Procedure for Imposition of Penalty

Section 471 — - PROCEDURE FOR IMPOSITION OF PENALTY

Section 471 of the Income-tax Act, 2025 corresponds to s. 274 of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

No penalty order may be made under Chapter XXI unless the assessee has been heard, or given a reasonable opportunity of being heard, by way of a show-cause notice; the words "by way of a show-cause notice to that effect" were inserted by the Finance Act, 2026, w.e.f. 1-4-2026 (s.471(1)). Prior approval of the Joint Commissioner is needed where an Income-tax Officer imposes a penalty exceeding ₹10,000, or an Assistant or Deputy Commissioner a penalty exceeding ₹20,000 (s.471(2)). Sub-sections (4) and (5), inserted by the Finance Act, 2026 w.e.f. 1-4-2026, change the procedure for s.439 penalties: where a draft assessment order under s.275, or an assessment under s.270 or reassessment under s.279, is made on or after 1-4-2027, the penalty under s.439 forms part of that draft or is imposed as part of that order, references elsewhere in the Act to the s.439 penalty order are read as references to that order, and the Joint Commissioner's approval of the assessment or reassessment is deemed to be approval of the penalty.

PRACTITIONER PLANNING NOTES

• Under s.271(1)(c) of the 1961 Act, a notice under s.274 that did not specify whether penalty was proposed for concealment of income or for furnishing inaccurate particulars was held bad (CIT v. SSA's Emerald Meadows, Karnataka High Court, 23-11-2015, following CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar); special leave petition dismissed by the Supreme Court on 5-8-2016). Those decisions concern the two limbs of s.271(1)(c); s.439 of the 2025 Act instead distinguishes under-reporting from under-reporting in consequence of misreporting (s.439(9) to (11)).
• Limitation under s.472 (formerly s.275 of the 1961 Act): no penalty order after six months from the end of the quarter in which the proceedings in which the penalty was initiated are completed, the appellate or revision order is received or passed, or, in any other case, the penalty notice is issued (s.472(1)).

CASE-LAW DIGEST

• CIT v. SSA's Emerald Meadows (2016) 73 taxmann.com 241 (Kar), decided on 23-11-2015 in ITA No. 380/2015 -- a notice under s.274 read with s.271(1)(c) of the 1961 Act that does not specify the limb (concealment or inaccurate particulars) is bad in law; the Revenue's special leave petition was dismissed by the Supreme Court on 5-8-2016.

CROSS-REFERENCES

• s. 439 (under-reporting or misreporting -- master penalty).
• s. 440 (immunity application).
• s. 469 or 470 (waiver or reasonable-cause).
• s. 471 or 472 (procedure or limitation).