Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Penalties & Prosecutions under Income Tax Act.

Penalties & Prosecutions under Income Tax Act.
Penalties & Prosecutions under Income Tax Act.

Table of Contents

1.   Penalties under Income Tax Act.

The various defaults in respect of which Penalty can be imposed by the Income Tax Department are summaries in details.

(1) [Section 271AAB(1A)]- Penalty where search has been initiated on or after 15.12.2016

The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,—

(a)     a sum computed 30% of the undisclosed income of the specified previous year, if the assessee—

(i)      in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived:

(ii)     substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date—

(A)     pays the tax, together with interest, if any, in respect of the undisclosed income: and

(B)     furnishes the return of income for the specified previous year declaring such undisclosed income therein;

(b)     a sum computed @ 60% of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).

Where penalty is levied under section 271AAB(1) or (1A), penalty under section 270 or section 271(1)(c) shall not be levied. [Section 27IAAB(2)]

(2) [Section 271AAC] – Penalty in respect of certain Income

(i)         The Assessing Officer may, notwithstanding anything contained in this Act other than the provisions of section 271AAB. direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of 10% of the tax payable under section 115BBE(1)(i):

However, no penalty shall be levied in respect of income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D to the extent such income has been included by the assessee in the return of income furnished under section 139 and the tax in accordance with the provisions of section 115BBE(1)(i) has been paid on or before the end of the relevant previous year.

(ii)        No penalty under the provisions of section 270A shall be imposed upon the assessee in respect of the income referred to in section 271AAC(1).

(iii)       The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.

(3).  [Section 271AAD]- Penalty for False Entry or Omitted Entry, etc. in Books of Account

Without prejudice to any other provisions of this Act, if during any proceeding under this Act, it is found that in the books of account maintained by any person there is—

(i)         a false entry; or

(ii)     an omission of any entry which is relevant for computation of total income of such person, to evade tax liability,

the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.

See also  [Section 2(24)] - ‘Income’ Under Income Tax Act.– Concept & Definition

(4) [Section 271H]-Penalty for Failure to Furnish Statements, etc.

(i)      [Section 271H(1)]-Penalty for failure to furnish TDS / TCS statement or furnishing incorrect information in the statement:

Without prejudice to the provisions of the Act, a person shall be liable to pay penalty, if, he—

(a)     fails to deliver or cause to be delivered a statement within the time prescribed in section 200(3) or the proviso to section 206C(3) relating to TCS; or

(b)     furnishes incorrect information in the statement which is required to be delivered or cause to be delivered under section 200(3) or the proviso to section 206C(3).

(ii) [Section 271H(2)]-Quantum of Penalty:

The penalty referred to in sub-section (1) shall be a sum which shall not be less than Rs. 10.000 but which may extend to Rs. 1,00,000.

(iii) [Section 271H(3)]-No penalty if statement of TDS / TCS filed within one year:

Notwithstanding anything contained in the foregoing provisions of this section, no penalty shall be levied for the failure to file TDSITCS statement within the time prescribed, if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he had delivered or caused to be delivered the statement referred to in section 200(3) or the proviso to section 206C(3) before the expiry of a period of one year from the time prescribed for delivering or causing to be delivered such statement.

(iv) Penalty applicable only for tax deducted / collected on or after 1.7.2012:

The provisions of this section shall apply to a statement referred to in section 200(3) or the proviso to section 206C(3) which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after 1.7.20 12.

(5) [Section 271DA]- Penalty for Failure to comply with Provisions of Section 269ST

If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt:

However, no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.

Any penalty imposable under section 271DA shall be imposed by the Joint Commissioner.

(6) [Section 269SU, 271DB]-Mandating acceptance of payments through prescribed electronic modes

Every person, carrying on business, shall, provide facility for accepting payment through the prescribed electronic modes, in addition to the facility for other electronic modes of payment, if an, being provided b such person. if his total sales, turnover or gross receipts in business exceeds Rs. 50 Crore during the immediately preceding previous year.

In order to ensure compliance of the aforesaid provisions, new section 271DB to provides that the failure to provide facility for electronic modes of payment prescribed under section 269SU shall attract penalty of a sum of Rs. 5,000, for every day during which such failure continues. However, the penalty shall not be imposed if the person proves that there were good and sufficient reasons for such failure. Any such penalty shall be imposed by the Joint Commissioner.

Further, it is proposed to make a consequential amendment in the Payment and Settlement Systems Act, 2007 so as to provide that no bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the modes of electronic payment prescribed under section 269SU of the Income-tax Act.

(7) [Section 271J]- Penalty for furnishing incorrect information in Reports or Certificates

Without prejudice to the provisions of this Act, where the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Act, finds that:

—         an accountant or

—         a merchant banker or

—         a registered valuer

has furnished incorrect information in any report or certificate furnished under any provision of this Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct that such accountant or merchant banker or registered valuer, as the case may be, shall pay, by way of penalty, a sum of Rs. 10,000 for each such report or certificate.

(8)   [Section 274]- Procedure for imposing Penalty

(1) [Section 2 74(1)]- Opportunity of being heard:

No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

(2) [Section 274(2)]- Penalty to be levied with prior approval of Joint commissioner in certain cases:

No order imposing a penalty under this Chapter shall be made:

(a)        by the Income-tax Officer, where the penalty exceeds Rs. 10,000;

(b)     by the Assistant Commissioner/Deputy Commissioner, where the penalty exceeds Rs. 20,000, except with the prior approval of the Joint Commissioner.

(3) [Section 274(3)]- Copy of penally order to be sent to Assessing Officer:

An income-tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer.

(4) Penalty on the basis of law on the date of default:

The quantum of penalty is to be determined in accordance with the law prevailing on the date of default and not the date on which penalty is imposed.

2.   [Section 270A]- Penalty for Under-Reporting and Misreporting of Income

(1)   [Section 270A (1)]-Penalty for Under-Reported income

The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceeding under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

(2) [Section 270A]-Penalty for Cases of Misreporting of Income

 

The cases of misreporting of income referred to in section 270A (8) shall be the following. namely: —

(a)        misrepresentation or suppression of facts;

(b)        failure to record investments in the books of account;

(c)        claim of expenditure not substantiated by any evidence;

(d)        recording of any false entry in the books of account;

(e)        failure to record any receipt in books of account having a bearing on total income; and

(f)      failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

(3) [Section 270A (4)]-Penalty leviable in certain cases where no penalty was levied on Under-Reported income in any Preceding Year

Subject to the provisions of section 270A(6), where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment.

The amount referred to in section 270A(4) shall be deemed to be amount of income underreported for the preceding year in the following order—

(a)     the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and

(b)     where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.

See also  Penalties under Income Tax Act.

(4) [Section 270A(10)]-Tax payable in respect of the under-reported income

The tax payable in respect of the under-reported income shall be—

(a)     where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income;

(b)     where the total income determined under section l43(l)(a) or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income;

(c)        in any other case, determined in accordance with the formula—

(X-Y)

where,

X — the amount of tax calculated on the under-reported income as increased by the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and

Y — the amount of tax calculated on the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order.

In other words, it will be tax on total income inclusive of under-reported income — Tax on total income determined under section 143(1)(a) or 143(3) or 147, as the case may be.

3.   [Section 270AA]- Immunity from imposition of Penalty and initiation of proceedings under section 276C or 276CC

(1) [Section 270AA(1)]- Conditions to be fulfilled for making an application for grant of Immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or 276CC .

An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or 276CC, if he fulfils the following conditions, namely:—

(a)     the tax and interest payable as per the order of assessment or reassessment under section 143(3) or section 147. as the case may be, has been paid within the period specified in such notice of demand: and

(b)     no appeal against the order of assessment or reassessment under section 143(3) or section 147 has been filed.

(2) [Section 270AA (2)]- Time period for making an application

An application referred to in section 270AA (1) shall be made within one month from the end of the month in which the order referred to in section 270AA(1)(a) has been received and shall be made in Form No. 68 and verified in such manner as may be prescribed.

(3) [Section 270AA (3)]-The Assessing Officer shall grant immunity from imposition of penalty or initiation of proceedings under section 276C or 276CC except in case of misreporting of income .

The Assessing Officer shall—

— subject to fulfilment of the conditions specified in section 270AA(l) and

— after the expiry of the period of filing the appeal as specified in section 249(2Xb),

grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or 276CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in section 270A(9) (relating to misreporting of income). (See below).

(4) [Section 270AA (4)]- Assessing Officer to pass an order within one month accepting or rejecting the application referred to in section 270AA (1)

The Assessing Officer shall. within a period of one month from the end of the month in which the application under section 270AA (1) is received, pass an order accepting or rejecting such application:

However, no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.

(5) [Section 270AA(5)]- Order passed under Section 270AA (4) to be final

The order made under section 270AA (4) shall be final.

(6) [Section 270AA (6)]- Assessment / Re-Assessment order passed after accepting the application under section 270AA (4) is not appealable or subject to revision

No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in section 270AA(1)(a), in a case where an order under section 270AA (4) has been made accepting the application.

(7)   [Section 273AA]- Power of Principal Commissioner or Commissioner to grant immunity from penalty

(1) [Section 273AA(1)]- When can application be made for grant of immunity?:

A person may make an application to the Principal Commissioner or Commissioner for granting immunity from penalty, if—

(a)     he has made an application for settlement under section 245C and the proceedings for settlement have abated under section 24511A; and

(b)        the penalty proceedings have been initiated under this Act.

(2) [Section 273AA(2)]-Application cannot be made after imposition of penalty after abatement:

The application to the Principal Commissioner or Commissioner under section 273AA(1) shall not be made after the imposition of penalty after abatement.

(3) [Section 273AA(3)]: -Principal Commissioner or Commissioner may grant immunity subject to certain conditions

The Principal Commissioner or Commissioner may, subject to such conditions as he may think fit to impose, grant to the person immunity from the imposition of any penalty under this Act, if he is satisfied that the person has, after the abatement, co-operated with the income-tax authority in the proceedings before him and has made a full and true disclosure of his income and the manner in which such income has been derived.

(4) [Section 273AA(3A)]-Time limit for passing order under section 273AA(3):

The order under section 273AA(3). either accepting or rejecting the application in full or in part, shall be passed within a period of 12 months from the end of the month in which the application under section 273AA(3) is received by the Principal Commissioner or the Commissioner.

However, no order rejecting the application, either in full or in part, shall be passed unless the assessee has been given an opportunity of being heard:

Further, where any application is pending as on 1.6.2016, the order shall be passed on or before 3 1.5.2017.

(5) [Section 273AA(4)]-Immunity shall stand withdrawn, if there is a failure to satisfy the conditions:

The immunity granted to a person under section 273AA(3) shall stand withdrawn, if such person fails to comply with any condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted.

(6) [Section 273AA(5)]-Immunity to be withdrawn if there is concealment of particulars or any false evidence:

The immunity granted to a person under section 273AA(3) may, at any time, be withdrawn by the Principal Commissioner or Commissioner, if he is satisfied that such person had, in the course of any proceedings, after abatement. concealed any particulars material to the assessment from the income-tax authority or had given false evidence, and thereupon such person shall become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.

4.   [Section 273A]- Power to Reduce or Waive Penalty

(A) [Section 273A(1)]- Power to Reduce or Waive Penalty imposed or imposable for default under Section 270 or Section 271(1)(c)

Principal commissioner / commissioner may reduce / waive penalty:

Notwithstanding anything contained in the Income-tax Act, the Principal Commissioner / Commissioner may, in his discretion, reduce or waive the amount of penalty imposed or imposable on a person under section 270A or section 271(1)(iii) for concealment of income, etc. as per section 270A or section 271(1)(c) if certain conditions and satisfied.

See also  Rule 6DD – Exception to the [Section 40A(3)(a)] Payment in excess of Rs. 10,000

Waiver may be Suo Moto or Otherwise:

Such power to reduce or waive the penalty can be exercised by the Commissioner on his own motion or on an application made by the assessec.

Conditions to be satisfied for waiver / reduction:

Such power shall be exercised by the Principal Commissioner or Commissioner if he is satisfied that the assessee has:

(a)     prior to the detection by the Assessing Officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars: and

(b)        co-operated in any enquiry relating to the assessment of his income: and

(c)      has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under the Income-tax Act in respect of the relevant assessment year. i.e. the assessment year(s) for which application is made under section 273A.

If the assessee satisfies all the above 3 conditions, then the Principal Commissioner or Commissioner shall (i.e. he is duty bound) waive the penalty and in that case there is no discretion.

Deemed case of true disclosure [Explanation to section 273A(1)]:

For the purpose of section 273A(1), a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of section 270A or section 271(1)(c).

[Section 273A(2)]- Prior approval of Principal Chief Commissioner or Chief (Commissioner / Principal Director General or Director General necessary where aggregate concealed income exceeds Rs. 5,00,000:

According to section 273A(2), no order under section 273A(1) for reducing or waiving the penalty shall be made by the Principal Commissioner or Commissioner except with the prior approval of the Principal Chief Commissioner or Chief Commissioner/Principal Director General or Director General, as the case may be, in a case falling under section 270A or section 271(1)(c) where the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year. or, where such disclosure relates to more than one assessment year. the aggregate amount of such income for those years, exceeds a sum of Rs. 5,00,000.

[Section 273A(3)]- Relief available only once in life lime:

According to section 273A(3) Where an order has been made under section 273A(1) in favor of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order.

(B) [Section 273A(4)]- Power to Reduce or Waive any Penalty

Principal commissioner or Commissioner can waive any penalty including levied under section 271(1)(iii):

Without prejudice to the powers conferred on him by ant’ other provision of this Act [including section 273(1)], the Principal Commissioner or Commissioner may, after recording his reasons for so doing, reduce or waive the amount of any penalty payable by the assessee under the Income-tax Act, or stay ; or compound any proceeding for the recovery of any such amount provided certain conditions are satisfied.

Waiver only when application is made by the assessee:

The waiver or reduction of penalty under section 273A(4) is possible only when an application for the same is made by the assessee. It cannot be done suo moto by the Principal Commissioner or Commissioner.

Conditions to be satisfied for waiver or reduction:

Such power shall be exercised by the Principal Commissioner or Commissioner if he is satisfied that:

(i)      to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case; and

(ii)     the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

Prior approval of Principal Chief Commissioner or Chief commissioner or Principal Director General or Director General necessary where penalty or aggregate amount of such penalties exceeds Rs. 1,00,000 :

No order reducing or waiving the amount or compounding any proceeding for its recovery under this sub-section shall be made by the Principal Commissioner or Commissioner except with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be, where the amount of any penalty payable under the Income-tax Act or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds Rs. 1,00,000.

It has been clarified that the genuine hardship referred to in the provisions of section 273A(4) should exist at the time at which the application under section 273A(4) is made by the assessee before the commissioner and should so exist even at the time of passing of order under section 273A(4) by the Commissioner. [Circular No. 784, dated 22.11. 1999].

[Section 273A(4A)]-Time limit for passing an order under section 273A(4) for accepting or rejecting the application for reduction or waiver of penalty

The order under section 273A(4), either accepting or rejecting the application in full or in part, shall be passed within a period of 12 months from the end of the month in which the application under section 273A(4) is received by the Principal Commissioner or the Commissioner.

However, no order rejecting the application, either in full or in part, shall be passed unless the assessee has been given an opportunity of being heard.

Further, where any application is pending as on 1.6.20 16, the order shall be passed on or before 3 1.5.2017.

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