Rule 129 of the Draft Income-tax Rules, 2026 lays down the procedural framework to be followed before making a reference under section 274 in matters involving the applicability of Chapter XI. Before referring a case to the Commissioner under section 274(1), the Assessing Officer is required to issue a notice to the assessee inviting objections regarding the proposed application of Chapter XI. This notice must contain comprehensive details, including the arrangement in question, the tax benefit arising from it, the basis for concluding that the main purpose of the arrangement is to obtain a tax benefit, the reasons why the arrangement satisfies the conditions specified in section 179(1)(a) to (d), and the documents or evidence relied upon. The reference to the Commissioner must be made in Form No. 62. If the Commissioner is satisfied that Chapter XI need not be invoked, he shall record his satisfaction in Form No. 64 and issue directions to the Assessing Officer in Form No. 63 after considering the reference or the assessee’s reply. Before referring the matter to the Approving Panel under section 274(4), the Commissioner must record satisfaction in Form No. 63 and, where applicable, seek a factual report from the International Financial Service Centre Authority. All references to the Approving Panel must be made in Form No. 63 in four sets, in Hindi or English.
Extract of Rule No. 129 of Draft Income-tax Rules, 2026
Rule 129
Notice, Forms for reference under section 274.
(1) For the purposes of section 274(1) before making a reference to the Commissioner, the Assessing Officer shall issue a notice to the assessee seeking objections, if any, to the applicability of provisions of Chapter XI in his case.
(2) The notice referred to in sub-rule (1) shall contain the following: —
(a) details of the arrangement to which the provisions of Chapter XI are proposed to be applied;
(b) the tax benefit arising under the arrangement;
(c) the basis and reason for considering that the main purpose of the identified arrangement is to obtain tax benefit; (d) the basis and the reasons why the arrangement satisfies the conditions in section 179(1)(a) to (d); and
(e) the list of documents and evidence relied upon in respect of clauses (c) and (d) above.
(3) The reference by the Assessing Officer to the Commissioner under section 274(1) shall be in Form No. 62.
(4) Where the Commissioner is satisfied that the provisions of Chapter XI are not required to be invoked with reference to an arrangement, he shall record his satisfaction regarding the applicability of the provisions of Chapter XI in Form No. 64 and issue directions to the Assessing Officer in Form No. 63, after considering.
(a) the reference received from the Assessing Officer under section 274(1); or
(b) the reply of the assessee in response to the notice issued under section 274(2).
(5) The Commissioner, before making a reference to the Approving Panel under section 274(4), shall, —
(a) record his satisfaction regarding the applicability of the provisions of Chapter XI in Form No. 63; and
(b) seek specific factual report in writing from International Financial Service Centre Authority where the assessee is an entity located in International Financial Service Centre.
(6) The Commissioner or Principal Commissioner shall make a reference under section 274(4) to an Approving panel in Form No. 63 with such other documents as deemed fit with all being submitted in four sets, either in Hindi or English.
