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CS Executive · Tax Laws and Practice · Direct Tax at a Glance

Ravi Textiles, an assessee in default, pays the full tax arrears before the Assessing Officer levies any penalty under section 412 of the Income-tax Act, 2025. What is the correct position?

Penalty can still be levied. Under section 412(4), an assessee does not escape penalty merely because the tax was paid before the penalty was levied. Only proof of good and sufficient reasons for the default, or a final order wiping out the tax, can protect the assessee.

  1. ANo penalty can be levied because the arrears have been paid
  2. BPenalty can still be levied, as payment of tax before levy does not by itself end liability to penaltyCorrect
  3. CPenalty can be levied only if the interest is also unpaid
  4. DPenalty is automatically converted into prosecution

Explanation

Section 412(4) states that the assessee does not cease to be liable to penalty merely because the tax was paid before the penalty was levied. The default already occurred, so late payment alone is not a defence, though good and sufficient reason under 412(3)(b) could be.

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