Income Tax Assessment Procedure: Scrutiny, Best Judgment and Faceless Assessment (Income Tax Act 2025)

Under the Income-tax Act, 2025, a filed return goes down one of three paths. Most returns are only processed under section 270(1): arithmetic and apparent errors are adjusted and an intimation follows. A smaller set is picked for scrutiny through a notice under section 270(8), ending in a written assessment order under section 270(10). If you ignore the notices, the officer can make a best judgment assessment under section 271. Where the Board has specified the case, the whole exercise runs as a faceless assessment under section 273, entirely online.

This guide explains each path, the notices you may receive, and the time limits that apply. Every provision is cited from the Act (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. Last reviewed against that text on 10 November 2026.

What are the different types of assessment under the Income Tax Act 2025?

Type	Section	What triggers it	Outcome
Processing of return	270(1)	Every return under section 263 or filed in response to a section 268(1) notice	Intimation of tax payable or refund due
Scrutiny assessment	270(8) to 270(10)	Officer considers it necessary to check for understated income, excessive loss or under-paid tax	Written order assessing total income or loss
Inquiry before assessment	268	Officer needs a return, accounts, documents or information	Feeds into the assessment; may include a special audit direction
Best judgment assessment	271	No return, or non-compliance with a 268(1) notice, a 268(5) direction or a 270(8) notice	Assessment to the best of the officer's judgment
Faceless assessment	273	Board specifies the area, persons, incomes or cases	Same orders, made online through the National Faceless Assessment Centre

What happens when your return is processed under section 270(1)?

Processing is a computer check, not an inquiry. Under section 270(1)(a) the total income or loss is recomputed after these adjustments:

• an arithmetical error in the return;
• an incorrect claim, if it is apparent from information in the return;
• an inconsistency with the return of a preceding tax year, as prescribed;
• disallowance of a loss claimed, if the return of the year in which the loss arose was filed after the due date in section 263(1);
• disallowance of expenditure, or an increase in income, shown in the audit report but left out of the return;
• disallowance of a Chapter VIII-C deduction, if the return was filed after the due date.

Tax, interest and fee are then computed on that income. The amount payable or refundable is worked out after setting off TDS, TCS, advance tax, rebate or relief under Chapter IX, self-assessment tax and any other amount paid (section 270(1)(c)). An intimation is sent, and any refund due is granted.

What does "incorrect claim apparent from the return" mean?

Section 270(5)(a) gives three cases: a claim that is inconsistent with another entry in the same return; a claim where the information needed to support it was not furnished; and a deduction that exceeds a statutory limit, whether the limit is a rupee amount, a percentage, a ratio or a fraction.

Will you get a chance to respond before an adjustment is made?

Yes. Under section 270(2), you must first receive a communication of the proposed adjustment, in writing or electronically. Your response is considered. If you do not respond within 30 days of the communication, the adjustment is made and the intimation is sent.

How long does the department have to send the intimation?

No intimation under section 270(1) can be sent after nine months from the end of the financial year in which the return was made (section 270(4)). Where nothing is payable, nothing is refundable and no adjustment was made, the acknowledgement of the return itself is deemed to be the intimation (section 270(5)(b)). An intimation is also sent where a declared loss is adjusted but no tax is payable and no refund is due (section 270(3)).

When can the officer pick your return for scrutiny?

Under section 270(8), the Assessing Officer, or an authority prescribed by rule 175 (an income-tax authority not below the rank of Income-tax Officer, authorised by the CBDT), serves a notice if it is "necessary or expedient" to ensure that you have not:

1. understated your income;
2. computed an excessive loss; or
3. under-paid tax in any manner.

The notice requires you either to attend the officer's office or to produce evidence in support of your return. It must be served within three months from the end of the financial year in which the return was furnished (section 270(9)). On the date in the notice, or soon after, the officer hears the evidence, considers all material gathered, makes a written assessment of total income or loss and determines the tax payable or refund due (section 270(10)).

What can the officer ask for in an inquiry under section 268?

Section 268(1) lets the officer serve a notice on anyone who has filed a return, or whose time to file has expired, requiring them on a stated date to:

• file a return, if none was filed within the time in section 263(1) or before the end of the financial year following the tax year;
• produce accounts or documents the officer requires; and
• furnish written information on stated points, including a statement of all assets and liabilities whether or not they are in the accounts.

Three safeguards apply under section 268(2). The Joint Commissioner's prior approval is needed before you are asked for a statement of assets and liabilities not in the accounts. The officer cannot ask for accounts relating to a period more than three years before the relevant tax year. The information you give under 268(1)(c) must carry the declaration in rule 169: it is "correct and complete" to the best of your knowledge and belief. Under section 268(3), a notice to file a return (section 268(1)(a)) may also be served by the prescribed authority, which rule 170 fixes as an income-tax authority not below the rank of Income-tax Officer, authorised by the CBDT.

What is a special audit under section 268(5)?

If the accounts are complex, large, doubtful, involve many transactions or relate to a specialised business, the officer may direct you to get the accounts audited by an accountant, the inventory valued by a cost accountant, or both. Conditions:

• the officer must first give you a reasonable opportunity of being heard;
• the prior approval of a Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner is required;
• the auditor is nominated by that senior authority, not chosen by you (section 268(6));
• the direction applies even if your accounts were already audited under another law (section 268(7));
• the report goes in Form No. 100 (audit) or Form No. 101 (inventory valuation) under rule 171;
• the officer fixes the time for the report; extensions are possible, but the total cannot exceed six months from the end of the month in which the direction is received (section 268(8) to (10)).

The cost is borne by the Central Government (section 268(11)). Under rule 172(2), the fee for the accountant and assistants is not less than Rs 3,750 and not more than Rs 7,500 for every hour specified by the officer.

Before the officer uses anything gathered through a 268(4) inquiry or a 268(5) audit against you, you must be given an opportunity of being heard (section 268(12)). The exception is an assessment under section 271.

What is a best judgment assessment under section 271?

It is an assessment made on whatever material the officer already has, because you did not co-operate. Section 271(1) applies when a person:

• fails to furnish a return required under section 263(1), (4), (5) or (6); or
• fails to comply with all the terms of a section 268(1) notice, or with a section 268(5) direction; or
• having made a return, fails to comply with all the terms of a section 270(8) notice.

The officer takes the relevant material gathered into account, hears the assessee, and assesses total income or loss "to the best of his judgment". Before doing so, the officer must serve a show-cause notice on a stated date and time asking why the assessment should not be completed on that basis (section 271(2)). That show-cause step is not needed if a section 268(1) notice was already issued before the assessment (section 271(3)).

Note the wording "fails to comply with all the terms". Partial compliance, such as producing some documents but not the asset statement, can still open the door to section 271.

What is faceless assessment under section 273?

Section 273(1) says assessment, reassessment or recomputation under section 270(10), 271 or 279 is made in a faceless manner for the territorial areas, persons, incomes or cases the Board specifies under section 273(2). "Faceless" means proceedings are conducted electronically in the e-Proceeding facility through the assessee's registered account on a designated portal (section 273(13)).

Who is involved in a faceless assessment?

Section 273(3) allows the Board to set up the following, and rule 176 sets out how they work together:

Body	Role
National Faceless Assessment Centre (NaFAC)	Allocates cases, serves notices, receives your responses and forwards them. All contact with you goes through it.
Assessment unit	Analyses the material, identifies issues, proposes variations and makes the assessment order.
Verification unit	Enquiry, cross-verification, examination of books and witnesses, recording statements.
Technical unit	Legal, accounting, forensic, IT, valuation, transfer pricing and similar technical help.
Review unit	Checks any variation the assessment unit proposes, where NaFAC considers review necessary.

What are your rights in a faceless assessment?

• Communication with NaFAC is exclusively electronic (section 273(7)(b)).
• Notices and orders are delivered to your registered account, your registered e-mail address (or your authorised representative's) or the Mobile App, followed by a real-time alert (rule 176(3)(b)).
• You file responses through your registered account (rule 176(3)(d)).
• No personal appearance, in person or through a representative, is required before any unit (rule 176(3)(f)).
• Where a variation is proposed, you or your authorised representative can request a personal hearing, conducted only by video conferencing or video telephony (rule 176(3)(g) and (h)).
• The Board must provide video facilities so that nobody is denied faceless assessment for lack of access at their end (rule 176(3)(j)).

The faceless route can move to a regular Assessing Officer. The head of NaFAC may transfer a case to the jurisdictional Assessing Officer at any stage with the Board's prior approval (section 273(12)), and a section 268(5) special audit reference is routed through NaFAC (section 273(9) and (10), rule 176(2)(ag)).

What are the time limits at a glance?

Item	Limit	Provision
Response to a proposed processing adjustment	30 days from the communication; otherwise the adjustment is made	270(2)(b)
Last date for a processing intimation	9 months from the end of the financial year in which the return is made	270(4)
Last date to serve a scrutiny notice	3 months from the end of the financial year in which the return is furnished	270(9)
Accounts the officer can call for	Not more than 3 years before the relevant tax year	268(2)(b)
Special audit report	As set by the officer; total, with extensions, not beyond 6 months from the end of the month the direction is received	268(8) to (10)
Special audit fee	Rs 3,750 to Rs 7,500 per hour specified	Rule 172(2)

How long does the officer have to complete the assessment order?

Serving the notice is only the first deadline. Section 286(1), Table Sl. No. 1, says an assessment order under section 270(10) or 271 cannot be made after one year, counted from the end of the financial year succeeding the relevant tax year. Where an updated return under section 263(6) was furnished (Sl. No. 2), the one year runs from the end of the financial year in which that updated return was furnished.

Section 286(2) adds a further twelve months where a reference is made to the Transfer Pricing Officer under section 166(1), and section 286(3) excludes certain periods from the count, such as time taken by specified proceedings. For Ravi's tax year 2026-27 case below, the succeeding financial year is 2027-28 (ending 31 March 2028), so the order is due by 31 March 2029, before any exclusions.

Worked example 1: processing a return under section 270(1)

Assumptions: Meena, a resident individual, files her tax year 2026-27 return on 20 July 2027. After her deductions, the tax and interest computed on her total income come to Rs 1,85,000 (assumed for this example). She did not pay advance tax. Her salary TDS was Rs 1,52,000 and she paid Rs 6,000 as self-assessment tax. She also claimed a deduction that exceeded its statutory limit, and the processing system reduces that claim, which raises the computed tax and interest to Rs 2,05,000.

Step	Working	Rs
Tax and interest on the income as returned	Assumed	1,85,000
Tax and interest after the adjustment (section 270(1)(b))	Assumed result of disallowing the excess claim	2,05,000
Less: TDS	Section 270(1)(c)(i)	1,52,000
Less: self-assessment tax paid	Section 270(1)(c)(v)	6,000
Sum payable	2,05,000 - 1,52,000 - 6,000	47,000

Before adjusting, the department must send Meena a communication (section 270(2)). If she replies within 30 days, her reply is considered. If she does not, the adjustment is made. The intimation for this return cannot be sent after 31 December 2028, which is nine months from the end of the financial year 2027-28 in which she filed (section 270(4)).

Worked example 2: deadlines for a scrutiny notice and a special audit

Assumptions: Ravi runs a trading business. He files his tax year 2026-27 return on 30 September 2027, which is in financial year 2027-28. The financial year ends 31 March 2028.

1. Latest date for a section 270(8) notice: three months from 31 March 2028 is 30 June 2028 (section 270(9)). A scrutiny notice served after that date for this return would fall outside the section.
2. Latest date for the processing intimation: nine months from 31 March 2028 is 31 December 2028 (section 270(4)). Processing and scrutiny are separate tracks with separate time limits.
3. Special audit: suppose the officer directs a section 268(5) audit, and Ravi receives the direction on 12 August 2028. The six-month outer limit runs from the end of that month, 31 August 2028, so the report cannot be required later than 28 February 2029 (section 268(10)), including all extensions.
4. Cost to Ravi: the officer specifies 40 hours for the audit. Under rule 172(2) the expense is between Rs 3,750 x 40 = Rs 1,50,000 and Rs 7,500 x 40 = Rs 3,00,000. This is paid by the Central Government, not by Ravi (section 268(11)).

Real-life example 1: the missed notice

Sunita, a doctor, filed her return and then got a notice under section 270(8) asking for evidence behind her professional receipts. Her e-mail went to an old address and she did not see it. After the date passed, the officer served a show-cause notice under section 271(2). She missed that too. The officer made a best judgment assessment on the material available. Had she replied to either notice, the officer would have had her evidence in hand. Section 271(1)(c) applies because she did not comply with all the terms of the 270(8) notice. Keeping your registered e-mail and mobile number current in the e-filing account avoids this.

Real-life example 2: a faceless notice through the portal

Anil's case is among the cases the Board has specified for faceless assessment. He gets an alert on his mobile that a notice from NaFAC is waiting in his registered account. His CA files the reply through the account, and receives an acknowledgement. The assessment unit later proposes a variation and sends a show-cause notice. Anil's CA asks for a personal hearing, which is held over video. No one needs to visit an office (rule 176(3)(f) to (h)). The final order and demand notice reach him through the same account.

What are the common mistakes in assessment proceedings?

• Ignoring a processing communication. Silence for 30 days lets the adjustment go through under section 270(2)(b).
• Treating the acknowledgement as meaningless. If there is no demand, refund or adjustment, the acknowledgement is the intimation (section 270(5)(b)).
• Partial compliance with a notice. Section 271 is triggered by failing to comply with all the terms of a notice.
• Outdated contact details. Faceless notices go to the registered account, e-mail and Mobile App. A missed alert is still a delivered notice.
• Trying to resist a special audit because accounts were already audited. Section 268(7) applies irrespective of any audit under another law.
• Assuming the order can come at any time. An order under section 270(10) or 271 has its own outer limit in section 286, so an order passed after it is open to challenge.
• Not checking the limitation dates. Dates in sections 270(4) and 270(9) run from the end of the financial year of filing, not from the filing date.

How do CA firms keep track of notices across clients?

The hard part for a practice is not understanding section 270 but never missing a response date across fifty or a hundred clients. Finexo's practice management software lets you log each notice against a client, set the reply date and assign the work, so nothing depends on one person's inbox. It does not file responses for you.

For related reading, see our guide on who must file a return and the due dates and the one on the updated return.

Where is this in the Act?

• Section 268: inquiry before assessment, notice for return, accounts and information, special audit and inventory valuation
• Section 270: processing of returns (sub-sections 1 to 7), scrutiny notice (8, 9), regular assessment (10), pending regular assessment (15)
• Section 271: best judgment assessment and show-cause notice
• Section 273: faceless assessment, units and communication
• Rules 169 (verification of information), 170 (authority for 268(1)(a) notice), 171 (Forms 100 and 101), 172 (audit expenses), 175 (authority for 270(8) notice), 176 (faceless procedure)

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.