Procedure for Imposing Penalty [Section 274]

Here’s a detailed explanation of the Procedure for Imposing Penalty under Section 274 of the Income Tax Act, 1961, synthesized from the search results:

1. Mandatory Hearing Requirement [Section 274(1)]

• Natural Justice Principle: No penalty order can be passed unless the assessee is given a reasonable opportunity to be heard(e.g., via show-cause notice).
• Judicial Precedents:
  • Penalty notices must specify the exact charge(e.g., concealment vs. inaccurate particulars). Generic notices are defective and may quash proceedings.
  • Example: The Calcutta High Court quashed a penalty where the notice failed to clarify whether the default was for “concealment” or “furnishing inaccurate particulars”.

2. Approval Requirements for Large Penalties [Section 274(2)]

• Hierarchical Approval:
  • Income Tax Officer (ITO): Cannot impose penalties exceeding ₹10,000without prior approval from the Joint Commissioner.
  • Assistant/Deputy Commissioner: Requires approval for penalties exceeding ₹20,000.

3. Faceless Penalty Scheme [Section 274(2A)-(2C)]

• Objective: Enhance transparency and reduce taxpayer-authority interaction through electronic proceedings.
• Key Features:
  • Automated Allocation: Cases assigned to Penalty Unitsand Review Units via the National Faceless Penalty Centre.
  • E-Proceedings: Notices, responses, and orders are issued electronically through the assessee’s registered portal.
  • Dynamic Jurisdiction: Penalties imposed by authorities designated under the scheme, not limited by geographic jurisdiction.

4. Procedural Steps for Penalty Imposition

1. Initiation:

• • Penalty proceedings may be initiated by the Assessing Officer (AO) or Faceless Assessment Centre.

2. Show-Cause Notice:

• • Must specify the grounds for penalty(e.g., Section 271(1)(c) for concealment).

3. Assessee’s Response:

• • The assessee must reply within the stipulated time (extensions may be granted).

4. Draft Order:

• • Prepared by the Penalty Unit and reviewed by the Penalty Review Unit for legal/computational accuracy.

5. Final Order:

• • Served electronically after risk-based review by the National Faceless Penalty Centre.

5. Exceptions and Judicial Safeguards

• Defective Notices: Penalty orders based on vague notices (e.g., not specifying the charge) are void ab initio.
• Limitation Period: Penalties must be imposed within 6 months to 1 yearfrom the end of the financial year in which proceedings were initiated (Section 275)