TaxTMI 
TaxTMI 
Modernizing Inquiry and Special Audit Procedures in Indian Tax Law : Clause 268 of the Income Tax Bill, 2025 Vs. Section 142 of the Income-tax Act, 1961
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....r to call for returns, documents, information, and to direct special audits or inventory valuations. The procedural nuances and compliance requirements under Clause 268 are further shaped by the Income-tax Rules, 1962, particularly Rules 12F, 14, and 14A, which prescribe the authorities, forms, and verifications relevant to such inquiries and audits. The proposed changes in Clause 268, when compared to the existing regime, signal a move towards procedural clarity, enhanced taxpayer rights, and administrative efficiency. This commentary provides a detailed, issue-wise analysis of Clause 268, juxtaposed with Section 142 of the Act and the relevant rules, highlighting their legal significance, practical implications, and areas of continuity ....
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....requiring: * Furnishing of a return (if not already filed within the prescribed time). * Production of accounts or documents. * Furnishing of information on specified points, including a statement of assets and liabilities. The language and structure of Clause 268(1) are substantially similar to Section 142(1), with updates to cross-references (e.g., Section 263 in the Bill appears to be the new equivalent of Section 139 in the Act). Comparison: * Both provisions allow the AO to require a return even after the statutory time limit has expired, thereby ensuring that the AO can proceed with assessment even in cases of non-filing. * The power to call for documents or information is broad, covering not just books of account but any ....
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....eemed necessary for obtaining full information regarding the income or loss of any person. This is an omnibus power, subject to general principles of reasonableness and relevance. Comparison: * The breadth of this power is balanced by judicial interpretations that prohibit roving or fishing inquiries and require that inquiries be relevant to the assessment at hand. 4. Special Audit and Inventory Valuation Clause 268(5)-(7) & Section 142(2A)-(2B): Both provisions empower the AO, with higher-level approval, to direct the assessee to get accounts audited by an accountant or inventory valued by a cost accountant, in specified circumstances such as: * Nature and complexity of accounts * Volume and multiplicity of transactions * Doubts....
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....the Central Government. * This is a significant shift from the earlier regime, where the assessee had to bear the costs, and aligns with the principle that such audits are in aid of revenue's interests, not solely for taxpayer compliance. Rule 14A: This rule prescribes the forms for reports of audit (Form 6B) and inventory valuation (Form 6D) required u/s 142(2A) (and, by implication, under Clause 268(5)). This ensures uniformity and completeness in reporting, facilitating effective assessment and minimizing disputes over form or content. 5. Procedural Safeguards and Right to Be Heard Clause 268(12) & Section 142(3): Both mandate that, except in best judgment assessments (Section 271 in the Bill; Section 144 in the Act), the assess....
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....o order special audits or inventory valuations in appropriate cases. * Accountability: The need for higher-level approval and adherence to prescribed guidelines ensures that these powers are exercised judiciously and not as a matter of routine. * Administrative Efficiency: The ability to delegate notice-serving functions (as per Rule 12F) and standardized forms (u/rs 14 and 14A) streamline the assessment process. For Professionals (Accountants and Cost Accountants) * Role Clarification: The requirement for nomination by higher authorities and adherence to prescribed forms and guidelines ensures professional accountability and uniformity in audit and valuation reports. For Policy and Administration * Transparency and Uniformity: Th....
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....relevant clause, ensuring that only appropriately empowered officers can exercise such powers. * Rule 14: Prescribes the form of verification for information furnished under the AO's direction, which is a declaration of truthfulness and completeness, reinforcing the seriousness of compliance. * Rule 14A: Specifies the forms (Form No. 6B for audit reports and 6D for inventory valuation) to be used for reports furnished under special audit or valuation directions, ensuring uniformity and completeness of information. These rules, while not substantially altered by the Bill, remain integral to the effective implementation of Clause 268 and its equivalents. Areas of Potential Ambiguity or Concern * Scope of Inquiry: While the AO'....