Time limit for imposition of penalty [Section 275] :

(i) Section 275(1) provides the time limit for imposing penalty under Chapter XXI of the Income-tax Act, 1961, as under –

(1) In a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, an order imposing a penalty shall not be passed –

(a) after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed; or

(b) six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,

whichever period expires later.

(2) However, this limitation is applicable only if the Commissioner (Appeals) passed the order before 1st June, 2003 disposing of the appeal made to him.

(3) In a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after 1st June, 2003 disposing of such appeal, an order imposing penalty shall be passed –

(a) before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed; or

(b) within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,

whichever is later.

(4) In a case where the relevant assessment or other order is the subject matter of revision under section 263 or section 264, an order imposing penalty shall not be passed after the expiry of six months from the end of the month in which such order of revision is passed;

(5) In any other case, an order imposing penalty shall not be passed after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later .

(ii) Sub-section (1A) facilitates the revision of an order for the imposition of penalty or dropping the proceedings for the imposition of penalty, on the basis of subsequent revision of assessment by Commissioner (Appeals) or Appellate Tribunal or High Court or Supreme Court or by the Principal Commissioner or Commissioner under section 263 or section 264.

(iii) In a case where the relevant assessment or other order is the subject -matter of –

(1) an appeal to the Commissioner (Appeals) under section 246 or section 246A; or

(2) an appeal to the Appellate Tribunal under section 253; or

(3) an appeal to the High Court under section 260A; or

(4) an appeal to the Supreme Court under section 261; or

(5) revision under section 263 or section 264

and an order imposing or enhancing or reducing penalty or dropping the proceedings for the imposition of penalty is passed before the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner, or the order of revision under section 263 or 264 is passed, an order imposing or enhancing or reducing penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the Commissioner (Appeals) or, the Appellate Tribunal or, the High Court, or the Supreme Court or order of revision under section 263 or 264. A revision order under this sub-section can again be revised under this sub-section.

(iv) It has also been provided that no such order imposing or enhancing or reducing or canceling penalty or dropping the proceedings shall be passed without hearing the assessee or giving him a reasonable opportunity of being heard.

(v) Further, no such order can be passed after the expiry of six months from the end of the month in which –

(1) the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner; or

(2) the order of revision under section 263 or section 264 is passed.

(vi) Also, it has been provided that the provisions of section 274(2) shall apply in respect of such order imposing or enhancing or reducing penalty.

Note – Section 274(2) provides that for passing an order imposing penalty exceeding Rs 10,000, the Income-tax authority has to take the prior approval of the Joint Commissioner. Also, for passing an order imposing penalty exceeding Rs 20,000, the Assistant Commissioner or the Deputy Commissioner should take the prior approval of the Joint Commissioner.

(vii) In computing the period of limitation, the time taken to give the assessee a reasonable opportunity of being heard or reheard under section 129 and any period during which he proceedings for the levy of the penalty are stayed by an order or injun ction of the Court or any period during which the immunity granted under section 245H received in force will be excluded.