Sub-section (1) lets the Assessing Officer, for the purpose of making an assessment, serve a notice on a person who has made a return under section 263 or in whose case the time allowed under section 263(1) has expired, requiring him on a specified date to do any of three things: under clause (a), where he 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 own income or of the income of another person in respect of which he is assessable, in the prescribed form and verification; under clause (b), to produce or cause to be produced such accounts or documents as the Assessing Officer may require; and under clause (c), to furnish in writing, verified in the prescribed manner, 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.
Sub-section (2) puts two limits on that power: the previous approval of the Joint Commissioner must be obtained before requiring a statement of assets and liabilities not included in the accounts, and the Assessing Officer shall not require the production of accounts relating to a period more than three years prior to the relevant tax year. Sub-section (3) allows a notice under clause (1)(a) to be served also by the prescribed income-tax authority. Sub-section (4) permits the Assessing Officer to make such inquiry as he considers necessary to obtain full information about the income or loss of any person.
Sub-section (5) is the special audit power. At any stage of the proceedings, having regard to the nature and complexity of the accounts, their volume, doubts about their correctness, multiplicity of transactions, or the specialised nature of the business activity, and the interests of the revenue, and being of the opinion that it is necessary, the Assessing Officer may — after giving the assessee a reasonable opportunity of being heard and with the previous approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner — direct the assessee to get the accounts audited by an accountant and furnish a report in the prescribed form, or to get the inventory valued by a cost accountant and furnish a valuation report, or both. Sub-section (6) requires the accountant or cost accountant to be nominated by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner. Sub-section (7) makes the power available irrespective of whether the accounts have already been audited under any other law.
Sub-section (8) requires the report to be furnished within the period the Assessing Officer specifies; sub-section (9) allows him, on his own motion or on the assessee's application and for good and sufficient reason, to extend that period; and sub-section (10) caps the aggregate of the original and extended periods at six months from the end of the month in which the direction under sub-section (5) is received by the assessee. Sub-section (11) requires the expenses of the audit or inventory valuation, including incidental expenses and the professional's remuneration, to be determined by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner under guidelines, and paid by the Central Government. Sub-section (12) requires the assessee, except where the assessment is made under section 271, to be given an opportunity of being heard on any material gathered by an inquiry under sub-section (4) or an audit or valuation under sub-section (5) that is proposed to be used in the assessment. Sub-section (13) defines "cost accountant".
Why it is there
An assessment cannot be made on the return alone, and this section gives the Assessing Officer the means to call for the return, the books and the explanations he needs. The special audit power exists for the case where the accounts are beyond ordinary scrutiny — complex, voluminous, doubtful or specialised — and because that power is intrusive and costly the section surrounds it with a hearing, a Commissioner's approval, a departmental nomination, a six-month outer limit and payment of the fee by the Central Government rather than the assessee.
Who it applies to
A person who has made a return under section 263
A person in whose case the time allowed under section 263(1) for furnishing the return has expired
A person assessable in respect of another person's income
An assessee directed to get his accounts audited by an accountant under sub-section (5)
An assessee directed to get his inventory valued by a cost accountant
An accountant or cost accountant nominated by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner
The Joint Commissioner, whose previous approval is needed for a statement of assets and liabilities not included in the accounts
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Limit on the age of accounts that can be called for
Not more than three years prior to the relevant tax year
Applies to production of accounts required under sub-section (1); a bar on the Assessing Officer, not a period of preservation
Sub-section (2)(b)
Outer limit for furnishing the audit or inventory valuation report
Six months from the end of the month in which the direction is received by the assessee
The aggregate of the period originally fixed under sub-section (8) and all extensions under sub-section (9) cannot exceed it in any case
Sub-section (10)
Who bears the cost of the audit or inventory valuation
Paid by the Central Government
Expenses including incidental expenses and the remuneration of the accountant or cost accountant, determined by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner as per guidelines
Sub-section (11)
What this means in practice
The six-month cap in sub-section (10) is measured from receipt of the direction by the assessee, not from the date the Assessing Officer signs it, and it swallows every extension — however many are granted, the report cannot be due later than that. A direction under sub-section (5) is invalid without two prior steps: a reasonable opportunity of being heard and the previous approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner; and the professional is nominated by that authority, not chosen by the assessee. An existing statutory audit is no answer — sub-section (7) makes the power available irrespective of any audit under any other law — but the cost is not the assessee's, because sub-section (11) puts it on the Central Government. Two smaller limits are easy to miss: a statement of assets and liabilities not included in the accounts needs the Joint Commissioner's previous approval under sub-section (2)(a), and accounts more than three years older than the relevant tax year cannot be called for at all under sub-section (2)(b). Finally, material gathered under sub-section (4) or (5) cannot simply be used against the assessee: sub-section (12) requires an opportunity of being heard on it, except where the assessment is made under section 271.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
An Assessing Officer forms the view that a company's accounts are too complex to examine directly. He hears the company, obtains the Commissioner's approval, and signs a direction for a special audit on 10 June; the company receives it on 15 June. Whatever period he fixes under sub-section (8), and however many extensions he grants under sub-section (9), the report cannot fall due later than 31 December — six months from the end of June. The auditor is nominated by the Commissioner, and the fee is paid by the Central Government, not by the company.
Where you meet this section
The notice under sub-section (1) is the ordinary notice that opens a scrutiny assessment and calls for accounts, documents and explanations. The direction under sub-section (5) arrives separately as a special audit order, and it should be preceded by a hearing and carry the approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner.
The words themselves
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
Section 268(2)(b), Income-tax Act, 2025.
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(10), Income-tax Act, 2025.
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.
Section 268(7), Income-tax Act, 2025.
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
Section 268(2)(a), Income-tax Act, 2025.
What people get wrong
Counting the six months from the date of the direction. Sub-section (10) runs it from the end of the month in which the direction is received by the assessee.
Treating extensions as capable of taking the report beyond six months. Sub-section (10) caps the aggregate of the original and every extended period.
Resisting a special audit on the ground that a statutory audit has already been done. Sub-section (7) applies the power irrespective of an audit under any other law.
Assuming the assessee pays for the special audit. Sub-section (11) requires the expenses and the professional's remuneration to be paid by the Central Government.
Overlooking the approvals. A special audit direction needs a hearing and the previous approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner under sub-section (5), and a statement of off-books assets and liabilities needs the Joint Commissioner's previous approval under sub-section (2)(a).
Allowing audit or inquiry material to be used without comment. Sub-section (12) requires an opportunity of being heard on it, except where the assessment is made under section 271.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
Rules of the Income-tax Rules, 2026 that work section 268. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.
Rule 164 — Forms, eligibility, verification etc. in respect of return of income — on reading the rule
Rule 169 — Form of verification for furnishing information under section 268(1)(c)
Rule 170 — Prescribed income-tax authority under section 268(3) for issue of notice under sub-section (1) thereof
Rule 171 — Forms for report of audit or inventory valuation under section 268(5)
Rule 172 — Procedure for purposes of determining expenses for audit or inventory valuation — on reading the rule
Rule 176 — Procedure for faceless assessment, reassessment or recomputation under section 273(1) — on reading the rule
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 2/2017 — Clarifications on the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 2017-01-18
Circular No. 17/2016 — Clarifications on the income declaration scheme 2016 2016-05-20
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Notification No. 09/2012 — Section 139 of the Income-tax Act, 1961 - Return of Income - Exemption to specified persons from requirement of furnishing a retur 2012-02-17
Notification No. 20 — Amendment of the Income-tax Rules under section 142 of the Income-tax Act, 1961 2008-02-05
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 268. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
ACIT v Hotel Blue MoonSupreme Courttagged s.142 Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip?
CIT v Chhabil Dass AgarwalSupreme CourtHelps departmenttagged s.142(1) Can I go straight to the High Court against an income-tax order instead of filing the statutory appeal?
Sahara India (Firm) v CITSupreme CourtCuts both waystagged s.142(2A) The AO ordered a special audit of my books without hearing me first. Is that direction valid?
Sasi Enterprises v ACITSupreme CourtHelps departmenttagged s.142(1)(i) The firm never filed its returns and the assessments were made under s.144. Can we get the s.276CC complaint discharged because the assessment was…
BVR Projects v Assessment UnitHigh CourtHelps taxpayertagged s.142(1) The faceless show-cause notice gave me four days to reply. Is that enough time?
Bharat Aluminium Company Ltd v Union of IndiaHigh CourtHelps taxpayertagged s.142(1) I asked for a personal hearing in the faceless assessment and was refused. Does the order survive?
Kunal Structure (India) Pvt Ltd v Dy CITHigh CourtHelps taxpayertagged s.142(1) My return was defective and I cured the defect ten months later. Does the s.143(2) clock run from the original filing or from the day I removed the…
Nokia India P Ltd v Addl CITHigh CourtHelps departmenttagged s.142(2A) The special audit direction was passed inside the limitation period but served on me afterwards. Does the section 153 exclusion run from the date of…
Symphony Limited v ACITHigh CourtHelps taxpayertagged s.142(1) The faceless unit finalised your assessment without issuing a draft order. Is that order good?
Trust for Reaching the Unreached v CITHigh CourtHelps taxpayertagged s.142(1) Our audit report was not e-filed with the return and exemption was denied. Can the delay be condoned?
Vatsalabai Karbhari Deore v ACITITATHelps taxpayertagged s.142(1) You missed the notices and got a best judgment assessment. Is the officer's estimate final?
s.276CC: prosecution for not filing the returntagged s.142(1)(i) A s.276CC notice has come for a year where the return went in late. What actually has to be shown, and does the proviso save me?
Read with
Section 263
Section 271
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.