The Income Tax Act, 1961 is the key legislation governing direct taxation in India. The enforcement and administration of this Act are entrusted to a hierarchy of income tax authorities who derive their powers from various statutory provisions. These authorities are responsible for assessment, collection, enforcement, investigation, and appellate functions. The powers conferred upon them are both administrative and quasi-judicial.
Statutory Basis of Income Tax Authorities
The framework for income tax authorities is laid out in Chapter XIII (Sections 116 to 138) of the Income Tax Act, 1961. These provisions categorise and enumerate the powers and functions of each authority.
Section 116 – Income Tax Authorities
The authorities under the Act include:
- Central Board of Direct Taxes (CBDT)
- Principal Chief Commissioner and Chief Commissioner of Income Tax
- Principal Commissioner and Commissioner of Income Tax
- Additional Commissioner and Joint Commissioner of Income Tax
- Deputy Commissioner and Assistant Commissioner of Income Tax
- Income Tax Officers (ITOs)
- Tax Recovery Officers (TROs)
- Inspectors of Income Tax
1. Central Board of Direct Taxes (CBDT)
Powers and Functions
- Policy Formulation: Under Section 119, the CBDT is empowered to issue instructions and circulars for proper administration.
- Supervisory Role: It supervises all other tax authorities.
- Administrative Control: Lays down procedures for assessment, investigation, and enforcement.
- Coordination with Ministry of Finance: It acts as the advisory body to the Union Government on tax matters.
2. Principal Chief Commissioner/Chief Commissioner of Income Tax
Powers and Functions
- Jurisdictional Control: Assigns jurisdiction to subordinate commissioners and officers.
- Supervision: Oversees assessments and ensures uniformity in administration.
- Appellate Functions: Has revisional powers under Sections 263 and 264.
- Approval Authority: Grants approval in cases where the statutory threshold is exceeded (e.g., reassessment under Section 147).
3. Principal Commissioner/Commissioner of Income Tax
Powers and Functions
- Assessment Review: Has powers to revise assessment orders passed by Assessing Officers under Section 263 (prejudicial to revenue) and 264 (prejudicial to assessee).
- Administrative Functions: Assigns work to Additional or Joint Commissioners.
- Jurisdiction Determination: Determines jurisdiction of Assessing Officers under Section 120.
- Approval Roles: Required in issuing notices for reassessment under Section 148 and other critical decisions.
4. Additional Commissioner/Joint Commissioner of Income Tax
Powers and Functions
- Concurrent Jurisdiction: Can exercise the same powers as the Assessing Officer.
- Approval Authority: Grant approvals in specific assessments, penalty imposition, and searches.
- Supervisory Role: May supervise and guide assessments conducted by Deputy or Assistant Commissioners.
5. Deputy Commissioner/Assistant Commissioner of Income Tax
Powers and Functions
- Assessment Officer: Authorised to make assessments under Section 143 and Section 144 (best judgment).
- Search and Seizure: Can act as an authorised officer under Section 132.
- Enforcement of Penalties: Empowered to levy penalties under Chapter XXI.
- Investigation: Can requisition information and documents.
6. Income Tax Officer (ITO)
Powers and Functions
- Primary Assessment: Conducts scrutiny assessments, verifies returns, and determines tax liability.
- Information Gathering: Powers under Section 133 to call for information.
- Survey Powers: Can conduct surveys under Section 133A to verify business premises and books of account.
- Imposition of Penalty: Can initiate penalty proceedings under Chapter XXI.
7. Tax Recovery Officer (TRO)
Powers and Functions
- Recovery Proceedings: Executes recovery of tax dues under Schedule II of the Act.
- Attachment and Sale of Property: May attach and auction movable or immovable properties.
- Issuance of Recovery Certificates: Under Section 222, initiates proceedings against defaulting assessees.
8. Inspectors of Income Tax
Powers and Functions
- Assistance Role: Assist higher authorities during search, survey, and assessment.
- Data Collection: Collects financial information, conducts preliminary investigations.
- Verification Tasks: Verifies assets, expenses, and assesses concealment.
Powers Common to Various Authorities
Several powers are available to income tax authorities across levels:
A. Power to Call for Information – Section 133
Authorities can require any person to provide books of accounts, statements, or other records.
B. Power of Survey – Section 133A
Used to verify business operations and detect tax evasion.
C. Power of Search and Seizure – Section 132
A significant weapon in the tax department’s arsenal, allowing seizure of unaccounted assets.
D. Power to Seize Documents – Section 131
Authorities have powers similar to those of a civil court to summon witnesses and demand production of documents.
E. Power to Requisition Books – Section 132A
Authorities can requisition books or assets seized by other enforcement agencies.
F. Power to Impose Penalties and Prosecutions
Authorities at various levels can impose penalties (Section 270A) and initiate prosecution under Chapter XXII.
Quasi-Judicial Nature of Income Tax Authorities
Many income tax authorities perform quasi-judicial functions, such as adjudication of assessments, revisions, or appeals. While exercising these powers, they are expected to adhere to principles of natural justice and procedural fairness.
Important Case Law
[1] Income Tax Officer v. M.K. Mohammed Kunhi (1969)
The Supreme Court held that the Income Tax Appellate Tribunal has the implicit power to grant a stay on the recovery of penalty or tax during the pendency of an appeal, even though no express provision for such a power exists in the Income Tax Act, 1961. The Court reasoned that this power is incidental and ancillary to the Tribunal’s appellate jurisdiction under Section 254 and essential to prevent frustration of the appeal.
While cautioning that such power should not be exercised routinely, the Court emphasised it must be invoked in appropriate cases where recovery would render the appeal nugatory. The appeal by the Income Tax Officer was dismissed.
[2] In Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I & Anr. (2008)
The Supreme Court held that a direction by the Assessing Officer under Section 142(2A) of the Income Tax Act, 1961—requiring a special audit of an assessee’s accounts—entails civil consequences and must be preceded by a reasonable opportunity of being heard, even though such a requirement was not expressly stated in the provision at the relevant time.
Affirming the earlier decision in Rajesh Kumar v. DCIT, the Court clarified that principles of natural justice are implicit in Section 142(2A) since a special audit affects the assessee’s civil rights and business operations and causes procedural burdens. However, recognising the unsettled legal position and potential prejudice to revenue, the Court applied this interpretation prospectively. It declined to invalidate the impugned audit order but allowed the assessee to challenge the findings of the special audit in appellate proceedings.
Conclusion
Income tax authorities, structured in a well-defined hierarchy under the Income Tax Act, 1961, play a critical role in maintaining the fiscal health of the nation. From policy formulation to enforcement and adjudication, these authorities exercise vast powers balanced by procedural checks and judicial oversight. Ensuring transparency, accountability, and procedural fairness in their functioning is crucial to upholding the rule of law and taxpayer confidence.
References
[1] Income Tax Act, 1961
[2] Income Tax Officer v. M.K. Mohammed Kunhi, (1969 AIR 430)
[3] Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I & Anr., Appeal (Civil) 2783 of 2008
[4] Various Tax Authorities and their Powers under the Income Tax Act, Available Here
