Section 268 — Inquiry Before Assessment | ITA 2025

Section 268 — - INQUIRY BEFORE ASSESSMENT

Section 268 is the substantive equivalent of 1961 s. 142 -- the foundational provision empowering AO / Joint CIT / Joint Director to issue NOTICE TO ASSESSEE for production of return / books of account / documents / personal attendance / sworn statements during assessment proceedings. The provision is the WORKHORSE notice provision used in EVERY scrutiny assessment under s. 270(6)/(7). Sub-section structure: (1) notice categories (return-call / books-call / particulars-call / direction to get audited); (2) audit by special auditor (s. 142(2A)); (3) opportunity-of-hearing safeguard; (4) penalty for non-compliance; (5) special audit cost. Practitioner relevance: every scrutiny case begins with s. 268 notice; comprehensive response critical; non-compliance triggers best-judgment under s. 271 + penalty under s. 272A.

Statutory text — Income-tax Act, 2025

Marginal note -- Inquiry before assessment

(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 263 or in whose case the time allowed under section 263(1) for furnishing the return has expired, a notice requiring him, on a date to be specified therein,—

(a) where such person has not made a return within the time allowed under section 263(1) or before the end of the financial year succeeding the relevant tax year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in such form and verified in such manner and setting forth such other particulars as may be prescribed;

(b) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require;

(c) to furnish in writing and verified in the manner as may be prescribe information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require.

(2) For the purposes of sub-section (1),—

(a) the previous approval of the Joint Commissioner shall be obtained by the Assessing Officer before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;

(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the relevant tax year.

(3) A notice under sub-section (1)(a) may also be served by the prescribed income- tax authority.

(4) For the purposes of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.

(5) If, at any stage of the proceedings before him, the Assessing Officer, having regard to—

(a) the nature and complexity of the accounts; or

(b) volume of the accounts; or

(c) doubts about the correctness of the accounts; or

(d) multiplicity of transactions in the accounts; or

(e) specialised nature of business activity of the assessee, and interests of the revenue, is of the opinion that it is necessary so to do, he may, after giving the assessee a reasonable opportunity of being heard, and with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of the following:—

(i) to get the accounts audited by an accountant, and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require;

(ii) to get the inventory valued by a cost accountant, and to furnish a report of such inventory valuation in the prescribed form as duly signed and verified by such cost accountant and setting forth such particulars, as may be prescribed, and such other particulars as the Assessing Officer may require.

(6) The accountant or the cost accountant as referred to in sub-section (5) shall be nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner for the purposes of the said sub-section.

(7) The provisions of sub-section (5) shall have effect irrespective of whether or not accounts of the assessee have been audited under any other law for the time being in force or otherwise.

(8) Every report under sub-section (5) shall be furnished by the assessee to the Assessing Officer within such period as specified by the Assessing Officer.

(9) The Assessing Officer may, on his own motion, or on an application made in this behalf by the assessee and for any good and sufficient reason, subject to the provisions of sub-section (10), extend the period referred to in sub-section (8) by such further period or periods as he thinks fit.

(10) The aggregate of the period originally fixed under sub-section (8) and the period or periods so extended, as referred to in sub-section (9), shall not, in any case, exceed six months from the end of the month in which the direction under sub-section (5) is received by the assessee.

(11) The expenses of any audit or inventory valuation under sub-section (5) (includ- ing incidental expenses and remuneration of the accountant or the cost accountant) shall be—

(a) determined by the Principal Chief Commissioner or Chief Commission- er or Principal Commissioner or Commissioner as per such guidelines issued in this behalf; and

(b) paid by the Central Government.

(12) The assessee shall, except where the assessment is made under section 271, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (4), or any audit or inventory valuation under sub-section (5) and proposed to be utilised for the purposes of the assess- ment.

(13) For the purposes of this section, “cost accountant” means a cost accountant as defined in section 2(1)(b)of the Cost and Works Accountants Act, 1959 (23 of 1959) and who holds a valid certificate of practice under section 6(1) of the said Act. Estimation of value of assets by Valuation Officer.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 268	INCOME-TAX ACT, 1961 -- s. 142
Sub-s. (1)(a) -- Notice to file return	1961 s. 142(1)(i)
Sub-s. (1)(b) -- Notice to produce books / accounts / documents	1961 s. 142(1)(ii)
Sub-s. (1)(c) -- Notice to furnish particulars / information	1961 s. 142(1)(iii)
Sub-s. (1)(d) -- Direction to get accounts audited	1961 s. 142(2A)
Sub-s. (2) -- Special audit; auditor appointed by PCIT/CIT	1961 s. 142(2A) read with 142(2B)
Sub-s. (3) -- Opportunity of hearing	1961 s. 142(3)
Audit cost determined by PCIT/CIT	1961 s. 142(2D)

STATUTORY ARCHITECTURE -- FOUR NOTICE CATEGORIES

(I) NOTICE TO FILE RETURN (sub-s. 1(a)): where return not filed by assessee; AO calls for filing within prescribed time. Used in non-filer cases; integration with s. 271 best-judgment if non-response. (II) NOTICE TO PRODUCE BOOKS / DOCUMENTS (sub-s. 1(b)): AO can require production of books of account / supporting documents / vouchers / contracts / etc. Standard scrutiny notice; comprehensive list of records sought. (III) NOTICE TO FURNISH PARTICULARS (sub-s. 1(c)): specific written information / explanations / particulars / statements; broader than books; may include third-party transactions / explanations / valuations. (IV) DIRECTION TO GET ACCOUNTS AUDITED (sub-s. 1(d) / 142(2A)): SPECIAL AUDIT direction; AO may direct assessee to get accounts audited by accountant nominated by PCIT/CIT. Conditions for special audit (FA 2013 amendments): (a) Nature / complexity of accounts; (b) Volume of accounts; (c) Doubts about correctness of accounts; (d) Multiplicity of transactions; (e) Specialised nature of business activity. PCIT/CIT approval required; opportunity of hearing to assessee. Audit cost borne by Department (FA 2007). Auditor's report binding on AO. Substantial procedural safeguard against arbitrary special audits.

PROCEDURAL FRAMEWORK

Notice u/s 268 served via: (a) Pre-FA 2020: physical service via postal / courier / hand-delivery; (b) Post-FA 2020: e-portal notice -- notice uploaded to assessee's e-filing portal; deemed served when uploaded. Time-frame: notice typically allows 7-15 days response time; extension on application. OPPORTUNITY OF HEARING (sub-s. 3): assessee given opportunity to comply; before any adverse step (e.g., best-judgment under s. 271); FA 2022 strengthened with personal hearing via VC under faceless framework. PENALTIES FOR NON-COMPLIANCE: (a) Section 272A (1961 s. 271(1)(b)) -- INR 10,000 per failure to comply with s. 268 notice; (b) Best-judgment assessment under s. 271 -- AO determines income / tax based on available material; punitive for non-cooperative assessees; (c) Prosecution under specific provisions for repeated / wilful non-compliance.

PRACTITIONER NOTES

(i) PROMPT RESPONSE -- 7-15 day window typical; comprehensive response; preserve appellate rights. (ii) BOOKS / DOCUMENTS PREP -- maintain organised records; sample-period focus typical; ensure relevance. (iii) PARTICULARS REQUEST -- comprehensive but factual response; supporting documentation; reservation of rights. (iv) SPECIAL AUDIT (sub-s. 1(d)/(2)) -- challenge basis if frivolous; PCIT/CIT approval can be challenged via writ. (v) E-PORTAL VIGILANCE -- monitor e-filing notifications; track all communications. (vi) EXTENSION REQUESTS -- legitimate extensions available; document grounds. (vii) APPEAL ROUTE -- s. 268 notice generally not appealable; underlying assessment under s. 270 / 271 appealable. (viii) PROFESSIONAL ENGAGEMENT -- complex / high-value cases warrant tax-counsel from notice receipt.

CROSS-REFERENCES

Section 270 -- Assessment (s. 268 notice integral to scrutiny).
Section 271 -- Best judgment (non-compliance trigger).
Section 273 -- Faceless Assessment.
Section 272A -- Penalty for non-compliance.
Section 286 -- Time limits.
Section 287 -- Rectification.

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