Consolidating the ‘Opportunity of Being Heard’ in Penalty Proceedings u/s 471 of Income Tax Act, 2025 [Old vs New Tax Act Series- Article 2]

The Income Tax Act, 2025 is a landmark legislation, repealing the erstwhile IncomeTax Act of 1961 which has been in force for more than 6 decades. To accommodate the changing ways of the world and evolving income generation, and governance streams, numerous changes have been brought forth by the New Act. A key structural change is in the manner penalty proceedings are governed, particularly with respect to the taxpayer’s right to be heard before the imposition of penalties.

While the new act sustains substantive defaults and penalty amounts from the older Act despite numerous amendments, the new Act restructures the procedural safeguard of granting an “opportunity of being heard” and consolidates the same under a single provision - namely, Section 471.

Penalty Hearing Safeguards under the Income-tax Act, 1961

Under the erstwhile Income Tax Act, multiple penalty provisions explicitly contained provisos mandating that no penalty shall be imposed unless the assessee had been afforded an opportunity of being heard.

Sections such as 272A, 272AA, 272B and 272BB of the 1961 Act clearly incorporated this safeguard within the charging provision itself. The intent behind such a legislative drafting was to ensure that the procedural safeguard remained visible, unambiguous, and inseparable from the penalty provision being invoked.

As a result, penalty orders passed without issuing a show cause notice or without considering the assessee’s reply were routinely struck down by appellate authorities and courts on the ground of violation of principles of natural justice.

What Changed? Removal of Section-Specific Hearing Provisos in the 2025 Act

The Income Tax Act, 2025, which was officially enacted on August 21, 2025 departs from this approach. The penalty provisions in the erstwhile 272A, 272AA, 272B and 272BB of the 1961 Act have now been renumbered to Sections 465, 466, 467 and 468 of the 2025 Act, and no longer contain any express proviso requiring that an opportunity of being heard be granted before the imposition of penalty within the sections itself.

At first glance, the omission of such language from individual sections may appear concerning. However, this change is neither accidental nor intended to dilute safeguards of taxpayers. The drafting has been revised to streamline and simplify the statute by eliminating repetitive provisos across multiple sections and bringing it all under Section 471.

Section 471: A Unified Procedure for Imposition of Penalties

“Procedure.

471. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

(2) No order imposing a penalty under this Chapter shall be made without the prior approval of the Joint Commissioner—

(a) where the penalty exceeds ₹10000, by the Income-tax Officer;

(b) where the penalty exceeds ₹20000, by the Assistant Commissioner or Deputy Commissioner.

(3) An income-tax authority on making an order under this Chapter imposing a penalty, unless he himself is the Assessing Officer, shall send a copy of the order to the Assessing Officer.”

Section 471, titled “Procedure”, governs the entire chapter on penalties and expressly mandates that penalties shall be imposed only after following the prescribed procedure, including granting the assessee a reasonable opportunity of being heard.

Section 471 thus becomes the centralised statutory provision which mandates hearing requirements for procedural compliance in penalty matters. The right to be heard thus continues to exist with full force, but its statutory location has shifted from individual penalty sections to a general procedural provision applicable across the chapter.

The change aligns with the broader objective of the Income Tax Act, 2025 to simplify drafting, reduce redundancy, and present procedural rules in a consolidated and accessible manner.

Impact on Key Penalty Provisions

Chapter XXI of the new Income Tax Act, 2025 pertains to Penalties; the practical impact of this restructuring is most visible in commonly invoked procedural penalty provisions from Sections 465 to 468.

However, it must be noted that Section 471 of the Income-tax Act, 2025 governs the procedure for imposition of penalties across the entire penalty chapter and is not confined to provisions corresponding to sections 272A, 272AA, 272B and 272BB of the 1961 Act, nor does it extend to non-penalty provisions of the Act.

These sections now restrict themselves exclusively to identifying the nature of default and the corresponding penalty, leaving procedural safeguards to be governed entirely by Section 471.

Essentially for tax authorities, this means that ensuring compliance with Section 471 is no longer optional as it has become a mandatory procedural checkpoint to fulfill before any penalty order is passed, and determines whether such penalty order can be sustained.

Legal Significance of Centralising the ‘Opportunity of Being Heard’

“Audi alteram partem” - the Latin maxim which means to "hear the other side,” is one of the core principles of natural justice in law. The Supreme Court in Canara Bank v. Debasis Das (2003) has held that the right of the opposite party is an inseparable component of fair procedure and applies to all actions involving civil or penal consequences, unless expressly excluded by statute.

The foremost legal significance of this change is that adherence to Section 471 becomes a mandatory pre-condition for sustaining any penalty imposed under Chapter XXI. Penalty proceedings are quasi-criminal in nature, and continue to attract strict scrutiny with respect to procedural fairness.

Any penalty that is imposed without issuing a proper show cause notice, without granting reasonable opportunity to respond, or without due consideration of the explanation adduced by the assessee would be liable to be set aside on the ground of violation of mandatory procedure.

The centralised Section 471 operates in conjunction with other substantive and discretionary protections retained under the 2025 Act:

Section 469 empowers the Principal Commissioner or Commissioner to reduce or waive penalties in cases involving voluntary and bona fide disclosure, cooperation during assessment proceedings, and payment of due taxes and interest, subject to prescribed thresholds and supervisory approvals.

Notably, the provision expressly mandates that applications for waiver or reduction cannot be rejected without affording the assessee an opportunity of being heard, again reinforcing the relevance of providing a hearing opportunity even at the post-penalty stage.

Further, Section 470 provides that no penalty shall be imposed for specified failures if the assessee is able to establish the existence of reasonable cause.

Read together, Sections 469, 470 and 471 demonstrate that the Income Tax Act, 2025 has not weakened the legal safeguards governing penalty proceedings and has instead just restructured them where they operate in tandem.

Future Implications for Taxpayers and Penalty Litigation

From a litigation perspective, the restructuring is likely to influence how penalty challenges are framed. Instead of pointing to the charging section itself, taxpayers will now have to rely on the department’s failure to comply with the requirements of Section 471 while assailing penalty orders, if lack of procedural fairness is their ground for appeal.

Generally, penalty-oriented challenges in income tax matters pertain to failure to issue a proper show cause notice, denial of reasonable time to respond, or non-consideration of the assessee’s explanation, rendering the penalty order vulnerable to being set aside.

Thus, assessing officers will now have to consistently ensure that they abide by the mandate of Section 471 to effectuate a valid penalty order; any mechanical imposition of penalties without adherence to the unified procedure would invite increased appellate scrutiny.

Conclusion

Taxpayers can be confident that Section 471 of The Income Tax Act, 2025 does not dilute any of their rights to be heard in penalty proceedings.

Instead, the simplification of the tax Code aims to reduce redundancies, discrepancies and bids to increase efficiency and reinforces the principles of natural justice in penalty matters.

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