Section 273 and 273A of Income Tax Act 1961: Advance Tax Penalty and Power to Reduce or Waive Penalty

Sections 273 and 273A form part of Chapter XXI of the Income Tax Act, 1961. Section 273 contains historic penalty provisions concerning false estimates or failures relating to advance tax, while Section 273A empowers the Principal Commissioner or Commissioner, subject to statutory conditions, to reduce or waive specified penalties and to grant relief in cases of genuine hardship.

Section 273 - False estimate of or failure to pay advance tax

Section 273 is a legacy penalty provision dealing with specified defaults connected with advance-tax statements and estimates under the former provisions of Sections 209A and 212. The section expressly provides that it applies in relation to assessments for the assessment year commencing on 1 April 1988 or any earlier assessment year.

Nature of defaults covered by Section 273

In its historic field of operation, Section 273 dealt with matters including:

• furnishing an advance-tax statement which the assessee knew or had reason to believe was untrue;
• failure to furnish a required advance-tax statement;
• furnishing an estimate of advance tax which the assessee knew or had reason to believe was untrue; and
• failure to furnish an estimate required under the provisions then governing advance tax.

The amount and manner of computation of penalty depended upon the particular clause involved and the statutory provisions applicable to the relevant historic assessment year. Because Section 273 incorporates provisions that have since been omitted or replaced, the law applicable to the relevant assessment year must be checked before relying on the section.

Reasonable cause and Section 273B

For specified failures falling within Section 273, Section 273B may provide protection where the assessee proves that there was reasonable cause for the failure. The precise clause of Section 273 and the law applicable to the relevant assessment year should therefore be identified before considering penalty exposure or relief.

Section 273A - Power to reduce or waive penalty in certain cases

Section 273A is a discretionary relief provision. It begins with a non-obstante clause and authorises the Principal Commissioner or Commissioner, subject to the conditions laid down in the section, to reduce or waive specified penalties. It also contains a separate hardship-based power under sub-section (4).

Section 273A(1) - Voluntary and good-faith disclosure

Under Section 273A(1), the Principal Commissioner or Commissioner may reduce or waive penalty imposed or imposable under Section 270A or the specified provision of Section 271 where the statutory conditions are satisfied. In substance, the provision requires the relevant disclosure to have been made voluntarily and in good faith before detection by the Assessing Officer, together with cooperation in the assessment enquiry and payment of, or satisfactory arrangements for payment of, the resulting tax or interest.

The Explanation to sub-section (1) addresses when a person is deemed to have made full and true disclosure for purposes of the provision. Whether relief is available depends on the facts, the penalty provision involved and the law applicable to the relevant assessment year.

Section 273A(2) - Prior approval in specified cases

Where the income in respect of which penalty is imposed or imposable crosses the statutory threshold specified in Section 273A(2), an order reducing or waiving penalty under sub-section (1) requires the previous approval of the prescribed higher income-tax authority.

Section 273A(3) - Restriction after relief

Sub-section (3) restricts repeated relief under Section 273A(1). Once an order has been made in favour of a person under sub-section (1), the section limits entitlement to further relief for another assessment year, subject to the historical proviso contained in the provision.

Section 273A(4) - Genuine hardship

Section 273A(4) gives the Principal Commissioner or Commissioner a distinct power, on an assessee's application and for recorded reasons, to reduce or waive a penalty payable under the Act or to stay or compound proceedings for recovery of that amount where both of the following conditions are satisfied:

• refusal of relief would cause genuine hardship to the assessee having regard to the circumstances of the case; and
• the assessee has cooperated in an inquiry relating to assessment or in proceedings for recovery of an amount due.

Where the penalty, or aggregate penalties covered by the application, exceeds the threshold specified in the proviso to Section 273A(4), previous approval of the prescribed higher authority is required.

Section 273A(4A) - Time limit and opportunity of hearing

An order on an application under Section 273A(4), whether accepting or rejecting it wholly or partly, is to be passed within twelve months from the end of the month in which the application is received. An application cannot be rejected, wholly or partly, without giving the assessee an opportunity of being heard.

Section 273A(5) to (7) - Finality and historic provisions

Sub-section (5) declares an order under Section 273A to be final. Sub-sections (6) and (7) preserve the operation of earlier versions of the provision for Assessment Year 1988-89 and earlier assessment years, subject to the modifications stated in those sub-sections.

Section 273 and Section 273A - Key distinction

Evidence law position before Bharatiya Sakshya Adhiniyam, 2023

Sections 273 and 273A are provisions of income-tax law and do not depend for their definition on the Bharatiya Sakshya Adhiniyam, 2023. For proceedings governed by the law of evidence before the Bharatiya Sakshya Adhiniyam, 2023 came into force on 1 July 2024, the Indian Evidence Act, 1872 was the general evidence statute, subject to its applicability and the special provisions of the Income Tax Act.

Official references

For the statutory text and current official guidance, consult the Income Tax Department resources. For periods governed by the Income Tax Act, 1961, always check the version of the provision applicable to the relevant assessment year.

• Income Tax Act resources - Income Tax Department
• Income Tax e-Filing Portal
• India Code - Central legislation

Note: Tax provisions may operate differently across assessment years because of amendments, omissions, substitutions and transitional legislation. The relevant year's statutory text should be verified before filing, advising or taking procedural action.