RATIONALISATION OF PENALTY PROVISIONS
Penalty for concealment of income is leviable under Section 271 (1) (c). In order to provide more certainty and objectivity, it is proposed that Section 271 shall not apply in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017 and subsequent assessment years and penalty for concealment of income shall be levied under the newly inserted Section 270A with effect from 1st April, 2017.
The new Section 270A provides for levy of penalty in cases of under reporting and misreporting of income instead of concealment of income. The power to levy penalty under Section 270A vests with the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner.
The following table provides the calculation of amount of under reported income under different scenarios:-
Calculation of Amount of under reported income
|Where return is furnished and assessment is made for the first time||All assesses||Difference between the assessed income and the income determined under Summary Assessment|
|Where no return is furnished earlier and it is furnished for the first time||Company, Firm or Local Authority||Assessed Income|
|Where no return is furnished earlier and it is furnished for the first time||Person other than Company, Firm or Local Authority||Difference between the assessed income and the maximum amount not chargeable to tax|
|Where income is not assessed for the first time||Any person||Difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order|
|Deemed total income as per Section 115JB or Section 115JC||Any person||(I-II) + (III-IV) (Note)|
|Assessment or reassessment has the effect of reducing loss declared in the return or converting loss into income||Any person||Difference between the loss claimed and the income or loss, assessed or reassessed|
|Source of any receipt, deposit or investment is linked to earlier year||Any person||As per Explanation 2 to Section 271 (1)|
I – Total Income assessed as per general provisions
II – Total Income that would have been chargeable considering the total income assessed as per general provisions as reduced by under reported income
III – Total Income assessed as per the provisions contained in Section 115JB or Section 115JC, as the case may be
IV – Total Income that would have been chargeable considering the total income assessed as per provisions contained in Section 115JB or 115JC as reduced by 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 IV.
It is further proposed that the under-reported income under this Section shall not include the following cases:
– Where the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bonafide and all the material facts have been disclosed
– Where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot be properly derived therefrom
– Where the assessee has, on its own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance
– Where the assessee had maintained information and documents as prescribed under Section 92D, declared the relevant international transaction and disclosed all the material facts relating to the transaction
– Where the undisclosed income is on account of a search operation and penalty is leviable thereon.
Following further amendments have been proposed:-
– In case of company, firm or local authority, the tax payable on under reported income shall be calculated as if the under-reported income is the total income, however, in any other case, the tax payable shall be thirty per cent of the under-reported income
– Addition or disallowance of an amount shall not 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.
– Consequential amendments shall be made in Sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to newly inserted Section 270A.
The above amendments are proposed to remove the existing ambiguity for levy of penalty on concealment of income and provide required certainty. Removing the discretionary powers of the Assessing Officers would certainly reduce corruption and red-tapism. However, the definition of understatement and misstatement might lead to frivolous litigation.
These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.