Penalty payable when tax in default

Section 412 — PENALTY PAYABLE WHEN TAX IN DEFAULT

Section 412 of the Income-tax Act, 2025 corresponds to s. 221 of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 412 empowers the Assessing Officer to levy a penalty on an assessee who is in default, or is deemed to be in default, in making a payment of tax. The penalty is in addition to the arrears themselves and to the interest payable under s. 411(3).

KEY ELEMENTS

• Sub-section (1)(a): the assessee is liable to pay such amount of penalty as the Assessing Officer may direct.
• Sub-section (1)(b): in a continuing default, further amounts may be directed from time to time.
• Sub-section (2): the total penalty under sub-section (1) cannot exceed the amount of tax in arrears.
• Sub-section (3)(a): no penalty may be levied unless the assessee has been given a reasonable opportunity of being heard.
• Sub-section (3)(b): no penalty may be levied where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons.
• Sub-section (4): paying the tax before the penalty is levied does not by itself end the liability to penalty.
• Sub-section (5): where, as a result of any final order, the tax in respect of whose default the penalty was levied is wholly reduced, the penalty is cancelled and any penalty paid is refunded.

CHANGES FROM THE 1961 ACT

The counterpart is s. 221 of the 1961 Act. The substance is the same. The single long sub-section (1) of the 1961 Act, with its two provisos and Explanation, is broken into sub-sections (1) to (4): the directed and continuing-default amounts become clauses (a) and (b), the ceiling becomes sub-section (2), the two provisos become sub-section (3), and the Explanation becomes sub-section (4) without the words "For the removal of doubt, it is hereby declared". The interest reference changes from s. 220(2) of the 1961 Act to s. 411(3). Sub-section (5) reproduces s. 221(2) of the 1961 Act.

PRACTITIONER NOTES

• The penalty is discretionary ("may direct"); the section fixes only the upper limit, which is the amount of tax in arrears.
• The burden under sub-section (3)(b) is on the assessee, who must prove good and sufficient reasons to the satisfaction of the Assessing Officer.
• Under sub-section (4), paying the tax before the levy does not, merely by that fact, remove the liability to penalty; the defence must still be made out under sub-section (3)(b).
• Cancellation and refund under sub-section (5) arise only where the tax is wholly reduced by a final order; a partial reduction is not covered by the words of that sub-section.

CROSS-REFERENCES

• s. 411(3) — the interest on an unpaid demand, payable in addition to the arrears and the penalty.
• s. 221 of the 1961 Act — the corresponding provision.
• s. 220(2) of the 1961 Act — the interest provision referred to in s. 221(1) of the 1961 Act.