Chapter XXII - Offences and Prosecution
Section 481
Section 481: failure to comply with a direction of special audit or valuation
Section 481 criminalises a wilful failure to comply with a direction issued under section 268(5) of the Act - which relates to a direction for special audit or valuation. It carries a single, non-graded punishment.
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Need advice on Section 481?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
If a person wilfully fails to comply with a direction issued to him under section 268(5), he shall be punishable with simple imprisonment for a term up to six months, or with fine, or with both.
Introduction
Section 481, as substituted by the Finance Act, 2026, concerns wilful failure to comply with a direction under section 268(5) for special audit or valuation. It allows simple imprisonment up to six months, a fine, or both.
Key takeaways
Wilfulness required
The offence is framed as a wilful failure, not merely the existence of an incomplete audit.
Specific direction
It must be a direction issued to the person under section 268(5).
Amended punishment
The current text permits up to six months’ simple imprisonment, fine, or both.
What Section 481 says
"If a person wilfully fails to comply with a direction issued to him under section 268(5), he shall be punishable with simple imprisonment for a term up to six months, or with fine, or with both."
Note on an earlier version of this section
The Act's footnotes record that this section (along with section 480) was substituted by the Finance Act, 2026, with effect from 1 April 2026. Before that substitution, the equivalent provision was titled "Failure to produce accounts and documents" and covered a wilful failure to produce, or cause to be produced, accounts and documents referred to in a notice served under section 268(1) by the date specified in that notice, or a wilful failure to comply with a direction under section 268(5) - punishable with rigorous imprisonment for a term which may extend to one year and with fine.
Applying Section 481 in practice
A section 268(5) direction must be identified and a wilful failure to comply established. The maximum punishment is six months' simple imprisonment, fine or both. This is not a general sanction for disagreement with a valuation result.
Hypothetical example
A taxpayer who sends complete records but disputes the final value presents a different issue from one who wilfully refuses the directed process.
Step-by-step flow for applying Section 481
- 1
Was a direction issued to the person under section 268(5)?
Section 268(5) lets the Assessing Officer, with the approval stated there and after a hearing, direct the assessee to get the accounts audited by an accountant, or the inventory valued by a cost accountant, or both, and furnish the report.
- No: Section 481 does not apply.
- Yes: Go to the next step.
- 2
Did the person fail to comply with the direction?
- Complied: No offence under Section 481.
- Did not comply: Go to the next step.
- 3
Was the failure wilful?
Only a wilful failure is covered. Section 490 lets the court presume the culpable mental state; the accused may prove it was absent.
- Not wilful (proved): No offence under Section 481.
- Wilful: Go to the next step.
- 4
Punishment
Simple imprisonment up to six months, or fine, or both. Section 481 has no amount-based tiers. Section 481 is not listed in Section 485, so the repeat-offence rule there does not apply to it.
Practical checklist
Do
- direction, recipient, requested audit or valuation, deadline, access to records, extension correspondence and actual cooperation.
Illustrative example
Worked example: ignoring a special audit direction
Hypothetical facts (illustration only, not a real taxpayer): During an assessment, the Assessing Officer, after a hearing and with the required approval, directs a manufacturer under section 268(5) to get its accounts audited by an accountant and its inventory valued by a cost accountant, and to furnish both reports. The manufacturer appoints no one and furnishes nothing, stating in writing that it will not cooperate.
Direction
A direction under section 268(5) was issued to the manufacturer, so Section 481 is engaged.
Non-compliance
Neither report was furnished, so the direction was not complied with.
Wilfulness
The written refusal points to a wilful failure; the manufacturer could still try to prove it had no such mental state (Section 490).
Punishment
Simple imprisonment up to six months, or fine, or both. As the manufacturer is a company, Section 487 decides which persons in charge or officers may also be proceeded against.
Outcome
- On these facts the manufacturer is exposed to prosecution under Section 481.
- The amount of tax involved does not change the punishment under this section.
Frequently asked questions
What conduct does Section 481 punish?
A wilful failure to comply with a direction issued under section 268(5) - a special audit or valuation direction.
What is the punishment under Section 481?
Simple imprisonment for a term up to six months, or with fine, or with both.
Need help applying this provision to your situation?
Talk to our tax team about a special audit directionLast updated 10 October 2026