Section 273 — False Estimate of, or Failure to Pay, Advance Tax (Pre-FA 1989 — Sunset)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Spent prospectively. Section 273 penalised a false estimate of, or failure to pay, advance tax. The Direct Tax Laws (Amendment) Act, 1987 replaced this penalty regime with the automatic interest provisions (sections 234A/234B/234C) for assessment year 1989-90 onwards. Section 273 governs only assessment years up to 1988-89, which survive only in residual/historical litigation.
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: For AY 1988-89 and earlier: a false/untrue estimate of advance tax, or failure to pay advance tax as required, attracted a penalty computed on the shortfall → subject to reasonable cause under section 273B. For AY 1989-90 onwards, interest under sections 234B/234C applies instead.
Litigation profile: No live litigation; the section operates only for pre-1989 years. Its jurisprudence is of historical interest and informs the shift from penalty to compensatory interest.
A. COMMENTARY
From penalty to automatic interest
Section 273 belonged to the pre-1989 scheme under which short or false advance-tax estimates were met with a penalty requiring the Assessing Officer’s satisfaction. The Direct Tax Laws (Amendment) Act, 1987 replaced that discretionary penalty with the automatic, compensatory interest regime of sections 234B and 234C for AY 1989-90 onwards. Section 273 therefore has no application to any year after AY 1988-89.
Reasonable cause while it applied
Being within section 273B, the section 273 penalty yielded to reasonable cause — a bona fide estimate later falsified by events, or genuine difficulty in estimating income. The move to interest under sections 234B/234C removed the "reasonable cause" enquiry for current years, the interest being compensatory and mandatory (Anjum Ghaswala).
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
False estimate of, or failure to pay, advance tax.
273. (1) If the Assessing Officer, in the course of any proceedings in connection with the regular assessment
for any assessment year, is satisfied that any assessee—
(a) has furnished under clause (a) of sub-section (1) of section 209A a statement of the advance tax
payable by him which he knew or had reason to believe to be untrue, or
(b) has failed to furnish a statement of the advance tax payable by him in accordance with the
provisions of clause (a) of sub-section (1) of section 209A,
he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of
penalty a sum—
(i) which, in the case referred to in clause (a), shall not be less than ten per cent but shall not exceed
one and a half times the amount by which the tax actually paid during the financial year
immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of—
(1) seventy-five per cent of the assessed tax as defined in sub-section (5) of section 215, or
(2) the amount which would have been payable by way of advance tax if the assessee had
furnished a correct and complete statement in accordance with the provisions of clause (a)
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have
effect as if for the words "seventy-five per cent", wherever they occur, the words "eighty-three and
one-third per cent" had been substituted.
Explanation.—For the purposes of clause (ia), the amount paid by the assessee on or before the date
extended by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner under the first proviso to sub-section (4) of section 209A or, as the case may be, first proviso
to sub-section (3A) of section 212 shall, where the date so extended falls beyond the financial year
immediately preceding the assessment year, also be regarded as tax actually paid during that financial year.
Explanation 2.—When the person liable to penalty is a registered firm or an unregistered firm which has
been assessed under clause (b) of section 183, then, notwithstanding anything contained in the other
provisions of this Act, the penalty imposable under this section shall be the same amount as would be
imposable on that firm if that firm were an unregistered firm.
(3) The provisions of this section shall apply to and in relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier assessment year, and references in this section to
the other provisions of this Act shall be construed as references to those provisions as for the time being in
force and applicable to the relevant assessment year.
C. AUTHORITIES
The authorities are of historical value and turn on the discretionary, reasonable-cause character of the (now spent) penalty and the shift to compensatory interest.
1. Discretion and reasonable cause (back-years)
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty for a bona fide or technical default ought not to be imposed; the discretion must be exercised judicially.
Use Governed the (now spent) section 273 penalty for advance-tax defaults.
2. The successor regime
CIT v. Anjum M.H. Ghaswala (2001) 252 ITR 1 (SC)(CB)
Holding Interest under sections 234A/234B/234C is mandatory and compensatory; there is no discretion to waive it (subject to the CBDT’s section 119 powers).
Use Explains why, from AY 1989-90, advance-tax shortfalls attract mandatory interest rather than a discretionary section 273 penalty.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.
CHAPTER XXI — PENALTIES IMPOSABLE
Section 273 — False Estimate of, or Failure to Pay, Advance Tax (Pre-FA 1989 — Sunset)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Spent prospectively. Section 273 penalised a false estimate of, or failure to pay, advance tax. The Direct Tax Laws (Amendment) Act, 1987 replaced this penalty regime with the automatic interest provisions (sections 234A/234B/234C) for assessment year 1989-90 onwards. Section 273 governs only assessment years up to 1988-89, which survive only in residual/historical litigation.
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: For AY 1988-89 and earlier: a false/untrue estimate of advance tax, or failure to pay advance tax as required, attracted a penalty computed on the shortfall → subject to reasonable cause under section 273B. For AY 1989-90 onwards, interest under sections 234B/234C applies instead.
Litigation profile: No live litigation; the section operates only for pre-1989 years. Its jurisprudence is of historical interest and informs the shift from penalty to compensatory interest.
A. COMMENTARY
From penalty to automatic interest
Section 273 belonged to the pre-1989 scheme under which short or false advance-tax estimates were met with a penalty requiring the Assessing Officer’s satisfaction. The Direct Tax Laws (Amendment) Act, 1987 replaced that discretionary penalty with the automatic, compensatory interest regime of sections 234B and 234C for AY 1989-90 onwards. Section 273 therefore has no application to any year after AY 1988-89.
Reasonable cause while it applied
Being within section 273B, the section 273 penalty yielded to reasonable cause — a bona fide estimate later falsified by events, or genuine difficulty in estimating income. The move to interest under sections 234B/234C removed the "reasonable cause" enquiry for current years, the interest being compensatory and mandatory (Anjum Ghaswala).
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
False estimate of, or failure to pay, advance tax.
273. (1) If the Assessing Officer, in the course of any proceedings in connection with the regular assessment
for any assessment year, is satisfied that any assessee—
(a) has furnished under clause (a) of sub-section (1) of section 209A a statement of the advance tax
payable by him which he knew or had reason to believe to be untrue, or
(b) has failed to furnish a statement of the advance tax payable by him in accordance with the
provisions of clause (a) of sub-section (1) of section 209A,
he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of
penalty a sum—
(i) which, in the case referred to in clause (a), shall not be less than ten per cent but shall not exceed
one and a half times the amount by which the tax actually paid during the financial year
immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of—
(1) seventy-five per cent of the assessed tax as defined in sub-section (5) of section 215, or
(2) the amount which would have been payable by way of advance tax if the assessee had
furnished a correct and complete statement in accordance with the provisions of clause (a)
of sub-section (1) of section 209A,
whichever is less;
(ii) which, in the case referred to in clause (b), shall not be less than ten per cent but shall not exceed
one and a half times of seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215:
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have
effect as if for the words "seventy-five per cent", at both the places where they occur, the words
"eighty-three and one-third per cent" had been substituted.
(2) If the Assessing Officer, in the course of any proceedings in connection with the regular assessment for
the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is
satisfied that any assessee—
(a) has furnished under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (5) of
section 209A, or under sub-section (1) or sub-section (2) of section 212, an estimate of the advance
tax payable by him which he knew or had reason to believe to be untrue, or
(aa) has furnished under sub-section (4) of section 209A or under sub-section (3A) of section 212 an
estimate of the advance tax payable by him which he knew or had reason to believe to be untrue,
or
(b) has failed to furnish an estimate of the advance tax payable by him in accordance with the
provisions of clause (b) of sub-section (1) of section 209A, or
(c) has failed to furnish an estimate of the advance tax payable by him in accordance with the
provisions of sub-section (4) of section 209A or sub-section (3A) of section 212,
he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of
penalty a sum—
(i) which, in the case referred to in clause (a), shall not be less than ten per cent but shall not exceed
one and a half times the amount by which the tax actually paid during the financial year
immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of—
(1) seventy-five per cent of the assessed tax as defined in sub-section (5) of section 215, or
(2) where a statement under clause (a) of sub-section (1) of section 209A was furnished by
the assessee or where a notice under section 210 was issued to the assessee, the amount
payable under such statement or, as the case may be, such notice,
whichever is less;
(ia) which, in the case referred to in clause (aa), shall not be less than ten per cent but shall not exceed
one and a half times the amount by which the tax actually paid during the financial year
immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of
seventy-five per cent of the assessed tax as defined in sub-section (5) of section 215;
(ii) which, in the case referred to in clause (b), shall not be less than ten per cent but shall not exceed
one and a half times of seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215; and
(iii) which, in the case referred to in clause (c), shall not be less than ten per cent but shall not exceed
one and a half times the amount by which—
(a) where the assessee has sent a statement under clause (a), or an estimate under clause (b)
of sub-section (1) of section 209A, or an estimate in lieu of a statement under sub-section
(2) of that section, the tax payable in accordance with such statement or estimate; or
(b) where the assessee was required to pay advance tax in accordance with the notice issued
to him under section 210, the tax payable under such notice,
falls short of seventy-five per cent of the assessed tax as defined in sub-section (5) of
section 215:
Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have
effect as if for the words "seventy-five per cent", wherever they occur, the words "eighty-three and
one-third per cent" had been substituted.
Explanation.—For the purposes of clause (ia), the amount paid by the assessee on or before the date
extended by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner under the first proviso to sub-section (4) of section 209A or, as the case may be, first proviso
to sub-section (3A) of section 212 shall, where the date so extended falls beyond the financial year
immediately preceding the assessment year, also be regarded as tax actually paid during that financial year.
Explanation 2.—When the person liable to penalty is a registered firm or an unregistered firm which has
been assessed under clause (b) of section 183, then, notwithstanding anything contained in the other
provisions of this Act, the penalty imposable under this section shall be the same amount as would be
imposable on that firm if that firm were an unregistered firm.
(3) The provisions of this section shall apply to and in relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier assessment year, and references in this section to
the other provisions of this Act shall be construed as references to those provisions as for the time being in
force and applicable to the relevant assessment year.
C. AUTHORITIES
The authorities are of historical value and turn on the discretionary, reasonable-cause character of the (now spent) penalty and the shift to compensatory interest.
1. Discretion and reasonable cause (back-years)
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty for a bona fide or technical default ought not to be imposed; the discretion must be exercised judicially.
Use Governed the (now spent) section 273 penalty for advance-tax defaults.
2. The successor regime
CIT v. Anjum M.H. Ghaswala (2001) 252 ITR 1 (SC)(CB)
Holding Interest under sections 234A/234B/234C is mandatory and compensatory; there is no discretion to waive it (subject to the CBDT’s section 119 powers).
Use Explains why, from AY 1989-90, advance-tax shortfalls attract mandatory interest rather than a discretionary section 273 penalty.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.