Assessment & Scrutiny Proceedings — Sections 270, 271, 279 & 280-281 [Income Tax Act, 2025]

Key Takeaways

• Section 270(1) is a computer-generated intimation — not a human assessment — that processes your return for arithmetic errors, internal inconsistencies, and prima facie disallowances. (Formerly Section 143(1) of the Income Tax Act, 1961.)
• Section 270(3) notice is the gateway to scrutiny assessment — if you receive this, your return will be examined in detail by an Assessing Officer (AO). (Formerly Section 143(2).)
• Section 270(9) is the actual assessment order passed after scrutiny, and it can result in additions to income, disallowance of claims, or acceptance of the return. (Formerly Section 143(3).)
• Section 271 empowers the AO to make a "best judgement" assessment ex-parte if the assessee fails to cooperate. (Formerly Section 144.)
• Sections 279/280 deal with reopening of completed assessments when income has escaped assessment — the post-2021 regime introduced significant procedural safeguards. (Formerly Sections 147/148.)
• Section 281 provides the mandatory inquiry before reassessment that must be followed before issuing any notice under Section 280. (Formerly Section 148A.)
• Section 273 mandates faceless assessment through the National e-Assessment Centre (NeAC), eliminating direct contact between taxpayer and AO. (Formerly Section 144B.)

Section 270(1) — Intimation (Computer Processing)

When you file your income tax return, the Centralised Processing Centre (CPC) in Bengaluru processes it electronically under Section 270(1) of the Income Tax Act, 2025 (formerly Section 143(1) of the Income Tax Act, 1961). This is not a regular assessment — it is an automated, computer-driven process that checks your return without any human intervention.

What Adjustments Can Be Made Under Section 270(1)?

The CPC can make the following prima facie adjustments:

1. Arithmetical errors in the return (miscalculations, totalling mistakes)
2. Incorrect claims apparent from any information in the return — for example, claiming a deduction under Section 123 (formerly 80C) in excess of Rs. 1.5 lakh
3. Disallowance of loss claimed if the return of the loss was filed beyond the due date under Section 263 (formerly Section 139)
4. Disallowance of expenditure or increase in income indicated in the Tax Audit Report but not taken into account in computing total income
5. Disallowance of deduction claimed under specified sections if the return was filed beyond the due date under Section 263
6. Addition of income appearing in Form 26AS, AIS, or TIS but not included in the return

Important Procedural Safeguards

• Before making any prima facie adjustment (other than arithmetical error), the CPC must issue an intimation to the assessee through the registered email, specifying the proposed adjustment.
• The assessee has 30 days to respond to the proposed adjustment.
• If the assessee accepts the adjustment or does not respond, the adjustment is made.
• The intimation under Section 270(1) must be sent within 9 months from the end of the financial year in which the return was filed.

Outcome of Section 270(1) Processing

The intimation can result in:

• Refund if tax paid exceeds the computed liability
• Demand if additional tax is found payable
• No demand, no refund if the return is accepted as filed

Practical Note: An intimation under Section 270(1) is deemed to be a notice of demand under Section 289 (formerly Section 156). If you disagree with the adjustment, you can file a rectification under Section 287 (formerly Section 154) or appeal under Section 356 (formerly Section 246A).

Section 270(3) — Scrutiny Assessment Notice

Section 270(3) of the Income Tax Act, 2025 (formerly Section 143(2)) is the provision that empowers the Assessing Officer to pick up a return for detailed examination (scrutiny).

How Are Cases Selected for Scrutiny?

Cases are selected through the Computer Aided Scrutiny Selection (CASS) system based on risk parameters. The CBDT sets criteria each year, which may include:

• Large deductions relative to income
• High-value transactions reported in SFT/AIR
• Mismatch between income declared and information available with the Department (26AS, AIS)
• Specific information received from investigation wing, survey operations, or other agencies
• Random selection — a small percentage of returns are picked randomly
• Cases flagged by the CPC during Section 270(1) processing

Types of Scrutiny

| Type | Scope | Key Feature | |------|-------|-------------| | Complete Scrutiny | All aspects of the return examined | AO can examine any issue | | Limited Scrutiny | Only specific issues flagged in CASS | AO restricted to flagged issues; cannot expand without approval of PCIT/CIT | | Compulsory Scrutiny | Specified categories (search cases, specific information cases) | Mandatory selection |

Timeline and Procedure

1. Notice u/s 270(3) must be served within 3 months from the end of the financial year in which the return was filed (for returns filed on or after 1 April 2021). For earlier years, it was 6 months.
2. Questionnaire / Notice u/s 268(1) (formerly Section 142(1)) is issued seeking specific information, documents, and explanations.
3. The assessee must respond within the time specified (usually 15-30 days, extendable on request).
4. Show Cause Notice is issued if the AO proposes to make additions, giving the assessee an opportunity of being heard (principles of natural justice).
5. Draft Assessment Order may be shared in certain cases.
6. Final Assessment Order u/s 270(9) is passed.

Critical Time Limit for Completing Assessment

The assessment order under Section 270(9) must be passed within 12 months from the end of the assessment year in which the return was filed (revised timelines applicable from AY 2021-22 onwards). For a return filed for AY 2025-26, the assessment must be completed by 31 March 2027.

Section 270(9) — The Assessment Order

The assessment order is the culmination of the scrutiny process. The AO passes an order under Section 270(9) either:

• Accepting the return as filed (no additions or modifications), or
• Modifying the return by making additions to income, disallowing claims, or reducing losses

Key Principles Governing the Assessment Order

1. Opportunity of being heard (Audi Alteram Partem): The AO must give the assessee a reasonable opportunity to present their case before making any adverse addition.
2. Speaking order: The assessment order must contain reasons for every addition or disallowance. A non-speaking order is liable to be set aside on appeal.
3. Based on evidence: Additions must be supported by material and evidence, not mere suspicion or conjecture.
4. Limitation: The order must be passed within the prescribed time limit, failing which it becomes time-barred and void.

Section 271 — Best Judgement Assessment

Section 271 of the Income Tax Act, 2025 (formerly Section 144) is invoked when the assessee fails to cooperate with assessment proceedings. It allows the AO to make an assessment to the best of his judgement based on available material.

When Can Section 271 Be Invoked?

• Failure to file the return under Section 263 or in response to notice under Section 268(1)/280
• Failure to comply with the directions issued under Section 268(2A) (special audit)
• Failure to comply with notice under Section 270(3) (not responding to scrutiny)

Safeguards

Even in best judgement assessment, the AO must:

• Issue a show cause notice giving the assessee an opportunity to explain why best judgement assessment should not be made
• Apply his mind judiciously — he cannot make arbitrary or capricious additions
• The assessment must be based on relevant material available on record

Expert Tip: Best judgement assessment is not a punitive measure. As held by the Supreme Court in State of Kerala v C. Velukutty (1966), the AO must make an honest and fair estimate based on available material. It must not be vindictive or based on wild guesses.

Sections 279 & 280 — Reassessment (Income Escaping Assessment)

Section 279 of the Income Tax Act, 2025 (formerly Section 147) authorises the AO to reopen a completed assessment when income chargeable to tax has escaped assessment. Section 280 (formerly Section 148) is the reassessment notice issued after the mandatory Section 281 procedure is followed.

The New Regime (Post 1 April 2021)

Section 281 — Mandatory Inquiry Before Reassessment

Before issuing any notice under Section 280, the AO must conduct an inquiry under Section 281 (formerly Section 148A) following this procedure:

| Step | Action | Detail | |------|--------|--------| | 1 | Section 281(b) | AO conducts inquiry and provides information/material to the assessee suggesting income has escaped assessment | | 2 | Response | Assessee given minimum 7-30 days to respond as to why reassessment should not be initiated | | 3 | Section 281(d) | AO passes an order, after considering the assessee's reply, deciding whether it is a fit case to issue notice u/s 280 | | 4 | Section 280 | If the order is affirmative, notice u/s 280 is issued along with a copy of the Section 281(d) order |

Section 282 — Time Limits for Reassessment

Section 282 of the Income Tax Act, 2025 (formerly Section 149 of the Income Tax Act, 1961) governs the time limits within which reassessment can be initiated.

| Condition | Time Limit | |-----------|-----------| | Income escaping assessment is less than Rs. 50 lakh | Within 3 years from end of relevant assessment year | | Income escaping assessment is Rs. 50 lakh or more | Within 5 years from end of relevant assessment year | | Where books, documents, or information relating to assets located outside India are found in search/survey | Within 10 years from end of relevant assessment year |

Approval Requirements for Reassessment

• For reopening within 3 years: Approval of PCIT/CIT is required
• For reopening beyond 3 years: Approval of PCCIT/CCIT is required, and the AO must have information flagged through the risk management strategy formulated by CBDT

Key Conditions for Valid Reassessment

1. The AO must possess "information" suggesting income has escaped assessment — vague suspicion is insufficient
2. Mere change of opinion is not a valid ground for reassessment
3. The procedure under Section 281 is mandatory and cannot be bypassed
4. Reassessment cannot be initiated if the issue was already examined during the original assessment (unless new material exists)

Section 273 — Faceless Assessment

Since 2020, virtually all assessments are conducted through the Faceless Assessment Scheme under Section 273 of the Income Tax Act, 2025 (formerly Section 144B of the Income Tax Act, 1961). The National e-Assessment Centre (NeAC) acts as the nodal agency.

How Faceless Assessment Works

1. NeAC receives the case and assigns it to a randomly selected Assessment Unit (AU) in any city across India
2. AU examines the return, identifies issues, and prepares a draft questionnaire/notice
3. NeAC serves the notice on the assessee (the assessee never knows which AU is handling the case)
4. Assessee responds electronically through the income tax portal
5. Verification Unit and Technical Unit assist the AU if required
6. Review Unit reviews the draft assessment order before finalization
7. NeAC finalizes the assessment order and serves it on the assessee

Video Conferencing

The assessee has the right to request a personal hearing via video conferencing if the AO proposes to make an adverse addition. This right was upheld and reinforced post the initial challenges to the faceless scheme.

Exceptions to Faceless Assessment

• Search and seizure cases (Section 247, formerly Section 132)
• Cases assigned to Central Charges or International Taxation
• Orders requiring approval of certain authorities where physical presence is needed

Landmark Judgements

GKN Driveshafts (India) Ltd v ITO — Supreme Court (2003)

Citation: (2003) 259 ITR 19 (SC)

Facts: The assessee challenged the reassessment notice without first filing an objection with the AO.

Held: The Supreme Court laid down a binding procedure for challenging reassessment notices:

1. The assessee, on receipt of notice under Section 280 (formerly Section 148), must file a return.
2. If the assessee desires to object to the issuance of notice, they must request the AO to provide reasons recorded for reopening.
3. On receipt of reasons, the assessee must file objections to the issuance of notice.
4. The AO must dispose of the objections by passing a speaking order before proceeding with the reassessment.

Significance: This judgement established the fundamental right of every assessee to know and challenge the reasons for reassessment before the proceedings continue. The GKN Driveshafts procedure is still followed in every reassessment case. Under the Income Tax Act, 2025, the mandatory inquiry under Section 281 (formerly Section 148A) has codified these safeguards into the statute itself.

Ashish Agarwal v Union of India — Supreme Court (2022)

Citation: (2022) 444 ITR 1 (SC)

Facts: After 1 April 2021, the new reassessment framework (Sections 279, 280, 281, 282 in the new Act; formerly Sections 147, 148, 148A, 149) came into force. However, thousands of reassessment notices were issued under the old provisions between April and June 2021, citing COVID extensions. Multiple High Courts quashed these notices.

Held: The Supreme Court, in a pragmatic approach:

1. Deemed all old notices issued between April-June 2021 as show cause notices under the new mandatory inquiry provision (now Section 281 of the Income Tax Act, 2025)
2. Directed AOs to provide the information and material relied upon to the assessees within 30 days
3. Directed assessees to respond within two weeks
4. AOs to pass fresh orders deciding whether to proceed

Significance: This landmark judgement provided a one-time conversion mechanism and affirmed that the new reassessment framework is mandatory for all notices issued on or after 1 April 2021.

Worked Example: Timeline of a Typical Scrutiny Case

Scenario: Mr. Rahul Verma, a salaried individual with freelance consulting income, filed his return for AY 2025-26 on 31 July 2025, declaring total income of Rs. 18,50,000.

| Date | Event | Section (2025 Act) | |------|-------|---------| | 31 July 2025 | Return filed for AY 2025-26 | Sec 263 | | October 2025 | CPC processes return, issues intimation with minor adjustment of Rs. 12,000 | Sec 270(1) | | December 2025 | CASS selects case for Limited Scrutiny — reason: "Large cash deposits not commensurate with declared income" | — | | 15 January 2026 | Notice u/s 270(3) issued (within 3 months of 31 March 2026, the Tax Year end in which return was filed) | Sec 270(3) | | 10 February 2026 | Questionnaire u/s 268(1) issued — seeks bank statements, consulting agreements, cash flow statement | Sec 268(1) | | 15 March 2026 | Mr. Verma submits all documents with explanations | — | | May 2026 | AO identifies cash deposits of Rs. 8,00,000 and issues show cause notice proposing addition u/s 104 (unexplained money) | — | | June 2026 | Mr. Verma submits withdrawal slips, ATM records, and cash flow reconciliation proving source | — | | August 2026 | AO accepts explanation for Rs. 6,00,000 but makes addition of Rs. 2,00,000 for unexplained cash | Sec 270(9) read with Sec 104 | | August 2026 | Assessment order passed u/s 270(9) with total assessed income of Rs. 20,50,000 | Sec 270(9) | | September 2026 | Demand notice served; Mr. Verma decides to appeal to CIT(A) against the Rs. 2,00,000 addition | Sec 356 |

Expert Tip: When you receive a scrutiny notice under Section 270(3), do not panic. First, identify whether it is Limited or Complete Scrutiny by checking the notice carefully. For Limited Scrutiny, the AO can only examine the specific issue flagged — so focus your response on that issue. Always maintain a paper trail — submit all responses through the e-filing portal so there is electronic evidence of your compliance and the dates of submission. If the AO attempts to expand the scope of Limited Scrutiny to other issues, insist on seeing the PCIT/CIT's approval for such expansion. Engage a qualified Chartered Accountant early in the process, as the quality of your initial response often determines the outcome of the entire proceeding.

Frequently Asked Questions

1. I received an intimation u/s 270(1) with a demand. Does this mean my case is under scrutiny?

No. An intimation under Section 270(1) is automated computer processing, not scrutiny. It only checks for arithmetic errors, internal inconsistencies, and mismatches with Form 26AS/AIS. You can file a rectification request under Section 287 (formerly Section 154) if you believe the adjustment is incorrect, or pay the demand if valid. Your case may or may not be separately picked for scrutiny under Section 270(3).

2. What is the time limit for the AO to issue a scrutiny notice u/s 270(3)?

For returns filed on or after 1 April 2021, the notice must be served within 3 months from the end of the financial year in which the return was filed. For example, if you file your AY 2025-26 return on 31 July 2025, the notice must be served by 30 June 2026 (3 months from 31 March 2026).

3. Can a case selected for Limited Scrutiny be converted to Complete Scrutiny?

Yes, but only with the prior approval of PCIT/CIT. The AO must record reasons and seek approval before expanding the scope. If the AO makes additions on issues outside the Limited Scrutiny scope without such approval, those additions are liable to be deleted on appeal.

4. I received a reassessment notice u/s 280 after 3 years. Is it valid?

Under the reassessment framework of the Income Tax Act, 2025 (Sections 279–282), reopening beyond 3 years is permitted only if the escaped income is Rs. 50 lakh or more, and with the approval of PCCIT/CCIT. Most critically, the AO must have followed the mandatory procedure under Section 281. If any of these conditions are not met, the notice can be challenged.

5. Can I challenge a reassessment notice in the High Court directly through a writ petition?

While writ jurisdiction is available, the Supreme Court in GKN Driveshafts recommended that the assessee should first comply with the notice (file return), obtain reasons, file objections, and wait for the AO's order on objections. Only after exhausting this remedy should you approach the High Court. Under the Income Tax Act, 2025, the Section 281 mandatory inquiry procedure is the first statutory safeguard — exhaust this before approaching the High Court.