Sec 126- General disciplines related to penalty

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Sec 126- General disciplines related to penalty 2017-04-14T03:05:14+00:00

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    (1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.
    Explanation.–For the purpose of this sub-section,–
    (a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;
    (b) an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.
    (2) The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall be commensurate with the degree and severity of the breach.
    (3) No penalty shall be imposed on any person without giving him an opportunity of being heard.
    (4) The officer under this Act shall while imposing penalty in an order for a breach of any law, regulation or procedural requirement, specify the nature of the breach and the applicable law, regulation or procedure under which the amount of penalty for the breach has been specified.
    (5) When a person voluntarily discloses to an officer under this Act the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the officer under this Act, the proper officer may consider this fact as a mitigating factor when quantifying a penalty for that person.
    (6) The provisions of this section shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as a fixed percentage.

    Priya MadrechaPriya Madrecha
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    126.1.  Introduction
    While penalties are not new in tax laws, this section lays down certain guiding principles to ensure tax administration can be held accountable to the tax paying citizenry. It is salutary that such well-reasoned ‘general disciplines’ relating to penalty are Provided in the Act.
    126.2.  Analysis
    Guidelines for imposing penalty is one of the highlights of this progressive tax legislation. Courts have, for long, addresses the presence of circumstances surrounding the instance of – non-payment of tax now admitted – for the imposition of penalty. Now, a section proving guidance on ‘how’ and ‘when’ – to impose or refrain from imposing penalty – is salutary. The following guiding disciplines in certain circumstances apply to substantial penalties:
    (a)    No penalty can be imposed where the tax involved is less than Rs. 5,000/- (minor breach) or in case of documentation errors apparent on the face of record.
    (b)    When penalty is still liable to be imposed, the next safety as laid down is to inquire into the degree and severity of the breach to proceed with imposition of penalty. In these cases, if the facts do not demand imposition of penalty, restraint is advised. However, no such discretion is Provided in the section while providing for amount of penalty.
    (c)    Person liable to penalty must be given an opportunity of being heard. Further a speaking order is passed for imposing such penalty.
    (d)    Voluntary disclosure by a person to an officer (not merely in his own books and records) about the circumstances of the breach may be considered as a mitigating factor for the quantifying of penalty.
    (e)    Cases involving fixed sum or fixed percentage of penalty are excluded.
    126.3  Comparative review
    Finance Act, 1994 vide Section 80 Provided for waiver of penalties in cases where the assessee was able to prove that there was a reasonable cause of failure. The same was deleted with effect from 14.05.2015. 126.4  Related provisions
    Section/Rule/Form      Description     Remarks
    Section 122     Offences      Specifies the gist of offences under the Act
    126.5    FAQs
    Q1. What are the discretionary powers of the officers to waive the penalties?
    Ans. Section 126(2) prescribes that penalty shall be levied depending on the facts and circumstances of the case and shall be commensurate with the degree and severity of the breach.
    Q2. What is regarded as “minor breach”?
    Ans. A breach shall be considered a ‘minor breach’ if the amount of tax involved is less than rupees five thousand.
    Q3. What shall be considered as “mistake easily rectifiable”?
    Ans. An omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.
    126.6    MCQs
    Q1.  For minor breaches of tax regulations or procedural requirements, the tax authority
    shall-
    (a)    not impose substantial penalties
    (b)    impose nominal penalty (c)     not impose any penalty.
    (d)     None of the above.
    Ans. (c) not impose any penalty.

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