no need to read the input as string . read it as int using "scanf("%1d",your array[i)[j]);" ...read only a single digit at a time

Python Implementation:

Just concentrate on (n-2)X(n-2) matrix as we need to ignore the borders

n = int(input().strip())
grid = []
grid_i = 0
for grid_i in range(n):
    grid_t = list(str(input().strip()))
    grid.append(grid_t)

for i in range(1,(n-2)+1):
    for j in range(1,(n-2)+1):
        if grid[i][j]>max(grid[i-1][j],grid[i+1][j],grid[i][j-1],grid[i][j+1]):
            grid[i][j]='X'
    
for i in range(n):
    print (''.join(grid[i]))  

Instead of using two arrays, compare the center matrix (formed excluding boundary values) while printing the matrix..! ;)

int n,i,j;
scanf("%d",&n);
int a[n][n];
for(i=0;i<n;i++)
{
    for(j=0;j<n;j++)
    {
        scanf("%1d",&a[i][j]);
    }
}
for(i=0;i<n;i++)
{
    for(j=0;j<n;j++)
    {
        if( (i>=1)&&(i<n-1) && (j>=1)&&(j<n-1) )
        {
         if( (a[i][j] > a[i-1][j]) && (a[i][j] > a[i][j+1])      
         && (a[i][j] > a[i+1][j]) && (a[i][j] > a[i][j-1]) )
            printf("X");
         else
            printf("%d",a[i][j]);
        }
        else
            printf("%d",a[i][j]);
    }
    printf("\n");
}

Why does Test Case #2 have spaces in the input grid? Although submitting the code that works for the Test Case #1 (one without the spaces) works fine for everything else, and gives the full 30 points,

I kind-of wasted my time because my code was reading the spaces in the grid rather than the number itself.

the conditions are:

1) is right or left of the current value a value that is greater or equals

2) is above or below of the current value a value that is greater or equals

3) is it in the first or last row or is it the first or last number

if so it cant be a cavity

I just created an inverse of a 2 dimensional array and checked those conditions for both matrices. Even its O(N*N) it doesnt needs a 1/10 of a second