Reduction or Waiver of Income Tax Penalty

Income tax act deals with much penalty provisions, apart from this the act also designed provisions authorizing the Principal Commissioner of Income-tax or Commissioner of Income-tax to grant relief from a penalty to taxpayers in some genuine cases. Such power is granted under the provision of section 273A and section 273AA of Income Tax Act. In this article, we look at reduction or waiver of income tax penalty under section 273A and section 273AA of Income Tax act in detail. Know more about Income Tax Penalties in India Know more about Penalty for Late Filing Income Tax Returns

Section 273A - Power to reduce or waive penalty

Section 273A (1) of Income Tax act authorizes the Principal Commissioner or Commissioner of Income Tax to grant waiver or reduction from penalty imposed under section 270A or under section 271(1)(c).

Section 273A (1) - Waiver or reduction of penalty

The waiver or reduction from penalty under this section can be granted by Commissioner either on his own motion or submitting an application by the taxpayer. Section 270A: Section 270A of Income tax act, deals with the penalties for reporting and misreporting of income for tax deduction. Know more about Section 270A. Section 271(1) (c): Penalty for providing inaccurate particulars of income or concealment of particulars of income is specified under section 271 (1). Know more about Section 271.

Conditions for granting relief under section 273A (1)

Relief (reduce or waive penalty) under section 273A (1) will be granted only if below-mentioned conditions are satisfied by an assesse.

Disclosure of particulars: Taxpayers should make voluntarily and in good faith disclose the full and true details of all particulars of income to the Assessing Officer
Co-operation for enquiry: The assessee should have to cooperate with any enquiry related to the assessment
Payment of Tax/ Interest: The taxpayer should have paid tax or interest or he should made satisfactory arrangements for paying any tax or interest payable in consequence of an order passed under the Income Tax Act in respect of the relevant year.

Section 273A (2) – Approval if income exceeds Rs.5 lakh

In case the amount of income in respect of the penalty is imposed for more than one year, the aggregate amount of income for those years exceeds Rs. 500000, then the order reducing or waiving the penalty under section 273A (1) will be made only after getting the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General. Every order made under section 273A will be final and cannot be called into question by any Courts or any other authorities.

Section 273A (3) - No relief for earlier claimed waiver

As per section 273A (3), if an assesse has claimed relief (reducing penalty) under section 273A (1) at any time, then the assesse cannot claim relief under section 273A (that is section 273A (1) as well as section 273A (4)).

Section 273A (4) - Waiver or reduction of penalty

Section 273A (4) authorizes the Principal Commissioner to grant relief for any penalty imposable under Income-tax Act as well as to stay or compound any proceeding for the recovery of penalty.

Conditions for granting relief under section 273A (4)

Relief will be granted if following conditions are satisfied.

Levy of penalty will cause genuine hardship on the taxpayer
The taxpayer has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him

Previous approval of Chief Commissioner if penalty exceeds Rs.1 lakh

If the aggregate amount penalties exceed Rs. 100000, order of reducing or waiving the amount or compounding any proceeding for its recovery under section 273 A (4) shall be made with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General.

Application for waiver under section 273A (4)

The assessee has to make an application to the Principal Commissioner for obtaining waiver or reduction or stay or compound any proceeding for the recovery of penalty under section 273A (4). Note: The application should have recorded the reasons for misreporting or furnishing inaccurate particulars of Income. The Principal Commissioner will pass an order, either accepting or rejecting application within a period of 12 months from month of submitting application. Note: No order rejecting the application will be passed unless the assessee has been given an opportunity of being heard: Every order made under section 273A (4) will be final and will not be called into question by any Court or any other authority.

Section 273AA - Grant immunity from imposition of penalty

Section 273AA of Income Tax Act empowers the Principal Commissioner or Commissioner of Income tax to grant immunity from imposition of penalties under the Income-tax Act if an assessee has furnished an application for case settlement under section 245C and the proceedings for case settlement have been made under section 245HA and penalty proceedings are initiated under Income-tax Act.

Section 245C

Section 245 C of Income tax act specifies that an assessee who has not been disclosed income particulars before the Assessing Officer can make an application with the following information to the Settlement Commission to have the case settled.

Full and true disclosure of all income which has not been disclosed before the Assessing Officer
The manner in which the all income has been derived
Additional amount of income-tax payable on such income

Application for settlement of cases is reproduced here. [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2018/08/Application-case-settlement.pdf" title="Application case settlement"] Section 245HA : Abatement of proceeding before Settlement Commission is explained under the provision of section 245HA.

Application for waiver under section 273AA

For obtaining waiver, the assessee need to furnish an application to the Commissioner. The application to the Commissioner for waiver will not be furnished after the imposition of penalty after abatement. The Principal Commissioner will pass an order, either accepting or rejecting application within a period of 12 months from month of submitting application. Note: No order rejecting the application will be passed unless the assessee has been given an opportunity of being heard:

Condition for granting the immunity

Principle commissioner will grant immunity from imposition of any penalty under the Income-tax Act only if below mentioned conditions are satisfied by an assesse.

Assesse should have co-operated with the Income-tax authority in the proceedings before him.
Taxpayers should make a full and true disclosure of his income and the details of manner in which such income has been derived.

Granting Immunity

After verifying the application, the Commissioner thinks that fit to impose, grant immunity to the person from the imposition of penalties under the Income-tax Act.

Withdrawal of immunity

The immunity granted under section 273AA will be withdrawn, if an assessee fails to follow the condition related to the immunity was granted and after the withdrawal of the immunity, the penalty provisions of the Act will apply as if such immunity had not been granted.