Inquiry before assessment
[Section-268 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 268(1) of Income Tax Act 2025
268(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 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 prescribed 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.
Section 268(2) of Income Tax Act 2025
268(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 relavant tax year.
Section 268(3) of Income Tax Act 2025
268(3) A notice under sub-section (1)(a) may also be served by the prescribed income-tax authority.
Section 268(4) of Income Tax Act 2025
268(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.
Section 268(5) of Income Tax Act 2025
268(5) If, at any stage of the proceedings before him, the Assessing Officer, having regard to––
- (a) the nature and complexity of the accounts;
- (b) volume of the accounts;
- (c) doubts about the correctness of the accounts;
- (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, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, after giving the assessee a reasonable opportunity of being heard, direct him 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 such form duly signed and verified by such accountant and setting forth such particulars, as 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 as duly signed and verified by such cost accountant and setting forth such particulars, as prescribed, and such other particulars as the Assessing Officer may require.
Section 268(6) of Income Tax Act 2025
268(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.
Section 268(7) of Income Tax Act 2025
268(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 in force or otherwise.
Section 268(8) of Income Tax Act 2025
268(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.
Section 268(9) of Income Tax Act 2025
268(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.
Section 268(10) of Income Tax Act 2025
268(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.
Section 268(11) of Income Tax Act 2025
268(11) The expenses of any audit or inventory valuation under sub-section (5) (including incidental expenses and remuneration of the accountant or the cost accountant) shall be—
- (a) determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as per such guidelines as prescribed; and
- (b) paid by the Central Government.
Section 268(12) of Income Tax Act 2025
268(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 assessment.
Section 268(13) of Income Tax Act 2025
268(13) In this section, “cost accountant” means a cost accountant as defined in section 2(1)(b) of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under section 6(1) of the said Act.
FAQs on Section 268 of Income Tax Act 2025
What is the purpose of serving a notice under Section 268(1) of the Income Tax Act, 2025?
The notice under Section 268(1) is served by the Assessing Officer to obtain a return, documents, or information from a person for making an assessment.
When can the Assessing Officer issue a notice under Section 268(1)(a)?
It can be issued to a person who has not filed a return under Section 263(1) within the allowed time or before the end of the financial year following the relevant tax year.
What can the Assessing Officer require under a notice issued as per Section 268(1)(b)?
The Assessing Officer can require the person to produce specific accounts or documents as needed for assessment.
What information may be requested under Section 268(1)(c)?
The Assessing Officer may ask for any relevant information in writing, including a verified statement of all assets and liabilities, whether or not included in the accounts.
Is prior approval needed for seeking asset and liability statements not recorded in the accounts?
Yes, as per Section 268(2)(a), prior approval of the Joint Commissioner is required.
Can the Assessing Officer demand production of accounts for any number of years in the past?
No, under Section 268(2)(b), the Assessing Officer cannot require accounts for periods beyond three years before the relevant tax year.
Who else can serve a notice under Section 268(1)(a)?
As per Section 268(3), a prescribed income-tax authority may also serve such notice.
Can the Assessing Officer make inquiries apart from serving notices?
Yes, Section 268(4) allows the Assessing Officer to make any inquiries necessary to obtain full information on income or loss.
Under what conditions can the Assessing Officer direct an audit or inventory valuation?
Under Section 268(5), the Assessing Officer may do so if the accounts are complex, voluminous, doubtful, involve many transactions, or relate to specialized business, with prior approval and after hearing the assessee.
What kinds of reports can the Assessing Officer direct the assessee to furnish under Section 268(5)?
The assessee may be directed to get the accounts audited by an accountant or have inventory valued by a cost accountant, and submit detailed reports.
Who appoints the accountant or cost accountant for such audit or valuation?
Section 268(6) states that the appointment is made by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner.
Does it matter if the assessee is already audited under another law?
No, as per Section 268(7), this requirement applies regardless of any other audit conducted under other laws.
When must the assessee furnish the audit or valuation report?
Section 268(8) requires the report to be submitted within the time specified by the Assessing Officer.
Can the time for submitting the report be extended?
Yes, under Section 268(9), the Assessing Officer may extend the time on his own or on application by the assessee for good and sufficient reason.
Is there a maximum time limit for submitting the audit or valuation report?
Yes, Section 268(10) caps the total time (original plus extensions) at six months from the end of the month in which the direction was received.
Who bears the cost of the audit or inventory valuation under Section 268(5)?
As per Section 268(11), the Central Government bears the cost, which is determined as per prescribed guidelines.
Will the assessee be given an opportunity to respond to findings from inquiries, audit, or valuation?
Yes, under Section 268(12), the assessee will be given a chance to be heard on any material proposed to be used for assessment, except in cases under Section 271.
Who qualifies as a “cost accountant” under this section?
Section 268(13) defines a cost accountant as one who is defined in Section 2(1)(b) of the Cost and Works Accountants Act, 1959 and holds a valid certificate of practice under Section 6(1) of that Act.
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