The new Direct Tax Code has proposed some stringent penalty provisions in case of willful attempt to evade tax, but maximum penalty mooted will not be more than two times the amount of tax payable in respect of the amount of tax base underreported. Imprisonment for a term which may extend to seven years and with fine has been proposed for a person who willfully attempts in any manner to evade any liability in respect of tax, interest or penalty.
Penalty provision in case there is a under reporting of tax base (Section 224 of Direct Tax Code).
The Direct Tax Code (DTC) states that a person shall be liable to penalty if he has under reported the tax base for any financial year. The DTC further states that a person shall be deemed to have willfully under reported the tax base if his assessed income exceeds the disclosed income.
The penalty shall be a sum which shall not be less than, but which shall not exceed two times, the amount of tax payable in respect of the amount of tax base under reported for the financial year.
The DTC tends to make the penalty provisions mechanical and hence underscores the very nature of a penalty provision in a taxing statute to be applicable only where there is a deliberate attempt to conceal income by any action of the taxpayer. The penalty provisions which are activated merely due to differences of opinion between the taxpayer and the revenue authorities would go against the principle of equity and justice. Thus, the DTC provisions do not seem to be in line of various judicial pronouncements as regards levy of penalty. The penalty provisions proposed in the DTC are drastically different from those present under the IT Act.