Penalties as per Income Tax(IT) Act,1961 I TaxAddicters I AY 2021-22

Penalties as per Income Tax Act,1961

The Income Tax Act, 1961 provides for the imposition of a penalty on an assessee who commits any offence under the provisions of Act.

"Table of Content :-

1. Introduction to penalties as per Act

2. Penalty leviable for under reporting of incomeu/s 270A

3. Cases of misreporting of income u/s270A(9)

4. Quantum of penalty leviable as per Income Tax Act,1961

5. Other important penalties as per IncomeTax Act, 1961."

1. Introduction :

Penalty is levied over and above the any tax or interest payable by the assessee and thus, penalty is distinct and different from the tax payable. Penalty proceedings however, are a part of the assessment proceedings. The penalty to be levied on an assessee is to be based upon the law as it stood at the time the default was committed and not the law as it stands in the financial year for which the assessment is made. The various sections prescribe the minimum and maximum penalty that can be levied in certain cases through Principal Commissioner (PC) or Commissioner (C) is empowered to waive or reduce the penalty in some cases. The authority concerned has been given the discretion to levy or not to levy a penalty. But, if a penalty is levied, it cannot be less than the prescribed minimum nor can it exceed the maximum amount prescribed by the act. The quantum of penalty levied by a lower authority can be modified by the higher authority on appeal, reference of revision. Various penalties levied under the Act are discussed as follows:

2. Penalty leviable for under reporting of income [Section 270A]:

Up to A.Y 2016-17, Section 271(1)(c) provided for penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income. For the purpose of ensuring objectivity, certainty and clarity in the penal provisions, section 270A provides for levy of penalty in cases of under reporting or misreporting of income w.e.f A.Y 2017-18. Consequently the penal provisions under section 271 shall not apply in relation to A.Y 2017-18 and onwards.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt USD-949802187 ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

a. Authorities empowered to levy penalty :

Section 270A(1) empowers the AO,C(appeals) or PC or C 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.

b. Under reporting of Income :

under reporting of income means addition or increase of income during the assessment or re-assessment of income tax return.

c. Calculation of under reporting income and Tax in case of other than loss:
Case1: First time assessment
(i)No return of income has been filed or where return if furnished for the first time u/s 148 :-

Under Reporting Income (URI) in case of

Company/ Firm/ Local Authority = Assessed income

Other Assessee = Assessed income - Basic exemption

Tax on URI = Tax on assessed income

(ii)Return filed

URI will be = Assessed Income - Income as per section 143(1)(a)

Tax on URI will be the difference between the Tax on total assessed income and the Tax on income as per section 143(1)(a)

i.e Tax on Assessed Income - Tax on Income as per section 143(1)(a)

Case2:Re-assessment

URI =Reassessed income - Income assessed earlier

Tax on URI = Tax on the difference between the reassessed income and the income assessed earlier.

i.e = Tax on Reassessed income - Tax on Income assessed earlier.

d. Calculation of under reporting income and Tax in case of loss (i.e decrease of loss or converted into income):
Case1: First time assessment

URI = Assessed Loss / income - Loss /Income as per u/s 143(1)

Case2:Re-assessment

URI = Reassessed Loss/income- Loss assessed earlier

Tax in case of both the above cases:

Tax = Tax on URI, if it was income of assessee.

3. Cases of misreporting of income [Section 270A(9)]:

I. Misrepresentation or suppression of facts

II. Failure to record investments in books of accounts

III. Claim of expenditure nor substantiated by any evidence

IV. Recording of any false entry in books of account

V. Failure to record any receipt in books of account having a bearing on total income and

VI. Failure to report any international transaction or deemed international transaction or specified domestic transaction under chapter X.

4. Quantum of penalty leviable:

	Section	Case	Penalty
i	270A(7)	Under Reporting of Income	50% of the tax payable on under reporting of income
ii	270A(8)	Where under reporting of income results from misreporting of income by any person	200% of the tax payable on under reporting of income

Also Read ; Advisory for tax payers regarding blocking of EWB generation facility under GST

5. Other Important Penalties

i) Default in making the payment of tax u/s 220 :

· Penalty leviable as directed by the AO.

· Total amount of penalty cannot exceed the amount of tax in arrears.

· This is in addition to arrears and interest u/s 220(2).

· Where the assessee proves to the satisfaction of AO that the default was for good and sufficient reasons, no penalty is leviable.

· Even if tax is paid after default, it makes no difference.

ii) Failure to keep or maintain or retain books of accounts , documents, etc as required u/s 44A :

· Penalty is Rs.25,000

iii) Failure to keep or maintain any information and document as required u/s92D(1)or(2) &
Failure to report such transaction which he is required to do so, Maintaining or furnishing incorrect information or document.

· Penalty is 2% of the value of each international transaction or specified domestic transaction entered into by such person.

iv) Undisclosed income found in search[Section 271AAB:

· Penalty is 30% / 60 % of undisclosed income.

· 30% if the following conditions are fulfilled:

i. Assessee admits undisclosed income in the statement.

ii. Specifies the manner in which such income was arrived.

iii. Pay tax & interest on such income

iv. Furnishes the ROI for the specified PY declaring such undisclosed income on or before the due date.

· If the above conditions are not satisfied (any one), then the penalty will be @ 60%.

· No penalty u/s 270A on undisclosed income found in search.

v) Income u/s 68,69,69A to 69D [section 271AAC]:

· Penalty @10% of tax u/s 115BBE

· No penalty id such income disclosed in past & tax paid.

· No penalty u/s 270A.

vi) Making false entry or omission of entry in books of account to evade tax liability :

· Penalty is equal to aggregate amount of false entry or omitted entry.

· Penalty is levied on

i. Person who makes false entry or omitted entry.

ii. Other person who caused the person to make false entry or omits entry.

vii) Fails to get accounts audited or furnish report up to due date u/s 44AB [Section 271B] :

· Penalty @0.5% of turnover or gross receipt.

· Penalty maximum of up to Rs.1,50,000.

· If books of accounts not maintained, penalty u/s 271A shall be levied not u/s 271B.