Income Tax Scrutiny FY 2026-27: CBDT Guide

Every year, CBDT issues a circular specifying which categories of income tax returns must be picked up for detailed examination (complete scrutiny) by Assessing Officers. This is separate from computer-assisted scrutiny (CASS), where returns are selected based on risk parameters and data analytics. Compulsory scrutiny is deterministic: if your case meets the criteria, it gets selected. No randomness, no risk scoring.

The FY 2026-27 guidelines, issued on June 4, 2026, list six categories. Understanding them helps you assess whether your return is likely to be selected and prepare accordingly.

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The 6 Categories Explained

CS-01: Survey Cases

Trigger: A survey under Section 133A of the Income-tax Act, 1961 (excluding surveys under Section 133A(2A)) was conducted on or after April 1, 2024.

Section 133A allows income tax authorities to enter a business premises, inspect books of accounts, verify inventory, and record statements. If your premises were surveyed on or after April 1, 2024, your return for the relevant assessment year will be compulsorily selected for scrutiny.

Who this affects: Businesses and professionals whose premises were visited by the Income Tax Department's survey teams in FY 2024-25 or FY 2025-26.

Note: Section 133A(2A) surveys (surveys for the purpose of verifying TDS/TCS compliance) are excluded from this category. Those are compliance checks, not investigative surveys.

CS-02: Search and Seizure Cases

Trigger: A search under Section 132 or a requisition under Section 132A was initiated on or after April 1, 2024.

This covers full-scale search and seizure operations ("raids"). If the Income Tax Department searched your premises or requisitioned your books after April 1, 2024, your return for the relevant assessment year gets compulsory scrutiny.

Special rule for post-September 2024 searches: For searches initiated or requisitions made on or after September 1, 2024, the return shall be selected for the assessment year covered by Section 158BA(6) of the Income-tax Act, 1961. This section, introduced under the Finance (No. 2) Act, 2024, provides for block assessment of undisclosed income in search cases.

CS-03: Transitional Search and Survey Cases

Trigger: A search/seizure was initiated on or after April 1, 2021 but before September 1, 2024, or a survey under Section 133A was conducted on or after April 1, 2021.

This is a transitional category covering the period before the block assessment regime (Section 158BA) came into effect. Cases from this window are still subject to compulsory scrutiny for the relevant assessment years.

Who this affects: Businesses that were searched or surveyed between April 2021 and August 2024 and whose returns for those years are still under processing or have been filed during FY 2025-26.

CS-04: Registration and Approval Cases (Trusts and Institutions)

Trigger: Registration or approval under specific sections was not granted or was cancelled/withdrawn by the Competent Authority on or before March 31, 2025, and the assessee has claimed tax-exemption or deduction in a return filed in ITR-7.

The relevant sections include:

• Section 12A / 12AB: Registration of charitable and religious trusts
• Section 35(1)(ii), (iia), (iii): Approval for scientific research associations and institutions
• Section 10(23C)(iv), (v), (vi), (via): Exemption for educational institutions, hospitals, and charitable funds

Who this affects: Trusts, educational institutions, hospitals, and religious bodies that lost their registration or approval but continued to claim exemptions in their ITR-7 filing.

Why it matters: If your trust's 12AB registration was cancelled and you still reported exempt income in ITR-7, your return will be picked up. The department wants to verify whether the claimed exemption has legal backing.

CS-05: Recurring High-Value Additions

Trigger: An addition on a recurring issue of law or fact (including transfer pricing) in an earlier assessment year exceeds:

• Rs 50 lakh in eight metro charges (Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, Pune)
• Rs 20 lakh in all other charges

And the addition has either become final (not appealed or time-barred) or been upheld by appellate authorities in favour of Revenue.

Who this affects: Businesses and individuals who faced significant additions on the same issue in prior years and took those additions to appeal (or did not appeal, making them final). If the tribunal or CIT(A) ruled in the department's favour, the same issue will be scrutinised again in the current return.

Example: If your FY 2023-24 assessment had a Rs 60 lakh addition on a transfer pricing issue in Mumbai, and ITAT upheld the addition, your FY 2025-26 return will be selected for compulsory scrutiny on the same issue.

CS-06: Specific Tax Evasion Information

Trigger: Specific information pointing to tax evasion for the relevant assessment year has been provided by any law enforcement agency, Investigation Wing, Intelligence, Regulatory Authority, or other government agency, and the taxpayer has filed a return for that year.

Who this affects: Taxpayers flagged by enforcement agencies (ED, CBI, SFIO, SEBI, RBI, or the department's own Investigation Wing) for tax evasion related to a specific assessment year.

Important clarification: Returns filed in response to Section 142(1) notices based solely on data from the Non-Filer Monitoring System (NMS), Annual Information Statement (AIS), Statement of Financial Transactions (SFT), or CPC-TDS do not fall under this category. The information must be "specific" and from an enforcement or regulatory body, not from automated data systems.

What Compulsory Scrutiny Means in Practice

Compulsory scrutiny is complete scrutiny, meaning the Assessing Officer examines every aspect of your return, not just the item that triggered selection. The process typically involves:

1. Notice under Section 143(2): The starting point. For returns filed during FY 2025-26, this notice must be served on or before June 30, 2026.

2. Questionnaire and document requests: The AO will issue detailed questionnaires asking for supporting documents, computation workpapers, bank statements, and explanations for specific entries.

3. Hearing: You (or your CA/tax consultant) appear before the AO to explain your position and present evidence.

4. Assessment order: The AO passes an order under Section 143(3), either accepting your return as filed or making additions/disallowances.

The entire process is conducted through the Faceless Assessment Centre for most categories, except where the case is specifically assigned to a jurisdictional AO.

Who Should Not Worry

CBDT has carved out a clear exclusion. Your return will not be automatically selected for compulsory scrutiny merely because:

• The AIS or Form 26AS shows high-value transactions
• You received a Section 142(1) notice generated by the NMS (Non-Filer Monitoring System)
• SFT data shows cash deposits, property transactions, or mutual fund purchases
• CPC-TDS data flagged a TDS mismatch

These data points may trigger CASS-based scrutiny (risk-based, probabilistic), but they do not by themselves qualify for the compulsory scrutiny categories. The CS-06 category requires specific information from enforcement agencies, not algorithmic data matching.

How to Reduce Exposure to Scrutiny Risk

While you cannot prevent compulsory scrutiny if you fall under one of the six categories, you can prepare:

Before filing:

• Reconcile AIS, TIS, and Form 26AS with your books before filing. Mismatches do not trigger compulsory scrutiny, but they create additional questions if your return is selected.
• If you had a survey (CS-01) or search (CS-02/CS-03), ensure the return for the relevant year accurately reflects any undisclosed income identified during the action.
• If your trust's registration was cancelled (CS-04), either file for re-registration or stop claiming the exemption in ITR-7.

If selected for scrutiny:

• Respond to every notice within the specified deadline. Non-response leads to best judgement assessment under Section 144, which is almost always worse than a cooperative assessment.
• Keep all supporting documents organised: contracts, invoices, bank statements, board resolutions, valuation reports, and transfer pricing documentation.
• Engage a qualified CA or tax professional for hearings. Faceless assessment hearings happen on the e-filing portal, and responses must be uploaded in the specified format.

For CS-05 (recurring additions):

• If the addition was on a transfer pricing issue, prepare a fresh benchmarking study for the current year demonstrating that your position is consistent and defensible.
• If the addition was on a deduction or exemption claim, ensure you have the latest legal authority supporting your position, especially if there have been favourable tribunal or High Court decisions since the earlier year's assessment.

Administrative Timeline

Source and Verification

These guidelines were issued vide F. No. 225/56/2026/ITA-II dated June 4, 2026 by the Central Board of Direct Taxes, Ministry of Finance, Government of India. Category details, thresholds, and clarifications are sourced from the circular text and verified against analysis published by the Institute of Chartered Accountants of India (ICAI), CAClubIndia, and TaxScan. Section references correspond to the Income-tax Act, 1961 (applicable to AY 2026-27 returns). For returns filed under the Income Tax Act, 2025 (applicable from Tax Year 2026-27), equivalent provisions will apply as notified. All facts verified as of June 2026.