Faceless penalty proceedings — launched under the old Act and now deepened under the Income-tax Act 2025 — mean that a tax officer you never meet can levy a penalty of 50% to 200% of the tax evaded, and you have just 30 days to respond through an online portal. Most taxpayers either ignore these notices (a serious mistake) or respond without addressing the legal grounds for waiver. This guide maps the old penalty sections to the new Act, walks through the e-Penalty Scheme workflow, and gives you a worked example so you can calculate your penalty exposure and build a waiver argument before you draft even a single word of your reply.
| Nature of Penalty | Old Act Section | New Act Section | Quantum |
|---|---|---|---|
| Concealment of income / inaccurate particulars | 271(1)(c) | 440 | 100%–300% of tax evaded |
| Under-reporting of income | 270A | 437 | 50% of tax on under-reported income |
| Misreporting of income | 270A(9) | 437(9) | 200% of tax on misreported income |
| Failure to maintain books of account | 271A | 441(1) | ₹25,000 |
| Failure to get accounts audited | 271B | 441(2) | 0.5% of turnover, max ₹1.5 lakh |
| Late filing of TDS return | 234E | Section 387 / fee | ₹200/day, max TDS amount |
| Failure to deduct TDS | 271C | 442 | Equal to TDS amount not deducted |
| Undisclosed income in search | 271AAB | 445 | 30% (admitted) / 60% (not admitted) |
| Failure to furnish return | 271F | 446(1) | ₹5,000 (standard); reduced for small income |
The e-Penalty Scheme (originally notified in 2021 and now embedded in the Income-tax Act 2025 framework) routes all penalty proceedings through the National Faceless Penalty Centre (NFPC). No physical visit, no local AO pressure — but also no second chances if you miss the online window.
NFPC issues an automated show-cause notice via the e-Filing portal (incometax.gov.in → e-Proceedings). The notice states the section, the proposed penalty amount, and the 30-day response deadline.
Log in → Pending Actions → e-Proceedings → Penalty Proceedings. Upload your written reply, supporting documents, and any calculation worksheet. No physical submission.
A Penalty Review Unit, different from the assessing unit, reviews your response. They may issue a draft penalty order if they find your reply insufficient.
Request via the portal. NFPC has discretion to grant it — typically for complex fact scenarios, mixed questions of law, or high-value cases. In routine cases, a written submission is usually sufficient.
Served electronically. You have 30 days to pay or appeal to the Commissioner (Appeals) / Joint Commissioner (Appeals) under the new Act's Chapter XXIII.
Facts: Rajan filed his ITR declaring professional income of ₹18 lakh. AIS data showed ₹26 lakh in credits from Form 26AS. The department issued a notice; after scrutiny, they treated ₹8 lakh as under-reported income. Tax rate: 30% slab.
Step 1 — Tax on under-reported income:
₹8,00,000 × 30% = ₹2,40,000 base tax
Add health + education cess 4% = ₹9,600
Total tax on under-reported income = ₹2,49,600
Step 2 — Penalty under Section 437 (under-reporting):
50% × ₹2,49,600 = ₹1,24,800
Step 3 — Is it misreporting? (Section 437(9))
If the department alleges Rajan knowingly suppressed the income, penalty escalates to 200%:
200% × ₹2,49,600 = ₹4,99,200
Rajan's defence: He had invoiced clients in Q4 but cash was received in the next tax year — a legitimate timing difference, not concealment. He furnished invoices, bank statements, and ledger entries to establish bona fide grounds and invoked the "reasonable cause" ground under Section 437(11) of the new Act (equivalent to old Section 273B).
Outcome: NFPC accepted the "reasonable cause" argument for 60% of the disputed amount (₹4.8 lakh) and dropped the misreporting allegation. Penalty was computed at 50% on the remaining ₹3.2 lakh = ₹48,000, substantially below the ₹4.99 lakh exposure.
Section 437(11) of the Income-tax Act 2025 (equivalent to old Section 273B) provides that no penalty shall be imposed if the taxpayer proves reasonable cause for the failure. Courts have recognised the following as valid grounds:
| Reasonable Cause | Supporting Evidence Needed |
|---|---|
| Genuine difference of opinion on taxability | Legal opinion, case law citations, written CA advice |
| Timing difference in revenue recognition | Invoices, contracts, bank statements showing receipt date |
| Reliance on wrong advice from tax professional | Engagement letter, CA certificate, email trail |
| System / portal error during filing | Screenshots, acknowledgement numbers, portal error logs |
| Bona fide belief — income not taxable | Legal basis, written rationale, prior year treatment |
| Force majeure (illness, natural disaster) | Medical records, government notifications |
Penalty and prosecution can run simultaneously. Under the Income-tax Act 2025, prosecution is provided for under Chapter XXIV (Sections 478–490). Key thresholds:
| Offence | New Act Section | Prosecution Trigger | Punishment |
|---|---|---|---|
| Wilful attempt to evade tax | 478 | Tax evaded > ₹25 lakh | 6 months to 7 years imprisonment + fine |
| Failure to furnish return | 480 | Tax payable > ₹25 lakh | 3 months to 2 years + fine |
| False statement in return / verification | 483 | Any amount | 3 months to 3 years + fine |
| TDS not deposited after deduction | 484 | Any amount | 3 months to 7 years + fine |
If you receive a faceless penalty notice for an amount exceeding ₹25 lakh of tax, treat it as a potential prosecution trigger and involve a tax lawyer — not just a CA.
Under the Income-tax Act 2025, the appeal hierarchy for penalty orders is:
Filing an appeal does not stay the penalty demand automatically. You must separately apply for a stay of demand, typically by depositing 20% of the penalty and seeking a stay of the balance.