Insertion of new penalty provision u/s. 270A :
The Finance Act, 2016 replaces section 271 by section 270A and provides penalty for ‘under-reporting’ and ‘misreporting’ of income w.e.f. AY 2017-18 and onwards.
The replacement is explained by the Memorandum to Finance Bill, 2016 as under :
“Under the existing provisions, penalty on account of concealment of particulars of income or furnishing of 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 1st day of April, 2017 and subsequent years and penalty be levied under the newly inserted section 270A w.e.f. 1st April, 2017. The new section 270A provides for levy of under-reporting and misreporting of income.”
Whether “Misreporting” is a part of “Under-reporting” ?
Under-reported income :
Sub-section (1) to the said section gives an authority to AO / CIT(A) / Pr. CIT / CIT to direct any person who has “under-reported” his income during any proceedings to pay penalty in addition to tax on such under-reported income. Such person shall be liable for 50% penalty on an amount of tax payable on such under-reported income.
Misreporting of income :
Sub-section (8) states that where an under-reported income is in consequence of any misreporting by any person, such person shall be liable to pay 200% penalty on an amount of tax payable on such under-reported income.As per the said sub-section, penalty in case of misreporting is equal to 200% of under-reported income.
Thus, it can be said that “misreporting of income” is a part of “under-reported income” and comes into picture only when there is under-reporting of income.
Instances when a person shall be considered to haveunder-reported his income :
The legislature has provided instances as to when a person shall be considered to have “under-reported” his income u/s. 270A(2) and when such “under-reported income” shall be treated as “misreporting of income” u/s. 270A(9).
|Under-reporting – Section 270A(2)||Misreporting – Section 270A(9)|
|Situation||A : When return of income is filed :
– Normal income / book profit assessed exceeds normal income / book profit assessed u/s. 143(1)(a) ;
– Normal income / book profit assessed exceeds normal income / book profit assessed or reassessed previously ;
– Total income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
B : When return of income is not filed or filed for the first time under section 148 :
– Income / book profit assessed exceeds maximum amount not chargeable to tax.
|– Misrepresentation or suppression of facts ;
– Failure to record investment in books of accounts ;
– Claim of expenditure not substantiated by any evidence ;
– Failure to record any receipt in books having bearing on income;
– Recording false entry in books of accounts ;
– Failure to report international transaction / specified domestic transaction.
|Penalty %||50% of tax payable on under-reporting income= section 270A(7)||200% of tax payable on misreporting income= section 270A(8)|
Is it essential to mention in assessment order whether an under-reported income is eligible for penalty u/s. 270A(2) or 270A(9) ?
The said question can be understood with reference to section 270AA – Immunity from imposition of penalty. As per said section, an assessee may make an application to the AO to grant immunity from imposition of penalty u/s. 270A and initiation of prosecution u/s. 276A / 276CC, if he fulfils certain conditions as mentioned in sub-section (1). As per sub-section (2), such application has to be made by the assessee within one month from the date of receiving the assessment order.
On receipt of such application, the AO has an authority under sub-section (3) to grant imposition of penalty subject to certain conditions where one of the condition is that the proceedings for penalty have not been initiated u/s. 270A(9) i.e. for misreporting of income.
This sub-section (3) to section 270AA implies that the assessee cannot make an application for immunity from imposition of penalty where the penalty has been initiated for “misreporting of income” u/s. 270A(9). Therefore, it can be said that the assessment order has to specifically mention whether the penalty is initiated u/s. 270A(2) or 270A(9).
The AO while initiating penalty in the assessment order has to specifically mentioned whether a penalty is being levied for “under-reporting u/s. 270A(2)” or “misreporting of income u/s. 270A(9)”.Non specifying of the ground will create a confusion in the mind of the assessee whether the assessee is eligible for application of immunity u/s. 270AA or not. Thus, not scoring out of inapplicable ground would result in settled legal principles of distinction between the two expressions has been disregarded. Recently, the Apex Court in the case of New Delhi Television Ltd. v. DCIT bearing Civil Appeal no. 1008 of 2020, order dt. 03/04/2020while deciding the issue relating to section 148 held that “the assessee could not be taken by surprise at the stage of rejection of its obligations or at the stage of proceedings before the High Court that the notice is to be treated as notice invoking provisions of section proviso of section 147 of the Act”. The said decision hold good while deciding the application for immunity u/s. 270AA where the assessee should not be surprised that the application is rejected because the penalty initiated in assessment order was for “misreporting of income u/s. 270A(9)” and not for “under-reporting of income u/s. 270A(2)”. Thus, it can be stated that it is mandatory for the AO to specifically mention the nature of penalty i.e. whether an under-reported income is liable for penalty u/s. 270A(2) or 270A(9) in the assessment order itself.