The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of natural justice and principles governing international trade and agreements. Such general discipline is enshrined in section 126 of the Act.

Section 126(1)

No officer under this Act shall impose any penalty for

minor breaches of tax regulations or procedural requirements and

any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence

Explanation to Section 126(1)(a)

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;

Explanation to Section 126(1)(b)

For the purpose of this sub-section,–

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.

Section 126(2)

The penalty imposed shall

depend on the facts and circumstances of each case and

be commensurate with the degree and severity of the breach.

Section 126(3)

No penalty shall be imposed on any person without giving him an opportunity of being heard.

Section 126(4)

while imposing penalty for a breach of any law, regulation or procedural requirement,

the officer shall specify

the nature of the breach and

the applicable law, regulation or procedure under which the penalty for the breach has been specified.

It is essential pre-requisites for every judicial authority to mention reasons for imposing a penalty. It is the fundamental right of every assessee to know the reasons for denying its prayer.

Section 126(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.

In case of voluntary disclosure of breach of the tax laws etc., PO may reduce the penalty to be levied under this Act.

Section 126(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.

For example

Penalty u/s 125 is being prescribed as upto Rs.25,000 means neither as a fixed sum nor as a fixed percentage hence general disciplines given u/s 126, should be considered while imposing any penalty.