Power of Commissioner to Reduce or Waive Income Tax Penalty

The taxpayers are required by law to make tax payments, pay any applicable interest for delays, and also penalties for defaults. The penalties are levied on the taxpayers for various defaults which can be majorly classified as:

• Default in payment of any tax
• Failure to disclose appropriate income
• Failure to maintain books of accounts and perform audits
• Failure to furnish the requisite information
• A penalty in case of search 
• Other transactional defaults

The penalties in some of the cases can be as high as 300% of tax leviable. In some cases, it can be a per day charge for as many days as the default continues. Penalties are imposed so as to avoid any further default. However, under certain circumstances, the penalties can be waived or reduced by the Principal Commissioner or Commissioner. 

Sections of the Income Tax Act under which the Principal Commissioner or Commissioner can exercise power to reduce or waive income tax penalty:

• Section 273A(1)– Power to reduce or waive penalty imposed or imposable for default under Section 270A or Section 271(1)(c).
• Section 273A(4)– Power to reduce or waive any penalty stay or compound proceeding for the recovery of penalty.
• Section 273AA– Power to grant immunity from imposition of any penalty.

Section 273A(1) – Waive or Reduce The Penalty

What does it cover?

The said Section grants the Principal Commissioner or Commissioner, the power to waive or reduce the penalty imposed or imposable under Section 270A (which covers penalty for under-reporting or misreporting of income) and under Section 271(1)(c) (which includes the penalty for concealment of particulars of income or furnishing inaccurate particulars of income).

Who can initiate?

The motion to reduce or waive can be initiated either by the Principal Commissioner or Commissioner on his own accord or by an application made by the taxpayer.

What are the conditions for granting relief?

For granting relief to the taxpayer, the following three conditions must be satisfied:

• The taxpayer in good faith must make full and true disclosure of the concealment of particulars of income or concerning the inaccuracy of particulars furnished prior to the detection of the same by the assessing officer.
• The taxpayer should have provided full co-operation in any inquiry relating to the assessment.
• The taxpayer has either paid or made satisfactory arrangements for making payments of any interest or tax payable in consequence of an order passed in the assessment years for which application is made under Section 273 A.

For the purpose of the Section 273A (1), full and true disclosure of income or particulars relating thereto by the taxpayer is deemed to be made when the excess of income assessed over the income returned is of such a nature so as to not attract any penalty under Section 270A or Section 271(1)(c).
If the above conditions are satisfied, the Principal Commissioner or Commissioner may waive the penalty. 

What is the threshold limit for the powers of the Principal Commissioner or Commissioner under Section 273A(1)?

The Principal Commissioner or Commissioner can grant the waiver only if the penalty imposed or imposable for the relevant year, and if such disclosures apply to more than one year the aggregate of penalty for all the years does not exceed Rs. 5,00,000. If the aggregate amount exceeds the limit of Rs. 5,00,000 then the prior approval of the Chief Commissioner/Principal Chief Commissioner/Principal Director General/Director General will be required.

How many times can the relief under the said Section be claimed?

As per Section 273A(3), if an order has been made under Section 273A(1) in favour of any person, for any of the assessment years, the same relief cannot be claimed for any year post the grant of such relief. That means the relief under Section 273A that is both Section 273A(1) and Section 273A(4) can be granted only once in the lifetime of the taxpayer.

Section 273A(4) – Waive or Reduce The Penalty, Stay or Compound Proceeding For The Recovery of Penalty

What does it cover?

Section 273A(4) confers powers on the Principal Commissioner or Commissioner to either waive or reduce any penalty which can be imposed under the Income Tax Act as well as to stay or compound any proceeding concerning the recovery of penalty.

Who can initiate?

For obtaining the benefit of the said Section that is waiver or reduction or stay or compounding of any proceedings for the recovery of the penalty, the motion must be initiated by the taxpayer.

What are the conditions for granting relief?

The relief under the Section can be granted to the taxpayer if the following conditions are satisfied:

• If it is established that the levy of penalty will cause the taxpayer genuine hardships
• The taxpayer has offered full cooperation concerning any inquiry in relation to the assessment or any proceeding with regards to the recovery of any amount due from him.

What is the threshold limit for the powers of the Principal Commissioner or Commissioner under Section 273A(4)?

The Principal Commissioner or Commissioner can grant the waiver or reduction or compound any proceedings for the recovery of penalty only if the penalty imposed for the relevant year, and if such application applies to more than one year the aggregate of penalty for all the years does not exceed Rs. 1,00,000. If the said sum exceeds the limit, then the prior approval of the Principal Chief Commissioner/Chief Commissioner/Principal Director General/Director General will be required.

What is the time limit for passing the order under Section 273A(4)?

The Principal Commissioner or Commissioner, as the case may be, shall pass an order either accepting or rejecting the application of the taxpayer for the waiver or reduction within 12 months from the end of the month in which an application is received. No order for rejecting the application can be passed without giving the taxpayer an opportunity of being heard. For all applications pending as on 01.06.2016, the order must be passed on or before May 31, 2017.
Note: The relief under Section 273A is granted only once in the lifetime of the taxpayer and hence both the above Sections are covered in the said condition.
The order passed under Section 273 A is final and cannot be questioned by any court or any authority.

Section 273AA – Power to Grant Immunity From Imposition of Any Penalty

Section 273AA confers the power of granting immunity to the taxpayer from the imposition of any penalty under the Income- Tax Act, by the Principal Commissioner or Commissioner in a case where the taxpayer makes an application for settlement under Section 245C and the proceedings for settlement have been abated under Section 245HA, and penalty proceedings are initiated under the Income Tax Act.

Who can initiate?

The motion must be initiated by the taxpayer by filing an application to the Commissioner.

What is the time limit for passing the order under Section 273AA?

The Principal Commissioner or Commissioner, as the case may be, shall pass an order either accepting or rejecting the application of the taxpayer for the waiver or reduction within 12 months from the end of the month in which the application is received. No order for rejecting the application can be passed without giving the taxpayer an opportunity of being heard. For all applications pending as on 01.06.2016, the order must be passed on or before May 31, 2017. 

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