RECOMMENDATION FOR AMENDMENT TO SECTION 273B REGARDING CIRCUMSTANCES FOR NON-LEVY OF PENALTY

The almost automatic initiation and consequent levy of penalty by Assessing Officers for additions or disallowances made under scrutiny assessment has given rise to proliferation of litigation. Quite often penalty is imposed for concealment of income under Section 271(1)(c) of the Income Tax Act to forestall any audit objection or departmental action.

In CIT Vs. Reliance Petro Products 322 ITR 158, the Supreme Court stated: “If we accept the contention of the revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under Section 27/ (1)(c). That is clearly not the intendment of the legislature”.

In respect of penalties under Section 271 to Section 272BBB (other than provisions relating to penalty under Section 271AAA and 271AB for cases where search has been initiated) several situations arise where an assessee, despite acting bona fide by relying on an interpretation of law which is supported by a ruling of a Bench of the Tribunal or of any High Court or of the Supreme Court, invites penalty.

These penalties have not only inflicted hardship upon the tax payers despite their claim being bona fide or for the reason that their view point on a question of law or interpretation of the provisions of the statute was not accepted by the Assessing Officer, but have also given rise to wasteful litigation where the penalties have mostly been cancelled by the appellate authorities.

In the larger interests of the assessees and the Income Tax Department, the Committee recommends that the scope of Section 273B should be suitably enlarged to provide that penalty for concealment of income or furnishing inaccurate particulars thereof will not be imposed where any addition or disallowance is made without any evidence or in a routine manner or on estimate and in cases where the Assessing Officer takes a view which is different from the bona fide view adopted by the assessee on any issue involving the interpretation of any provision of the Income Tax Act or any other law in force and which is supported by any judicial ruling.

The Committee believes that the amendments recommended will cut wasteful litigation and also infuse a sense of responsibility and accountability both upon the tax payer and the revenue.

26.2 Accordingly, the Committee recommends that the existing section 273B be substituted by the following section effective from 1.4.2017:

“273B. (1) Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271AAA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAA, section 271FAB, section 271FB, section 271G, section 271GA, section 271H, section 271-I, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, section 272AA or section 272B or section 272BB or section 272BBB, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure or if he shows that in respect of the alleged default, he has acted bona fide relying on an interpretation of any provision of this Act or any other law for the time being in force or which is supported by any ruling of any Tribunal or High Court or the Supreme Court.

(2) Where during the course of any assessment proceedings under this Act, any addition or disallowance is made by an Assessing Officer based on any assumptions, without evidence or is made merely on estimate or as a result of a view taken by the Assessing Officer, which is different from the bona fide view taken by the assessee on an issue involving the interpretation of any provision of this Act or any other law for the time being in force or which is supported by any ruling of any Tribunal or High Court or the Supreme Court, then notwithstanding anything contained under clause (c) or clause (d) of sub-section (1) of section 271 or any Explanation under the said section, no penalty shall be imposable on the assessee in respect of such addition or disallowance.

Source- Draft Report of Justice R.V. Easwar (Retd) Committee to Simplify the provisions of Income-tax Act, 1961

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