BUDGETARY AMENDMENTS ON CHAPTER XXI OF INCOME TAX ACT, 1961 DEALING WITH PENALTIES IMPOSABLE

[DR.MARIAPPAN GOVINDARAJAN]

The Finance Bill, 2025 (‘Bill’ for short) brings so many amendments, insertion, omission etc., on the Income Tax Act, 1961.  In this article we may see the amendments carried out on the Chapter XXI of the Act dealing with the penalties imposable. 

Section 270 AA – Immunity from imposition of punishment etc.

This section provides that an assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A (under reporting or mis-reporting of income) and initiation of proceedings under section 276C (wilful attempt to evade tax) or section 276CC (failure to furnish return), subject to fulfilling of the conditions enumerated in this section.  Such application shall be made within one month from the date of receipt of order.  Section 270AA (4) provides that the Assessing Officer shall, within a period of one month from the end of the month in which the application passes an order accepting or rejecting such application.

The Bill increased the period of one month to three months.

Section 271AAB – Penalty where search has been initiated

Section 271AAB of the Act provides that the Assessing Officer or the Commissioner (Appeals) may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, but before the 1st day of September, 2024 the assessee shall pay by way of penalty, in addition to tax, if any, payable by him.

The words in bold letters ‘but before the 1st day of September, 2024’  have been inserted by the present Finance Bill.  The said insertion shall be deemed to have been inserted with effect from the 1st September, 2024.

Omission of Section 271 BB – Failure to subscribe to the eligible issue of capital

The Bill omitted the provisions of Section 271BB of the Act which provides that whoever fails to subscribe any amount of subscription to the units issued under any scheme referred to in sub-section (1) of section 88A to the eligible issue of capital under that sub-section within the period of 6 months specified therein, may be directed by the Joint Commissioner to pay, by way of penalty, a sum equal to 20% of such amount.

Penalties imposed under various sections

• Section 271C(2) – Any penalty (penalty for failure to deduct tax at source) imposed under this section shall  be imposed by Joint Commissioner;
• Section 271CA  (2) - Any penalty (penalty for failure to deduct tax at source) imposable under sub-section (1) shall be imposed by the Joint Commissioner.
• Section 271D(2)- Any penalty (penalty for failure to comply with the provisions of Section 269SS) imposable under sub-section (1) shall be imposed by the Joint Commissioner.
• Section 271DA (2) – Any penalty (penalty for failure to comply with the provisions of Section 269ST) imposable under sub-section (1) shall be imposed by the Joint Commissioner.
• Section 271DB (2) - Any penalty (penalty for failure to comply with the provisions of Section 269SU) imposable under sub-section (1) shall be imposed by the Joint Commissioner of Income-tax.
• Section 271E(2) - Any penalty (penalty for failure to comply with the provisions of Section 269T) imposable under sub-section (1) shall be imposed by the Joint Commissioner.

The Bill conferred the above said powers of Joint Commissioner to the Assessing Officer.

Bar of limitation for imposing penalties

The Bill substituted section 275 which provides bar of limitation for imposing penalties for the new one.  The substituted section 275 provides that no order imposing a penalty under this Chapter shall be passed after the expiry of six months from the end of the quarter in which, —

• the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, if the relevant assessment or other order is not the subject matter of an appeal under section 246 or section 246A or section 253;
• the order of revision under section 263 or section 264 is passed, if the relevant assessment or other order is the subject matter of revision under the said sections;
• the order of appeal under section 246 or section 246A is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said sections and no further appeal has been filed under section 253;
• the order of appeal under section 253 is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said section;
• notice for imposition of penalty is issued, in any other case.

Section 275(2) provides that the order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be revised on the basis of assessment as revised by giving effect to the order passed under section 246 or section 246A or section 253 or section 260A or section 261 or revision under section 263 or section 264, where the relevant assessment or other order is the subject matter of an appeal or a revision under the said sections.

Section 252(3) provides that No order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty under sub-section (2) shall be passed—

• unless the assessee has been heard, or has been given a reasonable opportunity of being heard;
• after the expiry of six months from the end of the quarter in which the order passed under section 246 or section 246A or section 253 or section 260A or section 261 is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision under section 263 or section 264 is passed;

Section 275(4) provides that the provisions of sub-section (2) of section 274 shall apply to the order imposing or enhancing or reducing penalty under sub-section (2).

Section 275(5) provides that in computing the period of limitation for the purposes of this section, the following period shall be excluded: —

• the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129;
• the period commencing on the date on which stay on proceeding for levy of penalty was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner.