INCOME TAX AUTHORITIES
The Income Tax Act, 1961 is a comprehensive law that governs the taxation of income in India.
However, for any law to work properly, it needs o cers and institutions to enforce it.
In India, the task of implementing, assessing, collecting, and enforcing the income tax law is given
to a set of o cials known as Income Tax Authorities.
They ensure that:
• Every person who earns income pays tax honestly.
• The right amount of tax is collected.
• Refunds and appeals are handled properly.
• O ences like tax evasion are detected and punished.
These authorities perform administrative, assessment, investigative, and quasi-judicial functions
under the control of the Central Board of Direct Taxes (CBDT), which is the top body for direct tax
administration.
2.5.1 – Appointment of Income Tax Authorities
Statutory Basis
The appointment and structure of Income Tax Authorities are laid down in Sections 116 to 119 of
the Income Tax Act, 1961.
According to Section 116, the following classes of Income Tax Authorities exist in India:
1. Administrative and Supervisory Authorities:
• Central Board of Direct Taxes (CBDT)
• Principal Chief Commissioner of Income Tax
• Chief Commissioner of Income Tax
• Principal Commissioner of Income Tax
• Commissioner of Income Tax
2. Assessing and Field Authorities:
• Additional Commissioner of Income Tax
• Joint Commissioner of Income Tax
• Deputy Commissioner of Income Tax
• Assistant Commissioner of Income Tax
• Income Tax O cer (ITO)
• Tax Recovery O cer (TRO)
• Inspectors of Income Tax
Central Board of Direct Taxes (CBDT)
• The CBDT is the apex body of the Income Tax Department.
• It was created under the Central Boards of Revenue Act, 1963.
• It works under the Department of Revenue, Ministry of Finance.
• It is responsible for policy formulation, planning, administration, and supervision of
the entire direct tax system (Income Tax, Wealth Tax, etc.).
Functions of CBDT:
1. Framing broad policies and guidelines for assessment and collection of taxes.
2. Supervising the functioning of all Income Tax Authorities across India.
3. Issuing circulars, noti cations, and instructions to clarify the law and ensure
uniform application.
4. Handling all high-level administrative issues, including transfers and postings of
senior o cers.
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5. Coordinating with the Ministry of Finance for amendments in tax laws and
budgetary proposals.
Nature of CBDT:
• The CBDT is not a judicial body but an administrative authority.
• However, its circulars are binding on the department, though not on taxpayers or
courts.
Appointment Procedure
Under Section 117, the Central Government appoints all income tax authorities.
• The CBDT and senior o cers like Chief Commissioners and Commissioners are
appointed by the Central Government.
• Other o cers like Assessing O cers, Assistant Commissioners, and Inspectors are
appointed under its supervision.
• The Government can decide their jurisdiction, rank, powers, and duties.
Control and Supervision
• The CBDT exercises control over all subordinate income tax authorities.
• Each higher authority supervises the o cers under them to ensure proper and
timely assessments and fair enforcement of the law.
• This hierarchical system ensures accountability and e ciency in the administration
of income tax.
Hierarchical Structure (in order of rank):
1. Central Board of Direct Taxes (CBDT)
2. Principal Chief Commissioner of Income Tax
3. Chief Commissioner of Income Tax
4. Principal Commissioner of Income Tax
5. Commissioner of Income Tax
6. Additional / Joint Commissioner of Income Tax
7. Deputy Commissioner of Income Tax
8. Assistant Commissioner of Income Tax
9. Income Tax O cer (ITO)
10. Tax Recovery O cer (TRO)
11. Inspector of Income Tax
This structure ensures a clear chain of command from top-level policymakers to eld-level
executors.
2.5.2 – Jurisdiction, Powers, and Functions
The Income Tax Authorities have wide powers to administer, assess, investigate, and collect
taxes.
Their jurisdiction is decided by the CBDT or superior authorities and may be based on:
• Territory (geographical area),
• Type of income or assessee (like company, individual, trust), or
• Function (assessment, recovery, etc.)
1. Powers of Assessment
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The Assessing O cer (AO) is the central gure in the tax administration process.
His main duty is to assess the correct income of the taxpayer and determine the tax payable.
• The AO examines the return of income led by the assessee.
• He may ask for additional documents, statements, or evidence.
• After examining the data, he passes an assessment order under Section 143.
• Based on that, he issues a notice of demand under Section 156 specifying the tax
payable.
If an assessee fails to le a return, the AO can make a best judgment assessment under Section
144.
2. Power to Call for Information – Section 133
• The Income Tax Authorities can call for information from:
• Any person, rm, or company,
• Banks and nancial institutions,
• Government departments or public bodies.
• This power helps in verifying whether income is correctly disclosed.
• For example, if a taxpayer claims low income but has huge bank deposits, the
o cer can demand the bank’s statements.
3. Power of Discovery and Production of Evidence – Section 131
Authorities like the Assessing O cer, Commissioner, and Appellate Authorities have powers
similar to those of a Civil Court under the Code of Civil Procedure, 1908.
They can:
• Enforce attendance of witnesses.
• Examine them under oath.
• Compel production of books of accounts or documents.
• Issue commissions for evidence.
Such proceedings are considered judicial proceedings under Sections 193 and 228 of the Indian
Penal Code.
4. Power of Search and Seizure – Section 132
If the competent authority has reason to believe that:
• A person has undisclosed income or property, or
• Is in possession of money, bullion, jewellery, or valuable articles not declared for
tax purposes,
Then it can authorise a search of that person’s premises and seize such items.
Steps involved:
1. Authorisation by a senior o cer (Director General or Chief Commissioner).
2. Execution of search in the presence of witnesses.
3. Preparation of a seizure list.
4. Retention of seized assets till assessment is completed.
Search and seizure are powerful tools to detect black money and unaccounted assets.
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5. Power of Survey – Section 133A
• The authorities may enter a business or professional premises during working
hours to verify accounts, stock, or cash.
• They can inspect books, collect information, and record statements.
• However, they cannot seize assets during a survey (unlike search).
Surveys help in checking tax evasion through unrecorded sales or income.
6. Power to Requisition Assets – Section 132A
If any money, jewellery, or documents are seized by another department (like police or customs),
the income tax department can requisition them for its own proceedings if they are relevant to
income tax matters.
7. Power to Inspect Registers of Companies – Section 134
The income tax authorities can inspect company registers and records maintained under the
Companies Act, 2013.
This helps in verifying shareholdings, dividends, and loans to detect under-reported income.
8. Power to Issue Orders, Circulars, and Directions – Section 119
• The CBDT can issue instructions and circulars to subordinate authorities for proper
administration of the Act.
• These instructions are binding on all o cers under the Board but not on taxpayers
or courts.
• Such circulars aim to ensure uniform and fair application of tax laws.
9. Quasi-Judicial Powers
Many income tax authorities, like Assessing O cers and Commissioners (Appeals), perform
quasi-judicial functions.
They must give a fair hearing to the taxpayer before passing orders and follow the principles of
natural justice.
10. Power to Rectify Mistakes – Section 154
If there is any mistake apparent from the record, the income tax authority can rectify it on its own
or on the request of the assessee.
This ensures justice and avoids unnecessary litigation.
2.5.3 – Collection and Recovery of Income Tax
Collection and recovery of tax are crucial for the working of the Act.
These provisions are contained in Sections 156 to 232.
1. Notice of Demand – Section 156
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After completing assessment, the Assessing O cer serves a notice of demand to the assessee
specifying:
• The amount of tax payable,
• The due date for payment (usually 30 days).
If the assessee does not pay within the due date, he becomes an assessee in default.
2. Time for Payment – Section 220
• Normally, tax must be paid within 30 days from the date of service of the notice.
• The Assessing O cer may shorten or extend the period for reasons recorded in
writing.
• If the assessee fails to pay within time, interest and penalty can be charged.
3. Modes of Recovery – Sections 222 to 232
If tax remains unpaid, recovery can be made in the following ways:
1. Attachment and Sale of Property:
Movable and immovable property of the assessee can be attached and sold by the Tax Recovery
O cer.
2. Recovery from Third Parties:
The o cer may require any debtor of the assessee or any person holding money on his behalf to
pay it to the department.
3. Deduction from Salary:
The employer can be directed to deduct the tax due from the employee’s salary and remit it to the
government.
4. Recovery as Arrears of Land Revenue:
The tax may be recovered as if it were arrears of land revenue under the Revenue Recovery Act.
5. Arrest and Detention:
In extreme cases, the defaulter may be arrested and detained, though this is rarely used.
4. Recovery from Companies in Liquidation
When a company is being wound up, the liquidator must inform the Assessing O cer.
The AO then determines the amount of tax payable, and the liquidator must set aside that amount
before distributing the company’s assets.
If he fails to do so, he may be personally liable for the company’s tax dues.
5. Recovery from Directors (Private Companies)
If a private company fails to pay tax due, its directors can be held jointly and severally liable
unless they prove that the non-payment was not due to their neglect or breach of duty.
6. Stay or Instalment Facility
The Principal Commissioner or Commissioner may allow the assessee to pay the tax in
instalments or stay the recovery temporarily, especially if the assessee has led an appeal.
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2.5.4 – Refund of Tax, Appeal and Revision Provisions
1. Refund of Tax (Sections 237–245)
Refund means repayment of excess tax paid by the taxpayer.
Circumstances of Refund:
• Tax deducted or collected at source is more than actual tax due.
• Excess payment of advance tax.
• Excess payment of self-assessment tax.
• Assessment reduced on appeal or recti cation.
Procedure:
• The assessee claims refund through his return or separate application.
• The Assessing O cer veri es the claim and issues a refund order.
• Refunds are now directly credited to the taxpayer’s bank account electronically.
Interest on Refund – Section 244A:
• If refund is delayed, the assessee is entitled to interest at a prescribed rate.
Adjustment of Refund – Section 245:
• The department can adjust refund against any tax due for other years after
notifying the assessee.
2. Appeal Provisions
The Income Tax Act gives taxpayers several opportunities to challenge any unfair or wrong order.
(a) First Appeal – Section 246A
• Lies to the Commissioner of Income Tax (Appeals).
• Must be led within 30 days from the date of order.
• The Commissioner (Appeals) can con rm, reduce, enhance, or annul the
assessment.
(b) Second Appeal – Section 253
• Lies to the Income Tax Appellate Tribunal (ITAT).
• ITAT is an independent quasi-judicial body.
(c) Appeal to High Court – Section 260A
• Lies on substantial questions of law.
(d) Appeal to Supreme Court – Section 261
• The nal appeal lies to the Supreme Court against the decision of the High Court.
3. Revision of Orders
Section 263 – Revision by Commissioner (in favour of Revenue):
• The Commissioner may revise any order that is erroneous and prejudicial to the
interests of the Revenue.
Section 264 – Revision by Commissioner (in favour of Assessee):
• The Commissioner may also revise any order to provide relief to the assessee if the
assessee applies within one year.
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These provisions ensure fairness and balance between taxpayer and department.
2.5.5 – O ences and Penalties
Tax laws must have deterrents to ensure compliance. The Income Tax Act provides both civil and
criminal penalties for various defaults.
A. Civil Penalties
These involve monetary nes imposed by the authorities.
Section Nature of Default Penalty
270A Under-reporting or misreporting of income 50%–200% of tax
271(1)(c) Concealment of income or inaccurate particulars 100%–300% of tax evaded
271A Failure to maintain books of account ₹25,000
271B Failure to get accounts audited 0.5% of turnover or ₹1,50,000
271C Failure to deduct TDS Equal to TDS not deducted
271D / 271E Accepting or repaying cash loans above limit Equal to loan/deposit amount
271F Failure to le return of income ₹5,000 or more
B. Criminal O ences and Prosecution
These involve imprisonment and nes for serious violations.
Section O ence Punishment
276C Wilful attempt to evade tax 6 months – 7 years + ne
276CC Wilful failure to le return 6 months – 7 years + ne
277 False statement or veri cation Up to 7 years + ne
278 Abetment of false return Up to 7 years + ne
C. Safeguards for Taxpayers
• No penalty or prosecution can be initiated without giving the assessee a chance to
be heard.
• Penalty and prosecution proceedings are independent of assessment.
• For prosecution, mens rea (intention to cheat) must be proved.
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