Penalties For Assessments Under Income Tax Act

Under the Income-tax Act, penalties are levied for various defaults committed by the taxpayer. Some of the penalties are mandatory and a few are at the discretion of the tax authorities. In this part, you can gain knowledge about the provisions relating to various penalties leviable under the Income-tax Act.

Section 271AAB: Penalty for search and seizure

Rate – 30% if following conditions are satisfied

Assessee during the search admits the undisclosed income
Specifies the manner in which the income was earned
Pays tax + interest on undisclosed income
Furnishes the return of income declaring undisclosed income before the due date u/s139(1) or 147

If the above mentioned conditions are not satisfied, penalty will be levied at the rate of 60%

SUMMARY:

Section 270 A: Penalty for under reporting / mis-reporting of income

UNDER-REPORTING

Part A

Return not filed or filed first time u/s 148: Assessed income > Basic exemption

URI => Company, Firm, Local authority = Assessed income

Other cases = Assessed income – Basic exemption

Tax on URI = Tax on [URI +Basic exemption]

Return filed : Assessed income > Income determined u/s 143(1)

URI = Income assessed – Income determined u/s 143(1)

Tax on URI = Tax on [ URI + Income determined u/s 143(1)] – Tax on Income determined u/s 143(1)

Part B: Re-assessment

Income re-assessed > Income assessed just before re-assessment

URI = Re-assessed income – Income assessed earlier

Tax on URI = Tax on [URI+Income assessed in last order] – Tax on Income assessed in last order

Part C

Loss claimed reduced or converted into income

URI = a) Loss claimed – Losses assessed or re-assessed

b) Loss claimed – Income assessed or re-assessed

Tax on URI will be computed as if it were the total income of the assessee

Part D: Income assessed or re-assessed as per Section 115JB/JC (MAT/AMT)

First Time Assessment:

Return not filed or filed first time u/s 148: Deemed total income assessed as per Section 115JB/JC > Basic exemption

Return filed : Deemed total income assessed as per Section 115JB/JC > Deemed total income assessed as per Section 143(1)

Re-assessment: Deemed total income reassessed as per S.115JB/JC > Deemed total income assessed/ re-assessed earlier

URI = (A-B)+(C-D)

A – Total income assessed/ re-assessed as per general provision

B- Total income assessed/ re-assessed reduced by URI

C – Total income assessed / reassessed as per S.115JB/JC

D – Total income assessed / reassessed as per S.115JB/JC reduced by URI

Note: If URI in B&D are same, then URI shall not be considered in “D”

SUMMARY:

MIS-REPORTING

Following would be treated as income mis-reported by the assesse:

Misrepresentation or suppression of facts (Eg: Normal LTCG shown as LTCG u/s 112A)
Failure to record investments in books of accounts (Eg: Assessing officer discovered investment)
Claim of expenditure not substantiated by evidences (Eg: Bogus bills)
Recording of any false entry in books of account (Eg: Bogus expenditure)
Failure to record any receipt in books of account having a bearing on total income
Failure to report any international transaction or deemed international transaction or specified domestic transaction under Chapter X

What would be penalty in case of mis-reporting of income?

Penalty of 200% will be levied in case of misreporting of income by the assessee.

Section 271AAC: Penalty in case of unexplained money (Applicable upto AY 17 -18)

Where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of 10% of the tax payable

However, if the tax is paid before the end of the previous year, penalty will not be levied on undisclosed income. Only additional tax under section 115BBE must be paid.

Note: This section is applicable only upto AY 2017-18, which is subsequently replaced by Section 270A.