Section 273AA of the Income-tax Act, 1961: Immunity from Penalty

What is Section 273AA?

Section 273AA of the Income-tax Act, 1961 empowers the Principal Commissioner or Commissioner to grant immunity from the imposition of a penalty in specified cases following the abatement of income-tax settlement proceedings. This is a discretionary relief, not an automatic exemption. It concerns the imposition of penalties and does not, by itself, extinguish tax or interest liabilities.

The provision was introduced by the Finance Act, 2008 with effect from 1 April 2008. Its operation must be considered alongside sections 245C and 245HA, and the repeal-and-savings provisions governing earlier tax years.

Section 273AA(1): Who can apply?

Two statutory conditions must be satisfied:

1. The applicant made an application for settlement under section 245C and those settlement proceedings abated under section 245HA.
2. Penalty proceedings have been initiated under the Income-tax Act.

Section 245C dealt with an application to the Settlement Commission for settlement of a case. Section 245HA deals with circumstances in which settlement proceedings abate, meaning they cease without being completed through settlement and the matter returns to the ordinary tax process. Not every pending penalty case qualifies for section 273AA.

Section 273AA(2): When must the application be filed?

The application to the Principal Commissioner or Commissioner must be made before imposition of the penalty after abatement. An application filed after that penalty is imposed does not satisfy this statutory timing condition. Applicants should retain the settlement and abatement records, penalty notices and proof of submission.

Section 273AA(3): Conditions for immunity

The authority may grant immunity, subject to conditions it considers appropriate, if satisfied that after abatement the applicant:

• co-operated with the income-tax authority in the relevant proceedings; and
• made a full and true disclosure of income and the manner in which that income was derived.

The decision involves an assessment of the facts and the taxpayer's conduct. Mere filing of an application does not establish entitlement to immunity.

Section 273AA(3A): Time limit and opportunity of hearing

An order accepting or rejecting an application, wholly or partly, is to be passed within 12 months from the end of the month in which the application is received. A rejection, whether complete or partial, requires that the assessee first be given an opportunity of being heard.

The historical transitional proviso required disposal by 31 May 2017 of applications pending on 1 June 2016; it is retained here as legislative history, not as a current filing deadline.

Sections 273AA(4) and (5): Withdrawal of immunity

Sub-section (4): Immunity stands withdrawn if the taxpayer fails to comply with any condition on which it was granted. The Act then applies as though immunity had never been granted.

Sub-section (5): The Principal Commissioner or Commissioner may withdraw immunity if satisfied that, after abatement, the taxpayer concealed material assessment particulars or gave false evidence. The taxpayer may then face penalties that would have applied without immunity.

Section 273AA compared with other penalty-relief provisions

These provisions have different eligibility tests and should not be treated as interchangeable.

Position after the Income-tax Act, 2025

The Income-tax Act, 2025 came into force on 1 April 2026. Under section 536 (repeal and savings), proceedings concerning tax years beginning before 1 April 2026, including penalty proceedings, generally continue under the applicable provisions of the Income-tax Act, 1961. Accordingly, section 273AA can remain relevant to eligible legacy settlement and penalty matters. It should not be presented as a generally available new application route for tax years governed by the 2025 Act.

The applicable tax year, stage of proceedings, settlement history and transitional rules should be checked before an application is made.

Documents and practical steps

1. Identify the original section 245C settlement application and the order or event causing abatement under section 245HA.
2. Confirm that penalty proceedings were initiated and whether any penalty has already been imposed after abatement.
3. Prepare evidence of co-operation, full disclosure of income and the manner in which it arose.
4. File a reasoned application before the competent Principal Commissioner or Commissioner, retaining acknowledgement.
5. Respond to hearing notices and comply with every condition of any immunity order.

Legislative history and original provisions

Section 273AA was inserted by the Finance Act, 2008 (Act 18 of 2008), section 53, with effect from 1 April 2008. The Finance (No. 2) Act, 2014 substituted references to the Principal Commissioner or Commissioner, retrospectively from 1 June 2013. Sub-section (3A) was inserted by the Finance Act, 2016, section 107, with effect from 1 June 2016.

For the precise statutory language, including all subsections, conditions, provisos and amendment notes, consult the official Section 273AA text. The original page's key provisions, including the historical 2017 transitional deadline, are explained above.

Official legal references

• Income Tax Department: Section 273AA
• Income Tax Department: Waiver and immunity guidance
• Income Tax Department: Income-tax Act, 2025 and repeal-and-savings FAQs

Frequently asked questions

Can immunity be requested after a penalty has been imposed?

Not under section 273AA(2) where the penalty was imposed after the abatement of settlement proceedings.

Is immunity automatic when settlement proceedings abate?

No. Penalty proceedings must have been initiated, and the authority must be satisfied about co-operation and full and true disclosure.

Can immunity be withdrawn?

Yes. Breach of conditions, concealment of material particulars or false evidence may result in withdrawal under subsections (4) and (5).

Does the 2025 Act make Section 273AA irrelevant?

No. Section 536 preserves the application of the 1961 Act to qualifying earlier-year proceedings.