[Section 275]: Bar of Limitation for Imposing Penalties

Here’s a detailed analysis of Section 275 of the Income Tax Act, 1961, which governs the time limits for imposing penalties, incorporating recent amendments proposed in the Finance Bill, 2025:

1. Overview of Section 275

Section 275 imposes a statutory time limit for passing penalty orders under Chapter XXI of the Income Tax Act, ensuring timely resolution and preventing indefinite proceedings. The provision varies based on whether the case involves appeals, revisions, or other scenarios.

2. Key Time Limits (Pre-2025 Amendment)

• Appeals to CIT(A) or ITAT:
  • Penalty must be imposed by the later of:
    • The end of the financial year (FY) in which penalty proceedings were initiated, or
    • 6 monthsfrom the end of the month the appellate order is received by the Principal Commissioner/Commissioner (PCIT/CIT).
  • Example: If an ITAT order is received on 15 December 2024, the deadline is 30 June 2025(6 months from December 2024).
• Revision under Section 263/264:
  • 6 monthsfrom the end of the month the revision order is passed.
• General Cases (No Appeal/Revision):
  • The later of:
    • End of the FY in which proceedings concluded, or
    • 6 monthsfrom the month penalty proceedings were initiated.

3. Proposed Changes (Finance Bill, 2025)

The government aims to simplify and standardize timelines by replacing multiple deadlines with a uniform 6-month period from the end of the relevant quarter:

• Appeals/Revisions:
  • Deadline: 6 months from the end of the quarterin which:
    • Appellate order is received by PCIT/CIT, or
    • Revision order is passed.
  • Other Cases:
    • 6 months from the end of the quarterin which:
      • Proceedings conclude, or
      • Penalty notice is issued.

Rationale: Reduces administrative complexity and aligns with faceless assessment protocols.

4. Exclusions from Limitation Period

The following periods are excluded when calculating deadlines:

• Time granted for rehearingdue to officer changes (Section 129).
• Duration of court stayson penalty proceedings.
• Periods where immunity(e.g., under Section 245H) was in force.

5. Consequences of Non-Compliance

• Lapse of Penalty Power: If the deadline is missed, the tax authority cannot impose the penalty.
• Judicial Safeguards: Courts have quashed penalty orders issued beyond the limitation period.

6. Practical Implications

• Taxpayers: Monitor deadlines for appeals/revisions to avoid unintended penalties.
• Authorities: Must ensure robust tracking systems to comply with new quarterly timelines post-2025