Workshop on Penalty provisions under Income-tax Act, … · Workshop on Penalty provisions under Income-tax Act, 1961 Overview of Penalty provisions and Important issues. PwC

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.

PwCJune 2017


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

PwCJune 2017


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

PwC

Penalty consequent to assessment

proceedings - 271

PwCJune 2017ICAI - Workshop on Penalty provisions

6

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


7

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.

PwCICAI - Workshop on Penalty provisions

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

8June 2017

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



9

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


10


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.


11


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.


12


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.


13


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.

PwC

Penalty consequent to assessment

proceedings – 270A


15

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)


16

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

PwC

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)

ICAI - Workshop on Penalty provisions June 201717

PwC

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.


PwC

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


PwC

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


PwC

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%)



22

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

PwC

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?

June 201723

PwC

Penalty for default in payment oftax –221 & 271C

PwCJune 2017


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

PwCJune 2017


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.

June 201727

PwC

Penalty consequent to searchproceedings – 271AAA & 271AAB

PwCJune 2017

29

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

ICAI - Workshop on Penalty provisions

PwCJune 2017

30

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

PwCJune 2017

31

Comparison of Sec 271AAB and Explanation 5A of Sec271(1)(c)


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

PwC

Time limit for passing the penaltyorder

PwCJune 2017


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

aparnar840

Stamp


34

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)

PwC

Other Penalties


36

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


37

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


38

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


39

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.


40

Overview – Other penalty provisions


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

PwCJune 2017

41



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


PwCJune 2017

42



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


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.


Discretionary

271GB(4)Providing inaccurate information in the report furnished in accordance withsection 286(2)

Rs. 5,00,000Prescribed IT

authorityDiscretionary


PwCJune 2017

43


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



*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

PwCJune 2017

44


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




45

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)

Documents

Workshop on Penalty provisions under Income-tax Act, … · Workshop on Penalty provisions under Income-tax Act, 1961 Overview of Penalty provisions and Important issues. PwC