TaxTMI 
TaxTMI 
Interest and Penalty Regime in Search Proceedings : Clause 298 of Income Tax Bill, 2025 Vs. Section 158BFA of Income-tax Act, 1961
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.... compares each aspect with the corresponding provisions of Section 158BFA. The analysis highlights both substantive and procedural changes, evaluates their practical implications, and discusses areas that may require further clarification or reform. Objective and Purpose The legislative intent behind both Clause 298 and Section 158BFA is to create a robust mechanism for handling cases where undisclosed income is unearthed during search and seizure operations under the Income-tax Act. The provisions are designed to: * Impose interest for delays or defaults in filing returns in response to a search-related notice; * Levy penalties as a deterrent against tax evasion and non-compliance; * Lay out clear timelines and procedural safeguards for the imposition of penalties; * Ensure that the process is fair, providing the assessee with opportunities to comply and be heard. Historically, the special procedure for search assessments was introduced to address the unique challenges posed by undisclosed income detected during searches, which often involved complex and concealed transactions. The evolution from Section 158BFA to Clause 298 reflects ongoing efforts to streamline proced....
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....hat existed in older penalty provisions (which allowed a range from the amount of tax to three times the tax). This fixed percentage enhances predictability and uniformity in penalty imposition. However, the provision does not elaborate on the circumstances that may justify waiver or reduction of the penalty, nor does it define "undisclosed income" within this context, relying on the definition in the assessment provisions. Comparison with Section 158BFA(2) Section 158BFA(2) mirrors Clause 298(2) in substance, providing for a penalty equal to 50% of the tax on undisclosed income. Earlier versions of Section 158BFA allowed for a penalty ranging from 100% to 300% of the tax, but subsequent amendments aligned the provision with a flat 50% penalty. This harmonization reflects a policy decision to standardize penalties and reduce the scope for arbitrary or disproportionate imposition. Both provisions confer discretion on the authorities, but the quantum is now fixed, and the procedural framework for imposing penalties is similar. 3. Exemption from Penalty under Certain Conditions (Sub-section (3)) Clause 298(3) spells out the conditions under which no penalty order shall be made fo....
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....closed voluntarily, maintaining fairness and proportionality in penalty imposition. 5. Procedural Safeguards and Limitation (Sub-section (5)) Clause 298(5) lays down several procedural safeguards for imposing penalties: * The assessee must be given a reasonable opportunity of being heard; * Penalties exceeding two lakh rupees cannot be imposed by certain officers without prior approval of higher authorities; * Time limits are prescribed for passing penalty orders, depending on whether the assessment is under appeal or revision, or in other cases, with the longer of two alternative periods applying. Interpretation and Ambiguities The requirement for a reasonable opportunity of being heard is a fundamental principle of natural justice, ensuring that penalties are not imposed arbitrarily. The approval requirement for higher penalties introduces a check on lower-level officers, promoting consistency and accountability. The limitation periods are clearly set out, with alternative periods to account for procedural delays in appeals or revisions. However, the provision does not address scenarios where proceedings are delayed due to reasons beyond the assessee's control, nor....
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....to the Assessing Officer. Interpretation and Ambiguities This is a procedural requirement to ensure proper communication and record-keeping. It facilitates the prompt execution of penalty orders and the maintenance of the assessment record. Comparison with Section 158BFA(5) Section 158BFA(5) is identical in substance, requiring immediate communication of the penalty order to the Assessing Officer. The provision is uncontroversial and administrative in nature. Practical Implications The provisions of Clause 298, like Section 158BFA, have significant practical implications for assessees and tax authorities: * Assessees must ensure timely and accurate compliance with notices issued in search cases, as delays or defaults result in substantial interest and penalty liability. * Tax authorities are required to adhere to procedural safeguards, limitation periods, and approval requirements, ensuring that penalty proceedings are conducted fairly and within the bounds of law. * Legal practitioners must be vigilant in advising clients on the conditions for exemption from penalty and the importance of not filing appeals against accepted disclosures if they wish to avail the safe har....