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SECTION 221(1)

Penal provisions are an important part of Income Tax Act, 1961. Penalties are been imposed on assesse that proves to be in default. Penalties are divided into two parts: – a) Penalty which are mandatory; and b) Penalty which are at discretion of Tax Authorities.

Penalty under section 221(1) is a part of those penalties which are at discretion of Tax Authorities. It prescribed certain cases where an assessee in default shall be held liable to pay penalty of such amount as the Assessing Officer may impose and in the case of a continuing default, such further amount or amounts as the assessing officer may, from time to time, direct. However, the total amount of penalty cannot exceed the amount of tax in arrears. Section 221(1) covers the following cases: –

  1. Non-payment of “Self-Assessment Tax”: – As per section 140A(1) any tax due (after allowing credit for TDS, advance tax, etc.) along with interest under section 234A, 234B and 234C (if any) should be paid before filing the return of Income. Tax paid as per section 140A(1) is called self-assessment tax. Now, if a person fails to pay either wholly or partly self-assessment tax or interest, then he will be treated as assessee in default as per section 140A(3) in respect of unpaid amount.
  2. Non-payment of Tax in respect of demand notice served under section 156: – As per section 220(1), when a demand notice under section 156 has been issued to the taxpayer for payment of tax (other than notice for payment of advance tax), then such amount shall be paid within a period of 30 days of the service of the notice at the place and to the person mentioned in the notice. In case if the assesse does not makes payment within the said period then he shall be termed as assesse in default. Period of 30 days can be reduced by the Tax Authorities with the previous approval of Tax Authorities.

NOTE: – As per section 221(1), if a taxpayer is treated as an assessee in default, then he shall be liable to pay penalty of such an amount as the Assessing Officer may impose. However, following points should be noted: –

  1. Penalty cannot exceed the amount of tax in arrears.
  2. Before levying any penalty, assesse shall be given a reasonable opportunity of being heard.

An assessee shall not cease to be liable to any penalty merely by reason of the fact that before the levy of such penalty he has paid the tax.




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