Reference to Principal Commissioner or Commissioner in certain cases
[Section-274 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 274(1) of Income Tax Act 2025
274(1) The Assessing Officer may make a reference to the Principal Commissioner or Commissioner at any stage of the assessment or reassessment proceedings before him, if, having regard to the material and evidence available with him, he considers that it is necessary to—
- (a) declare an arrangement as an impermissible avoidance arrangement; and
- (b) determine the consequence of such an arrangement within the meaning of Chapter XI.
Section 274(2) of Income Tax Act 2025
274(2) The Principal Commissioner or Commissioner shall, on receipt of a reference under sub-section (1), if he is of the opinion that the provisions of Chapter XI are required to be invoked,––
- (a) issue a notice to the assessee, setting out the reasons and basis of such opinion, for submitting objections, if any; and
- (b) provide an opportunity of being heard to the assessee within such period, not exceeding sixty days, as specified in the said notice.
Section 274(3) of Income Tax Act 2025
274(3) If the assessee fails to furnish any objection to the notice within the time specified in the notice issued under sub-section (2), the Principal Commissioner or Commissioner shall issue such directions as he deems fit in respect of declaration of the arrangement to be an impermissible avoidance arrangement.
Section 274(4) of Income Tax Act 2025
274(4) In case the assessee objects to the proposed action, and the Principal Commissioner or Commissioner, after hearing the assessee in the matter, is not satisfied by the explanation of the assessee, then, he shall make a reference in the matter to the Approving Panel for the purpose of declaration of the arrangement as an impermissible avoidance arrangement.
Section 274(5) of Income Tax Act 2025
274(5) If the Principal Commissioner or Commissioner is satisfied, after having heard the assessee that the provisions of Chapter XI are not to be invoked, he shall by an order in writing, communicate the same to the Assessing Officer with a copy to the assessee.
Section 274(6) of Income Tax Act 2025
274(6) The Approving Panel, on receipt of a reference from the Principal Commissioner or Commissioner under sub-section (4), shall––
- (a) issue such directions, as it deems fit, in respect of the declaration of the arrangement as an impermissible avoidance arrangement as per the provisions of Chapter XI; and
- (b) specify the tax year or years to which such declaration of an arrangement as an impermissible avoidance arrangement shall apply.
Section 274(7) of Income Tax Act 2025
274(7) No direction under sub-section (6) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interests of the revenue, as the case may be.
Section 274(8) of Income Tax Act 2025
274(8) The Approving Panel may, before issuing any direction under sub-section (6),—
- (a) if it is of the opinion that any further inquiry in the matter is necessary, direct the Principal Commissioner or Commissioner to make such inquiry or cause the inquiry to be made by any other income-tax authority and furnish a report containing the result of such inquiry to it; or
- (b) call for and examine such records relating to the matter as it deems fit; or
- (c) require the assessee to furnish such documents and evidence as it may direct.
Section 274(9) of Income Tax Act 2025
274(9) If the members of the Approving Panel differ in opinion on any point, such point shall be decided according to the opinion of the majority of the members.
Section 274(10) of Income Tax Act 2025
274(10) The Assessing Officer, on receipt of directions of the Principal Commissioner or Commissioner under sub-section (3) or of the Approving Panel under sub-section (6), shall proceed to complete the proceedings referred to in sub-section (1) as per such directions and the provisions of Chapter XI.
Section 274(11) of Income Tax Act 2025
274(11) If any direction issued under sub-section (6) specifies that declaration of the arrangement as impermissible avoidance arrangement is applicable for any tax year other than the tax year to which the proceedings referred to in sub-section (1) pertains, then,––
- (a) the Assessing Officer while completing any assessment or reassessment proceedings relevant to such other tax year shall do so as per such directions and the provisions of Chapter XI; and
- (b) it shall not be necessary for him to seek fresh direction on the issue for the relevant tax year.
Section 274(12) of Income Tax Act 2025
274(12) No order of assessment or reassessment shall be passed by the Assessing Officer without the prior approval of the Principal Commissioner or Commissioner, if any tax consequences have been determined in the order under the provisions of Chapter XI.
Section 274(13) of Income Tax Act 2025
274(13) The Approving Panel shall, subject to sub-sections (14) and (15), issue directions under sub-section (6) within six months from the end of the month in which the reference under sub-section (4) was received.
Section 274(14) of Income Tax Act 2025
274(14) In computing the period referred to in sub-section (13), the following shall be excluded:—
- (a) the period commencing from the date on which the first direction is issued by the Approving Panel to the Principal Commissioner or Commissioner for getting the inquiries conducted through the authority competent under an agreement referred to in section 159 and ending with the date on which the information so requested is last received by the Approving Panel or one year, whichever is less;
- (b) the period commencing on the date on which the proceeding of the Approving Panel is stayed by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the Approving Panel.
Section 274(15) of Income Tax Act 2025
274(15) If immediately after the exclusion of the period as per sub-section (14), the remaining period available to the Approving Panel for issue of directions is less than sixty days, such remaining period shall be extended to sixty days and the period of six months mentioned in sub-section (13) shall be deemed to have been extended accordingly.
Section 274(16) of Income Tax Act 2025
274(16) The directions issued by the Approving Panel under sub-section (6) shall be binding on—
- (a) the assessee; and
- (b) the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him.
Section 274(17) of Income Tax Act 2025
274(17) No appeal under the Act shall lie against directions issued by the Approving Panel under sub-section (6), irrespective of anything contained in any other provision of the Act.
Section 274(18) of Income Tax Act 2025
274(18) The Central Government shall, for the purposes of this section, constitute one or more Approving Panels as may be necessary and each panel shall consist of three members including a Chairperson.
Section 274(19) of Income Tax Act 2025
274(19) The Chairperson of the Approving Panel shall be a person who is or has been a judge of a High Court, and—
- (a) one member shall be a member of Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner of Income-tax; and
- (b) one member shall be an academic or scholar having special knowledge of matters, such as direct taxes, business accounts and international trade practices.
Section 274(20) of Income Tax Act 2025
274(20) The term of the Approving Panel shall ordinarily be for one year and may be extended from time to time up to three years.
Section 274(11) of Income Tax Act 2025
274(21) The Chairperson and members of the Approving Panel shall meet, as and when required, to consider the references made to the panel and shall be paid such remuneration as prescribed.
Section 274(22) of Income Tax Act 2025
274(22) In addition to the powers conferred on the Approving Panel under this section, the powers which are vested in the Board for Advance Rulings under section 387 shall apply mutatis mutandis to the Approving Panel.
Section 274(23) of Income Tax Act 2025
274(23) The Board shall provide to the Approving Panel such officials as may be necessary for the efficient exercise of powers and discharge of functions of the Approving Panel under this Act.
Section 274(24) of Income Tax Act 2025
274(24) The Board may make rules for the purposes of the constitution and efficient functioning of the Approving Panel and expeditious disposal of the references received under sub-section (4).
FAQs on Section 274 of Income Tax Act 2025
What is the purpose of Section 274 of the Income Tax Act, 2025?
Section 274 provides the procedure for reference to the Principal Commissioner or Commissioner in cases involving impermissible avoidance arrangements, as defined under Chapter XI.
When can the Assessing Officer make a reference under Section 274(1)?
The Assessing Officer can make a reference at any stage of assessment or reassessment if he believes it is necessary to declare an arrangement as an impermissible avoidance arrangement and determine its consequences under Chapter XI.
What action is taken by the Principal Commissioner or Commissioner on receiving the reference?
He must issue a notice to the assessee with reasons for invoking Chapter XI and provide an opportunity to respond within 60 days.
What happens if the assessee does not respond to the notice under Section 274(2)?
If no objection is received within the specified time, the Principal Commissioner or Commissioner may issue directions deeming the arrangement as impermissible.
What happens if the assessee objects and the explanation is unsatisfactory?
If unsatisfied after hearing the assessee, the Principal Commissioner or Commissioner must refer the matter to the Approving Panel.
What if the Principal Commissioner or Commissioner finds Chapter XI is not applicable?
He shall issue a written order to the Assessing Officer and assessee confirming that Chapter XI will not be invoked.
What is the role of the Approving Panel in this process?
The Approving Panel issues directions on whether the arrangement is impermissible and specifies the tax years it applies to.
Is the assessee given an opportunity to be heard by the Approving Panel?
Yes, the assessee and the Assessing Officer must be heard before issuing any prejudicial direction.
Can the Approving Panel call for additional inquiries or documents?
Yes, the Approving Panel may order further inquiry, examine records, or ask the assessee to furnish documents or evidence.
What if the members of the Approving Panel differ in opinion?
The majority opinion of the Panel members prevails in such cases.
How should the Assessing Officer proceed after receiving directions?
He must complete the proceedings according to the directions and Chapter XI.
Do the directions apply to other tax years as well?
Yes, if the directions specify applicability to other years, the Assessing Officer shall follow them without seeking a fresh direction.
Is prior approval needed for assessment involving Chapter XI consequences?
Yes, no such assessment or reassessment order can be passed without prior approval of the Principal Commissioner or Commissioner.
What is the time limit for the Approving Panel to issue directions?
Directions must be issued within six months from the end of the month the reference was received.
Are there any exclusions from the six-month time limit?
Yes, certain periods such as foreign inquiry delays or court stays are excluded, with a maximum exclusion of one year.
What happens if the time remaining after exclusions is less than 60 days?
The remaining period is extended to a minimum of 60 days and the six-month period is deemed extended.
Are the directions of the Approving Panel binding?
Yes, they are binding on the assessee, Principal Commissioner or Commissioner, and subordinate income-tax authorities.
Can the assessee appeal against directions of the Approving Panel?
No, directions of the Approving Panel are final and not appealable under the Act.
Who constitutes the Approving Panel?
The Central Government constitutes one or more Approving Panels, each having three members including a Chairperson.
Who can be the Chairperson of the Approving Panel?
The Chairperson must be a person who is or has been a judge of a High Court.
Who are the other members of the Approving Panel?
One member is a senior IRS officer, and the other is an academic or scholar in relevant fields like taxation or international trade.
What is the tenure of the Approving Panel?
The term is ordinarily one year and can be extended up to three years.
How often does the Approving Panel meet and how are they compensated?
They meet as required and are paid remuneration as prescribed.
Does the Approving Panel have powers similar to the Board for Advance Rulings?
Yes, the Panel has the same powers as the Board for Advance Rulings under section 387, applied mutatis mutandis.
Who provides support staff to the Approving Panel?
The Board provides necessary officials for effective functioning of the Approving Panel.
Can rules be made for the functioning of the Approving Panel?
Yes, the Board may make rules for constitution, functioning, and timely disposal of references to the Panel.
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