TaxTMI 
TaxTMI 
Natural Justice and Administrative Oversight in Tax Penalties : Clause 471 of the Income Tax Bill, 2025 Vs. Section 274 of the Income-tax Act, 1961
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....is of Clause 471, explores its objectives, breaks down its key provisions, examines practical implications, and undertakes a comprehensive comparative analysis with the existing Section 274 of the Income-tax Act, 1961. Objective and Purpose The primary objective of Clause 471, much like its predecessor Section 274, is to lay down a fair and transparent procedure for the imposition of penalties under the Income Tax framework. The legislative intent is to safeguard the interests of taxpayers by ensuring that penalties are not imposed arbitrarily or without due process. The provision mandates an opportunity of being heard, introduces checks and balances through hierarchical approval, and prescribes administrative procedures for communication....
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....he penalty proceedings. 2. Sub-clause (2): Prior Approval for Penalty Orders "No order imposing a penalty under this Chapter shall be made without the prior approval of the Joint Commissioner- (a) where the penalty exceeds ten thousand rupees, by the Income-tax Officer; (b) where the penalty exceeds twenty thousand rupees, by the Assistant Commissioner or Deputy Commissioner." This sub-clause introduces a hierarchical check on the exercise of penalty powers. It mandates that for penalties exceeding specified monetary thresholds, the approval of the Joint Commissioner is required: - For the Income-tax Officer (ITO), approval is needed if the penalty exceeds Rs. 10,000. - For the Assistant Commissioner or Deputy Commissioner, approval ....
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....nity of being heard. This reflects a continued commitment to natural justice and due process. 2. Prior Approval for Penalty Orders The language and structure of the approval requirement in Clause 471 closely mirror Section 274(2): - In both, the ITO requires Joint Commissioner approval for penalties exceeding Rs. 10,000. - The Assistant/Deputy Commissioner requires such approval for penalties exceeding Rs. 20,000. This threshold-based approach has been retained, indicating legislative satisfaction with the existing framework. However, it is notable that the monetary thresholds have not been revised despite inflation and the passage of time, which could be a point of future contention or reform. 3. Communication of Penalty Orders Cl....
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....digital governance is increasingly emphasized. 5. Absence of Grandfathering or Transition Provisions Section 274 included transition mechanisms, such as the date limitations for government notifications (no directions after March 31, 2022), and provisions for amending prior notifications. Clause 471 is silent on such transitional or grandfathering arrangements, which could lead to uncertainty during the shift from the old to the new regime. 6. Legislative Evolution and Policy Context Section 274 has undergone several amendments, reflecting the evolving needs of tax administration, technological advancements, and policy priorities. The insertion of faceless penalty schemes was a landmark development aimed at reducing corruption, increasi....
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....l safeguard against arbitrary or excessive penalties. - The absence of faceless proceedings may raise concerns about subjectivity or potential harassment in certain cases. For Tax Authorities - The provision requires adherence to procedural steps, which may increase administrative workload but also enhances accountability. - The lack of a faceless scheme may reduce flexibility and efficiency in handling large volumes of penalty cases. For the Tax System - The provision maintains procedural fairness and administrative checks, contributing to the legitimacy of the penalty regime. - The omission of technology-driven processes may affect the modernization and perceived impartiality of tax administration. Possible Areas for Reform o....