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TMI BlogFinance Bill 2015 New Explanation for determination of penalty for concealment of income or furnishing of inaccurate particulars of income- an analysis and observations.X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Bill 2015 New Explanation for determination of penalty for concealment of income or furnishing of inaccurate particulars of income- an analysis and observations. - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 8-4-2015 - - Existing Explanation 4, which is proposed to be substituted reads as follows (with highlights added by author for analysis): Explanation 4. - For the purposes of clause ( iii ) of this sub-section , the expression the amount of tax sought to be evaded ,- 34 [( a ) in any case where 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 conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that loss into income, means the 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;] ( b ) in any case to which Explanation 3 applies, means the tax on the total income assessed 35 [ as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148 ] ; ( c ) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars have been concealed or inaccurate particulars have been furnished.] Existing Explanation 3 referred to in Explanation 4 reads as follows: [ Explanation 3. - Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid , no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the 33 [***] Commissioner (Appeals) is satisfied that in respect of such assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such person has taxable income, then, such person shall, for the purposes of clause ( c ) of this sub-section, 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 .] Clause 68 of the Finance Bill, 2015 proposes to substitute Explanation 4 to prescribe mathematical formula, to cover situations of income, loss and tax on book profit, if applicable. The proposed clause, and notes thereon, with highlights added by author for easy analysis and understanding, reads as follows: Amendment of section 271 68 . In section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 of the Income-tax Act , with effect from the 1st day of April, 2016, in sub-section(1), for Explanation 4, the following Explanation shall be substituted , namely:- Explanation 4.- For the purposes of clause (iii) of this sub-section,- (a) the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A - B) + (C - D) where, A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been concealed or inaccurate particulars have been furnished; C = amount of tax on the total income assessed as per the provisions contained in section 115JB or section 115JC ; D = amount of tax 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 income in respect of which particulars have been concealed or inaccurate particulars have been furnished: Provided that where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished on any issue is considered both under the provisions contained in section 115JB or section 115JC and under ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral provisions, such amount shall not be reduced from total income assessed while determining the amount under item D: Provided further that in a case where the provisions contained in section 115JB or section 115JC are not applicable, the item (C - D) in the formula shall be ignored; (b) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148 . Notes on Clauses: Clause 68 of the Bill seeks to amend section 271 of the Income tax Act relating to failure to furnish returns, comply with notices, concealment of income, etc. The existing provisions contained in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (iii) of sub-section (1) of the aforesaid section provide that if a person has concealed the particulars of his income or furnished inaccurate particulars of such income such person shall pay by way of penalty a sum of one hundred per cent. to three hundred per cent. of tax sought to be evaded. Explanation 4 to aforesaid sub-section provides for the meaning of the expression amount of tax sought to be evad ed. It is proposed to provide that the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A - B) + (C - D) where A = amount of tax on the total income assesse d as per the provisions other than the provisions contained in section 115JB or section 115JC (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called general provisions); B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished; C = amount of tax on the total income assessed as per the provisions contained in section 115JB or section 115JC ; D = amount of tax 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 income in respect of which particulars have been concealed or inaccurate particulars have been furnished: Provided that where the amount of income in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which particulars have been concealed or inaccurate particulars have been furnished on any issue is considered both under general provisions and under the provisions contained in section 115JB or section 115JC , such amount shall not be reduced from total income assessed while determining the amount under item D: Provided further that where the provisions contained in section 115JB or section 115JC are not applicable, the item (C - D) in the formula shall be ignored. It is further proposed to provide that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into income , the amount of tax sought to be evaded shall be determined in accordance with the formula contained 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. It is also proposed to provide that where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 148. These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent years. Observations of author: As per proposal the amendment will be effective from 01.04.2016 and it is said that the amendment will, accordingly, apply in relation to assessment year 2016-17 and subsequent years. However, these proposals will be enacted into an Act only after 01.04.2016, therefore these should be made applicable from assessment year 2017-18 because the tax payer must be aware of the provisions applicable in relation to income of any previous year before such previous year commences Formulae are subject to satisfaction of test of furnishing of inaccura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te particulars of income or concealment of income. When these tests are not satisfied, a disallowance of expense or addition to income cannot be called furnishing of inaccurate particulars or concealing of income. Penalty in situations where there is no tax at all, and particularly in cases of reduction of loss Is not at all justified for the reason that loss is not an income, on which tax can be imposed. When tax itself cannot be imposed, how penalty can be imposed. The Constitution of India permits imposition of tax on income, and not on loss. Therefore, when there is no tax, how a penalty can be imposed. It seems that in case of loss , no penalty will be levied even as per proposed formula. For example, suppose the loss a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per return was ₹ 200/- loss determined by AO is ₹ 100/- which is kept apart for set off and /or carry forward. Tax payable on loss of ₹ 100/- is nil = 0 Now suppose the disallowance of ₹ 100/- as made by AO, is in nature of furnishing of inaccurate particulars. The rate of tax is 20% Now as per formula tax on normally computed income that is loss of ₹ 100 is nil so A = 0 B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished; So in this illustration B will be equal to 20% of (0 - 100) = 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of - 100 = - 20 Now (A- B) is (0 -20) = -20 so there cannot be penalty. Now suppose ₹ 100 disallowed is also considered as income, then tax payable on such deemed income is ₹ 20/- Then A = 0 B = 0-20 = -20 a negative penalty cannot be imposed. So there will be no scope of penalty when there is no tax payable on normally computed income and when MAT is not applicable. There is no justification of penalty in case of tax on book profit, where such tax is provisional collection and entitles assessee to get MAT credit in future. When a sum is collected provisionally, and can be allowed as credit in future, it is not tax on income - it is an advance and provisional payment by tax payer and provisional receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government. Therefore, there should be no penalty in such situations. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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