TaxTMI 
TaxTMI 
Redefining the Bar of Limitation for Tax Penalties : Clause 472 of the Income Tax Bill, 2025 Vs. Section 275 of the Income-tax Act, 1961
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.... tax administration. Clause 472 of the Income Tax Bill, 2025, which is proposed to replace the existing Section 275 of the Income-tax Act, 1961, governs the limitation period for imposing penalties under the new regime. This commentary provides a detailed analysis of Clause 472, explores its objectives and implications, and offers a comprehensive comparative analysis with the current Section 275 framework. Objective and Purpose The bar of limitation for imposing penalties serves multiple legislative and policy objectives: * Certainty and Finality: It ensures that taxpayers are not subjected to indefinite threat of penalty proceedings, thereby providing closure and certainty in tax matters. * Administrative Efficiency: By imposing time....
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....al Commissioner or Commissioner. * Clause (d): In any other case, the limitation is six months from the end of the quarter in which the notice for imposition of penalty is issued. This structure attempts to synchronize the limitation period with the finality of the underlying assessment or appellate/revisional orders, thereby aligning the penalty proceedings with the outcome of substantive tax proceedings. Sub-section (2): Revision of Penalty Orders Clause 472(2) authorizes the revision of penalty orders in light of subsequent modifications to the assessment or other relevant orders. If the assessment is revised due to an appellate or revisional order u/ss 356, 357, 362, 365, 367, 377 or 378, the penalty order may be correspondingly re....
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....Stay: The period during which penalty proceedings are stayed by a court order is also excluded, from the grant of stay until the certified copy of the order vacating the stay is received by the Principal Commissioner or Commissioner. These exclusions are designed to ensure that the limitation period is not unfairly curtailed due to factors beyond the control of the tax authorities. Practical Implications of Clause 472 The practical impact of Clause 472 is multifaceted: * For Taxpayers: The provision offers predictability regarding the maximum period during which penalty proceedings can be initiated or concluded. The right to a hearing before any adverse order is a significant procedural safeguard. * For Tax Authorities: The clause im....
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....om the end of the relevant quarter, regardless of whether the trigger is completion of proceedings, receipt of appellate order, or passing of a revisional order. * Section 275 prescribes a six-month limitation from the end of the month in most cases, but also includes more complex triggers such as the later of two periods (financial year of completion or six months from receipt of order) in certain appeal cases, and provides for longer periods in cases involving higher appellate forums. The shift from "end of the month" in Section 275 to "end of the quarter" in Clause 472 is significant. This change potentially provides a slightly longer window for the authorities, depending on when the triggering event occurs within a quarter. c) Treat....
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....ntent of which is not specified but is presumably analogous. 2. Substantive and Procedural Impact The principal impact of Clause 472, as compared to Section 275, is the attempt to simplify and rationalize the limitation framework. By standardizing the limitation period (six months from the end of the quarter) and consolidating the triggers, the Bill seeks to streamline the process, reduce ambiguity, and align with a possibly restructured appellate hierarchy. However, the shift from "month" to "quarter" could, in practice, extend the limitation period by up to two months, depending on the timing of the triggering event. This may be viewed as either an administrative convenience or a potential dilution of taxpayer protection, depending on ....
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....y extended limitation period may be a concern. * For Tax Authorities: The new structure may facilitate easier compliance and reduce the risk of penalty orders being struck down as time-barred. * For the Legal System: The reduced complexity and ambiguity may lead to fewer disputes and smoother administration. Conclusion Clause 472 of the Income Tax Bill, 2025 represents a thoughtful and largely seamless transition from Section 275 of the Income-tax Act, 1961. It reaffirms the legislative commitment to procedural fairness, certainty, and administrative efficiency in the imposition of penalties. The core principles remain intact: strict time limits, procedural safeguards, and exclusions for periods beyond the control of the authorities. ....