Workshop on Penalty provisions under Income-tax Act, … · Workshop on Penalty provisions under...
Transcript of Workshop on Penalty provisions under Income-tax Act, … · Workshop on Penalty provisions under...
Workshop on Penalty provisionsunder Income-tax Act, 1961
Overview of Penalty provisions andImportant issues
PwCJune 2017
2ICAI - Workshop on Penalty provisions
Penalty - Introduction
A punitive measure that the law imposes for theperformance of an act that is prohibited or forthe failure to perform the required act
Default in complying with the provisions of theIncome Tax Act attracts penalty
Some of the penalties are mandatory in nature and afew are at the discretion of the tax authorities.
Penalty Provisions are broadly governed by ChapterXXI of the Income Tax Act.
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New penalty provisions introduced vide Finance Act2016 and Finance Act 2017
Effective from AY 2017-18
Sec. 270A – Penalty for under reporting andmisreporting of income
Sec. 270AA – Immunity from imposition of penalty, etc.
Sec. 271AAC – Penalty in respect of certain income
Sec. 271DA – Penalty for failure to comply with theprovisions of sec. 269ST
Sec. 271GB – Penalty for failure to furnish to furnishreport or for furnishing inaccurate information undersec. 286
Sec. 271J – Penalty for furnishing incorrect informationin reports or certificates
Effective from AY 2018-19
Sec. 234F – Fee for default in furnishing return ofincome
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Overview – Penalty provisions
Penalty can be broadly classified into the following 4 categories:
Penalty consequent toassessment proceedings –271 & 270A
Penalty for default in paymentof tax –
Section 221 & 271C
Penalty consequent to searchproceedings – 271AAA & 271AAB Other Penalties
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Penalty consequent to assessment
proceedings - 271
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Penalty under Section 271(1)(c)
Applicability
• Provisions of this section are applicable till AY 2016-17
• With effect from AY 2017-18, provisions of section 270A will apply
Nature of Penalty
Provisions of section 271(1)(c) for levy of penalty shall be attracted where the AO / CIT (A)/
Principal commissioner/ commissioner is satisfied that the assessee has either:
• Concealed particulars of his income; or
• Furnished inaccurate particulars of income
Before Finance Act, 1964 vs. After Finance Act, 1964
…..has concealed the particulars of his
income or deliberately furnished
inaccurate particulars of such income
…..has concealed the particulars of his
income or furnished inaccurate particulars
of such income
Levy of penalty under section 271(1)(c) is
subject to the discretion of the income tax
officer
Quantum of Penalty
Minimum – 100% of the tax sought to be evaded
Maximum – 300% of the tax sought to be evaded
The omission of word “deliberately” has paved way for
the concept of deemed concealment / furnishing of
inaccurate particulars of income and made Section
271(1)(c) the most litigated section
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Explanations to section 271(1)(c)
Explanation 1
If any person
Fails to offer anexplanation
Fails to prove that suchexplanation is bonafide
Fails to prove that allfacts relating to the sameand material to thecomputation of totalincome has beendisclosed
Offers an explanationwhich can not besubstantiated
Offers an explanationwhich is found to be false
The amount added ordisallowed as a result of thesame shall be deemed torepresent the income inrespect of which particularshave been concealed
Explanation 3
Where any person
Fails to furnish ROI U/SSec. 139(4)
AO or CIT(A) is satisfiedthat such person hastaxable income
Such person is deemed tohave concealed incomenotwithstanding furnishing areturn after the expiry off theperiod, in pursuant to noticeu/s 148
Explanation 5A
Where in the course off searchinitiated u/s 132, the assessee is foundto be the owner of
Any money, bullion, jewellery orother valuable article or thing andthe assessee claims to haveacquired by utilizing his income forany PY,
Or Any income based on any entry in
any books and the assessee claimsthat the same represents hisincome for any PY,
Which has ended before the date ofsearch and where the RoI for such PYhas been furnished before the date ofsearch
Notwithstanding the declaration byhim of such income in any revised ROIon/before the date of search, he shallbe deemed to have concealed theincome
Explanation 6
Where any adjustment ismade in the income or lossdeclared in the RoI underClause (a) of 143(1) andadditional tax charged underthat section, the provisionsof this 271 (1) (c) shall notapply
Explanation 7
In case of internationaltransaction or domestictransaction, any amountadded or disallowed as persection 92C(4) is deemed toall under the purview of271(1)(c), unless the assesseeproves to the satisfaction ofthe AO/CIT(A)/CIT that theprices charged/paid iscomputed as per 92C and ingood faith and with duediligence.
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Section 271(1)(c) – Important Issues
Yes, the satisfaction of the concerned tax authority to the effect that theassessee has either concealed the particulars of income or furnished inaccurateparticulars of income is a pre-condition for levy of penalty and forms the basisand foundation of such levy
Such satisfaction must be arrived at in the course of any proceeding under theAct.
The standard proforma without striking of the relevant clauses will lead to aninference as to non-application of mind.
The above principle has been upheld in the following judicial precedents:
Shambhu Dayal v. ACIT ITA No. 3391/Del/2013
Suvaprasanna Bhatacharya v. ACIT ITA No. 1303/Kol/2010
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Whether recording of satisfaction is necessary for levyof penalty under section 271(1)(c) ?
What constitutes satisfaction?
Where an assessment order contains a direction or initiation of penalty proceedingsunder section 271(1)(c), such an order itself shall be deemed to constitutesatisfaction of the AO for the in initiation of penalty proceedings u/s 271(1)(c) –Section 271(1B)
Order of penalty must clearly state the nature of penalty – CIT v. Manjunatha Cottonand Ginning factory (2013) 35 Taxmann.com 250 (Karnataka HC) & CIT v. SSA'sEmerald Meadows [2016] 73 Taxmann.com 248 (SC)
Non-striking off of the irrelevant clause in the notice shows that the charge beingmade against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, theproceedings suffer from non-compliance with principles of natural justice inasmuchas the Assessing Officer is himself unsure and assessee is not made aware as to whichof the two limbs of Sec. 271(1)(c) of the Act he has to respond. Thus the penaltyproceedings initiated stands quashed - Meherjee Cassinath Holdings Pvt. Ltdvs. ACIT (ITAT Mumbai) ITA NO. 2555/MUM/2012
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Section 271(1)(c) – Important Issues
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Whether penalty can be levied for difference in opinion?
Commissioner v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) - If the Court finds that the language of a taxing provision is ambiguousor capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee, more particularly so where theprovision relates to the imposition of penalty. So It may be construed that when the assesse has chose a beneficial opinion, when there could be adifference in opinion, the same cannot be said to be concealment of income
CIT v. Calcutta Credit Corporation (166 ITR 29) – Where two opinions are possible, no penalty shall be attracted
Panchratna Hotels Pvt. Ltd. v. DCIT 47 TTJ 282 (Ahm) - If all the material facts during the course of reassessment are disclosed in thedocuments filed and the facts were not found to be ‘false’ but the additions/ disallowances were made on account of a difference in opinion therecannot be said to be concealment of income
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Section 271(1)(c) – Important Issues
Can an assessee who has surrendered his income in response to the specific information sought by the AO in thecourse of the survey, be absolved from the penalty provision under Section 271(1)(C) for concealment of Income?
MAK Data Private Limited V. CIT (2013) 358 ITR 593 (SC)
Facts of the case
The assessee company filed its return of Income for the AY 2014-15declaring an income of INR 16.17 Lakhs along with TAR.
The assessee case was selected for scrutiny and notices were issued undersection 143(2) and section 142(1) . During the course of the assessmentproceedings, AO noticed that certain documents were found under surveyproceedings under section 133A in the case of sister concern of the assesseeand the same were impounded.
The AO issued a show cause notice seeking the information for certaindocuments found in the survey.
In reply to the show cause notice, the assesse made an offer to surrender asum of INR 40.74 lakhs by way of voluntary disclosure without admittingany concealment of income and subject to non-initiation of penaltyproceedings and prosecution.
However, the AO has levied penalty for the same for concealment of incomeand for not furnishing true particulars.
Decision
The apex court held that it is the statutory duty of the assessee to recordall its transactions in the books of accounts, to explain the source ofpayments made by it and to declare its true income in the ROI filed by it.
The apex court was of the view that the surrender of Income by theassessee in this case is not voluntary, in the sense, that the offer ofsurrender was made in view of deduction made by the AO in the searchconducted in the sister concern of the assessee. The apex court,therefore, concluded that the levy of penalty is correct in law.
The assessee contended that he surrender of Income was aconditional surrender before any investigation in this regard.
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Section 271(1)(c) – Important Issues
Whether voluntary surrender of Income also attract penalty under section 271(1)(c)?
MAK Data Private Limited V. CIT (2013) 358 ITR 593 (SC)
Facts of the case
During the course of the assessment proceedings, AO noticed that certaindocuments were found under survey proceedings under section 133A in thecase of sister concern of the assessee and the same were impounded.
The AO issued a show cause notice seeking the information for certaindocuments found in the survey. In reply to the show cause notice, theassesse made an offer to surrender a sum of INR 40.74 lakhs by way ofvoluntary disclosure without admitting any concealment of income andsubject to non-initiation of penalty
The AO has levied penalty for the same for concealment of income and fornot furnishing true particulars.
Decision
The apex court held that it is the statutory duty of the assessee to record allits transactions in the books of accounts, to explain the source of paymentsmade by it and to declare its true income in the ROI filed by it.
The apex court was of the view that the surrender of Income by the assesseein this case is not voluntary, in the sense, that the offer of surrender wasmade in view of deduction made by the AO in the search conducted in thesister concern of the assessee. The apex court, therefore, concluded that thelevy of penalty is correct in law.
Kalwa Bhasker vs ACIT, (TS-5687-ITAT-2017(Hyderabad)-O)
Facts of the case
The Income Tax return filed by the assessee was selected for scrutiny underCASS. Assessee disclosed his income during the scrutiny proceedings on thebasis of which assessment proceedings were completed.
Subsequently, the assessing officer initiated penalty proceedings undersection 271 (1)(c) of the Income Tax Act against the assessee.
On appeal, assessee maintained that penalty cannot be levied since he hadvoluntarily offered the income to tax.
Decision
The ITAT held that penalty under Section 271(1)(c) of the income Tax Act isnot leviable in a case where the assessee voluntary offers the income to taxduring the course of scrutiny proceedings.
Therefore, if the department did not agree with the explanation, then theonus was on the department to prove that there was concealment ofparticulars of income or furnishing inaccurate particulars of income. In thepresent case, the assessee has discharged the burden by giving detailedexplanation before the AO.
The AO simply rejected the explanation without discharging the burden castupon him, as the assessee has disclosed the particulars of income in thescrutiny assessment. Thus, it was held that penalty is not leviable.
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Section 271(1)(c) – Important Issues
Penalty for concealment of income can be levied only by the AssessingOfficer or the Commissioner (Appeal) or by the Commissioner ofIncome Tax and that too only on their respective findings - CIT v.Shadiram Balmukund (1972) 84 ITR 183
The fact that during the original assessment proceedings the AssessingOfficer did not initiate penalty proceeding is no bar to the exercise ofsuch power by the first appellate authority - Kamlapat Motilal v CIT(1962) 45 ITR 266 (SC)
Illustration:
Assessee filed a return of income declaring an income of Rs. 1,00,000. Assessing Officeradded unexplained cash credits of Rs. 50,000 and assessed the income at Rs. 1,50,000.The assessee filed an appeal to CIT(A) who further enhanced the income by Rs. 30,000 toRs. 1,80,000. The assessee decided not to go for further appeal. Assessing Officer wants tolevy penalty under section 271(1)(c) on Rs. 80,000. Is the Assessing Officer justified?
Jurisdiction of the Income tax authorities in levying penalty under this section
Solution:
The Supreme Court held in CIT v Shadiram Balmukund [(1972) 84 ITR 183 (All)] thatthe Assessing Officer can levy penalty on the additions made by him and not on theadditions made by CIT(A).
Similarly CIT(A) can levy penalty on the additions made by him and not on theadditions made by the Assessing Officer.
Therefore Assessing Officer can levy penalty on Rs. 50,000 and is not justified inlevying penalty on Rs. 80,000.
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Section 271(1)(c) – Important Issues
CIT v Reliance Petro Products Pvt. Ltd (2010)322 ITR 158 (SC)
CIT v Amit Jain (2013) 351 ITR 74 (Delhi)
Can reporting of income under different head ofincome tantamount to furnishing of inaccurateparticulars or suppression of facts to attractpenalty u/s 271(1)(c) ?
Mere reporting of income under a different headwould not characterize the particulars reported as “inaccurate” to attract levy of penalty u/s 271(1)(c).
Facts of the caseFor the relevant AY, the assessee-company filed itsreturn of income claiming interest expenditure inrespect of loan incurred by it for purchasing shares byway of its business policies.The Assessing Officer disallowed said expenditureunder section 14A and simultaneously levied penaltyunder section 271(1)(c) on account of concealment ofincome/furnishing of inaccurate particulars of income.
HeldThe Apex court held that where there is no finding thatany details supplied by the assessee in its return areincorrect or erroneous or false, there is no question ofimposing penalty u/s 271(1)(c).
A mere making of a claim, which is not sustainable inlaw, by itself, will not amount to furnishing inaccurateparticulars regarding the income of the assessee.
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Penalty consequent to assessment
proceedings – 270A
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Penalty under Section 270A
Applicability
• Imposition of penalty under sections 270A will apply to cases pertaining to A.Y. 2017-
18 onwards
• However, provisions of section 271(1)(c) will continue to be applicable to all cases up
to A.Y. 2016-17.
• Levied by AO/ CIT(A)/ Principal commissioner/ Commissioner
Types of Penalty
Under the new section, the penalty to be levied is categorized into two parts —
• Under-reporting of income [defined under Sec 270A(2) read with sec 270A(6)]
• Misreporting of Income [defined under sec 270A(9)]
Quantum of penalty
When the “under-reporting” is not because
of misreporting, the penalty would be 50%
of tax payable on the under-reported
income.
When the “under-reporting” is because of
misreporting, the penalty would be 200%
of the tax payable on the under-reported
income.
Quantum of penalty under section 270A is
not subject to the discretion of the income
tax officer and is a fixed percentage (50%
or 200%).
Rationale
Introduced by Finance Act, 2016
Introduced with a desire to rationalize penal provisions and bring
• Objectivity
• Certainty
• clarity
To reduce the litigation arising out of ambiguity in section 271(1)(c)
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Exclusions
Under-reporting of Income u/s 270A
Where the assessee offers an explanation and the IT authority is satisfied that theexplanation is bona fide and all the material facts have been disclosed;
The under-reported income is determined on the basis of an estimate, though thebooks of account are correct and complete to the satisfaction of the IT authority,the income cannot be properly deduced therefrom due to the method ofaccounting employed by the taxpayer;
Where the assessee himself has estimated a lower amount of addition ordisallowance in the computation of income and disclosed all facts material to theaddition or disallowance;
The under-reported income represented by any addition made in conformity withALP determined by TPO, where the assessee has maintained documentsprescribed under section 92D and declared the international transactions underChapter X and disclosed all material facts relating to the transaction;
The undisclosed income is detected on account of search operation and penalty isleviable under section 271AAB.
When income is assessed under the normal provisions of the Act
• Income assessed > Income determined in return processed under143(1)(a)
• Income assessed > Maximum amount not chargeable to tax, whereno return is filed
• Income reassessed >Income assessed or reassessed immediatelybefore such reassessment
When income is assessed under section 115JB or section 115JCof the Act
• Deemed total income assessed or reassessed > Deemed totalincome determined in return processed under 143(1)(a)
• Deemed total income assessed > Maximum amount not chargeableto tax, where no return is filed
• Deemed total income reassessed >Deemed total income assessed orreassessed immediately before such reassessment
when losses are calculated as per the provisions of the Act
• Income assessed or reassessed has the effect of reducing the loss orconverting such loss into income
Inclusions
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Calculation of under-reported Income
In case where income has been assessed for the first time
• If return has been furnished - Income assessed - Income under 143(1)(a)
• If no return has been furnished
Income assessed, in case of company, firm or local authority
Income assessed – Maximum amount not chargeable to tax, in anyother case
Any other case - Income reassessed/recomputed - Incomeassessed/reassessed/recomputed earlier
Under-reported income arising out of section 115JB/115JC - (A-B)+(C-D),where
A = The total income assessed as per the general provisions of the Act.
B = Total income that would have been chargeable had the total income assessedas per the general provisions of the Act been reduced by the amount of under-reported income.
C = The total income assessed as per the provisions of section 115JB or section115JC.
D = The total income that would have been chargeable had the total incomeassessed as per the provisions of section 115JB or section115JC been reducedby the amount of under-reported income.
Total income assessed as per general provisions (A) 10,00,000
Total income that would have been chargeable had the
total income assessed as per the general provision
been reduced by under-reported income
(B) 7,00,000
Total income assessed as per the provisions contained
in section 115JB or section 115JC
(C) 5,00,000
Total income that would have been chargeable had the
total income assessed as per the provisions contained
in section 115JB or section 115JC been reduced by the
amount of under-reported income
(D) 3,00,000
(A-B)+(C-D) 5,00,00
Tax on under-reported income at 30% (INR 5 lakhs *
30%)
1,50,000
Penalty for under reported income at 50% of tax u/s
270A
75,000
Total of tax liability and penalty 2,25,000
Illustration (assuming that the same under-reported income is notconsidered under general provisions and section 115JB/ 115JC)
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Calculation of under-reported Income
Illustration : Case is of an individual below 60 years of age and no return of incomehas been furnished, whereas income assessed under section 143(3) is Rs. 7,00,000
Considering that none of the additions or disallowances made in assessment asabove qualifies under sub-section (6) of section 270A, the penalty would becalculated as under:
*Being maximum amount not chargeable to tax**Considering under-reported income is not on account of misreporting
Particulars (Figures in INR)
Income assessed under section 143(3)(A)
7,00,000
Under-reported Income (B) 7,00,000-2,50,000* =4,50,000
Tax Payable on (B) + 250,000* atnormal tax rates
65,000
Penalty Leviable** 50 % of 65,000= 32,500
Illustration : An individual, below 60 years of age, filed his return of income forassessment year 2017-18; income is assessed determining loss of Rs. 5,00,000 due tounderreported income of Rs. 10,00,000Considering that none of the additions or disallowances made in assessment as abovequalifies under sub-section (6) of section 270A, the penalty would be calculated asunder:
Particulars (Figures in INR)
Income assessed under section 143(3) (A) (5,00,000)
Under-reported Income (B) 10,00,000
Tax Payable on (B) at normal tax rates 1,25,000
Penalty Leviable** 50 % of 125,000= 62,500
Note: In computing the tax payable on underreported income (or, misreported income) no credit is allowed or allowable for any withholding tax or tax paid in advance inrespect of the underreported income.
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Cases of under-reported income - Illustrations
S.No Particulars Assessee estimate AO estimate Under-reportedincome as per Sec270A(6)(c)
1 Income attributable to Business Connection u/s9(1)(i)
NIL 10,00,000 YES
2 Income attributable to Business Connection u/s9(1)(i)
200,000 10,00,000 NO
3 Disallowance of Personal expenditure u/s 37 NIL 50,000 YES
4 Disallowance of Personal expenditure u/s 37. 20,000 50,000 NO
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Misreporting of Income u/s 270A
Misrepresentation orsuppression of facts
Claim of expenditurenot substantiated by
evidence
Non-recording ofinvestment in books of
account
Failure to report any internationaltransaction or specified domestic
transaction under Chapter X
Failure to record any receiptin books of account which
has a bearing on total income
Recording of falseentry in books of
account
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Summary of difference between 271(1)(c) & 270A
Particulars Section 271 (1) (c) Section 270A
Recording of satisfaction inthe assessment proceeding
Mandatory
No statutory requirement to record such satisfaction. Mere initiation ofpenalty proceeding would be sufficient which may be made by issuingdirection in the assessment or re-assessment order or by issue of penaltynotice.
Onus to prove on the AOTo prove the fact that assessee has concealed theparticulars of income or furnished the inaccurate particularsof income.
In case of under-reporting
No such requirement to prove
In case of Misreporting
Have to prove or demonstrate that case of assessee falls within thecriteria mentioned in sub section (9).
Opportunity of being heard to theassessee
Assessee can initiate proceedings against the levy of penaltyon him
Not present under the new provisions, which is against natural principlesof justice
Discretion to impose penaltyDiscretion to impose penalty between 100%to 300% of the tax
No discretion. (Flat rate of 50% and 200%)
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Sec 270AA-Immunity from imposition of penalty
The assesse can make an application within one monthfrom the end of the month in which the aforesaid orderis received by him
Only the assessing officer has the power to grant the immunity.If the penalty is initiated by the commissioner/commissioner(Appeals), then immunity under this section cannot be given.
No application for immunity shall be rejectedunless an opportunity of being heard is givento the applicant assesse.
Where the application has been accepted by the AO, noappeal under section 246A and no application for revisionunder section 264 can be made against the order ofassessment or reassessment. However, where the applicationhas been rejected, then right to appeal shall be restored tothe assessee.
The AO shall grant him immunity or reject theapplication within one month from the end ofthe month in which the application is received
Order to be passed <= one month from the end ofthe month in which the application is received andit shall be final and cannot be revisited or revised.
Immunity from penalty is granted subject to the fulfillment of following 2 conditions
The tax and interest payable as per the order of assessment [u/s 143(3)] or reassessment [u/s 147] is paid within the period stated in the notice of demand, and
No appeal against the aforesaid order is filed by the assesse.
Not Applicable in caseof Mis-reporting of
Income
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Issues relating to Section 270A
An assessee voluntarily offersdisallowance u/s 14A and while doingso, he doesn’t consider stock in tradeof shares as being subject matter ofdisallowance. While passing theassessment order, the AO consideredthe stock in trade too for the purposeof calculating disallowance.
The assessee has given full particularsof disallowance,
In this instance, will be treated asaddition on account ofmisrepresentation/ suppression or asunder reported income?
If additions have been made onaccount of deemed dividend u/s2(22)(e) and all details relatingthereto were made available to theAO, will be treated as addition onaccount of misrepresentation/suppression or as under reportedincome?
Whether penalty under section 270Acan be levied in case of additions ordisallowances made on question oflaw?
Whether ‘ reasonable cause’ is takeninto consideration before levyingpenalty under section 270A?
Additions under section 56(2)(vii) or(viia), where an assessee acquires aproperty at a price which is less than thefair market value of such property -would penalty under section 270A stillbe attracted?
One of the condition for treating misreporting is ‘misrepresentation or suppression of facts’, which is not been defined in the Act.
Whether Writ jurisdiction permissibleagainst the order passed under section270AA?
Where Penalty is levied on certainadditions on grounds of mis-reportingand certain grounds on under reporting,can the assessee go on appeal against theadditions on account of mis-reportingwhile seeking immunity under section270AA for under-reporting?
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Penalty for default in payment oftax –221 & 271C
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Penalty for default in payment of tax
221
Assesse in Default , if the amount specifiedin the notice of demand under sec. 156 isnot paid within 30 days or such time as isextended by AO
Penalty paid under thissection is in addition to theamount of arrears of tax to bepaid and Interest payableunder 220(2) of the Act.
Penalty cannot be levied for non-payment of interest
Since ‘tax’ and ‘interest’ aredifferent in character
the definition of ‘tax’ in section2(43) does not cover interest
Shreeniwas & Sons v. ITO [1974] 96ITR 562 (Cal.).
Levied on whom - assessee in default ordeemed to be in default in making paymentof tax.
By whom – AO can levy (discretionary)
Quantum – Not to exceed the amount of taxarrears
Before levying penalty, theassessee shall be given areasonable opportunity ofbeing heard.
Where the AO is satisfied that the defaultwas for good and sufficient reasons, nopenalty can be levied.
Penalty cannot be levied for non-payment of penalty - since thedefinition of ‘tax’ does not include‘penalty’
Kunhalaumma v. ITO [1968] 68ITR 840 (Ker.)
Appeal can be made under section 246 ofthe Act against the order passed underthis section
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Penalty for default in payment of tax
The words ‘good and sufficient reasons’should be in a way to achieve effective,speedy and proper implementation ofthe provisions of the Act
‘good and sufficient reason’ depends onthe facts o the case:
CIT v. Chembara Peak Estates Ltd.[1989] 47 Taxman 166 (Ker.);
Nachimuthu Industrial Association v.CIT [1980] 123 ITR 611 (Mad.).
Non-Availability of books
Delay in deduction and deposit of tax due to non-availability at books of account as these were seized by Departmentand therefore, it had good and sufficient reasons not to deduct tax at source
Tony Electronics Ltd. v. Assistant Commissioner of Income-tax [1997] 63 ITD 41 (Delhi)
Failure on part of the agent
Assessee had directed his banker to deposit all three instalments and same could not be done by banker in time andtherefore, it had good and sufficient reasons not to deduct tax at source
Baljindra Singh v. Income-tax Officer, Suratgarh [2009] 179 Taxman 28 (Jodh.)(Mag.)
Financial constraint and liquidity crunch
Financial constraint and liquidity crunch faced by assessee at time of filing of return is a good and sufficient reason fornon deduction of TDS
Commissioner of Income tax v. Bhikaji Ramchandra [1990] 183 ITR 478 (BOM.)
ACIT v. Rakesh Kumar Garg [2015] 64 taxmann.com 367 (Delhi - Trib.)
What constitutes “Good & Sufficient Cause?
PwCICAI - Workshop on Penalty provisions
Section 271C and its interplay with section 221
Section 271C
Failure to deduct tax atsource, wholly or partly,under sections 192 to 196D(Chapter XVII-B) other than2nd Proviso to 194B or failureto pay wholly or partly tax u/s115-O(2) or second proviso tosection 194B
Can be levied only by JC
Quantum of penalty – Sumequal to the amount of tax theperson has ailed to deduct orpay
Section 271C
Failure to deduct tax atsource, wholly or partly,under sections 192 to 196D(Chapter XVII-B) other than2nd Proviso to 194B or failureto pay wholly or partly tax u/s115-O(2) or second proviso tosection 194B
Can be levied only by JC
Quantum of penalty – Sumequal to the amount of tax theperson has ailed to deduct orpay
Difference between both these sections are as below:
Penalty u/s 221 is imposed by AO while Penalty u/s 271C is imposed by Joint Commissioner.
Section 221 comes into play only when there is a default in payment of tax while Section 271Ccomes into force both at the time of failure to deduct tax and at the time of payment thereof.
Penalty u/s 271C is automatic while penalty u/s 221 is only at the discretion of the AO.
Note that penalty under both these sections can notbe imposed at the same time.
According to the rule ‘double jeopardy’ in Article20(2) of Constitution of India lays down that ‘noperson shall be prosecuted and punished for thesame offence more than once
And, thus an assessee cannot also be punishedtwice for the same act or omission, by way of twoseparate penalties which, in nature, belong to thesame genus.
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Penalty consequent to searchproceedings – 271AAA & 271AAB
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Penalty provisions
Section Nature of default Quantum of penalty Who can levy Nature of levy
271AAAWhere search has been initiated• before 1-7-2012• undisclosed income found
10% of undisclosed income AO Mandatory
271AAB
Where search has been initiated• on or after 1-7-2012• but before 15-12-2016• undisclosed income found
10% of undisclosed income of specified previous year, if the following conditions are satisfied:(a) Assessee must have admitted the undisclosed income in statement recorded u/s 132(4)(b) Assessee specifies & substantiates the manner in which such undisclosed income was derived(c) Pays Tax & Interest on such undisclosed income before the specified date;(d) Files the ROI for specified previous year declaring such undisclosed income therein
AO Mandatory
20% of undisclosed income of specified previous year, if the following conditions are satisfied:(a) Assessee does not admit the undisclosed income in statement recorded u/s 132(4)(b) declares such income in the ROI furnished for the specified previous year on or before thespecified date(c) Pays the tax and interest on such undisclosed income before the specified date;
AO Mandatory
30% to 90% – (Flat 60% w.e.f. 01.04.17) of undisclosed income of specified previous year, in anyother case
AO Mandatory
271AAB (1A)Where search has been initiated• on or after 15-12-2016• undisclosed income found
30% of undisclosed income of specified previous year, if the following conditions are satisfied:(a) Assessee must have admitted the undisclosed income in statement recorded u/s 132(4)(b) Assessee specifies & substantiates the manner in which such undisclosed income was derived(c) Pays Tax & Interest on such undisclosed income before the specified date;(d) Files the ROI for specified previous year declaring such undisclosed income therein
AO Mandatory
60% of undisclosed income of the specified previous year in any other case. AO Mandatory
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Penalty provisions
ICAI - Workshop on Penalty provisions
PY that has ended before the date ofsearch, but the date of furnishing ROIu/s 139(1) for such year has notexpired before the date of search andthe assessee has not furnished theROI for the PY before the date ofsearch
OR
The PY in which the search wasconducted
Specified Previousyear Any income of the specified PY by way
of any money, bullion, jewellery orother valuable article or thing or anyentry in the books of account or otherdocuments or transactions found inthe course of a search u/s 132, whichhas—
(A) not been recorded on or before thedate of search; or
(B) otherwise not been disclosed tothe Principal Chief Commissioner orChief Commissioner or PrincipalCommissioner or CIT before the dateof search;
OR
any income of the specified PYrepresented, either wholly or partly,by any entry in respect of an expenserecorded in the books of account orother documents maintained in thenormal course relating to the specifiedPY which is found to be false andwould not have been found to be sohad the search not been conducted.
UndisclosedIncome
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Comparison of Sec 271AAB and Explanation 5A of Sec271(1)(c)
ICAI - Workshop on Penalty provisions
Penalty in respect of Undisclosed income of PY Penalty leviable
1) In which search was conducted Section 271AAB
2) which has just ended before the date of search & due dateprescribed u/s 139(1) for such year has not expired and assessee hasnot furnished the ROI for such year, before date of search;
Section 271AAB
This provision presumes that, but for the search action the assessee would not have ‘disclosed’ inthe return such undisclosed income. The presumption is neither fair nor proper as in any case it isa rebuttable one. It also runs contrary to the settled legal position that concealment is always vis-à-vis return filed, whether or not the concerned income is recorded in the books of accounts.
3) which has just ended before the date of search in respect of whichany of the conditions mentioned in (2) above is not satisfied
Section 271(1)(c) r.w. Expln. 5A thereof
Though, it is prerogative of the assessee to offer any income while filing pending return withinextended due date u/s 139(4), here, immediately on expiry of due date u/s 139(1), Act presumesthat intention of the assessee was to hide the income treated as “undisclosed income” due to searchaction and penal consequences u/s 271(1)(c) shall follow.
4) in respect of rest of the block period Section 271(1)(c) r.w. Expln. 5A thereof
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Time limit for passing the penaltyorder
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Section 275 – Bar of limitation for imposing penalty
Time limit for imposingPenalty
Where the order of theAO is contended
before the CIT(A) orITAT
Where order is passedby CIT(A) and no
appeal is made to ITAT
1 year from the end ofFY in which the orderof CIT(A) is received
Where order is passedby the ITAT
6 months from theend of the month inwhich order of the
ITAT
Where revisionapplication has been
made u/s 264
6 months from theend of the month inwhich revision order
u/s 264 is passed
No appeal/ revisionapplication has been
made/filed
End of FY in whichthe assessmentproceedings are
completed
6 months from theend of the month inwhich the penaltyproceedings are
initiated
OR
Whichever is later
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Bar of limitation for imposing penalty
Facts
An appeal against an assessment order for AY 2004-05 is decided bythe ITAT against the assessee and the order is served on thecommissioner. The AO levies penalty under 271(1)(c) for theaforementioned AY on which the appeal has been decided againstthe assessee.
Is the AO empowered under the Act to impose penalty after aperiod of ten years?
The penalty under section 271(1)(c) is to be examined with reference to thelimitation in section 275(1)(a) which stated that in calculating the period oflimitation for imposing of penalty, the time taken in deciding the order by theappellate authorities shall be excluded.
A penalty can be imposed within a period of 6 months rom the end of themonth in which the order was received by the CIT. In the present case theorder of penalty is within the time limit and therefore, a correct order
What remedial action can be taken against the order and what is theprescribed time limit thereof?
The remedy available to the assessee against the order of penalty is to presentan appeal under section 246A before Commissioner of Income Tax(appeals)within 30days from the date of receipt of the penalty order as the same is anappealable order under 246(1)(j).
Penalty order barred by limitation
The Delhi High Court held that the time limitationfor “initiation” of penalty proceedings under section275(1)(c) of the Income Tax Act, starts from the dateon which the AO wrote a letter recommending theissuance of the Show Cause Notice, and not fromthe date mentioned in the Show Cause Notice.
Principal CIT v. Mahesh Wood ProductsPvt Ltd
ITA 787/2016 (HC)
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Other Penalties
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Penalty under Section 271D
271D271D
Penalty under section 271D for violation of section 269SS
Failure to comply with the provisions of 269SS shall attract section 271 D.
Penalty payable shall be equal to the amount of loan/deposit/specified sum so taken or accepted
Penalty shall be imposed by the Joint commissioner
Provisions of Section 269SS
No person shall accept any loan or deposit or any specified sum in a single day from another where the aggregate amount involved ismore than Rs 20,00o, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing systemthrough a bank account
Non-applicability of section 269SS
Any receipt by Government, any banking company, post office savings bank or co-operative bank;
Any Government company as defined under Section 2(45) of the Companies Act, 2013
Any corporation established by a Central, State or Provincial Act
Such other institutions which the Central Government may, by notification in the Official Gazette, specify including the reasonsthereof
Provisions of this section shall not apply where both the receiver and giver of loan/deposit
• having Agricultural Income and
• neither of them has any income chargeable to tax under this Act
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Issues under Section 271D
Facts of the case
• The assessee was promoted as “Special purpose vehicle” by acompany, with 30 per cent holding, to construct and operate abridge on the river Yamuna on a build, own, operate and transferbasis.
• For undertaking the said project, the assessee had to make apayment of Rs. 4.85 crores to the Government of Delhi in relation tothe acquisition of land for the said project.
• The assessee has passed a journal entry in the books of account ofthe assessee by crediting the account of the other company in thisregard.
• Whether the provisions of section 269SS and consequently theprovisions of Section 271D will apply ?
Whether Section 269SS apply to book entry transactions of loans and advances ?
Relevant Provisions/summary
The ambit of Sec 269SS is clearly restricted to transactions involvingacceptance of money and there is no intention to affect cases wherea liability has been arised merely on the basis of book entries.
In the case of mere book entry, there is no receipt of money in cashor any other form. The provision is intended to verify thetransactions in currency. Since there is no movement of money, Sec269SS shall not be applied.
Merely crediting the account of a person to whom monies arepayable by passing journal entries does not come under the ambit ofSec 269SS.
Hence, movement of money is necessary for Sec 269SS to beeffective.
CIT v Noida Toll Bridge Co. Ltd 262 ITR 260CIT v Worldwide Township Projects Ltd (2014) 106 DTR (Del) 139
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Issues under Section 271D
Facts of the case
The assessee had received a certain amount in cash from 'S' as shareapplication money.
After receipt of the same, the share application account stood ofRs. 11.80 crore
However, the authorized share capital on the said date was onlyRs. 5 lakh, out of which shares worth Rs. 1 lakh only had beenallotted.
The assessee neither had statutory capacity to absorb the same asshare capital, nor it got its authorised share capital increased and itallotted meagre amount of shares to 'S'
Given the above, whether the provisions of section 271D will apply?
Where assessee received cash as share application money from an individual but only meagre amount ofshares were allotted to said individual, penalty under section 271D was to be imposed.
Relevant Provisions/summary
When a company accept share application money
• there should be reasonable cause for the receipt of money• there should be enough authorised capital base of the
company
Since in the given case the company though received a huge sum, ithas made allotment only for a meagre sum, which clearly indicatesthe malafide intention of the company that the money received onthe name of share application money was actually in the nature ofloan or deposit.
In such case, the actual intention of the company shall beconsidered and hence penalty shall be attracted under Sec271Dsince such huge cash received as share application money shall beconsidered as loan or deposit received under Sec 269SS.
M.G. Estate (P.) Ltd. V. ACIT, Range-6, New Delhi 44 taxmann.com418
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Penalty under Section 271DA
Section 269ST
No person shall receive an amount of INR 2Lakhs or more
in aggregate from a person in a day; or
in respect of a single transaction; or
in respect of transactions relating to one eventor occasion from a person,
otherwise than by an account payee cheque or anaccount payee bank draft or use of electronicclearing system through a bank account.
Non Compliance of 269ST - 271DA
Failure to comply with the provisions of thissection shall attract section 271 DA.
Penalty payable shall be equal to the amount ofsuch receipt received in cash.
However, no penalty shall be imposable if suchperson proves that there were good andsufficient reasons for the contravention.
Penalty shall be imposed by the jointcommissioner
Non-Applicability of Sec 269ST
Any receipt by Government or anybanking company, post office savingsbank or co-operative bank;
Transactions of the nature referred to insection 269SS;
Such other persons or class of persons orreceipts, which the Central Governmentmay, by notification in the OfficialGazette, specify.
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Overview – Other penalty provisions
Section Nature of default Quantum of penalty Who can levy Nature of levy
271A*Failure to keep, maintain or retain books or documentsu/s. 44AA
Rs 25,000 AO / CIT(A) Discretionary
271AA(1)*Failure to keep and maintain information and documentsu/s. 92D, failure to report transactions and maintaining orfurnishing of incorrect information/document
2% of value of each International transactionor specified domestic transactions
AO / CIT (A) Discretionary
271AA(2)*Failure to furnish information and document as requiredunder Section 92D(4) i.e. report in respect ofInternational group
RS 5,00,000 Prescribed IT authority Discretionary
271BFailure to get accounts audited or furnish a report of auditas required under section 44AB
One-half per cent of total sales, turnover orgross receipts, etc. or Rs 1,50,000 whicheveris less
AO Discretionary
271BAFailure to furnish a report from an accountant as requiredby section 92E
Rs. 1,00,000 AO Discretionary
*Without prejudice to Section 271 and 270A
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Overview – Other penalty provisions
Section Nature of default Quantum of penalty Who can levy Nature of levy
271CA Failure to collect tax at source as required under Chapter XVII-BB Amount equal to tax not collected JC Mandatory
271D Failure to comply with the provisions off Section 269SSAmount equal to loan or deposit or specified sum so taken oraccepted
JC Mandatory
271DA Failure to comply with the provisions of Section 269ST Amount equal to such receipt JC Mandatory
271ERepayment of any loan or deposit or specified advance otherwise than inaccordance with provision of Section 269T.
Amount equal to loan or deposit or specified advance so repaid JC Mandatory
271FFailure to furnish return as required by section 139(1) on or before theend of the relevant assessment year
Rs. 5,000 (Applicable up to the Assessment year 2017-18)AO Discretionary
271FAFailure to furnish statement of financial transaction or reportableaccount under section 285BA(1)
Rs. 100/day for every day during which the failure continues Rs. 500/day from the date assessee was issued notice under
sub section (5) of section 285BA till the date of filing thestatement
Prescribed ITAuthority
Discretionary
271FAA Furnishing inaccurate SFT or Reportable Account Rs. 50,000Prescribed IT
AuthorityDiscretionary
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Overview – Other penalty provisions
Section Nature of default Quantum of penalty Who can levy Nature of levy
271GFailure to furnish any information or document in pursuant of notice u/s bysection 92D(3)
2% of the value of the international transaction/specifieddomestic transaction for each failure
AO / TPO /CIT(A)
Discretionary
271GA
Section 285A provides for reporting by an Indian concern if following twoconditions are satisfied:
• Shares or interest in a foreign company or entity which derives substantialvalue, directly or indirectly, from assets located in India; and
• Such foreign company or entity holds such assets in India through or insuch Indian concern.
In this case, the Indian entity shall furnish the prescribed information forthe purpose of determination of any income accruing or arising in Indiaunder Section 9(1)(i). In case of any failure, the Indian concern shall beliable to pay penalty.
Penalty shall be:
a) a sum equal to 2% of value of transaction in respect ofwhich such failure has taken place, if such transaction hadeffect of, directly or indirectly, transferring right ofmanagement or control in relation to the Indian concern;
b) a sum of Rs. 500,000 in any other case.
Prescribed ITauthority
Discretionary
271GB(1) Failure to furnish report under section 286(2)Rs. 5,000 per day up to 1 month andRs. 15,000 per day beyond1 month
Prescribed ITauthority
Discretionary
271GB(2)Failure to produce the information and documents within the period allowedunder section 286(6)
Rs. 5,000 for every day during which the failure continues.Prescribed IT
authorityDiscretionary
271GB(3)Failure to furnish report or failure to produce information/documents undersection 286 even after serving order under section 271GB(1) or 271GB(2)
Rs. 50,000 for every day for which such failure continuesbeginning from the date of serving such order.
Prescribed ITauthority
Discretionary
271GB(4)Providing inaccurate information in the report furnished in accordance withsection 286(2)
Rs. 5,00,000Prescribed IT
authorityDiscretionary
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Section Nature of default Quantum of penalty Who can levy Nature of levy
271H*Failure to deliver the quarterly returns of TDS/TCS within the time prescribedor furnishing incorrect information in the statement
Penalty shall not be less than Rs. 10,000 butmay extend to Rs. 1,00,000.
AO
Mandatory till01-10-2014
ThereonDiscretionary
271-IFailure to furnish Form 15CA/15CB or furnishing incorrect informationtherein
Rs. 1,00,000 AO Discretionary
271JFurnished incorrect information in any report or certificate by an accountantor a merchant banker or a registered valuer
Rs. 10,000 for each incorrect report orcertificate
AO / CIT(A) Discretionary
272AA Failure to comply with section 133B Not exceeding Rs. 1,000 JC / AD / DD / AO Mandatory
272B Failure to comply with provisions of section 139A/139A(5)(c)/(5A)/(5C) Rs. 10,000 AO Discretionary
272BBQuoting false tax deduction account number/tax collection accountnumber/tax deduction and collection account number inchallans/certificates/statements/documents referred to in section 203A(2)
Rs. 10,000 AO Mandatory
ICAI - Workshop on Penalty provisions
Overview – Other penalty provisions
*No penalty for failure to deliver quarterly returns of TDS/TCS in time, if quarterly return submitted before the expiry of one year from time prescribed andfees under section 234E and interest under section 201(1A) paid
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Section Nature of default Quantum of penalty Who can levy Nature of levy
271AAC Income referred to in Section 68, 69, 69A, 69B, 69C & 69D 10% of the tax payable AO Discretionary
272A(1)
a) Refusal to answer any question put by an Incomer tax authorityb) Refusal to sign any statement made in the course of proceedings under
the Actc) Failure to attend or produce books of accounts or documents required
under a summon issued u/s 131d) Failure to comply with notice u/s 142(2)/ 143(2)e) Failure to comply with direction issued s/s 142(2A)
Rs. 10, 000 for each default or failureRespective Income
tax authorityMandatory
272A(2)
a) Failure to give notice o discontinuance o business or profession u/s 176b) Failure to furnish in due time the information required u/s 139(4A) or
139(4C) or to furnish within the time allowed thereinc) Failure to deliver in due time a copy of declaration in section 197Ad) Failure to furnish TDS Or TCS certificatee) Failure to deliver or cause to be delivered a statement within the time
as may be prescribed u/s 200(2A) or 206C(3A)
a) Rs. 100 for every day during which thedefault continues
b) However in respect of failure in respect of(c), (d), (e) and returns u/s 206 &206C(3A), the amount of penalty shallnot exceed the amount o TDS/TCS
Respective Incometax authority Mandatory
ICAI - Workshop on Penalty provisions
Overview – Other penalty provisions
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Fee/ Penalty for default in furnishing return ofincome – Sec 234F versus Sec 271F
Particulars Old Provision – Sec 271F New Provision – Sec 234F
Who is liableA person required to furnish return of income undersection 139 fails to furnish such return before theend of the relevant AY
A person required to furnish return of income under section 139 within the timeprescribed thereunder
Quantum of liability INR 5,000
Amount of Fee (INR) Status of return furnished
5,000If the return is furnished on or before 31st December of therelevant assessment year
10,000In any other case [i.e. return is furnished after 31st Decemberor return is not furnished at all]
Note: If the total income of the person does not exceed INR 5,00,000, the fee payableshall not exceed INR 1,000/-
Nature Discretionary by the Assessing officer Mandatory , required to be paid along with the self assessment tax under sec 140A
Reasonable causeis provided
Penalty not leviableFee payable, irrespective of showing reasonable cause for not filing return within thedue date
Thank You!
Contributors
Aparna Rajagopal (Associate)
Karthic Ramamoorthy (Intern)