Penalty leviable for under-reporting of income and mis-reporting of income [New section 270A]
Related amendment in sections: 119, 253, 271, 271A, 271AA, 271AAB, 273A and 279 Effective from: A.Y.2017-18
(i) Section 271(1)(c) provides for penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income.
(ii) For the purpose of ensuring objectivity, certainty and clarity in the penalty provisions, new section 270A has been inserted with effect from A.Y.2017-18 providing for levy of penalty in cases of under reporting and misreporting of income. Consequently, the penal provisions under section 271 shall not apply in relation to A.Y.2017-18 and onwards.
(iii) Section 270A(1) empowers the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner to direct levy of penalty, during the course of proceedings under the Income-tax Act, 1961, if a person has under reported his income. Such penalty shall be imposed by an order in writing by such authority.
(iv) Cases of under-reporting of income [Section 270A(2)]: A person shall be considered to have under reported his income if, A>B in the cases given hereunder –
|
Case |
(A) |
(B) |
|
| (1) | Return of income has been filed | Income assessed | Income determined in the return processed under section 143(1)(a); |
| (2) | No return of income
has been filed |
Income assessed | Basic exemption limit |
| (3) | Reassessment | Income reassessed | Income assessed or Reassessedimmediately before such re-assessment |
| (4) | Return of income has been filed and assessment/ reassessment is made on the basis of MAT/AMT provisions | The amount of deemed total income assessed or reassessed as per the provisions of section115JB or 115JC | The deemed total income determined in the return processed u/s 143(1)(a) |
| (5) | No return of income is filed and assessment/ reassessment is made on the basis of MAT/AMT provisions | the amount of deemed total income assessed as per the provisions of section 115JB or 115JC | The basic exemption limit, in case of an assesse being an individual, HUF, AOP, BOI, in respect of whom the provisions of AMT are applicable. |
| (6) | Reassessment as per the provisions of sections 115JB or 115JC | The amount of deemed total income reassessed as per the provisions of sections 115JB or 115JC | The deemed total income assessed or reassessed immediately before such reassessment. |
| Further, a person would be considered to have under-reported his income if the income assessed or reassessed has the effect of reducing the loss or converting such loss into income | |||
(v) Calculation of under-reported income in different scenarios [Section 270A(3)]:
| Case | Manner of computation of under-reported income | ||
| (1) | Where return is furnished and assessment is made for the first time. |
Assessed income (-) Income determined under section 143(1)(a) [in case of all persons] |
|
| (2) | Where no return has been furnished and the assessment is made for the first time |
Person |
Under-reported income |
|
Company, firm or local authority
|
Assessed income |
||
|
Other persons |
Assessed income (-) Basic exemption limit |
||
| (3) | Where income is not assessed for the first time |
Income reassessed or recomputed (-) Income assessed or reassessed or recomputed in the order immediately preceding the order during the course of which penalty u/s 270A(1) has been initiated. |
|
| (4) | Where under reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC | (A – B) + (C – D)
where, A = Total income assessed as per the general provisions i.e., provisions other than the provisions contained in section 115JB or section 115JC;
B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under reported income;
C = the total income assessed as per the provisions contained in section 115JB or section 115JC;
D = the 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.
However, where the amount of under reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. |
|
| (5) | Where an assessment or Reassessment has the effect of reducing the loss declared in the return or converting that loss into income |
The loss claimed (-) The income or loss, as the case may be, assessed or reassessed. |
|
(vi) Meaning of Under-reported income in a case where the source of any receipt, deposit or investment is linked to an earlier year [Section 270A(4) & (5)] :
In a case where the source of any receipt, deposit or investment appearing in the current assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in the assessment of such person in any earlier assessment year and no penalty was levied for such preceding year, underreported income shall include such amount as is sufficient to cover such receipt, deposit or investment.
Note – Such amount shall be deemed to be the amount of income under-reported for the preceding year in the following order –
| (i) | The preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and
|
|
(ii) |
Where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. |
(vii) Cases not included within the scope of under-reported income under section 270A [Section 270A(6)]:
| Case | Condition | |
| (1) | The amount of income in respect of which the assesse offers an explanation | The Assessing Officer/CIT/PC/ Commissioner (Appeals) is satisfied that the explanation is bona fide and all the material facts have been disclosed to substantiate the explanation. |
| (2) | The amount of under-reported income determined on the basis of an estimate | If the accounts are correct and complete to the satisfaction of the income-tax authority but the method employed is such that the income cannot properly be deduced therefrom |
| (3) | The amount of under-reported income determined on the basis of an estimate | If the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance |
| (4) | The amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer | Where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X and disclosed all the material facts relating to the transaction |
| (5) | The amount of undisclosed income on account of a search operation | Where penalty is leviable under section 271AAB in respect of such undisclosed income. |
(viii) Cases of misreporting of income [Section 270A(9)]:
(1) misrepresentation or suppression of facts;
(2) failure to record investments in books of account;
(3) claim of expenditure not substantiated by any evidence;
(4) recording of any false entry in books of account;
(5) failure to record any receipt in books of account having a bearing on total income; and
(6) failure to report any international transaction or deemed international transaction or specified domestic transaction under Chapter X.
(ix) Quantum of penalty leviable :
|
Section |
Case |
Penalty |
|
|
(1) |
270A(7) |
Under reporting of income |
50% of tax payable on under-reported income |
|
(2) |
270A(8)
|
Where under reporting of income results from misreporting of income by any person. |
200% of tax payable on such under-reported income |
(x) Manner of computation of tax payable on under-reported income [Section 270A(10)]:
|
Case
|
Manner of computation of tax payable on under-reported income |
|
| (1) | Where no return of income has been furnished and the income has been assessed for the first time | The tax payable on under-reported income
shall be the amount of tax calculated on the under-reported income as increased by the basic exemption limit as if it were the total income. |
| (2) | Where the total income determined u/s 143(1)(a) or assessed or reassessed or recomputed in a preceding order is a loss | The tax payable in respect of the underreported income shall be the amount of tax calculated on the under-reported income as if it were the total income. |
| (3) | In any other case | The amount of tax calculated on the underreported income as increased by the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order as if it were the total income
Minus The amount of tax calculated on the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order. |
(xi) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year [Section 270A(11)].
(xii) Consequential amendments in other provisions:
Consequential amendments have been made in sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to new section 270A
| Section | Provision | Amendment | |
| (1) | 119(2)(a) | Power of CBDT to relax certain provisions, by way of a general or special order, for the purpose of proper and efficient management of the work of assessment and collection of revenue . | The CBDT has now been empowered to relax the provisions for levy of penalty section 270A also. |
| (2) | 253(1) | Enlists the orders appealable to the Appellate Tribunal. | The order passed by the Commissioner (Appeals), Principal Commissioner or Commissioner under section 270A would also be appealable to the Appellate Tribunal. |
| (3) | 271A | Levy of penalty of ` 25,000 for failure to keep, maintain or retain books of account as required under section 44AA | The penalty under this section would be without prejudice to the provisions of new section 270A. |
| (4) | 271AA | Levy of penalty of 2% of value of international transaction or specified domestic transaction, where the person fails to maintain information and documents required u/s 92D or report such transaction or maintains or furnishes an incorrect information or document. | The penalty under this section would be without prejudice to the provisions of new section 270A. |
| (5) | 271AAB | Levy of penalty where search is initiated under section 132 on or after 1.7.2012. | No penalty under section 270A would be imposable in respect of undisclosed income on which penalty has been levied under section 271AAB(1). |
| (6) | 273A(1) | Power of Principal Commissioner or Commissioner to reduce or waive penalty in certain cases. | Reduction or waiver of penalty imposable on a person u/s 270A, if prior to detection by the Assessing Officer, the person has
voluntarily and in good faith made full and true disclosure of particulars of income i.e., where the excess of income assessed over the income returned is of such a nature as not to attract the penal provisions u/s 270A. |
| (7) | 273A(2) | Order reducing or waiving penalty under section 273A(1) to be made by the PC/CIT only with the previous approval of the PCC/ CC PDG/DG, as the case may be. | Previous approval of higher authorities also required if, in a case falling u/s 270A, the amount of income in respect of which the penalty is imposed or imposable for the relevant A.Y., or where such disclosure relates to more than one A.Y., the aggregate amount of such income for those years exceed ` 5 lakh. |
| (8) | 276C | Prosecution to be instituted if a person willfully attempts in any manner to evade any tax, penalty or interest chargeable or imposable under the Income-tax Act, 1961. | Prosecution to also be instituted if a person underreports his income under the Income-tax Act, 1961 |
| Rigorous imprisonment for a period of 6 months to 7 years and fine would be attracted in a case where the amount sought to be evaded exceeds Rs. 25 lakhs. | Rigorous imprisonment for a period of 6 months to 7years and fine would also be attracted in a case where the tax on under-reported income exceeds Rs 25 lakhs. | ||
| (9) | 279(1A) | Prosecution not to be instituted against a person u/s 276C or 277 in relation to the assessment for an assessment year in respect of which penalty imposed or imposable u/s 271(1)(iii) has been reduced or waived by an order u/s 273A. | Prosecution not to be instituted against a person u/s 276C or 277 in relation to the assessment for an AY in respect of which penalty imposed or imposable u/s 270A or u/s 271(1)(iii) has been reduced or waived by an order u/s 273A. |
(xiv) Examples:
(1) M/s. XYZ is a firm liable to tax@30%. The following are the particulars furnished by the firm for A.Y.2017-18:
|
Particulars of total income |
(Rs.) |
|
| 1)
(2) (3) (4) |
As per the return of income furnished u/s 139(1)
Determined under section 143(1)(a) 60,00,000 Assessed under section 143(3) Reassessed under section 147 |
50,00,000 60,00,000 75,00,000 95,00,000
|
Can penalty be levied under section 270A on M/s. XYZ? If the answer is in the affirmative, compute the penalty leviable under section 270A.
Solution
M/s. XYZ is deemed to have under-reported its income since:
(1) its income assessed under 143(3) exceeds its income determined in a return processed under section 143(1)(a); and
(2) the income reassessed under section 147 exceeds the income assessed under section 143(3).
Therefore, penalty is leviable under section 270A for under-reporting of income.
| Particulars | (Rs) | (Rs) |
| Assessment under section 143(3) Under-reported income:
Total income assessed under section 143(3)
(-) Total income determined u/s 143(1)(a)
|
75,00,000
_60,00,000_ __15,00,000___ |
|
| Tax payable on under-reported income:
Tax on under-reported income of ` 15 lakhs plus tax on total income of ` 60 lakhs determined u/s 143(1)(a) [30% of ` 75 lakh + EC & SHEC@3%]
Less: Tax on total income determined u/s 143(1)(a) [30% of ` 60 lakh + EC & SHEC@3%]
|
23,17,500
_18,54,000_
_ 4,63,500__ |
|
|
Penalty leviable@50% of tax payable
|
|
2,31,750
|
| Reassessment under section 147 Under-reported income:
Total income reassessed under section 147
(-) Total income assessed under section 143(3)
|
95,00,000
75,00,000_ 20,00,000_
|
|
| Tax payable on under-reported income:
Tax on under-reported income of ` 20 lakhs plus tax on total income of ` 75 lakhs assessed u/s 143(3) [30% of ` 95 lakh + EC & SHEC@3%]
Less: Tax on total income assessed u/s 143(3) [30% of ` 75 lakh + EC & SHEC@3%]
|
29,35,500
_23,17,500_
__6,18,000 |
|
| Penalty leviable@50% of tax payable | 3,09,000 |
Note – The following assumptions have been made –
(1) None of the additions or disallowances made in assessment or reassessment qualifies under section 270A(6); and
(2) The under-reported income is not on account of misreporting.
(2) Mr. Ram, a resident individual of the age of 55 years, has not furnished his return of income for A.Y.2017-18. However, the total income assessed in respect of such year under section 143(3) is ` 12 lakh. Is penalty under section 270A attracted in this case, and if so, what is the quantum of penalty leviable?
Solution
Mr. Ram is deemed to have under-reported his income since he has not filed his return of income and his assessed income exceeds the basic exemption limit of Rs. 2,50,000. Hence, penalty under section 270A is leviable in his case.
Computation of penalty leviable under section 270A
|
Particulars |
(Rs) |
(Rs) |
| Assessment under section 143(3) Under-reported income:
Total income assessed under section 143(3)
(-) Basic exemption limit |
12,00,000
2,50,000 __ 9,50,000 |
|
| Tax payable on under-reported income:
Tax on under-reported income of ` 15 lakhs plus tax on total income of ` 60 lakhs determined u/s 143(1)(a) [30% of ` 75 lakh + EC & SHEC@3%]
Less: Tax on total income determined u/s 143(1)(a) [30% of ` 60 lakh + EC & SHEC@3%]
|
23,17,500
_18,54,000_ _ 4,63,500__ |
|
| Tax payable on under-reported income as increased by the basic exemption limit [30% of ` 2 lakhs + ` 1,25,000]
Add: EC & SHEC@3%
|
1,85,000
______5,550__ 1,90,550 |
|
| Penalty leviable@50% of tax payable |
95,275 |
Note – It is assumed that the under-reported income is not on account of misreporting.
(3) ABC Ltd. is a domestic company liable to tax@30%. The following are the particulars furnished by the company for A.Y.2017-18:
|
Particulars |
Rs. |
|
| (1)
(2) (3) (4) |
As per the return of income furnished u/s 139(1)
Determined under section 143(1)(a) Assessed under section 143(3) Reassessed under section 147 |
(15,00,000) (8,00,000) 5,00,000) 4,00,000
|
Is penalty leviable under section 270A on ABC Ltd., and if so, what is the quantum of penalty?
Solution
ABC Ltd. is deemed to have under-reported its income since:
(1) the assessment under 143(3) has the effect of reducing the loss determined in a return processed under section 143(1)(a); and
(2) the reassessment under section 147 has the effect of converting the loss assessed under section 143(3) into income.
Therefore, penalty is leviable under section 270A for under-reporting of income.
| Particulars | (Rs) | (Rs) | |
| Assessment under section 143(3) Under-reported income:
Loss assessed u/s 143(3) (-) Loss determined under section 143(1)(a)
Tax payable on under-reported income@30% Add: EC & SHEC@3%
|
(5,00,000) (8,00,000)
90,000 _2,700 92,700 |
|
|
| Penalty leviable@50% of tax payable
|
46,350 |
||
| Reassessment under section 147 Under-reported income:
Total income reassessed under section 147 (-) Loss assessed under section 143(3)
Tax payable on under-reported income@30% Add: EC & SHEC@3% |
4,00,000 (5,00,000) __9,00,000_ 2,70,000 __ 8,100 2,78,100 |
||
| Penalty leviable@50% of tax payable |
1,39,050 |
Note – The following assumptions have been made –
(1) None of the additions or disallowances made in assessment or reassessment qualifies under section 270A(6); and
(2) The under-reported income is not on account of misreporting.