Penalties

Introduction

Offences under Income Tax

Consequence

Penalty Prosecution

Monetary Fine Imprisonment with or

without fine

Levied by ITA Levied by Court on a case

filed by ITA

1. The Income-tax Act, 1961 provides for the imposition of a penalty on

an assessee who commits any offence under the provisions of the Act.

2. Penalty is levied over and above the amount of any tax or interest

payable by the assessee and thus, penalty is distinct and different from

the tax payable.

3. Penalty proceedings, however, are a part of the assessment

proceedings.

4. The authority concerned is entitled to levy penalty only if he is satisfied

in the course of any proceedings under the Act that a person has been

found guilty of any default in complying with the provisions of the Act.

5. Penalty can be levied by:

i. The Assessing Officer

ii. The CIT (Appeals)

iii. The Commissioner of Income-tax

6. Income Tax Appellate Tribunal (ITAT) cannot impose penalty.

7. The penalty proceedings must be initiated before levying any penalty.

Penalty proceedings are initiated by issuing a show cause notice.

8. If Assessing Officer is to levy the penalty for under-reporting or

misreporting of income, then the penalty proceedings must be

initiated by the Assessing Officer before the completion of

assessment.

If CIT (Appeals) is to levy the penalty for under-reporting or

misreporting of income, then the penalty proceedings must be

initiated before passing the order u/s 250.

If CIT u/s 263 increases the income, then he must initiate the penalty

proceedings before passing the order u/s 263.

9. Penalty other than penalty for under-reporting or mis-reporting of

income can be levied by initiating the penalty proceedings (by issuing

a show cause notice) and such proceedings can be initiated at any

time. Penalties such as penalty for failure to get tax audit done, penalty

for non-maintenance of books of account, can be initiated even if an

assessment is not made on the assessee.

10. Penalty order and assessment order are distinct order. Similarly,

penalty proceedings and assessment proceedings are distinct

proceedings.

11. Penalty is levied by passing a penalty order. Against the penalty order

passed by Assessing Officer an appeal can be filed to CIT (Appeals) or

a revision application can be made to CIT u/s 264 or a rectification

application can be made u/s 154. Against the penalty order passed by

CIT (Appeals) or the CIT, an appeal can be filed to ITAT.

Sec 274 Procedure for Assessment of Penalties
i. Section 274(1) provides that no penalty can be imposed unless has

been given a reasonable opportunity of being heard.

ii. Section 274(2) stipulates obtaining prior approval of the Joint CIT by

the income-tax authorities where the quantum of penalty exceeds the

amount specified.

S. Income-tax authority passing the penalty Quantum

No. order of penalty
i) The Income-tax Officer > Rs.10,000
ii) The Assistant CIT or the Deputy Commissioner > Rs.20,000

iii. New section 274(2A) empowers the Central Government to formulate

a scheme, by notification in the Official Gazette

To impart greater efficiency, transparency and accountability by

• Eliminating the interface between the Income-tax authority and the

assessee or any other person in the course of proceedings to the extent

technologically feasible

• Optimizing utilisation of the resources through economies of scale and

functional specialization

• introducing a mechanism for imposing of penalty with dynamic

jurisdiction in which penalty shall be imposed by one or more income-tax

authorities

PREPAREDY BY: CA RAM PATIL