Circular No. 262

1218. Board’s instruction contained in Circular dated 15-7-1963 to the effect that no penalty be levied if, at the time of appearance before ITO, assessee proves that tax has already been paid, stands superseded in view of Explanation to the section inserted with effect from 1-10-1975

What this is

Circular No. 262 was issued by the Central Board of Direct Taxes on 14 September 1979. Its subject is 1218. Board’s instruction contained in Circular dated 15-7-1963 to the effect that no penalty be levied if, at the time of appearance before ITO, assessee proves that tax has already been paid, stands superseded in view of Explanation to the section inserted with effect from 1-10-1975.

What it does

Withdraws the old concession that no penalty under section 221 be levied where the tax is paid before the hearing. The Board's instruction of 15 July 1963, annexed, had directed that no penalty be levied if, at the time of appearance before the Income-tax Officer for the hearing under the proviso to section 221(1), the assessee proves that the tax has already been paid. Section 53 of the Taxation Laws (Amendment) Act, 1975 added an Explanation to section 221 making penalty exigible even where the tax is paid after the due date but before the penalty is levied. Some appellate authorities were still cancelling penalties on the footing that the 1963 instruction had not been withdrawn. The Board clarifies that the 1963 instruction stands superseded by that amendment with effect from 1 October 1975.

Why it was issued

It was brought to the Board's notice that penalties were being cancelled in appeal on the ground that the 1963 departmental instruction remained on the books despite the 1975 amendment.

Who it reaches

Assessees in default who pay the tax before the penalty order
Income-tax Officers levying penalty under section 221
Appellate authorities hearing appeals against such penalties

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.46	s.68
s.53	no counterpart recorded
s.221	s.412

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1218. Board’s instruction contained in Circular dated 15-7-1963 to the effect that no penalty be levied if, at the time of appearance before ITO, assessee proves that tax has already been paid, stands superseded in view of Explanation to the section inserted with effect from 1-10-1975
1. It has been brought to the notice of the Central Board of Direct Taxes that notwithstanding the amendment of section 221 through section 53 of the Taxation Laws (Amendment) Act, 1975, adding specific Explanation to the effect that penalty under section 221 will be exigible even in a case where the tax is paid after the due date but before the levy of penalty, some appellate authorities are cancelling the penalties on the ground that a departmental instruction issued on July 15, 1963 in F. No. 58/13/63-IT [Circular No. 18D (XLV-14) of 1963] has not been withdrawn.
2. To remove any ambiguity in this regard, it is hereby clarified that the instructions contained in F. No. 58/13/1963-IT, dated 15-7-1963 [Annex] stand superseded by the said amendment effective from October 1, 1975.
Circular : No. 262 [ F. No. 400/42/79-ITCC], dated 14-9-1979.
ANNEX - CIRCULAR DATED 15-7-1963 REFERRED TO IN CLARIFICATION
Attention is invited to the Board’s Circular No. 2-D, dated 1-3-1950, in which Income-tax Officers were informed that in cases where the tax due had been paid up before the imposition of a penalty under section 46(1) of the 1922 Act, the imposition of a penalty would not be proper. Sub-section (1) of section 221 of the 1961 Act, which corresponds to section 46(1) of the 1922 Act, goes a step further and requires the Income-tax Officer to give the assessee an opportunity of being heard before levying any such penalty. A question has been raised whether in a case an assessee, who was in default, pays up the tax due before he is given a hearing by the Income-tax Officer under the proviso to the above sub-section, it would be proper to levy a penalty on the ground that, even though there are no arrears on the date of hearing before the Income-tax Officer, a default had actually been committed on the due date. The Board have decided that no penalty should be levied if at the time of appearance before the Income-tax Officer, in connection with the hearing given under the proviso to sub-section (1) of section 221, the assessee proves that the tax has already been paid.

What to watch

Paying up before the penalty order no longer defeats the penalty for periods governed by the Explanation, which operates from 1 October 1975.
The right to an opportunity of being heard before penalty under the proviso to section 221(1) is untouched; only the automatic immunity on payment goes.
The 1963 instruction is annexed to the circular and is expressly superseded, so it cannot be relied on for later periods.
Section 221 and the good-and-sufficient-reasons defence in it have their own text, which should be read for the year in issue.

Where you meet it

In answering a penalty notice under section 221 after the arrears have been cleared, and in an appeal against such a penalty.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 101/2019 [F.No.370142/25/2019-TPL]/GSR 885(E) — Ministry of Finance 29 November 2019
Notification No. 16 — Wealth-tax (Second Amendment) Rules, 2009 - Amendment in rule 3A 13 February 2009
Notification No. 15 — Wealth-tax (First Amendment) Rules, 2009 - Substitution of rule 8C 30 January 2009
Notification No. 216 — Wealth-tax (First Amendment) Rules, 2007 - Amendments in rule 4A, substitution of rule 4AA and Form DA; insertion of For 7 August 2007
Circular No. 696 — Section 201 l Consequence of Failure to Deduct or PAY 16 December 1994
Circular No. 686 — Section 201 l Consequence of Failure to Deduct or PAY 12 August 1994

← Circular No. 263 · Circular No. 261 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.