Penalty for concealment of income – Section 271 [Applicable upto 31st March, 2016] - Income Tax - Ready Reckoner - Income Tax

Penalty for concealment of income Section 271 Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner shall levy penalty for concealment of income on the additions made by him in an assessment or reassessment under section 143(3)/144/147/153A. CIT (Appeals) shall levy penalty for concealment of Income on the additions made by him in an order passed under section 250. CIT shall levy penalty for concealment of Income on the additions made by him in an order passed under section 263. If Assessing Officer is to levy the penalty for concealment of Income, then the penalty proceedings must be initiated by the Assessing Officer before the completion of assessment. If CIT (Appeals) is to levy the penalty for concealment of income, then the penalty proceedings must be initiated before passing the order under section 250. If CIT under section 263 increases the income, then he must initiate the penalty proceedings before passing the order under section 263. Note:- Penalty is initiated by issuing a show cause notice. There will be no penalty for concealment of income on any additions made on a Question of Law. There will be no penalty for concealment of income on any addition made on debatable issue. Penalty for concealment of Income is levied by passing an order under section 271(1)(c). Penalty is in addition to Income tax. Minimum Penalty : 100% of tax sought to be evaded Maximum Penalty : 300% of tax sought to be evaded Penalty can be levied if Assessing Officer during the course of proceedings is satisfied that assessee has concealed the income or furnished inaccurate particulars of such income. Such satisfaction shall not be recorded separately in assessment order. If Assessing Officer writes in the assessment order that penalty proceedings have been initiated , it will amount to satisfaction of Assessing Officer that concealment has taken place. Note:- Penalty proceedings are distinct from assessment proceedings and independent there from. The fact that certain additions were made in the assessments proceedings would not automatically justify the Revenue to impose penalty u/s 272(1)(c). [CIT v Dharam Chand L. Shah (1993) 204 ITR 462 (Bom.)] Explanation 1 to Section 271(1) Where in respect of any facts material to the computation of the total income, if any person fails to offer an explanation; or offers an explanation which is found to be false; or offers an explanation which he is not able to substantiate; or fails to prove that such explanation is bonafide; or fails to prove that all facts relating to the same and material to the computation of his total income have been disclosed by him. Then the amount added or disallowed as a result of the above in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. Explanation 2 to Section 271(1) Additions are sometimes made by the assessing Officer for purely technical reasons, e.g., application of a presumptive rate of gross profit or of yield, or on account of estimated disallowance of certain expenses, shortfalls, wastage, etc., but no penalty for concealment is levied in respect of these additions for want of adequate evidence to establish that these additions represent the assessee s concealed income. In later assessments, when called upon to explain certain deposits, etc., the assessee urges at times that such deposits, etc., have come out of the income represented by the aforesaid additions made earlier. Despite this virtual confession of concealment on the part of the assessee, no penalty was leviable in such cases as the time-limit for initiating concealment penalty proceedings in respect of the earlier year in which the addition was made would have expired. The penalty could also not be imposed in respect of the year in which the deposit was made as there was no concealment in that year, the deposit having been explained as out of an earlier year s income. Explanation 2 to section 271 provides that in such cases, the assessee would become liable to penalty for concealment in respect of additions made in the earlier year in which the additions were made. Explanation 2 is applicable where the following conditions are satisfied: The source of any receipt, deposit, outgoing or investment in any assessment year (i.e.., current year) is claimed by any person to be amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessment year (i.e., earlier year) In respect of such earlier year no penalty had been levied on account of such addition, etc., under section 271(1)(c). That part of the amount so added or deducted in such earlier assessment year which is sufficient to cover the amount represented by such receipt, deposit or outgoing or value of such investment shall be treated as the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the earlier year. The following points should also be kept in view: Where the amount so added in the earlier year is not sufficient to cover the entire amount of receipt, deposit, outgoing or investment of the current year, then that part of the amount so added in the year immediately preceding the earlier year which is sufficient to cover the receipt, deposit, outgoing or investment not so covered shall be treated as the income of the assessee for which particulars have been concealed for the year immediately preceding the earlier year and so on until the entire amount is covered. Where any penalty is imposable by virtue of Explanation 2, proceedings for the imposition of such penalty may be initiated (notwithstanding that any proceedings under the Act) in the course of which such penalty proceedings could have been initiated under section 271(1) have been completed. Explanation 3 to Section 271(1) Where any person fails to furnish within the period specified in section 139(4) a return of his income which he is required to furnish under section 139 in respect of any assessment year and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, Then such person shall, for the purposes of section 271(1)(c), be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148. Penalty for concealment of income Section 271(1) Under the existing provision contained section 271(1)(c) of the Act penalty for concealment of income for furnishing inaccurate particulars of income is levied on the amount of tax sought to be evaded , which has been defined, inter alia, as the difference between the tax due on the income assessed and tax which would have been chargeable had such total income been reduced by the amount of concealed income. Courts have held that penalty under section 271(1)(c) cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act. [ In Commissioner of Income Tax, Meerut and Another Versus M/s. Jindal Polyester Steel Ltd. Ghaziabad [2014 (4) TMI 562 - ALLAHABAD HIGH COURT]. The High Court held that book profit disclosed by assessee for purpose of tax liability under MAT provision was relevant and not income determined under provisions of the Income-tax Act. When concealment of income did not lead to tax evasion under MAT provisions, no penalty would be levied. Section 271 of the Act has been amended so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC . However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC. Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored. Explanation 4 to Section 271(1) Where returned income is a loss and because of concealed income, the loss is reduced or is converted into income. Where in any case the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, the amount of tax sought to be evaded shall be determined in accordance with the formula specified in clause (a) with the modification that the amount to be determined for item (A-B) in that formula shall be the amount of tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income. Where no return is filed under section 139. The amount of tax sought to be evaded= Tax assessed; Less:- TDS Less:- TCS Less:- Advance Tax Less:- Self-assessment tax paid before the issue of notice u/s 148. Where returned income is positive. The amount of tax sought to be evaded= Tax on total income assessed Less: Tax on (total income assessed-concealed income). Explanation 5A to Section 271(1) - Deemed Concealment Where, in the course of a search-initiated u/s 132 on or after 1-6-2007, and the assessee is found to be the owner of - any money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilising his income for any previous year; or any income based on any entry in any books of account or other documents or transactions and he claim that such entry in the books of account or other documents or transactions represents his income for any previous year which has ended before the date of search and, the due date for filing the return of income for such years has expired and the assessee has not filed the return of income or where the return of income has been furnished but such income has not been declared therein , then notwithstanding that such income is declared by him in any revised return of income furnished on or after the date of search, he shall for the purpose of imposition of penalty under section 271(1)(c) be deemed to have concealed the particulars of his income or furnished inaccurate particular of such income. Section 271(1A) Where any penalty is imposable by virtue of Explanation 2 to sub- section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated under sub-section (1) have been completed. Section 271(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings 271(1)(c), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c). Section 271(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed u/s 183(b), then notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. Section 271(4) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as shown in the instrument of partnership on the basis of which the firm has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shall, in addition to the tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction. Section 271(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. Section 271(6) Any reference in this section to the income shall be construed as a reference to the income or fringe benefits, as the case may be, and the provisions of this section shall, as far as may be, apply in relation to any assessment in respect of fringe benefits also. Section 271(7) - No relevance of Section 271 for the assessment year commencing on or after the 1st day of April, 2017 The provisions of section 271 shall not apply to and in relation to any assessment for the assessment year commencing on or after 1-4-2017.