Section 221 of ITA, 1961 : Section 221: Penalty Payable When Tax In Default

Explanation using Example

Imagine a scenario where Mr. Sharma, a business owner, was supposed to pay his income tax dues by the 31st of July for the previous financial year. However, he failed to do so and did not respond to the notices sent by the Income Tax Department. By 1st October, he still hadn't paid the tax due. Because of this delay, Mr. Sharma is now in default.

The Assessing Officer decides to impose a penalty on Mr. Sharma for not paying his taxes on time. In addition to the tax arrears, Mr. Sharma is also required to pay interest as per section 220(2). Before the penalty is finalized, the officer gives Mr. Sharma an opportunity to present his case.

Mr. Sharma explains that his business suffered due to an unforeseen natural disaster, leading to a severe financial crunch. He provides valid documentation to support his claim. After considering the evidence, the Assessing Officer is satisfied that Mr. Sharma had genuine reasons for the delay and decides not to levy the penalty, as per the provisions of the Income-tax Act, 1961.

However, Mr. Sharma is made aware that even though the penalty is not being levied, this does not absolve him of his liability to pay the pending tax. He is encouraged to settle his tax dues as soon as possible to avoid any further complications.