Failure to comply with a direction of special audit or valuation

Section 481 — FAILURE TO COMPLY WITH A DIRECTION OF SPECIAL AUDIT OR VALUATION

Section 481 of the Income-tax Act, 2025 corresponds to s. 276D of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 481 was substituted by the Finance Act, 2026, w.e.f. 1-4-2026. As substituted, it is a prosecution provision headed "Failure to comply with a direction of special audit or valuation". A person who wilfully fails to comply with a direction issued to him under s. 268(5) is punishable with simple imprisonment for a term up to six months, or with fine, or with both. Section 268(5) is the power of the Assessing Officer, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and after a hearing, to direct the assessee to get the accounts audited by an accountant, or the inventory valued by a cost accountant, or both.

KEY ELEMENTS

• Offence: wilful failure to comply with a direction under s. 268(5).
• Punishment: simple imprisonment for a term up to six months, or fine, or both.
• Pre-2026 position (before substitution w.e.f. 1-4-2026): the section, headed "Failure to produce accounts and documents", covered wilful failure to produce, or cause to be produced, the accounts and documents referred to in a notice under s. 268(1) on or before the date specified, as well as wilful failure to comply with a direction under s. 268(5). The punishment was rigorous imprisonment for a term which may extend to one year and with fine.

CHANGES FROM THE 1961 ACT

The counterpart is s. 276D of the 1961 Act, which covered wilful failure to produce accounts and documents under a notice under s. 142(1) of the 1961 Act and wilful failure to comply with a direction under s. 142(2A) of the 1961 Act, punishable with rigorous imprisonment for a term which may extend to one year and with fine. The pre-2026 s. 481 followed that pattern. The substituted s. 481 differs from s. 276D of the 1961 Act in two visible respects: it no longer refers to the failure to produce accounts and documents under a notice, and the punishment is simple imprisonment up to six months, or fine, or both, in place of rigorous imprisonment up to one year and fine.

PRACTITIONER NOTES

• The offence requires wilful non-compliance; a failure that is not wilful is not within the words of the section.
• Under the substituted text, imprisonment is not mandatory: the punishment is simple imprisonment, or fine, or both.
• For a failure to produce accounts or documents under a notice under s. 268(1), the substituted s. 481 does not in terms apply; other provisions of the Act should be examined.

CROSS-REFERENCES

• s. 268(5) — the Assessing Officer's power to direct special audit of accounts or valuation of inventory; non-compliance with that direction is the offence.
• s. 268(1) — the notice to produce accounts or documents referred to in the pre-2026 text.
• s. 276D of the 1961 Act — the corresponding provision.
• s. 142(1) and s. 142(2A) of the 1961 Act — the notice and direction referred to in s. 276D of the 1961 Act.