B.—Powers

Power regarding discovery, production of evidence, etc.

246(1)

The Assessing Officer, Joint Commissioner, Joint Commissioner (Appeals), Commissioner (Appeals), Commissioner or Principal Commissioner, or Chief Commissioner or Principal Chief Commissioner and the Dispute Resolution Panel referred to in section 275(17)(a), shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908, when trying a suit in respect of the following matters:––

• (a) discovery and inspection;
• (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
• (c) compelling the production of books of account and other documents; and
• (d) issuing commissions.

246(2)

The powers conferred under sub-section (1) may also be exercised, in respect of any person or class of persons, even when there are no proceedings pending with respect to such person or class of persons, by the following income-tax authorities:––

• (a) any income-tax authority (not below the rank of Assistant Commissioner of Income-tax) notified by the Board, for the purposes of making any inquiry or investigation in relation to an agreement referred to in section 159;
• (b) the Principal Director General or Director General or Principal Director or Director or Joint Director or Assistant Director for the purposes of making any inquiry or investigation, if he has the reason to suspect that any income has been concealed, or is likely to be concealed; and
• (c) the authorised officer referred to in section 247(1), before taking action under section 247(1)(b)(i) to (viii), or during the course of such action.

246(3)

Any income-tax authority exercising the powers referred to in sub-sections (1) and (2) may, subject to the rules made in this behalf, impound any books of account or other documents produced before it in any proceeding under this Act.

246(4)

The Assessing Officer or the Assistant Director shall record the reasons for impounding any books of account or other documents under sub-section (3) and may retain such impounded books of account or other documents up to fifteen days (exclusive of holidays), or for such further period, with the prior sanction of the approving authority.

Explanation

Section Summary:

Section 246 of the Income Tax Act grants specific powers to various income tax authorities, such as Assessing Officers, Commissioners, and the Dispute Resolution Panel, to conduct investigations, gather evidence, and enforce compliance. These powers are similar to those of a civil court under the Code of Civil Procedure, 1908. The section also allows these authorities to exercise these powers even when no proceedings are pending, provided certain conditions are met. Additionally, it permits the impounding of books of account or documents for a limited period.

Key Changes:

1. Expanded Scope of Powers: Unlike earlier provisions, Section 246(2) allows income tax authorities to exercise their powers even in the absence of pending proceedings, provided there is a suspicion of income concealment or for specific inquiries.
2. Authority to Impound Documents: Section 246(3) explicitly allows income tax authorities to impound books of account or documents during proceedings, subject to rules.
3. Retention Period for Impounded Documents: Section 246(4) specifies that impounded documents can be retained for up to 15 days (excluding holidays), with the possibility of extension with prior approval.

Practical Implications:

1. For Taxpayers: Taxpayers must be prepared to comply with requests for discovery, inspection, or production of documents, even if no formal proceedings are underway. Non-compliance could lead to penalties or further scrutiny.
2. For Businesses: Businesses, especially those with complex financial structures, may face increased scrutiny. Banking officers and other personnel could be summoned for examination under oath.
3. For Compliance Processes: Tax authorities now have broader powers to investigate potential tax evasion or concealment, which may lead to more frequent audits or inquiries.

Critical Concepts:

1. Discovery and Inspection: Refers to the authority to demand access to records, documents, or other evidence relevant to tax assessment.
2. Impounding of Documents: The act of seizing and retaining books of account or documents for a specified period. This is subject to recording reasons and obtaining prior approval for extensions beyond 15 days.
3. Code of Civil Procedure, 1908: The legal framework under which courts operate in civil cases. Tax authorities are granted similar powers under this section.

Compliance Steps:

1. Maintain Proper Records: Ensure all books of account and relevant documents are accurate, complete, and readily available for inspection.
2. Respond to Notices Promptly: If summoned by tax authorities, provide the required information or documents within the stipulated time.
3. Document Retention: Be aware of the 15-day retention rule for impounded documents and ensure compliance with any extensions granted.

Examples:

1. Scenario 1: A taxpayer receives a notice from the Assessing Officer to produce books of account for the last five years. Under Section 246(1), the taxpayer must comply, even if no formal proceedings are pending.
2. Scenario 2: During an investigation, the Principal Director suspects a business has concealed income. Under Section 246(2)(b), the authority can compel the production of documents and examine key personnel under oath.
3. Scenario 3: An Assessing Officer impounds a company’s financial records during an audit. Under Section 246(4), the officer must record the reasons for impounding and can retain the documents for up to 15 days, with the option to extend with prior approval.

This section strengthens the enforcement capabilities of tax authorities, ensuring greater compliance and reducing opportunities for tax evasion.