Budget 2016: Under the existing provisions, penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income is leviable under section 271(1 )(c) of the Income-tax Act. In order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, it is proposed that section 271 shall not apply to and in relation to any assessment for the assessment year commencing on or after the 1 stday of April, 2017 and subsequent assessment years and penalty be levied under the newly inserted section 270A with effect from 1stApril, 2017. The new section 270A provides for levy of penalty in cases of under reporting and misreporting of income.
Sub-section (1) of the proposed new section 270A seeks to provide that the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner may levy penalty if a person has under reported his income.
It is proposed that a person shall be considered to have under reported his income if,-
- the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;
- the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;
- the income reassessed is greater than the income assessed or reassessed immediately before such re-assessment;
- the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or 1 15JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;
- the amount of deemed total income assessed as per the provisions of section 1 15JB or 1 15JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;
- the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
The amount of under-reported income is proposed to be calculated in different scenarios as discussed herein. In a case where return is furnished and assessment is made for the first time the amount of under reported income in case of all persons shall be the difference between the assessed income and the income determined under section 143(1 )(a). In a case where no return has been furnished and the return is furnished for the first time, the amount of under-reported income is proposed to be:
- for a company, firm or local authority, the assessed income;
- for a person other than company, firm or local authority, the difference between the assessed income and the maximum amount not chargeable to tax.
In case of any person, where income is not assessed for the first time, the amount of under reported income shall be the difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order.
It is further proposed that in a case where under reported income arises out of determination of deemed total income in accordance with the provisions of section 11 5JB or section 11 5JC, the amount of total under reported income shall be determined in accordance with the following formula‑
(A – B) + (C – D) where,
A = the total income assessed as per the provisions other than the provisions contained in section 1 15JB or section 1 15JC (herein called general provisions);
B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under reported income;
C = the total income assessed as per the provisions contained in section 1 15JB or section 1 15JC;
D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 1 15JB or section 1 15JC been reduced by the amount of under reported income.
However, where the amount of under reported income on any issue is considered both under the provisions contained in section 11 5JB or section 11 5JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.
It is clarified that in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.
Calculation of under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year is proposed to be provided based on the existing Explanation 2 to sub-section (l) of section 271 (1).
It is also 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 bona fide 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 properly be deducted therefrom;
- where the assessee has, on his 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 international transaction under Chapter X 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 under section 271AAB.
It is proposed that the rate of penalty shall be fifty per cent of the tax payable on under-reported income. However in a case where under reporting of income results from misreporting of income by the assessee, the person shall be liable for penalty at the rate of two hundred per cent of the tax payable on such misreported income. The cases of misreporting of income have been specified as under:
- misrepresentation or suppression of facts;
- non-recording of investments in books of account;
- claiming of expenditure not substantiated by evidence;
- recording of false entry in books of account;
- failure to record any receipt in books of account having a bearing on total income;
- failure to report any international transaction or deemed international transaction under Chapter X.
It is also proposed that 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. In any other case the tax payable shall be thirty per cent of the under-reported income.
It is also proposed that no addition or disallowance of an amount shall 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.
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.
Consequential amendments have been proposed in sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to newly inserted section 270A.
The provisions of section 270A are illustrated through examples as below: Example 1. Case is of a firm liable to tax at the rate of 30 per cent.:
| (Figures in Rs lakh) | |
| Returned total Income | 100 |
| Total Income determined under section 143(1)(a) | 110 |
| Total Income assessed under section 143(3) | 150 |
| Total Income reassessed under section 147 | 180 |
Considering that none of the additions or disallowances made in assessment or reassessment as above qualifies under sub-section (6) of section 270A, the penalty would be calculated as under:
| Assessment under section 143 (3) |
Re-assessment under section 147 | |
| Under-reported Income | (150-110) = 40 | (180-150) = 30 |
| Tax Payable on under-reported Income | 30 % of 40 = 12 | 30 % of 30 = 9 |
| Penalty Leviable* | 50 % of 12 = 6 | 50 % of 9 = 4.5 |
* Considering under-reported income is not on account of misreporting
Example 2. Case is of an individual below 60 years of age and no return of income has been furnished:
| (Figures in Rs) | |||
| Total Income assessed under section 143(3) | 10,00,000 | ||
| Under-reported Income | 1 | 0,00,000-2,50,000* | =7,50,000 |
| Tax Payable on under-reported Income | 30 % of 7,50,000 | = 2,25,000 | |
| Penalty Leviable** | 50 % of 2,25,000 | = 1,12,500 | |
* Being maximum amount not chargeable to tax
** Considering under-reported income is not on account of misreporting Example 3. Case is of a company liable to tax at the rate of 30 per cent.:
| (Figures in Rs lakh) | |
| Returned total Income (loss) | (-)100 |
| Total Income (loss) determined under section 143(1)(a) | (-)90 |
| Total Income (loss) assessed under section 143(3) | (-)40 |
| Total Income reassessed under section 147 | 20 |
Considering that none of the additions or disallowances made in assessment or reassessment as above qualifies under sub-section (6) of section 270A, the penalty would be calculated as under:
| Assessment under section 143 (3) |
Re-assessment under section 147 | |
| Under-reported Income Tax Payable on under-reported Income Penalty Leviable* | (-)40 minus (-)90 = 50 30 % of 50 = 15 50 % of 15 = 7.5 |
20 minus (-)40 = 60 30 % of 60 = 18 50 % of 18 = 9 |
* Considering under-reported income is not on account of misreporting
Clause 62 of Finance Bill 2016
Clause 62 of the Bill seeks to amend section 119 of the Income-tax Act relating to instructions to subordinate authorities.
Clause (a) of sub-section (2) of the aforesaid section empowers the Board to issue directions or instructions for the purpose of proper and efficient management of the work of assessment and collection of revenue provided such directions are not prejudicial to the assessee.
It is proposed to make a reference to section 270A in the said clause (a) of sub-section (2) of section 119, so as to enable the Board to issue directions and instructions in respect of section 270A of the Income-tax Act, as well.
The proposed amendment is consequential to the insertion of a new section 270A in the Income-tax Act which provides for levy of penalty for under-reporting and misreporting of income.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 93 of Finance Bill 2016
Clause 93 of the Bill seeks to amend section 253 of the Income-tax Act relating to appeals to the Appellate Tribunal.
Sub-clause (A) of the said clause seeks to amend clauses (a) and (c) of sub-section (1) of the said section.
Clause (a) and clause (c) of sub-section (1) of the aforesaid section, inter alia, provides for an appeal to the Appellate Tribunal, against an order passed under section 271 of the Income-tax Act.
It is proposed to amend the said clauses of sub-section (1) of section 253 so as to provide that an assessee aggrieved by an order passed by the Commissioner (Appeals) or the Principal Commissioner or Commissioner under section 270A, may also appeal to the Appellate Tribunal against such order.
The proposed amendments are consequential to the insertion of a new section 270A in the Income-tax Act which provides for levy of penalty for under-reporting and misreporting of income.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.
Sub-clause (B) of the said clause seeks to omit sub-sections (2A) and (3A) and to substitute sub-section (4) of the said section.
Sub-section (2A) of the aforesaid section provides that the Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 1 44C in respect of any objection filed on or after the 1st day of July, 2012, by the assessee under sub-section (2) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against the order.
Further, sub-section (3A) of the said section provides that every appeal under sub-section (2A) shall be filed within sixty days of the date on which the order sought to be appealed against is passed by the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel under sub-section (5) of section 144C.
It is proposed to omit the said sub-sections (2A) and (3A) to do away with the filing of such appeal by the Assessing Officer.
It is also proposed to consequently amend sub-section (4) of the aforesaid section so as to exclude therefrom the reference relating to direction of the Dispute Resolution Panel, sub-section (2A) and the order of the Assessing Officer (in pursuance of the directions of the Dispute Resolution Panel).
These amendments will take effect from 1st June, 2016.
Sub-clause (C) of the said section seeks to substitute the proviso to sub-section (6) of the said section so as to provide that no fee shall be payable in the case of an appeal under sub-section (2A) of the said section also, as it stood before the commencement of the Finance Act, 2016.
This amendment will take effect retrospectively from 1st July, 2012.
Clause 96 of Finance Bill 2016
Clause 96 of the Bill seeks to insert section 270A in the Income-tax Act relating to penalty for under-reporting and misreporting of income.
Under the existing provisions, penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income is leviable under clause (c) of sub-section (1) of section 271 of the Income-tax Act. In order to rationalize the penalty provisions, it has been provided that section 271 shall not apply to and in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017.
It is proposed to insert a new section 270A for under-reporting and misreporting of income.
Sub-section (1) of the proposed new section seeks to provide that the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner may have the power to levy penalty if a person has under reported his income.
Sub-section (2) of the proposed new section seeks to provide that a person shall be considered to have under reported his income if,––
(i) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income is filed;
(ii) the assessed income is greater than the income determined upon processing under clause (a) of sub-section (1) of section 143, where return is filed;
(iii) the income assessed is greater than the income assessed or reassessed immediately before such reassessment;
(iv) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income,
Appropriate provisions to cover minimum alternate tax and alternate minimum tax cases on the above lines are proposed to be provided.
Sub-section (3) of the proposed section seeks to provide that the amount of under-reported income shall be, in a case where income has been assessed for the first time and the return has been furnished, the difference between the amount of income assessed and the income determined under clause (a) of subsection (1) of section 143. In a case where no returns has been furnished and income is assessed for the first time, the amount of under-reported income shall be the income assessed, in the case of a company, firm or local authority, and in any other case the difference between the amount of income assessed and the maximum amount not chargeable to tax.
It is further proposed that in a case where income is not assessed for the first time, the under-reported income is proposed to be the difference between the amount of income assessed, reassessed or recomputed in a preceding order.
Appropriate provisions for calculating the amount of underreported income in a case of applicability of provisions of section 11 5JB or section 11 5JC or in case of loss have also been provided.
Sub-section (4) of the proposed new section seeks to provide for calculation of under reported income in case where the source of any receipt, deposit or investment linked to earlier year is proposed to be provided based on the existing Explanation 2 to sub-section (1) of section 271(1).
Sub-section (6) of the proposed new section seeks to provide that under – reported income under this section shall not include certain cases mentioned therein.
Sub-section (7) of the proposed new section seeks to provide that the rate of penalty shall be fifty per cent. of the tax payable on under – reported income.
Sub-section (8) of the proposed new section seeks to provide that the cases of under – reported income falling under misreporting of income shall be liable for penalty at the rate of two hundred per cent. of the tax payable on such misreported income.
Sub-section (9) of the proposed new section seeks to specify the cases of misreporting of income referred to in sub-section (8).
Sub-section (10) of the proposed new section seeks to provide that the tax payable on under-reported income shall be calculated as if such under-reported income was the total income in case of a company, firm or local authority, and at the rate of thirty per cent. of under-reported income in any other case based on the tax rate applicable in case of company, firm or local authority, and in other cases.
Sub-section (11) of the proposed new section seeks to provide that no addition or disallowance of an amount shall 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.
Sub-section (12) of the proposed new section seeks to provide that the penalty under the said section shall be imposed by an order in writing.
These amendments will take effect from the 1st day of April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 98 of Finance Bill 2016
Clause 98 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 provisions of the said section provides for a penalty on account of failure to comply with a notice issued under sub-section (1) of section 142 or sub-section (2) of section 143 or failure to comply with a direction issued under sub-section (2A) of section 142 or for concealment of particulars of income or furnishing inaccurate particulars of income, is leviable.
It is proposed to provide that provisions of section 271 shall not apply to and in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 99 of Finance Bill 2016
Clause 99 of the Bill seeks to amend section 271 A of the Income-tax Act relating to failure to keep, maintain or retain books of account, documents, etc.
The aforesaid section provides for penalty in case of failure to keep and maintain any such books of account and other documents as required under section 44AA or the rules made thereunder, or to retain books of account or documents for the period specified.
It is proposed to amend the said section so as to provide that section 271 A shall be applicable without prejudice to the provisions of section 270A.
The proposed amendment is consequential to the insertion of a new section 270A in the Income-tax Act which provides for levy of penalty for under-reporting and misreporting of income.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 100 of Finance Bill 2016
Clause 100 of the Bill seeks to amend section 271AA of the Income-tax Act relating to penalty for failure to keep and maintain information and document, etc., in respect of certain transactions.
The aforesaid section provides that the Assessing Officer or Commissioner (Appeals) may direct that a person who has failed to keep and maintain any information and document referred to in section 92D, shall pay by way of penalty a sum equal to two per cent. of the value of each international transaction or specified domestic transaction entered into by such person.
It is proposed to amend sub-section (1) of the said section so as to give the reference of section 270A in the said section which is consequential in nature.
It is further proposed to amend the said section so as to provide that if any person being constituent entity of an international group referred to in the proposed new section 286 fails to furnish the information and document in accordance with provisions of section 92D, then, the prescribed authority referred to in the said section may direct that such person shall be liable to pay a penalty of five hundred thousand rupees.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.
Clause 101 of Finance Bill 2016
Clause 101 of the Bill seeks to amend section 271AAB of the Income-tax Act relating to penalty where search has been initiated.
Clause (c) of sub-section (1) of the aforesaid section provides that a penalty of a sum which shall not be less than thirty per cent. but which shall not exceed ninety per cent. of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section 132 on or after the 1st day of July, 2012, and such case is not covered under the provisions of clauses (a) and (b) of sub-section (1) of section 271AAB.
It is proposed to amend the said clause (c) so as to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent.
Sub-section (2) of the aforesaid section provides for non-levy of penalty under clause (c) of sub-section (1) of section 271, in respect of undisclosed income referred to in sub-section (1) of section 271AAB.
It is proposed to amend the said sub-section (2) so as to provide that no penalty shall be levied under section 270A also in respect of the undisclosed income referred to in sub-section (1) of section 271AAB.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.
Clause 104 of Finance Bill 2016
Clause 104 of the Bill seeks to amend section 273A of the Income-tax Act relating to power to reduce or waive penalty, etc., in certain cases.
Sub-clause (i) of the said clause seeks to amend sub-section (1) of the said section.
Clause (ii) of sub-section (1) of section 273A provides for reduction or waiver of penalty imposed or imposable under clause (iii) of sub-section (1) of section 271. Explanation to the said subsection clarifies that if the nature of income assessed over the returned income is such that it does not attract provisions of clause (c) of sub-section (1) of section 271, then, the person shall be deemed to have made full and true disclosure for the purposes of sub-section (1) of the said section 271.
Further, clause (b) of sub-section (2) of section 273A provides for condition, wherein penalty shall not be waived and reducedunder sub-section (1) of section 273A.
It is proposed to make a reference of section 270A in clause (ii) and in the Explanation to sub-section (1) and in clause (b) of subsection (2) of section 273A, owing to insertion of a new section 270A which provides for levy of penalty for under-reporting or misreporting of income and ceasing of operation of section 271, for the assessment year commencing on or after 1st April, 2017.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Sub-clause (ii) of the said clause seeks to insert a new subsection (4A) in the said section so as to provide that an order accepting or rejecting application of an assessee shall be passed by the concerned Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received. It is further proposed to provide that no order shall be passed without giving the assessee an opportunity of being heard. However, in respect of applications pending as on 1st day of June, 2016, the order shall be passed on or before 31st May, 2017.
This amendment will take effect from 1st June, 2016.
Clause 107 of Finance Bill 2016
Clause 107 of the Bill seeks to amend section 279 of the Income-tax Act relating to prosecution to be at instance of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
Sub-section (1A) of the aforesaid section provides that prosecution proceeding shall not be proceeded against a person for offences under section 276C or section 277 in respect of whom penalty under clause (iii) of sub-section (1) of section 271 has been reduced or waived under section 273A.
It is proposed to amend the said sub-section so as to provide that the prosecution proceeding shall not be proceeded against a person for offences under section 276C or section 277 in respect of whom penalty under section 270A has also been reduced or waived under section 273A.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
[Clause 62, 93, 96, 98, 99, 100, 101, 104 & 107 ]
