Assessment & Penalty:
From Two Proceedings - One Order

Budget Analysis
FY 2026-27

1.The Budget has fundamentally altered the assessment framework, as upto the Finance Bill, 2026, assessment and penalty operated as separate proceedings. The new regime now envisages a single assessment-cum-penalty order in cases of under-reporting or mis-reporting of income.

Section 471 mandates that no penalty can be imposed without the issuance of a show-cause notice. Under proceedings covered by sections 270 (assessment), 275 (DRP reference), and 279 (income-escaping assessment), the draft assessment order itself must now carry the penalty proposal under section 439.

Penalty initiation, therefore, ceases to be a post-assessment formality. The assessee is put to notice at the draft stage, integrating assessment and penalty into one statutory process and materially narrowing the timeframe for procedural litigation.

The section references given above pertain to the Income Tax Act, 2025; similar amendments have been carried out in the Income Tax Act, 1961