Section 274 — Reference to Principal Commissioner or Commissioner in certain cases. Successor to s.144BA of the 1961 Act.
Section 274 is in Chapter XVI — Procedure for Assessment, which runs from section 268 to section 301.
Sub-section (1) lets the Assessing Officer refer a matter to the Principal Commissioner or Commissioner at any stage of assessment or reassessment proceedings, if on the material and evidence available he considers it necessary to declare an arrangement an impermissible avoidance arrangement and to determine its consequences within the meaning of Chapter XI.
Sub-sections (2) to (5) govern the Principal Commissioner's or Commissioner's stage. If he is of the opinion that Chapter XI is required to be invoked, he must issue a notice setting out the reasons and basis of that opinion and inviting objections, and provide an opportunity of being heard within a period, not exceeding sixty days, specified in that notice. If no objection is furnished within the time specified, sub-section (3) lets him issue such directions as he deems fit. If the assessee objects and, after hearing him, he is not satisfied with the explanation, sub-section (4) requires a reference to the Approving Panel. If he is satisfied that Chapter XI is not to be invoked, sub-section (5) requires an order in writing to the Assessing Officer with a copy to the assessee.
Sub-sections (6) to (9) govern the Approving Panel: on a reference it issues such directions as it deems fit and specifies the tax year or years to which the declaration applies; no direction may issue without an opportunity of being heard to the assessee and the Assessing Officer on directions prejudicial to either; before issuing directions it may order further inquiry and call for a report, call for and examine records, or require the assessee to furnish documents and evidence; and a difference of opinion is decided by the majority.
Sub-sections (10) to (12) close the loop with the Assessing Officer: he completes the proceedings as per the directions and Chapter XI; where a direction covers another tax year he applies it in that assessment or reassessment without fresh directions; and no assessment or reassessment order determining tax consequences under Chapter XI may be passed without the prior approval of the Principal Commissioner or Commissioner.
Sub-sections (13) to (15) set the Panel's time limit at six months from the end of the month in which the reference under sub-section (4) was received, excluding the period from its first direction for inquiries through the competent authority under an agreement referred to in section 159 until the information is last received, or one year, whichever is less, and any period of stay by a court until the certified copy of the vacating order is received; if less than sixty days then remain, the remaining period is extended to sixty days and the six months deemed extended accordingly.
Sub-sections (16) and (17) make the Panel's directions binding on the assessee and on the Principal Commissioner or Commissioner and his subordinate authorities, and bar any appeal under the Act against them. Sub-sections (18) to (24) deal with the Panel itself: the Central Government constitutes one or more Panels of three members including a Chairperson who is or has been a judge of a High Court, with one member from the Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner and one an academic or scholar with special knowledge of matters such as direct taxes, business accounts and international trade practices; the term is ordinarily one year, extendible up to three years; members are paid such remuneration as may be prescribed; the powers vested in the Board for Advance Rulings under section 387 apply mutatis mutandis; the Board provides officials and may make rules for the Panel's constitution, functioning and expeditious disposal of references.
The general anti-avoidance rule can recharacterise a transaction and its tax consequences, which is too strong a power to leave with the officer conducting the assessment. The section interposes two filters — a senior officer who must give reasons and a hearing, and an independent panel chaired by a serving or former High Court judge — before any declaration is made. The price of that protection is in sub-sections (16) and (17): once the Panel has spoken, its directions bind both sides and no appeal lies against them.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Period within which the assessee must be given an opportunity of being heard | Not exceeding sixty days | A ceiling on the period that may be specified in the notice issued by the Principal Commissioner or Commissioner, not a fixed period | Sub-section (2)(b) |
| Time limit for the Approving Panel to issue directions | Six months from the end of the month in which the reference was received | Reference under sub-section (4); subject to the exclusions in sub-section (14) and the extension in sub-section (15) | Sub-section (13) |
| Exclusion for information sought through a competent authority | The period from the Panel's first direction to the date the information is last received, or one year, whichever is less | Inquiries conducted through the authority competent under an agreement referred to in section 159 | Sub-section (14)(a) |
| Minimum period left to the Panel after exclusions | Sixty days | Where the remaining period after excluding the sub-section (14) periods is less than sixty days, it is extended to sixty days and the six months is deemed extended accordingly | Sub-section (15) |
| Composition of an Approving Panel | Three members including a Chairperson | Constituted by the Central Government; the Chairperson is or has been a judge of a High Court | Sub-sections (18) and (19) |
| Term of an Approving Panel | Ordinarily one year, extendible from time to time up to three years | Applies to the Panel as constituted | Sub-section (20) |
Silence at the first stage is costly. If the assessee does not object to the notice under sub-section (2) within the time it specifies, sub-section (3) lets the Principal Commissioner or Commissioner issue directions himself and the matter never reaches the Approving Panel — that route opens only where the assessee objects and the explanation is not accepted. The sixty days in sub-section (2)(b) is an outer limit on what the notice may allow, not an entitlement, so the notice has to be read for the period actually specified. A Panel direction reaches further than the year under assessment: sub-section (6)(b) lets it specify other tax years and sub-section (11) applies it to them without a fresh reference. The finality is real, which makes the hearing under sub-section (7) the point at which the case has to be made. On the Department's side, sub-section (12) is a condition of validity.
During a scrutiny assessment for one tax year the Assessing Officer considers a group restructuring to be an impermissible avoidance arrangement and refers it under sub-section (1). The Principal Commissioner issues a notice setting out his reasons and allowing thirty days to object, which is within the sixty day ceiling in sub-section (2)(b). The company objects and is heard; the Principal Commissioner is not satisfied and refers the matter to the Approving Panel, which must issue directions within six months from the end of the month in which it received the reference. The Panel declares the arrangement impermissible and specifies that the declaration applies to the following two tax years as well, so under sub-section (11) the Assessing Officer applies it in those assessments without a fresh reference, and under sub-section (17) no appeal lies against the directions themselves.
First as the notice from the Principal Commissioner or Commissioner under sub-section (2), setting out the reasons and basis of his opinion and the period for objections; then at the hearing before the Approving Panel under sub-section (7) and in any requirement under sub-section (8)(c) to furnish documents. The directions surface again inside the assessment or reassessment order.
provide an opportunity of being heard to the assessee within such period, not exceeding sixty days, as specified in the said notice
If the assessee fails to furnish any objection to the notice within the time specified in such notice issued under sub-section (2), the Principal Commissioner or Commissioner shall issue such directions as he deems fit
No appeal under the Act shall lie against directions issued by the Approving Panel under sub-section (6)
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.