Penalty procedure: show-cause notices and demand notices govern imposition of tax penalties during pending proceedings.

The provision requires an income-tax authority to issue a show-cause notice before imposing any penalty and limits issuance to periods while proceedings for the relevant financial year are pending. It specifies which authority may impose penalties based on the statutory basis, mandates that penalty orders be accompanied by a notice of demand deemed to be a collection notice under the Code, and requires supervisory approval of penal orders in prescribed circumstances. It also defines when proceedings are deemed pending, including unpaid demands and filed appeals.

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