Section 274 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 274 is the procedure for applying the general anti-avoidance rule in Chapter XI during assessment or reassessment. The Assessing Officer refers the matter to the Principal Commissioner or Commissioner, who issues a notice and hears the assessee. If the assessee objects and the Commissioner is not satisfied, an Approving Panel gives binding directions. This article explains the section as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
The Assessing Officer may refer a case to the Principal Commissioner or Commissioner at any stage of assessment or reassessment if he considers that an arrangement should be declared an impermissible avoidance arrangement and its consequence determined under Chapter XI. The assessee gets a notice and a hearing within a period not exceeding sixty days. If the objection is not accepted, an Approving Panel of three decides, within six months (subject to exclusions), and its directions are binding, with no appeal against them.
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. No Finance Act, 2026 amendment is named for this section. Later amendments, rules and notifications should be checked. For disputes at this stage, see our legal dispute resolution service.
Step 1: the Assessing Officer's reference: sub-section (1)
The Assessing Officer may make a reference to the Principal Commissioner or Commissioner at any stage of the assessment or reassessment proceedings before him if, having regard to the material and evidence available with him, he considers that it is necessary to:
- (a) declare an arrangement as an impermissible avoidance arrangement; and
- (b) determine the consequence of such an arrangement within the meaning of Chapter XI.
Chapter XI is the general anti-avoidance rule (sections 178 to 184). What an impermissible avoidance arrangement is, is explained in our post on section 179, impermissible avoidance arrangement.
Step 2: the notice and the hearing: sub-sections (2), (3) and (5)
On receipt of a reference, if the Principal Commissioner or Commissioner is of the opinion that Chapter XI is required to be invoked, he shall:
- (a) issue a notice to the assessee, setting out the reasons and basis of such opinion, for submitting objections, if any; and
- (b) provide an opportunity of being heard to the assessee within such period, not exceeding sixty days, as specified in the notice.
Three outcomes follow:
| Outcome | Provision |
|---|---|
| The assessee fails to furnish any objection within the time in the notice | The Principal Commissioner or Commissioner shall issue such directions as he deems fit on the declaration (sub-section (3)) |
| The assessee objects and, after hearing, the Commissioner is not satisfied | He shall make a reference to the Approving Panel (sub-section (4)) |
| After hearing, he is satisfied that Chapter XI is not to be invoked | He communicates this by an order in writing to the Assessing Officer, with a copy to the assessee (sub-section (5)) |
Step 3: the Approving Panel: sub-sections (6) to (9)
Directions: sub-section (6)
On receipt of a reference under sub-section (4), the Approving Panel shall (a) issue such directions as it deems fit on the declaration of the arrangement as an impermissible avoidance arrangement as per Chapter XI, and (b) specify the tax year or years to which the declaration shall apply.
Hearing: sub-section (7)
No direction shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on directions which are prejudicial to the interest of the assessee or the interests of the revenue, as the case may be.
Inquiry and majority: sub-sections (8) and (9)
Before issuing directions, the Panel may direct the Principal Commissioner or Commissioner to make further inquiry and report, call for and examine records, or require the assessee to furnish documents and evidence. If members differ on any point, it is decided according to the opinion of the majority.
Step 4: after the directions: sub-sections (10) to (12)
- (10) On receipt of directions under sub-section (3) or (6), the Assessing Officer shall proceed to complete the proceedings in sub-section (1) as per such directions and the provisions of Chapter XI.
- (11) If a direction says the declaration applies to a tax year other than the one in the proceedings, the Assessing Officer follows it for that other year too, and need not seek fresh direction.
- (12) No order of assessment or reassessment shall be passed without the prior approval of the Principal Commissioner or Commissioner if any tax consequences have been determined in the order under Chapter XI.
Time limit: sub-sections (13) to (15)
| Sub-section | Rule |
|---|---|
| (13) | Subject to sub-sections (14) and (15), the Approving Panel shall issue directions within six months from the end of the month in which the reference under sub-section (4) was received |
| (14) | In computing that period, exclude (a) the period from the date the Panel first directs the Principal Commissioner or Commissioner to get inquiries made through the authority competent under an agreement referred to in section 159, to the date the information is last received by the Panel, or one year, whichever is less; and (b) the period from the date the Panel's proceeding is stayed by an order or injunction of any court to the date a certified copy of the order vacating the stay was received |
| (15) | If, after these exclusions, the remaining period is less than sixty days, it is extended to sixty days and the six months is deemed extended accordingly |
Effect of the directions: sub-sections (16) and (17)
The directions of the Approving Panel are binding on (a) the assessee, and (b) the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him. No appeal under the Act lies against the directions, irrespective of anything in any other provision of the Act.
Constitution of the Panel: sub-sections (18) to (24)
| Sub-section | Rule |
|---|---|
| (18) | The Central Government shall constitute one or more Approving Panels, each of three members including a Chairperson |
| (19) | The Chairperson shall be a person who is or has been a judge of a High Court; one member is a member of the Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner; one is an academic or scholar with special knowledge of matters such as direct taxes, business accounts and international trade practices |
| (20) | The term is ordinarily one year, extendable from time to time up to three years |
| (21) to (24) | Meetings and remuneration as prescribed; the powers of the Board for Advance Rulings under section 387 apply mutatis mutandis; the Board provides officials and may make rules (left to the Income-tax Rules, 2026) |
Whether any Panel has been constituted, and who sits on it, is not in the text consulted.
A worked example
Names and dates are assumed.
During a reassessment, the Assessing Officer considers that a holding structure set up by Harlow Ventures Pvt Ltd is an impermissible avoidance arrangement.
- Reference (sub-section (1)): he refers the matter to the Principal Commissioner.
- Notice (sub-section (2)): the Principal Commissioner agrees that Chapter XI should be invoked and issues a notice with reasons and basis, giving a hearing period of 45 days, which is within the sixty-day maximum.
- Objection (sub-section (4)): the company objects. After hearing it, the Principal Commissioner is not satisfied, so he refers the matter to the Approving Panel.
- Panel (sub-sections (6) and (13)): the Panel receives the reference in July. Six months from the end of July is the end of January, before exclusion of any stay period under sub-section (14)(b). It issues directions and specifies the tax years to which the declaration applies.
- Effect (sub-sections (10), (12), (16), (17)): the directions bind the company and the Principal Commissioner; no appeal lies; the Assessing Officer completes the proceedings accordingly, with prior approval for an order determining Chapter XI consequences.
Need help with an anti-avoidance reference?
The notice period, the objection and the hearing before the Approving Panel are the points where an assessee can be heard. Our team can help you review the reasons and basis in the notice and prepare your objections through our legal dispute resolution service.
Key takeaways
- The Assessing Officer can refer a case at any stage of assessment or reassessment to have an arrangement declared impermissible and its consequence determined under Chapter XI.
- The assessee receives a notice with reasons and a hearing within a period not exceeding sixty days.
- If the objection fails, an Approving Panel of three, headed by a person who is or has been a High Court judge, gives the directions.
- The Panel has six months from the end of the month of receipt, with exclusions and a sixty-day floor.
- Its directions bind the assessee and the department, and no appeal lies against them.
Read next
- Section 273: faceless assessment
- Section 269: estimation of value of assets by the Valuation Officer
- Section 179: impermissible avoidance arrangement
- Chapter XVI: procedure for assessment
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.