Vikram Sethi operated a profitable engineering-components business with a modest team and a limited presence outside his home state.
His income-tax returns were filed on time, the company’s accounts were audited and the reported turnover was far below that of the large companies regularly appearing in tax disputes. Vikram therefore assumed that his business was “too small to be noticed.”
That assumption changed when the company received a notice under Section 143(2) of the Income-tax Act, 1961.
The return had been selected for complete scrutiny—not because of the company’s turnover, but because an addition made in an earlier assessment year involved an issue that had appeared again in the current return.
Under guidelines issued on June 4, 2026, the Central Board of Direct Taxes identified six categories for compulsory selection of returns for complete scrutiny during FY 2026–27. The instruction applies to relevant returns filed during FY 2025–26.
Compulsory Scrutiny Is Not the Same as a Tax Finding
Selection for scrutiny does not automatically mean that the return is incorrect or that tax evasion has been established.
It means the Income Tax Department will examine the return, supporting records and explanations in greater detail. In a complete scrutiny assessment, the review may extend across the return rather than remaining confined to one limited mismatch.
The six categories operate separately from the broader Computer-Assisted Scrutiny Selection, or CASS, framework. A return that does not fall within these compulsory categories may still be selected through risk-based data analysis.
Therefore, the list should not be treated as an assurance that every other return is protected from examination.
1. A Tax Survey Was Conducted
The first category covers specified cases where a survey under Section 133A was conducted on or after April 1, 2024.
A survey may involve examination of books, cash, inventory, business records or other information at the taxpayer’s premises. Once the case falls within the conditions specified in the CBDT instruction, the related return may be compulsorily selected for complete scrutiny.
This does not mean every issue observed during the survey will result in an addition. The taxpayer can still reconcile the records and explain the transactions. However, the return should be prepared with the expectation that the supporting evidence may be examined closely.
2. A Search or Requisition Took Place
The second category concerns cases involving a search under Section 132 or a requisition under Section 132A initiated on or after April 1, 2024.
Search and requisition proceedings can involve seized documents, digital records, undisclosed assets, third-party evidence and financial information obtained during an investigation.
For searches or requisitions occurring on or after September 1, 2024, the applicable block-assessment provisions and the assessment year covered by the legislation become relevant.
Businesses connected with a searched group should not assume that scrutiny risk is limited only to the entity whose premises were searched. Transactions and documents involving related persons may also require explanation.
3. A Reassessment Notice Was Issued
The third category covers specified cases in which a notice under Section 148 was issued.
A Section 148 notice is associated with reassessment proceedings where the Department considers that income chargeable to tax may have escaped assessment. The CBDT instruction distinguishes between search or survey-linked reassessment cases and other reassessment matters that must be completed within the specified period.
Receiving a reassessment notice does not prove that income escaped assessment. It begins a legal process in which the taxpayer can challenge the basis, jurisdiction and proposed treatment while providing relevant evidence.
4. An Exemption Was Claimed Without Valid Registration
The fourth category primarily affects entities filing ITR-7, including certain trusts, institutions and organisations claiming tax exemptions or deductions.
Compulsory scrutiny may apply where the relevant registration or approval—such as under Sections 12A, 12AB, 10(23C) or specified provisions of Section 35—was not granted, or was cancelled or withdrawn on or before March 31, 2025, but the entity continued claiming the corresponding benefit.
Cases where the withdrawal or rejection was subsequently reversed or set aside in appellate proceedings are excluded under the stated conditions.
For NGOs, trusts and Section 8 companies, return preparation must therefore be aligned with the current legal status of every registration and approval.
5. A High-Value Issue Keeps Reappearing
This was the category that affected Vikram’s company.
An earlier assessment had resulted in a substantial disallowance relating to the treatment of certain contractual payments. The issue was recurring, and the company had followed a similar position in a later year without reassessing the litigation risk.
The guidelines cover recurring additions on the same issue of law or fact, including transfer-pricing matters, where the earlier addition has become final or has been upheld in the Department’s favour and the prescribed monetary threshold is crossed.
The reported thresholds are more than ₹50 lakh for specified metropolitan jurisdictions and more than ₹20 lakh for other jurisdictions.
A business may therefore enter compulsory scrutiny even without a new survey, search or allegation of concealment. An unresolved issue from an earlier year can be sufficient.
6. Another Agency Provides Specific Tax-Evasion Information
The sixth category applies where specific information indicating possible tax evasion for the relevant assessment year is received from a law-enforcement agency, investigation wing, intelligence agency, regulatory authority or another government body.
Such information may relate to suspicious transactions, undisclosed assets, false claims, benami arrangements or other potential non-compliance.
The instruction also distinguishes specific agency information from routine information appearing through systems such as AIS, SFT, TDS records or an ordinary compliance cycle. Routine data mismatches do not automatically fall within this compulsory category unless the prescribed conditions are met.
What Businesses Should Do Before a Notice Arrives
A scrutiny-readiness review should examine more than turnover and taxable profit.
Businesses should:
Identify surveys, searches, reassessment proceedings and regulatory inquiries.
Maintain an assessment-year-wise tax-litigation register.
Track recurring additions and appellate outcomes.
Confirm the validity of exemption registrations and approvals.
Reconcile AIS, SFT, TDS, GST and accounting information.
Preserve contracts, invoices, bank records and transaction explanations.
Monitor the income-tax portal and registered email addresses.
Review every notice before submitting a broad or unsupported response.
For returns filed during FY 2025–26, the CBDT instruction specified June 30, 2026, as the deadline for serving the relevant Section 143(2) notices under this cycle.
The Larger Takeaway
Vikram’s mistake was not believing his tax position was defensible. It was assuming that business size protected the company from scrutiny.
The compulsory-selection framework focuses on events, prior proceedings and specific information—not simply turnover. A smaller business with a recurring disputed addition may face closer examination than a much larger company without the same trigger.
Scrutiny preparation should therefore begin with the return, not with the notice.
Shunyatax Global Insights
Responding to complete scrutiny requires coordination between tax returns, audited accounts, contracts, ledgers, regulatory records and earlier assessment proceedings.
Shunyatax Global can assist businesses, trusts and promoters with scrutiny-risk reviews, notice responses, document reconciliation, tax-litigation tracking and representation during assessment proceedings.
Contact Shunyatax Global
Phone: +91 94615 14198
Email: office@shunyatax.in
Website: www.shunyatax.in
Disclaimer: The character and circumstances used in this article are illustrative. This article summarises the CBDT guidelines dated June 4, 2026, for compulsory selection of specified returns during FY 2026–27. Selection does not establish tax evasion or an incorrect return. This content is intended for general information and does not constitute tax or legal advice.