Section 268: inquiry before assessment

Notice requiring return, accounts or information

The Assessing Officer may serve a notice on a person who has filed a return under Section 263, or whose time to file under Section 263(1) has expired, requiring them (by a specified date) to:

• Furnish a return of their income (or of income of another person they are assessable for), where none was filed within time or before the end of the financial year succeeding the relevant tax year
• Produce, or cause to be produced, accounts or documents the Assessing Officer requires
• Furnish, in writing and verified as prescribed, information on points the Assessing Officer requires - including a statement of all assets and liabilities, whether or not included in the accounts

Limits on this power

Before requiring a statement of assets and liabilities not included in the accounts, the Assessing Officer needs the Joint Commissioner's prior approval.

The Assessing Officer cannot require production of accounts relating to a period more than three years before the relevant tax year.

A notice requiring a return may also be served by the prescribed income-tax authority.

General power of inquiry

To obtain full information about a person's income or loss, the Assessing Officer may make any inquiry considered necessary.

Directing a special audit or inventory valuation

Where, having regard to the nature/complexity of the accounts, their volume, doubts about correctness, multiplicity of transactions, or the specialised nature of the business (and the interests of revenue), the Assessing Officer considers it necessary, they may - after giving the assessee a hearing and with prior approval of the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner - direct the assessee to:

• Get the accounts audited by an accountant and furnish a report in the prescribed form
• Get the inventory valued by a cost accountant and furnish a report in the prescribed form

Who nominates the auditor, and how long it can take

The accountant or cost accountant for this special audit/valuation is nominated by the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner. This applies regardless of whether the assessee's accounts have already been audited under any other law.

The report must be furnished within the period specified by the Assessing Officer, which may be extended (on the Officer's own motion or the assessee's application, for good and sufficient reason). The aggregate of the original period and any extensions cannot exceed six months from the end of the month in which the assessee received the audit direction.

Cost of the special audit

The expenses of any audit or inventory valuation ordered under this section (including incidental expenses and the accountant's/cost accountant's remuneration) are determined by the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner as per guidelines, and paid by the Central Government.

Opportunity of being heard

Except where the assessment is made under Section 271 (best judgment assessment), the assessee must be given an opportunity of being heard on any material gathered through an inquiry, audit, or inventory valuation under this section, before it is used for the assessment.

Definition

"Cost accountant" means a cost accountant as defined in Section 2(1)(b) of the Cost and Works Accountants Act, 1959, holding a valid certificate of practice under Section 6(1) of that Act.

Frequently asked questions