Scrutiny Notices, How to Respond

Scrutiny assessment sits at Section 143(3) of the Income tax Act, 1961, and at Sections 268 to 271 of the Income tax Act, 2025 from Tax Year 2026-27. The description below follows the 2025 Act. This article is for general information and does not constitute tax advice.

Notice	Meaning	Typical trigger
Processing intimation (143(1) equivalent)	Routine post-processing check	Sent to nearly everyone, not alarming by itself
Scrutiny notice (143(2) equivalent)	Selected for detailed review	Data mismatches, high deductions, or risk-based selection
Reassessment notice	Past income believed to have escaped assessment	Covered on the dedicated Reassessment page
Refund adjustment	Refund netted against an old demand	Covered on the dedicated Refund Adjustment page

The processing intimation is not scrutiny

It is an automated comparison of what you filed against the department’s own data, and it can show a refund, a small demand, or nothing at all. It has its own time limit: no intimation can be sent after nine months from the end of the financial year the return was filed, and where an adjustment is proposed, you get thirty days to respond before it is finalised.

The scrutiny notice: a three-month window, not indefinite

A scrutiny notice can only be served within three months from the end of the financial year in which the return is furnished. It is triggered by mismatches with your TDS records or the Annual Information Statement, unusually high deductions relative to income, or genuinely random risk-based selection.

The Assessing Officer can require your appearance, or the production of accounts and specified evidence. A statement of assets and liabilities outside the accounts can only be demanded with the Joint Commissioner’s prior approval, and the department cannot ordinarily call for accounts relating to a period more than three years before the year under scrutiny.

Special audit: a genuine escalation, capped at six months

Where the accounts are complex, voluminous, of doubtful correctness, involve multiple transactions, or the business is specialised, the Assessing Officer can, with the prior approval of the Principal Chief Commissioner or Commissioner and after hearing you, direct a special audit by a nominated accountant or cost accountant. The combined original and extended period for this cannot exceed six months from the end of the month the direction is received, and the cost is borne by the Central Government, not by you. Being directed to a special audit is a significant escalation and worth treating as such rather than as routine paperwork.

Reassessment sits outside the ordinary scrutiny track

Reassessment reopens a past year and requires a pre-notice show-cause step. The outer time limit currently applicable, and the different figure that applies from Tax Year 2026-27, is set out in full in Section 148 and 148A: Reassessment Notices. Confirm which figure applies to the year in question there rather than relying on a single number, since the outer limit has already changed once.

Faceless, but not without recourse

Scrutiny runs through a faceless structure with separate units handling assessment, verification, technical assistance and review, coordinated through a central facility. All communication with you is by electronic mode. Reassessment is expressly carried out by an officer outside this faceless structure, which is why the two notices are handled differently in practice even though both start with a notice.

If you disagree with the outcome

A scrutiny notice itself is procedural and not independently appealable. What can be appealed is the assessment order that follows it, within thirty days, subject to the admission conditions and forum rules set out in Appeals: Challenging an Income Tax Order. If a genuine discrepancy is found, the penalty exposure, 50% of the tax on under-reported income, rising to 200% for misreporting, along with the waiver route that can end the matter within a month, is covered in Penalty for Under-Reporting and Misreporting.

If a demand follows the assessment, you have thirty days to pay before recovery action can begin. Filing an appeal alone does not stop that clock; a stay application alongside the appeal is what does. Separately, a refund due for another year can be adjusted against an outstanding demand rather than paid out independently, covered in Section 245: Refund Adjustment Against Demand.