Section 412 — Penalty payable when tax in default. Successor to s.221 of the 1961 Act.
Section 412 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
Sub-section (1) makes an assessee who is in default, or deemed to be in default, in paying tax liable to a penalty in such amount as the Assessing Officer directs, in addition to the arrears and the interest payable under section 411(3), and to further amounts directed from time to time where the default continues. Sub-section (2) caps the total penalty at the amount of tax in arrears. Sub-section (3) bars the penalty unless the assessee has been given a reasonable opportunity of being heard, and where he proves to the Assessing Officer's satisfaction that the default was for good and sufficient reasons. Sub-section (4) preserves the liability even if the tax is paid before the penalty is levied, and sub-section (5) requires the penalty to be cancelled and any penalty paid to be refunded where a final order wholly reduces the tax in respect of which the default arose.
The provision backs the recovery machinery with a sanction that grows while the default lasts, and pitches it as an open-ended discretion capped by the arrears rather than a fixed sum. The good and sufficient reasons defence and the cancellation on the tax being wholly reduced keep the penalty tied to a default that is both blameworthy and real.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Ceiling on the penalty | The amount of tax in arrears | The total of the initial and all continuing-default penalties under sub-section (1) cannot exceed it; the section fixes no rate or minimum | 412(2) |
There is no scale to work from — the amount is what the Assessing Officer directs, subject only to the total not exceeding the tax in arrears, and further amounts can be directed as long as the default continues. You must be given a reasonable opportunity of being heard before anything is levied, and the statutory defence is to prove good and sufficient reasons for the default, so the case has to be made on the reasons and put on record. Paying the tax before the penalty is levied does not extinguish the liability. If a final order wipes out the tax entirely, the penalty must be cancelled and any amount paid refunded — but a partial reduction is not enough, as sub-section (5) speaks of the tax being wholly reduced.
A company is in default on tax arrears of Rs 20 lakh. On top of the arrears and the interest under section 411(3), the Assessing Officer may direct a penalty, and further amounts from time to time while the default continues, but sub-section (2) caps the running total at Rs 20 lakh — the section prescribes no rate and no minimum, so the arrears figure is a ceiling on the penalty, not a measure of it. Paying the Rs 20 lakh before the penalty is levied does not close the exposure, sub-section (4) keeping the liability alive. Only where a final order wholly reduces the tax is the penalty cancelled and anything paid refunded; a reduction to, say, Rs 5 lakh leaves the penalty standing.
You meet it as a penalty order of the Assessing Officer made after the assessee is in default or deemed in default on a demand, and preceded by the hearing sub-section (3)(a) requires. It rides on top of the recovery proceedings rather than on any return or form of its own.
The total amount of penalty under sub-section (1) shall not exceed the amount of tax in arrears.
See the full 1961 to 2025 concordance.
See the circulars index.