceptual. The old dual-year structure of “previous year” and “assessment year” is gone. Instead, the Act uses a single concept — the tax year, running from 1 April to 31 March. The first tax year under the new statute is tax year 2026-27, which covers income earned between 1 April 2026 and 31 March 2027. Scrutiny notices for that tax year can be expected from around April 2028 onwards, once the return filing window and the risk-based Computer Assisted Scrutiny Selection (CASS) cycle complete.
Three overarching principles govern the 2025 Act scrutiny regime. First, faceless is the default — there is no physical Assessing Officer who meets the taxpayer. Second, every step is bounded by strict statutory timelines. Third, the taxpayer is entitled to a speaking order, a draft order, and a right to be heard before any adverse addition is made. Each of these principles is enforceable on appeal and can be used to quash an order passed in violation.
Time limit for issuing a scrutiny notice
The single most important defence in any scrutiny matter is the limitation defence. Under the Income-tax Act, 2025, a scrutiny notice (the Sec 143(2) equivalent) must be served within three months from the end of the tax year in which the return of income was furnished. This is the outer boundary beyond which the Department loses jurisdiction to initiate scrutiny on that return.
| Return for tax year | Return filed on | End of tax year of filing | Last date to serve scrutiny notice |
|---|---|---|---|
| 2026-27 | 20 July 2027 | 31 March 2028 | 30 June 2028 |
| 2026-27 | 30 October 2027 (audit) | 31 March 2028 | 30 June 2028 |
| 2026-27 | 15 December 2027 (belated) | 31 March 2028 | 30 June 2028 |
| 2026-27 | 28 April 2028 (revised in next tax year) | 31 March 2029 | 30 June 2029 |
Service of notice is deemed to occur when the notice is made available on the taxpayer’s e-filing portal account and the e-mail linked to the PAN is notified. The courts have repeatedly held that a notice dispatched on the last day of limitation but delivered later is valid, while a notice generated after the expiry date is void even if antedated. Always download the digital signature metadata of the notice from the portal — the “date of issue” stamp is your primary evidence of limitation.
Limited scrutiny vs complete scrutiny
The Central Board of Direct Taxes assigns every scrutiny case a category at the time of selection. The two routine categories you will encounter are limited and complete scrutiny.
Limited scrutiny is the most common and deals only with the specific issues thrown up by the CASS risk engine. The notice will expressly list the issues — for example, “verification of long-term capital gain on listed equity” or “source of cash deposit exceeding ₹20 lakh”. The assessing unit is not permitted to travel beyond the listed issues. Any attempt to ask for unrelated documents is a ground for objection.
Complete scrutiny is selected when multiple risk signals appear or when the CASS engine flags the return as overall high-risk. Here the entire return is open for examination — all heads of income, all deductions, all TDS credits, and all balance sheet items for business assessees. Conversion from limited to complete scrutiny can happen only with written approval of the Principal Commissioner and must be formally communicated to the taxpayer with reasons.
A smaller third category — compulsory scrutiny — covers cases involving search and seizure, survey, information received from foreign tax authorities, and high-value information from the Annual Information Statement. These are treated on par with complete scrutiny but with tighter timelines.
The faceless assessment mechanism
Under the Income-tax Act, 2025, every scrutiny (other than a handful of exceptions such as search assessments under the Chapter XVI special procedures) is carried out through the faceless assessment architecture. The case is allocated at random to an Assessment Unit by the National Faceless Assessment Centre. The taxpayer does not know the identity of the officer and the officer does not meet the taxpayer. All communication happens through the e-filing portal.
The procedural flow is: the Assessment Unit frames the questions, a Verification Unit cross-checks documents, a Technical Unit opines on legal issues, and a Review Unit reviews the draft order. The taxpayer’s submissions are fed into this multi-layered system through a single portal interface. This means every submission must be self-contained — the reviewing officer in the next layer may not be the same person who issued the initial notice.
For the taxpayer, the practical implication is that written submissions must be comprehensive, clearly numbered, and backed by uploaded evidence at every step. Oral clarifications made “off the record” have no evidentiary value. Everything rests on the portal record.
Step-by-step response procedure
Step 1 — Read the notice. Note the tax year under examination, the specific issues flagged, the category (limited or complete), and the deadline for first response. Check digital signature validity and date of issue.
Step 2 — Verify limitation. Cross-check the three-month rule. If the notice is time-barred, file a preliminary objection immediately, citing the date of return filing and the date of notice issue. Do not wait for the merits stage.
Step 3 — Assemble the evidence file. Download your return, computation of total income, Form 26AS, AIS, TIS, all bank statements for the tax year, broker contract notes for capital gain transactions, sale deeds for property transactions, loan agreements, and ledger extracts for business income.
Step 4 — Draft a point-wise reply. Address each issue in the notice under its own heading. Quote the return figure, reconcile with the evidence, and attach the exhibit reference. Avoid long narrative paragraphs — the faceless unit scans the reply for specific answers.
Step 5 — Upload and acknowledge. File the reply through the e-filing portal before the deadline. Save the acknowledgement number and a PDF copy of the portal screen. Respond to every follow-up information notice issued under the Sec 142(1) equivalent within the time specified.
Step 6 — Request personal hearing if needed. If there is a disputed question of fact or law that cannot be fully addressed in writing, file a formal request for video hearing. The request must state the questions on which oral clarification is sought.
Step 7 — Review the draft order. When the Faceless Unit issues the draft assessment order, file objections within 15 days either to the Dispute Resolution Panel (in eligible transfer pricing or foreign company cases) or by way of written submissions.
Step 8 — Receive the final order. The assessment order is uploaded to the portal with the demand notice (Sec 156 equivalent). Decide on appeal, payment or immunity application within 30 days.
Document checklist
A well-maintained document folder is the difference between a clean closure and an avoidable addition. Keep the following records ready in clearly labelled PDF files:
- Filed return (ITR) with acknowledgement and computation of total income
- Form 16 and Form 16A for all employers, banks and deductors
- Form 26AS, AIS and TIS downloads as on the date of return filing and as on the date of reply
- Bank statements for every account for the full tax year (1 April to 31 March)
- Broker statements, contract notes and demat holdings for capital gains
- Property sale deeds, purchase deeds, stamp duty receipts
- Loan sanction letters, repayment schedules and interest certificates
- Donation receipts (Form 10BE) for claims under the Sec 80G equivalent
- Rent agreements, rent receipts and HRA computation (old regime)
- Insurance premium receipts, PPF/ELSS/NPS statements
- Business ledgers, trial balance, audit report (if applicable)
- Cash book and vouchers for business income
- Books of account and stock register extracts
Common queries raised in scrutiny
From our practice experience, the recurring questions in 2025 Act scrutiny mirror the risk patterns identified by the CBDT. These include:
- Reconciliation of Form 26AS / AIS / TIS against return figures — any mismatch attracts an immediate query
- Source of high-value cash deposits exceeding ₹10 lakh in savings accounts
- Source of funds for property purchases — particularly where the buyer’s reported income does not support the acquisition
- Long-term capital gain on listed equity exceeding the ₹1.25 lakh exemption — verification of STT compliance, grandfathering and holding period
- Verification of deductions claimed under the old regime (Sec 80C / 80D / 80G / 24(b) equivalents) with supporting documents
- Disallowance of personal expenses claimed as business expenditure
- Section 68 equivalent additions for unexplained cash credits in business books
- Verification of foreign assets and foreign income disclosure (Schedule FA equivalent)
- Transfer pricing adjustments in international transactions of companies
Video hearing procedure
The Income-tax Act, 2025 codifies the right to personal hearing through video conference as part of the faceless regime. When the Faceless Unit issues a show-cause notice proposing additions, the taxpayer can file a written request for video hearing. The request should clearly state which questions require oral clarification. The unit issues a date and time, and the hearing is conducted through a secure link on the e-filing portal. It is recorded, the recording is preserved in the case file, and the discussion becomes part of the assessment record.
Practical pointers for the hearing: be punctual, have the case file and all documents uploaded before the hearing, restrict oral submissions to the specific points raised, and file a written summary of oral submissions on the portal immediately after the hearing. Do not rely on memory — the officer’s notes of the hearing are what goes into the draft order.
Draft assessment order and objections
Before passing the final order, the Faceless Unit issues a draft assessment order setting out the proposed additions, disallowances, interest and penalty. This is the single most important procedural safeguard under Chapter XVI. The taxpayer has 15 days to respond. The response can take three forms:
- Acceptance — if the taxpayer accepts the draft, the final order is passed accordingly and immunity from penalty can be applied for under the Sec 270AA equivalent.
- Written objections — a point-wise response explaining why each proposed addition is incorrect, with supporting evidence and case law. This is the normal route.
- Reference to DRP — in transfer pricing cases and cases involving foreign companies, objections are filed before the Dispute Resolution Panel within 30 days, and the DRP’s directions bind the Faceless Unit.
Missing the 15-day window means the draft crystallises into the final order as drafted. Appeal is still available, but the practical tax cost (pre-deposit, interest accrual, recovery action) is much higher once the order is passed.
Finalisation and order of assessment
After considering the objections to the draft, the Faceless Unit passes the final assessment order. The order is a speaking order — it records the return of income, the issues examined, the taxpayer’s submissions, the evidence considered, the reasons for each addition or rejection, and the computed tax and interest. Along with the order, a demand notice (Sec 156 equivalent) is uploaded. The final assessment order must be passed within 12 months from the end of the tax year in which the return was furnished. For tax year 2026-27 returns filed on time, the outer limit is 31 March 2029. If transfer pricing reference is made, the limit extends by 12 months.
Consequences of non-response
Non-response to a scrutiny notice has cascading consequences:
- Best judgment assessment under the Sec 144 equivalent, where the officer estimates income based on material on record
- Penalty of up to ₹10,000 for each instance of non-compliance under the Chapter XXI equivalent
- Under-reporting penalty of 50% (or 200% for misreporting) under the Sec 270A equivalent
- Prosecution for wilful failure to comply under the Chapter XXII equivalent
- Attachment of bank accounts and recovery proceedings
- Weakening of the appeal record, since the appellate forum will note that no reply was filed despite opportunity
Appeal rights under Chapter XVIII
If the final order is adverse, the taxpayer has a tiered appeal structure:
- First appeal to the Commissioner of Income-tax (Appeals) or Joint Commissioner (Appeals) under the Chapter XVIII appeal provisions — 30 days from receipt of the order
- Second appeal to the Income Tax Appellate Tribunal — 60 days from receipt of the first-appeal order
- Appeal to the High Court on substantial questions of law — 120 days
- Special leave petition to the Supreme Court
- Revision under the Sec 263 equivalent (by the Department) or Sec 264 equivalent (by the taxpayer)
Stay of demand can be sought during the pendency of the first appeal, typically on payment of 20% of the disputed demand. The taxpayer should also evaluate the immunity application under the Sec 270AA equivalent before filing an appeal — the two options are mutually exclusive.
For related reading, see these sibling articles:
- Complete guide to income tax notices under the 2025 Act
- Best judgment assessment under the Sec 144 equivalent
- Penalty comparison: Sec 270A vs the old Sec 271(1)(c)
- Reassessment under the Sec 148 equivalent
- Demand notice under the Sec 156 equivalent
- Faceless appeal process under Chapter XVIII
Expert Insight
CA V. Viswanathan: In my thirty years of practice, the one mistake I see most often is treating a scrutiny notice as a routine compliance and not as a legal proceeding. Under the Income-tax Act, 2025, the faceless architecture makes this mistake costlier because every document you upload, every line you type, and every deadline you miss becomes a permanent entry on the case record that no future appeal can erase. My first advice to every client is to read the notice three times and note the exact issues listed. The second piece of advice is to check limitation immediately — I have seen dozens of cases where the three-month service rule was missed by the Department and the entire proceeding could be quashed on that single ground. The third — and the one most underrated — is to take the draft order stage seriously. The draft order is the last moment at which the record can still be built correctly. Once the final order is passed, every subsequent appeal begins with a disadvantage. Finally, a word on the immunity option under the Sec 270AA equivalent: if the only addition is a small interpretation difference and the tax cost of acceptance is manageable, applying for immunity and closing the file is often better than a multi-year appeal journey. But if the addition is high-stakes or touches recurring positions, the appeal route is worth pursuing. Judge each case on its own facts, but always judge it within the statutory timelines — the 2025 Act leaves no room for delay.
Key Takeaways
- Scrutiny notices under the Income-tax Act, 2025 must be served within three months from the end of the tax year of filing
- Faceless assessment is the default statutory mode under Chapter XVI
- Limited scrutiny is confined to flagged issues; conversion to complete scrutiny needs Principal Commissioner approval
- Video hearing is a statutory right and must be requested in writing
- The draft assessment order carries a 15-day objection window — use it
- Final assessment order must be passed within 12 months from the end of the tax year of filing
- Non-response triggers best judgment assessment, penalty and prosecution
- Appeal lies with CIT(A), ITAT, High Court and Supreme Court under Chapter XVIII
- Immunity from penalty is available under the Sec 270AA equivalent within 30 days of the order
- All submissions must be self-contained and uploaded to the portal — there is no off-the-record communication
Frequently Asked Questions
What is a scrutiny notice under the Income-tax Act, 2025?
A scrutiny notice (the Sec 143(2) equivalent under the Income-tax Act, 2025) is a written communication issued by the faceless assessment unit to a taxpayer whose return has been selected for detailed examination. It signals that the Department intends to verify income, deductions, or disclosures through an assessment proceeding under Chapter XVI of the Act. The notice specifies the issues proposed for examination and directs the taxpayer to produce evidence through the faceless portal.
What is the time limit for issuing a scrutiny notice under the 2025 Act?
Under the Income-tax Act, 2025 the scrutiny notice must be served within three months from the end of the tax year in which the return was furnished. For example, if a return for tax year 2026-27 is filed on 20 July 2027, the scrutiny notice must be served on or before 30 June 2028. A notice issued beyond this period is time-barred and void.
Is the scrutiny under the 2025 Act conducted faceless?
Yes. Faceless assessment is the default statutory mode under Chapter XVI. Jurisdiction is exercised by a National Faceless Assessment Centre and the taxpayer does not physically meet an Assessing Officer. All notices, responses and the final order pass through the e-filing portal. Video hearing can be requested for oral submissions on specific questions of law or fact.
What is the difference between limited scrutiny and complete scrutiny?
Limited scrutiny is confined to the specific issues flagged by the CASS risk engine — typically one or two line items such as a large capital gain, a high cash deposit or a property transaction. Complete scrutiny is an open-ended examination of all heads of income. Conversion from limited to complete scrutiny requires a written approval by the Principal Commissioner and must be notified to the taxpayer.
How long do I have to respond to a scrutiny notice?
The notice itself specifies the initial response date — usually 15 to 30 days from issue. Subsequent information notices under the Sec 142(1) equivalent give 7 to 15 days. All timelines are computed from the date the notice is made available on the e-filing portal, not the date the taxpayer opens the message. Request an adjournment in writing if you need more time.
What documents should I keep ready before responding?
Keep ready the filed return and computation, Form 16/16A, bank statements for the tax year, Form 26AS, AIS and TIS, proof of deductions, capital-gain workings with broker notes, property documents, loan confirmations, and ledger extracts for business income. Upload each document as a properly named PDF of under 5 MB per file as prescribed by the portal.
Can I request a video hearing during faceless scrutiny?
Yes. Under the Income-tax Act, 2025 the taxpayer can file a written request for personal hearing through video conference. The request must state the questions for which oral clarification is needed. The hearing is conducted by the unit examining the case and is recorded. The right to be heard is a statutory safeguard and cannot be denied without a speaking order.
What happens if I ignore the scrutiny notice?
Non-compliance empowers the Department to pass a best judgment assessment under the Sec 144 equivalent, levy a penalty of up to ₹10,000 for each failure under the Chapter XXI equivalent, initiate prosecution for wilful failure, and recover the demand through attachment. It also compromises your grounds of appeal because the appellate authority will note that no reply was filed despite opportunity.
Can the scope of scrutiny be expanded mid-assessment?
Yes, but only with procedural safeguards. A limited scrutiny can be converted into complete scrutiny only after the Assessment Unit records reasons in writing and obtains the approval of the Principal Commissioner. The taxpayer must be informed and given fresh opportunity for the new issues. An order passed without this approval is liable to be quashed on appeal.
What is a draft assessment order and why does it matter?
Before passing the final order, the faceless unit issues a draft assessment order proposing additions and disallowances. The taxpayer has 15 days to file objections before the Dispute Resolution Panel (in eligible cases) or written representation. This is the last chance to correct the factual record and rebut proposed additions. Skipping this step can be fatal to your appeal.
What is the final time limit for completing scrutiny?
The assessment order must be passed within 12 months from the end of the tax year in which the return was filed. For tax year 2026-27 returns filed on time, the outer limit is 31 March 2029. If the case involves transfer pricing reference, the limit extends by 12 months. An order passed beyond this period is barred by limitation.
What are my appeal rights if I disagree with the scrutiny order?
You can file a first appeal with the Commissioner of Income-tax (Appeals) under Chapter XVIII within 30 days of receiving the order. A further appeal lies with the Income Tax Appellate Tribunal within 60 days. Appeal to the High Court and Supreme Court is available on substantial questions of law. You can also seek stay of demand during the appellate process.
Can a Chartered Accountant represent me in faceless scrutiny?
Yes. An authorised representative, typically a Chartered Accountant, can file responses on the e-filing portal on the taxpayer’s behalf after uploading Form 3 (or its equivalent under the 2025 Act). The CA can also attend the video hearing. Engaging a CA early ensures that written submissions are legally complete and that the evidentiary record is correctly built.
Is there any immunity from penalty if the scrutiny ends in an addition?
Yes. The Income-tax Act, 2025 carries forward the immunity provision (Sec 270AA equivalent) under which the taxpayer can apply for immunity from penalty and prosecution if the tax and interest on the addition is paid within the prescribed time and no appeal is filed against the order. The application must be made within 30 days of receiving the order.
Does the 2025 Act change anything fundamental about scrutiny?
Yes. The 2025 Act statutorily embeds faceless assessment as the default, introduces the uniform tax year concept replacing AY and PY, rationalises the time limit to 12 months from end of the tax year of filing, and consolidates procedural safeguards into a single chapter. The substantive grounds of addition, however, largely mirror the principles under the repealed 1961 Act.
Author: CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333) — Virtual Auditor, Chennai. Phone: +91 99622 60333 | Email: support@virtualauditor.in