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Income Tax authorities and powers

Proper execution of Income Tax Act is a very difficult task, particularly in a vast country like
India. With the purpose of administering the income tax affairs, the Govt. of India has
constituted an apex authority known as The Central Board of Direct Taxes (CBDT). The Board is
responsible for the formulation, evaluation and proper implementation of policies relating to
direct taxes administration. The Board consists of a chairman and six members.

1) Chairman

2) Member ( income tax)

3) Member ( investigation)

4) Member ( audit and judicial)

5) Member ( legislation)

6) Member ( personnel)

7) Member ( revenue and audit)

Income tax authorities:

Section 116 of the Income Tax Act 1961

The following are the income tax authorities in India;

 Central Board of Direct Taxes

 Principal Director General of Income Tax or Principal Chief Commissioner of Income Tax

 Director General of Income Tax or Chief Commissioner of Income Tax

 Principal Director of Income Tax or Principal Commissioner of Income Tax

 Director of Income Tax or Commissioner of Income Tax or Commissioner of Income Tax

( Appeal)

 Additional Director of Income Tax or Additional Commissioner of Income Tax or

Additional Commissioner of Income Tax (Appeal)

 Joint Director of Income Tax or Joint Commissioner of Income Tax

 Deputy Director of Income Tax or Deputy Commissioner of Income Tax

 Assistant Director of Income Tax or Assistant Commissioner of Income Tax

 Income Tax Officer

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 Tax Recovery Officer

 Inspector of Income Tax

Appointment of income tax authorities

Section 117 of Income Tax Act 1961

The Central Government may appoint such persons as it thinks fit as the income tax authorities.

It may authorize the Board or a Director General or a Chief Commissioner or a Director or a

Commissioner to appoint income tax authorities below the rank of an Assistant Commissioner
or Deputy Commissioner, according to the rules and orders regulating the conditions of service
for such posts.

An income tax authority authorized in this behalf by the Board may appoint such executive and
ministerial staff as may be necessary to assist it in the execution of its functions.

General powers of income tax authorities

 Power regarding Discovery, Production of Evidence, etc. [Sec. 131]

The Assessing Officer, the Joint Commissioner, the Commissioner (Appeals), the Chief
Commissioner or the Commissioner shall, for the purpose of the Act, have same powers
as are vested in a court under the Code of Civil Procedure, 1908, while trying a suit in
respect of the following matters:

i. Discovery and inspection;

ii. Enforcing the attendance of any person and examining him on oath

iii. Compelling the production of books of accounts and other documents and

iv. Issuing commissions.

The existence of a pending proceeding is essential to exercise the above powers.

Notice without pending proceedings is invalid was held in Rina Sen v. CIT (1999).

 Power of search and seizure [ Section 132 ]

Searches and seizure can be authorized by the Director-General or Director or the Chief
Commissioner or Commissioner or by Joint Director and Joint Commissioner as may be
specially empowered by the Board for the purpose. Warrant of authorization for search
and seizure has to be in prescribed form and it cannot be issued in general terms
without specifying the person in respect of whom it is issued.

 Power to requisition of book of accounts [ Section 132A]

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Proper officer may authorise the authority to deliver such books of accounts, other
documents or assets to the requisitioning officer forthwith or when such officer is of the
opinion that it is no longer necessary to retain the same in his custody.

 Power to call for information [ Section 133]

The assessing officer, the joint commissioner pr the commissioner of appeals may for
the purpose of the Act,

o Require any firm to furnish a return of the names and addresses of the partners of
the firm and their respective shares.

o Require any HUF to furnish the return of the names and addresses of the manager
and the members of the family.

o Require any person who is a trustee, guardian or agent to furnish the name and
addresses of persons for whom he is a trustee, guardian or agent.

o Require any dealer, broker or agent or any person concerned in the management of
any exchange to furnish a statement of the names and addresses of all persons to
whom he or exchange has paid any sum in connection with the transfer of assets or
other particulars.

 Power of survey [ Section 133A]

Income Tax Act doesn't define survey. Dictionary meaning of survey is casting of eye or
mind over something, inspection of the condition, amount etc of something.

Objectives of conducting income tax survey :

o To discover new assessees

o To gather information useful for the purpose of assessment

o To verify that an assessee who claims to keep regular book of accounts is infact
doing the same.

o Yo verify that assessee who claims not to maintain any book of accounts is infact
maintaining the books.

o To verify independently or surprise check the correctness of the information

submitted by assessee.

 Power to inspect register of companies [ Section 134]

The proper officer may may inspect, and if necessary, take copies of any register of the
members, debenture holders or mortgagees of any company or of any entry in such

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register.

Returns under Income Tax Act

The statement in which the assessee discloses the details of his income during the previous
year is called a 'Return'. The income tax department has prescribed specific forms for returns to
be submitted by different categories of assessees. It is the duty of an assessee to prepare and
submit the return of income before the due date for furnishing the same, in the prescribed
manner.

Types of return

 Voluntary return [Section 139(1)]

Every person having income exceeding the non taxable limit is liable to file a return of
income on or before the due date in the prescribed form and verified in the prescribed
manner.

If an assesee without compulsion from any authority submits a return it becomes

voluntary return.

 Return of loss [Section 139(3)]

If a person who has sustained loss in any previous year under the head profit and gains
of business or profession or capital gains on an account of maintenance of horse races
the loss should be carried forward, he should furnish a return within the time allowed
under section 139(1), a return of loss in the prescribed form verified in the prescribed
manner.

If a return of loss is not filed upto the due date the above mentioned loss cannot be
carried forward.

 Belated returns [ Section 139(4)]

o If an assessee fails to file return within the time limit allowed u/s 139(1) or within the
time allowed under a notice issued u/s 142(1), he can file a belated return.

Time limit: Assessee may file such return -

o before the end of the relevant assessment year; or

o before the completion of assessment (u/s 144),

- whichever is earlier.

However, if an assessee files a belated return, he would be liable to fee u/s 234F and
interest u/s 234A.

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A delayed return submitted before the assessment is completed is called belated return.

 Revised return of income [ Section 139(5)]

If an assessee discovers any omission or wrong statement (bonafide in nature) in the

return filed, he can revise his return u/s 139(5).

Time limit: Assessee may file the revised return -

o before the end of the relevant assessment year; or

o before completion of regular assessment,

- whichever is earlier.

A revised return can again be revised i.e. a second revised return can be filed u/s 139(5) for
correcting any omission or wrong statement made in the first revised return within specified
time.

 Compulsory return [Section 142(1)(i)]

Where any person is assessable either in respect of his income or income of any other
person and he has not furnished the return of income on or before the due date of
furnishing the return u/s 139(1),

Assessing officer serve a notice on such person requiring him to furnish the return.

Such return should be furnished within the time allowed in the notice.

The return so submitted or required to be submitted is called a compulsory return.

Assessee submitting a compulsory return is liable to pay interest u/s 234A for late
furnishing of return.

The return furnished must be supported by other prescribed documents.

 Defective return [ Section 139(9)]

A return of income is said to be defective where all the following conditions are not
fulfilled:

o The return is furnished without paying self-assessment tax along with interest, if any.

o The annexure, statements and columns in the return of income have been duly filled
in.

o The return is accompanied by the following documents;

 a statement showing the computation of tax liability;

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 the audit report u/s 44AB (where the report has been submitted prior to the
furnishing of return, a copy of audit report together with proof of furnishing the
report);

 the proof of tax deducted or collected at source, advance tax paid and tax paid
on self-assessment;

 where the accounts of the assessee have been audited, copies of the audited
Profit and Loss A/c, Balance Sheet and a copy of the Auditor’s report;

 Cost audit report u/s 233B of the Companies Act, 1956 (if any).

Where the Assessing Officer considers that the return of income furnished by the taxpayer is
defective, he may intimate the defect to the taxpayer and give him an opportunity to rectify the
defect(s).

The assessee must rectify the error within a period of 15 days from the date of intimation
(served on the assessee) or within such extended time as allowed by the Assessing Officer.
Where the taxpayer rectifies the defect after the expiry of the period of 15 days or such
extended period but before the assessment is completed, the Assessing Officer can condone
such delay.

Assessment under Income Tax Act

Assessment means to assess the income of the assessee i.e. to decide the income and tax
liability of the assessee on the basis of return filed, information gathered or to the best of
judgment of income tax department. It begins with self-assessment i.e. assessment by the
assessee himself.

The different types of assessments are:

 Self assessment

 Summary assessment

 Scrutiny assessment

 Re assessment or income escaping assessment

 Best judgement assessment

Self assessment [ Section 140A]

The process of calculating the income and payment of tax, when done by the taxpayer himself,
is called Self-Assessment. At the time of paying the tax, a taxpayer can calculate his income of
the year and pay the tax accordingly.

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Section 140 A states that if a taxpayer has filed a return under Section 139, and the tax amount
is reduced due to tax already paid, then the assess should pay the balance tax within 30 days of
filing the return.

Summary assessment [ Section 143(1)]

This Assessment is carried out digitally. Once the taxpayer has submitted all the information
regarding his income in his income tax return. All this information is cross-checked with the
information which is available with the Income Tax Department. Everything is done online.
During online Assessment of the Income Tax Return, arithmetical errors are corrected. Besides
this, incorrect claims and disallowances are automatically corrected.

If, after all the corrections, the taxpayer is required to pay income tax, then he is informed via a
notice under Section 143(1).

Scrutiny assessment [ Section 143(3)]

In some cases, after filing an income tax return, an Income Tax Officer is assigned for
assessment. He is appointed by the Income Tax Department and is done when a case does not
satisfy certain criteria. When a tax assessment is undertaken by an Income Tax Officer, it is his
duty to inform the taxpayer. This is done through an Income Tax Notice under Section 143(2).
Thereafter, the Income Tax Officer may demand certain information, documents and account
books for scrutiny assessment. Income Tax Officer conducts a thorough examination of the
documents and then computes the income tax payable by the taxpayer. If there is a mismatch
disparity between the income amount and the tax due to be paid, the taxpayer could agree to
pay the extra amount, or accept the refunds.

If the taxpayer is not satisfied, he can apply for recitation under Section 154. Otherwise, a
revision application can also be submitted under Section 263 or Section 264. If the order
approved in Scrutiny Assessment is still considered invalid, the taxpayer can take things to the
higher authorities. Like CIT (A), ITAT, High Court and The Supreme Court, in that particular order.

Re-assessment or income escaping assessment [Section 147]

It is possible that a taxable income might have escaped assessment. In cases like this, the
Income Tax Department can open an assessment. They can do it for cases as old as 6 years. If
an Income Tax Officer has enough information to believe that an income has escaped
assessment, he can assess or reassess the taxpayer’s income. To do this, he needs to issue a
notice under Section 148.

Conditions under which Income Escaping Assessment is carried out are:

 If the taxpayer has failed to file an income tax return for his taxable income

 After filing the return, it is found that the taxpayer has deeply understated his income or

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requested excessive allowance or deduction.

 When the assessee has failed to produce reports on international transactions.

The duration for which Income Escaping Assessment is carried out maybe variable. It is
suggested that one should approach a Chartered Accountant if they need assessment with their
case.

Best judgement assessment [ Section 144]

Best Judgement Assessment is issued for those individuals who fail to co-operate with the
Income Tax Department. This simply means that the taxpayer does not respond to the multiple
notices issued by the Income Tax Department. Or he fails to produce the requested information
or does not maintain proper account books. In such cases Best Judgement Assessment is put
into action.

The Best Judgement Assessment is made by an Income Tax Officer in the following cases:

 There is no filing of Income Tax Return by the taxpayer.

 The taxpayer fails to carry out the written requests made by the Income Tax Department
regarding the filing of Income Tax Return or maintain book of accounts.

 When a Scrutiny Assessment is put into action, the taxpayer fails to produce relevant
documents.

 If the Income Tax Officer is not satisfied by the information or documents presented by
the taxpayer.

After the assessee’s argument is heard, the income tax officer passes an order and this is
known as Best Judgement Assessment.

Appeal under Income Tax Act

Income tax Act, 1961, contains provisions for remedial measures to an assessee aggrieved by
the decisions or orders issued by different Income-tax authorities. The following are the
authorities to which an assessee can submit his appeals.

The hierarchy of appeals under Income Tax Act is:

 Commissioner of Income Tax ( Appeals )

 Appellate Tribunal

 High court

 Supreme court

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Sections

Appeal before the Commissioner (Appeal) - Section 246 to 251

Appeal to the Appellate Tribunal - Section 252 to 256

Appeal to High Court - Section 260A to 260B

Appeal to Supreme Court - Section 261 to 262

Commissioner of Income Tax (Appeals):

Any person not satisfied or arrived with any of the following orders of the Assessing Officer, any
file an appeal to the Commissioner (Appeals) having jurisdiction to entertain the appeal.

A) An order of assessment under section 115WE(3) or 115WF, where the assessee being an
employer objects to fringe benefits assessed.

B) An order under section 115VP(3) (ii) or, assessment order against the assessee, where the
assessee denies his liability to be assessed under the act.

C) An intimation under section 143(1) or 143(B), where the assessee objects to the making of
adjustments.

D) An order to assessment or reassessment under section 115WG.

E) An assessment order under section 143(3) or a best judgement assessment order under
section 144, where the assessee object to the amount of income assessed or the loss
computed or to the status under which he is assessed.

F) An order of assessment, reassessment under section 153A.

G) A rectification order under section 154 or 155.

H) An order of assessment, reassessment or re-computation under section 147 or 150.

I) An order of penalty under section 158BFA.

J) An order made under section 201. (failure to collect or pay TCS)

K) A person claiming as not liable to deduct TDS on any income other than interest, under
section 195, where under an agreement/arrangement TDS is to be borne by the payer.

L) Any penalty order.

The fee to be paid by the assessee mentioned as below :

 Where the total income assessed is up to Rs. 1,00,000/-Fee Rs. 250/-

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 Where the total income assessed is up to Rs. 1,00,000/- to Rs.2,00,000/- Fee Rs. 500/

 Where the total income assessed exceeds Rs. 2,00,000/- Fee Rs. 1,000/-

 Where the subject matter of an appeal is not covered under (1),(2),(3) above -Fee Rs
250/-

If the delay is made by the assessee in filling the appeal within the prescribed time i.e. within 30
days, the delay would be granted or rejected by the Commissioner (Appeals) on the reasonable
ground if submitted by the appellant.

The Appeal should be filed within 30 days in Form No. 35 in duplicate, duly appended by
grounds of appeal, duly signed and verified by the authorised person to sign the return.

It is to be noted that the appeal will not be admissible if the undisputed portion of the income
tax paid and the copy of payment of such amount is enclosed with the appeal as the evidence
of Payment.

The appeal should be along with copy or order passed by the Assessing Officer and of notice of
demand.

The Commissioner (Appeals) may hear or decide the case/appeal within one year from the end
of financial year in which the appeal is filed. The appeal may be allowed or dismissed by the
Commissioner (Appeals). The Commissioner has power to enhance the income, interest and
penalty.

The appeal once filed cannot be withdrawn by the applicant, unless the permission is granted by
the Commissioner (Appeals). The grounds of appeal can be altered, added before the date of
hearing of the appeal.

Appellate Tribunal

The Central Government shall constitute an Appellate Tribunal consisting of 'judicial' and
'accountant' members to exercise the powers and discharge the functions conferred on the
Tribunal by the Act. Thus there are two types of members in the Appellate Tribunal as given
below:

 The judicial member

 The accountant menber

In the following circumstances, the appeal may be filed to the Appellant Tribunal.

1. An order passed by the Assessing Officer u/s 115VZC.

2. An order of revision u/s 263.

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3. A penalty order u/s 271, 271A or 272A, passed by the Commissioner.

4. Against the order passed by the Commissioner (Appeals).

5. An order for registration of a trust u/s 12AA or u/s 80G(5).

The Tribunal may on merits, issue a stay order for a period up to 180 days and the appeal shall
be disposed within the period of stay.

The Appellate Tribunal may accept or reject the appeal in which case the appeal is said to be
allowed or dismissed, respectively. It is important to note that the order of Appellate Tribunal is
final on all matters of facts.

The department may also file and appeal only if the tax effect exceeds Rs. 2 lacs. The Tribunal
may hear and decide the case / appeal within 4 years from the end of the financial year in which
such appeal is filed.

If the points of law arise from the appellant tribunal the Appeal can be made before National
Tax Tribunal.

Appeal to National Tax Tribunal

The National Tax Tribunal may condone the delay up to 60 days beyond the prescribed period of
120 days in appropriate cases. In case of order appealed against involves the payment of any
tax, the appeal shall not be admitted unless at least 25% of such tax involved has been
deposited.

With effect from 28 December, 2005 the National Tax Tribunal Act, 2005 is enacted. A National
Tax Tribunal has been established with effect from 6 January. 2006, to adjudicate upon
disputes with respect to levy, assessment, collection and enforcement of direct and indirect
taxes.

Any person aggrieved by an order of the Income Tax Appellate Tribunal involving a substantial
question of law, may file as appeal to the National Tax Tribunal. The appeal should be file within
120 days from the date of receipt of the order appealed against.

Appeal to the High Court

The Appeal will be admissible only if there is question of law is involved.

The Appeal would be filed before the High Court form every appellate order passed by the
Appellate Tribunal.

The appeal to be filed before High Court within 120 days of the date of receipt of the order
appealed against.

The Appeal may be before High Court by the aggrieved assessee or the department. It is to be

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noted that the department might be filed appeal before High Court if the tax effect exceeded
Rs.4,00,000/-.

The High Court may admit an appeal after the expiry of the period of 120 days referred to in
clause (2)(a), if it is satisfied that there was sufficient cause for not filing the same within that
period.

The question of law in the appeal would be heard by the bench of two judges and decided by
majority opinion.

Appeal to Supreme Court

The department may appeal before the Supreme Court, only if the tax effect exceeds Rs.10
lakhs.

Any person arrived by an order of the National Tax Tribunal, may appeal before the Supreme
Court, within 60 days from the date of Communication of the National Tax Tribunal's order to
him.

Against the order of High Cour, appeal lies before the Supreme Court. If the High Court certifies
that the case is fit for appeal to the Supreme Court, then on the such case will be admissible in
the Supreme Court. The Supreme Court will hear and decide the appeal on merits.

Revision by the Commissioner under Income Tax Act

The commissioner can revise the orders passed by the assessing officer which in his opinion
are prejudicial to the interest of revenue or otherwise.

The commissioner may call for and examine the record of any proceedings under the Act, and if
he considers that any order paased therein by tha assessing officer is incorrect or prejudicial to
the interest of revenue, he may after giving the assessee an opportunity of being heard and after
making such inquiry as he deems necessary, pass such orders of modifying the assessment or
cancelling the assessment and directing a fresh assessment.

Application for revision by the assessee must made within one year from the date on which the
order in question was communicated to him, or the date on which he otherwise come to know
of it, which ever is earlier.

The commissioner cannot of his own motion revise any order made one year before.

Every application shall be accompanied by a prescribed fee.

In the following cases the Commissioner shall not revise any order under section 264.

1. Where an appeal against the order lies to the Commissioner (Appeals) or to Appellate
Tribunal and the time limit has not expired to enable revision.

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2. Where the order is pending in an appeal before the Commissioner (Appeals); or

3. Where the order has been made the subject of an appeal to the Appellate Tribunal.

Settlement of cases under Income Tax Act

With the purpose of avoiding unnecessary hardships due to prolonged disputes regarding
assessments, an 'Income tax settlement commission' has been constituted by the Central
Government. The objective of Settlement Commission is to give the assessee an opportunity to
settle the cases pending before a tax authority.

The Government of India constituted the Income Tax Settlement Commission in 1975.

On the recommendation of Wanchoo committee.

Chapter XIXA deals with settlement of cases.

It consists of A Chairman along with Vice-Chairman and other members as the Central
Government thinks fit. (Where Central Government appoints a member of the Central Board of
Direct Taxes as its Chairman or a member, he ceases to be a member of the Board.)

It vested all powers of appointing Chairman, Vice-Chairman and members, to the Central
Government. Central Government chooses persons of integrity and outstanding ability, having
special knowledge of, and experience in, problems relating to direct taxes and business
accounts.

This Commission functions within the Department of Revenue and Banking of the Central
Government.

As per Section 245C, an assessee may, at any stage of a case relating to him, make an
application in the prescribed form and manner, containing a full and true disclosure of his
income which has not been disclosed before the Assessing Officer.

He should also disclose the following to the Settlement Commission for settlement of his case ;

 The manner in which such income has been derived,

 The additional amount of income-tax payable on such income and

 Other particulars as may be prescribed.

An application should be accompanied by the proof of payment of full amount of additional tax
and interest and the prescribed fee of ₹ 500, else it will be rejected.

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A copy of the application should also be sent to the concerned income tax Authority on the date
of application in form no. 34BA, failing which the application will be rejected.

Under Section 245, the Commission can reject the application within 14 days of the filing of the
Settlement application. In case it is not rejected it is deemed to have been admitted by it.
Grounds for which such application can be rejected are:

 Where disclosure to the commission is not for an additional amount of income tax which
is at least Rupees ten lakhs (for the person in the case of Search and Seizure cases, this
limit is enhanced to Rupees fifty lakhs).

 The applicant should not have made any other settlement application after 1st June
2007, which has been allowed to be proceeded with.

 No assessment order should have been passed by the concerned income tax authority
for the assessment year for which applicant is approaching the Commission and the
statutory time-limit for the passing of assessment order for that year has not lapsed.

Procedure on receipt of application (Section 245D)

 On receipt of the settlement application, the Commission shall issue a notice to the
applicant, requiring him to explain as to why the application made by him be allowed to
be proceeded with, within seven days from the date of receipt of application.

 After hearing the applicant, the Commission shall pass an order either rejecting it or
allowing it.

 As mentioned earlier, if it is not rejected within 14 days, it is to be treated as admitted.

 A copy of every order under 245D(1) has to be sent to the applicant and to the Principal
Commissioner or Commissioner.

 The Commission shall call for a report from the Principal Commissioner or
Commissioner within 30 days from the date of application.

 Such Principal Commissioner or Commissioner is required to furnish the report within 30

days from the receipt of communication from the Settlement Commission.

 On basis of the report of the Principal Commissioner or Commissioner, the Commission

can pass an order declaring the application as invalid.

 Such order should be passed in writing within 15 days of the receipt of the report after
giving the applicant an opportunity of being heard. The copy of such order should be
sent to the applicant and the Principal Commissioner or Commissioner.

 In case, a report is not furnished by the Principal Commissioner or Commissioner, the

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Settlement Commission shall proceed further in the matter without such report.

 Commission on getting report can require such Principal Commissioner or

Commissioner to make further enquiry or investigation and furnish a report on the
matters covered by the application and any other matter relating to the case. Such
additional report shall be submitted within 90 days of receiving such communication
from the Settlement Commission.

 If Commission doesn’t receive such reports with the time specified, it can pass its order
without such report.

 Before passing an order, the Commission should give an opportunity of being heard to
the applicant and the Principal Commissioner or Commissioner.

The Settlement Commission may rectify its orders for any mistake apparent from the record at
any time within six months from the end of the month in which –

 The order was passed; or

 An application for rectification has been made by the Principal Commissioner or the
Commissioner or the applicant, as the case may be.

Decisions of the commission are made by majority vote. If they are equally divided than they
should state it and it will be either on hearing by the Chairman be decided by him or be heard by
such other members as decided by the Chairman. Subsequently, it will be decided by the
majority of opinion of those hearing it and those who have already heard it.

The Settlement Commission, if satisfied with cooperation from the Applicant, can grant
immunity from prosecution for any offence under the Income-Tax Act, 1961 or under the Wealth
-tax Act, 1957. However, on granting such immunity the reasons for such shall be recorded in
writing in the order passed by it. Such immunity may include for matters of penalty under the
Income-tax Act, 1961 for matters covered by the settlement.

No such immunity shall be granted by the commission in cases where the proceedings for the
prosecution for any such offence have been instituted before the date of receipt of the
application for settlement.

Also, such immunity is invalidated if the person doesn’t pay the taxes as per order on time or
fails to comply any conditions mentioned in the order.

Collection under Income Tax Act

Every assessee is liable to pay the amount of tax as demanded in a notice by the assessing
officer within 30 days of the service of the notice at the place and to th person mentioned in the
notice.

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If the AO has sufficient reason to believe that it is detrimental to revenue, if the full period of 30
days is allowed, he may with the prior approval of Deputy Commissioner, direct that assessee to
to be paid in a period which may be less than 30 days.

At the same time, on an application made by the assessee before the expiry of due date of
payment, the AO may extend the time for payment or allow payment by instalments, subject to
such conditions as he may insist.

Recovery under Income Tax Act

The arrears of tax, interest, penalty, fine or any other sum payable inder the Actcan be recovered
by the following methods:

 Certificate to tax recovery officer [ Section 222]

When an assessee is in default, the Tax Recovery Officer will draw up a statement or
certificate, in the prescribed form specifying the amount of arrears due from the
assessee and shall proceed to recover the specified amount from the assessee by one
or more of modes mentioned below;

a) Attachment and sale of the assessee's movable property;

b) Attachment and sale of the assessee's immovable property;

c) Arrest of the assessee and his detention in prison;

d) Appointing a receiver for the management of the assessee's movable and immovable
properties.

 Other modes of recovery [ Section 226]

Where no certificate has been drawn, the AO may recover the tax by any one or more of
the modes mentioned below;

o Attachment of salary

o Garnishee order

o From a court - AO or recovery officer may apply to the court in whose custody there
is money belonging to the assessee for payment to him of the entire amount of
money, or if it is more than the tax due, an amount sufficient to discharge the tax.

o Sale of moveable property

 Recovery through State Government [Sec. 227]

If the recovery of tax in any area has been entrusted to State Government, the State

Prepared by Anaswara U BBA LL.B, LL.M, Assistant Professor, KMCT Law College, Kuttipuram
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Government may direct that tax shall be recovered therein as an addition to any
municipal tax or local taxes, by the same person and in the same manner as the
municipal taxes are recovered.

 Recovery of penalties, fine, interest and other Sums [Sec. 229]

Any such sum including penalty, fine or interest and other sums payable under the Act
shall be recovered in the same manner as provided for the recovery of arrears of tax.

 Recovery by suit or under other law [Sec. 232]

If there is any law for the time being in force relating to the recovery of debts due to the
Government such law may be applied for any arrears under the Income Tax Act as well.
Further, the Government has the right to institute a suit for the recovery of the amounts
due from the assessee.

Refund under Income Tax Act

An assessee has the right to get back the excess amount of tax if any paid by him during the
previous year, on his total income.

If an assessee satisfies the Assessing Officer that the amount of tax paid by him or on his
behalf for any assessment year is more than the amount which he is liable to pay under the
Income Tax Act for that year, he shall be entitled to a refund of the excess amount so paid.

1. The tax deducted at source from salary, interest on securities, or debentures, dividend or
other payment is higher than the amount of tax payable, as determined on regular
assessment.

2. The amount of advance tax paid or the tax paid on the basis of self-assessment exceeds
the tax payable, as determined on regular assessment.

3. The tax determined and paid on the basis of regular assessment gets reduced as a
result of rectification of mistake in the earlier assessment or through appellate or
revision orders of the higher authorities.

4. As a result of double taxation relief.

If the assessing officer failed to make regular assessment within prescribed time, the assessee
is entitled to claim the advance tax paid together with interest , it was held in Deep Chand Jain v.
ITO (1984).

An assessee can claim refund only if the income in respect of which refund of tax is claimed
has been included in his total income as per the return submitted.

As per section 240, in a case where the Income Tax refund becomes due as a result of any

Prepared by Anaswara U BBA LL.B, LL.M, Assistant Professor, KMCT Law College, Kuttipuram
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order passed in appeal or other proceeding under the Act, the Assessing Officer shall, except as
otherwise provided in the Act, refund the amount to the taxpayer without his having to make any
claim in that behalf.

Offences and prosecutions

A person shall be prosecuted in the following offences;

 Contravention of order made u/s 132 (3)

A person contravenes the order issued by the authorised officer, remove or part with any
book of accounts, money, jewellery, bullion, or other valuable without his permission
shall be punishable with rigorous imprisonment which may extend to two years and shall
be liable to fine.

 Failure to comply with provisions of section 132(1)(ii b)

If a person who is required to afford the authorised officer the necessary facility to
inspect the books of accounts or documents fail to afford such facilities, he shall be
punishable with rigorous imprisonment upto 2 years and also liable to fine.

 Removal, concealment etc. of property to thwart tax recovery

Shall be punishable with rigorous imprisonment upto 2 years and shall also be liable to
fine.

 Failure to provisions of section 178

If the liquidator of a company does not give notice of his appointment to AO within 30
days of his appointment or fails to set aside the amount required to provide for any tax ,
he shall be punishable with rigorous imprisonment upto 2 years subject to minimum of
six months except in special cases on the grounds of adequate reasons.

 Failure to comply with the provisions of section 269U

A person who fails to comply with the provisions of section 269UC regarding transfer of
immovable property of value exceeding 5 lakh shall be punishable with rigorous
imprisonment for a term which may extend to two years and shall be liable to fine.

 Failure to pay tax deducted at source

Shall be punishable with rigorous imprisonment for a terms which shall not be less than
3 months but which may extend to 7 years and with fine.

 Failure to pay the tax collected at source

Shall be punishable with rigorous imprisonment for a terms which shall not be less than

Prepared by Anaswara U BBA LL.B, LL.M, Assistant Professor, KMCT Law College, Kuttipuram
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3 months but which may extend to 7 years and with fine.

 Willful attempt to evade tax, penalty, interest chargeable or imposable under the Act , he
shall be punishable for at least 3 months and extend to 7 years.

 Willful failure to furnish return of income and return of income in search cases

He shall be punishable with rigorous imprisonment for atleast 3 months and at the most
7 hears and with fine.

 Failure to produce accounts and documents, he shall be punishable with rigorous

imprisonment which may extend to one year with fine at the minimum rate of Rs 4 per
day and maximum rate of Rs 10 per day during the period which the default continues
with both

 False statement in verification, he shall be punishable in case where the amount of tax ,
which would have been evaded exceeds Rs 1 lakh with rigorous imprisonment for atleast
6 months and the most 7 years .

 Punishable for second and subsequent offences - rigorous imprisonment for at least 6
months and at the most 7 years and with fine

 Offences by companies - every person who was in charge of and was responsible to the
company for the conduct of the business of the company as well as the company shall
be deemed to be guilty of the offenceshall be liable to be punished accordingly.

 Offences by HUFs - the karta shall be guilty of the offence and shall be liable to
proceeded against and punished accordingly.

 Disclosure of particulars by public servants - if any public servant furnishes any

information or produces any document in contravention of the provisions of section
138(2) , he shall be punishable with imprisonment which may be extended to 6 months
and shall also be liable to fine.

Penalties under Income Tax Act

Penalty is imposed without exceeding the rates prescribed in the Act and Rules as on the date
of violation of law and not on the date of imposition of penalty.

Procedure for imposition of penalty [ Section 274]

Power - Assistant Commissioner or Deputy Commissioner with the previous approval of Joint
Commissioner.

Reasonable opportunity of hearing for assessee.

Authority will send a copy of the penalty order to the AO.

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Appellate Tribunal cannot impose a penalty in respect of a case for which the assessee was
acquitted by the Joint Commissioner from guilty of liability.

Situations where penalty is imposed:

 Failure to pay tax or interest

 Tax in default

 Failure to comply with notices

 Failure to get accounts audited

 Failure to produce accounts or documents

 Failure to produce evidence

 Concealment of income.

 Wrong distribution of profits of a registered firm

 Failure to keep or maintain book of accounts, documents,etc.

 Failure to subscribe to the eligible issue of capital

 Failure to deduct tax at source or pay the tax

 Failure to collect tax at source

 Failure to file the return

 Failure to furnish annual information return

 Failure to file return of fringe benefits

 Failure to answer questions, sign statements

 Failure to furnish information

 Failure to comply with the provisions of PAN

 Failure regarding tax deduction account number

Prepared by Anaswara U BBA LL.B, LL.M, Assistant Professor, KMCT Law College, Kuttipuram