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[H] Important Notes on Penalty under Income Tax Act. 1961.

  1. No penalty can be levied u/s. 221(1), if the assessee proves that the default in making payment of tax was for good and sufficient reasons.

  2. No order levying penalty can be passed for failure u/ss. 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FB, 271G, 272A(1)(c)/(d), 272A(2), 272AA(1), 272B, 272BB(1)/(1A), 272BBB (1)(b), 273(1)(b), 273(2)(b)/(c). if the person or the assessee proves that there was a reasonable cause by virtue of Section 273B.

  3. No penalty shall be imposed on any person unless he is properly heard or has been provided with reasonable opportunity of being heard by virtue of Section 274(1).

  4. No order imposing penalty exceeding Rs. 10,000/- can be passed by the Income Tax Officer without previous approval of Joint Commissioner. Further, no order imposing penalty exceeding Rs. 20,000/- can be passed by the ACIT or DCIT without the previous approval of Joint Commissioner by virtue of Section 274(2).

  5. Penalty proceedings have to be completed before the end of financial year in which the proceedings, in the course of which action for imposition of penalty is initiated, are complete, or within 6 months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later by virtue of Section 275.

  6. While determining the amount of penalty, the law to be applied would be the law operative on the date when default was committed. In case of late filing of return, the default is said to be committed on the date when the return is to be filed and in case of non-compliance of notice, default is taken to be committed on the day when the date given in the notice expires.

  7. An application can be made to Commissioner for reducing or waiving any penalty levied under the Income-tax Act, 1961 or for staying or compounding any proceeding for the recovery of any such penalty by virtue of Section 273A(4). In such situations, where the aggregate of such penalties exceed Rs. 1,00,000/-, then the Commissioner can exercise these powers with the previous approval of Chief Commissioner or Director-General as the case may be.

  8. Explanation1 to Sec. 271(1)© specifies that assessee shall offer an explanation, and only on failure to offer any explanation or such explanation is found to be false, or assessee is not in a position to substantiate then it will be deemed that such person has concealed the income.

  9. Explanation 4 to Sec. 271(1)© specifies that the amount of tax sought to be evaded also shall included reduction in the loss figure.
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