The Central Board of Direct Taxes (CBDT) has issued guidelines for the compulsory selection of income tax returns for complete scrutiny during FY 2026-27. The board has identified six categories of cases that will be automatically picked for detailed examination by the Department.
Under compulsory scrutiny, a taxpayer’s return is selected for a detailed assessment based on specific criteria prescribed by the tax department. Unlike risk-based scrutiny, which relies on data analytics and red flags, these cases are automatically selected when they fall within the categories notified by the CBDT.
What is compulsory scrutiny?
Compulsory scrutiny is a process under Section 143(2) of the Income-tax Act, 1961, under which certain returns are selected for detailed examination based on predefined legal or administrative criteria.
Once selected, taxpayers receive a notice under Section 143(2) and are required to furnish supporting documents, records and explanations. Assessments are generally conducted through the faceless assessment mechanism.
Which returns can be selected for compulsory scrutiny?
The CBDT has identified six categories of cases that will be compulsorily selected for complete scrutiny during FY 2026-27.
1. Survey cases
Returns of whose premises were subjected to a survey under Section 133A on or after 1 April 2024 will be compulsorily selected for scrutiny. The selection is automatic and does not depend on whether discrepancies are eventually found in the return.
2. Search and requisition cases
Taxpayers against whom a search under Section 132 or a requisition under Section 132A has been initiated on or after 1 April 2024 will also face mandatory scrutiny.
For searches or requisitions conducted on or after 1 September 2024, scrutiny will be limited to the assessment year covered under Section 158BA(6) of the Income-tax Act.
3. Reassessment cases
Cases where the Income Tax Department has issued a notice under Section 148 will also be selected for compulsory scrutiny.
Section 148 notices are issued when the tax department seeks to reopen an assessment on the grounds that income chargeable to tax may have escaped assessment.
4. ITR-7 filers claiming exemptions despite invalid registrations
Returns filed by charitable trusts, religious institutions and other entities using ITR-7 will be selected for scrutiny if they continue to claim or deductions despite their registration, approval or recognition having been denied, cancelled or withdrawn on or before 31 March 2025.
The trigger applies to claims made under provisions such as Sections 12A, 12AB, 10(23C) and Section 35. However, cases where appellate authorities have subsequently reversed such cancellations will not be covered.
5. High-value recurring tax disputes
A return may be selected for compulsory scrutiny where additions made in earlier assessment years on a recurring issue of law or fact, including transfer pricing matters, have either become final or have been upheld by appellate authorities in favour of the tax department.
The threshold for such additions is more than ₹50 lakh in metro jurisdictions, including Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune, and more than ₹20 lakh in other jurisdictions.
6. Information suggesting tax evasion
Cases may also be selected for scrutiny if specific information indicating possible tax evasion is received from law enforcement agencies, investigation wings, intelligence units, regulatory authorities or other government bodies.
Such information may relate to undisclosed income, suspicious transactions, bogus claims, benami arrangements, foreign assets or other forms of potential tax non-compliance.
According to the CBDT guidelines, notices under Section 143(2) for returns filed during FY 2025-26 must generally be issued on or before 30 June 2026. If a notice is not issued within the prescribed timeline, the return ordinarily cannot be taken up for scrutiny under these provisions.