Section 275 of ITA, 1961 : Section 275: Bar Of Limitation For Imposing Penalties

Explanation using Example

Imagine a company, ABC Corp, filed its income tax return for the financial year 2020-2021. The Income Tax Department found discrepancies in the return and initiated penalty proceedings under the Income-tax Act, 1961 for concealing income. However, ABC Corp disagreed with the assessment and appealed to the Commissioner of Income-tax (Appeals).

The Commissioner of Income-tax (Appeals) took time to review the case and eventually passed an order on 15th December 2022. According to Section 275(1)(a) of the Income-tax Act, the Tax Department must pass the penalty order within the later of the following two periods:

• The financial year in which the penalty proceedings were completed, which is FY 2021-2022 in this case.
• One year from the end of the financial year in which the Commissioner's order was received, which would be before the end of FY 2023-2024, considering the order was received in FY 2022-2023.

Therefore, the Tax Department has time until 31st March 2024 to pass the penalty order against ABC Corp.

If the Tax Department fails to pass the order within this timeframe, the right to impose the penalty will lapse as per the limitation provided in Section 275 of the Income-tax Act, 1961.