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Penalties under Income Tax Act

An overview

10th May, 2014CA. Vimal Desai

Rajkot Branch of WIRC OF ICAI

Broad contents

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Contents

Meaning & Concept of penalty

Penalty sections at glance

Section 271 • Penalty for concealment of income

Section 273A • Reduce or waive penalty

Section 273AA • Immunity from penalty

Section 273B • Reasonable Cause

Section 275 • Bar of limitation

Section 271C • Failure to deduct tax at source

Section 271H • Fails to file TDS/TCS Statement

Section 221 • Penalty when tax in default

Prosecution Provisions at glance

Meaning & Concept of Penalty

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Concept of Penalty

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• Provisions related to levy of penalty is covered in Chapter XXI of the

Income tax Act, 1961

• It is levied over and above the tax or interest payable by the assessee for

the same default

• Some of the instances where penalty can be levied:

- Failure to comply with the provisions of specific sections

- Failure to furnish reports/ROI/documents, etc.

- Failure to furnish information

- Failure to maintain specified documents

- Failure to discharge the obligations / perform duties

• It is levied either for one time default or continuing default and calculated

based on either period of default or number of times default occur

Penalty Sections at Glance

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Penalty sections at glanceSection Nature of Payment

271(1)(b) & (c)

Penalty for failure to furnish returns, comply with notices, concealment ofincome, etc.

271A Penalty of Rs.25,000/- for failure to keep, maintain or retain books ofaccount, account, documents, etc.

271AA Penalty for failure to keep / maintain information and document, etc., inrespect of certain domestic / international transactions - 2% of the valueof such transactions liable for penalty.

271AAA Penalty in the case of Searches initiated on or after 1-7-2012 and on orbefore 30-06-2012 - for specified years - 10% of undisclosed income

271AAB Penalty in the case of Searches initiated on or after 1-7-2012 – forspecified years - 10%/20%/30% of undisclosed income.

271B Penalty for failure to get accounts audited u/s 44AB. - 1% of the turnoveror Rs.1,50,000/- whichever is less

271BA Penalty for failure to furnish report under section 92E - Rs.1,00,000/-

271C/271CA Penalty for failure to deduct/collect tax at source - 100% of the amount oftax in default.

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271D Penalty for failure to comply with the provisions of section 269SS - 100%of the amount of such loan or deposit

271E Penalty for failure to comply with the provisions of section 269T - 100% ofthe amount of such loan or deposit

271F Penalty for failure to furnish return of income before the end of relevantassessment year - Rs.5,000/-

271FA Penalty for failure to furnish annual information return - Rs.100/- per daytill default continues.

271FB Penalty for failure to furnish return of fringe benefits - Rs.100/- per day tilldefault continues.

271H Failure to furnish statement in time prescribed u/s 200(3) or proviso tosection 206C(3) - Minimum Rs.10,000/- and maximum Rs.1,00,000/-.

272A Penalty for failure to answer questions, sign statements, furnishinformation, returns or statements, allow inspections, etc. - 100/- per daytill default continues.

272AA For Failure to comply with provision of section 133B. - Rs. 1000/-

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272B/272BB Penalty for failure to comply with the provisions of section 139A /203A -Rs.10,000/-

272BBB Penalty for failure to comply with the provisions of section 206CA -Rs.10,000/-

273 False estimate of or failure to pay advance tax

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Section 271 - Penalty for concealment of income

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Section 271(1)

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If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person—

(a) Deleted(b) Has failed to comply with a notice under

• sub-section (2) of section 115WD or• sub-section (2) of section 115WE or• sub-section (1) of section 142 or• sub-section (2) of section 143 or• Fails to comply with a direction issued under sub-section (2A) of

section 142, or(c) Has concealed the particulars of his income or furnished inaccurate

particulars of such income(d) Has concealed the particulars of the fringe benefits or furnished inaccurate

particulars of such fringe benefits

Shall be liable for penalty under this section

Who and when can one initiate penalty?

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1. Assessing Officer (AO)• Before completion of proceeding pending before him.

2. Commissioner (Appeals)• Before passing the order under section 250• On enhancement of income –

3. Commissioner• Initiates penalty before passing order under section 263 for quantum

Whether he can initiate the penalty u/s. 263 by treating the order aserroneous when AO has not initiated the penalty in originalproceedings ?

Satisfaction

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• “It is the assessing authority which has to form its own opinion andrecord its satisfaction before initiating the penalty proceedings”

• Sub section (1B) inserted from Finance Act, 2008 w.e.f 1-4-89

• Order contains a direction for initiation of penalty proceedingsunder clause (c) of sub-section (1), such an order of assessment orreassessment shall be deemed to constitute satisfaction of theAssessing Officer for initiation of the penalty proceedings under thesaid clause (c).•

• Constitutional validity of this provision was challenged before hon’bleDelhi High Court in the cases of Madhushree Gupta & British Airways317 ITR 143

“It is clear that satisfaction of the tax authority is still a condition precedentwhich must be visible/noticeable from the order of assessment and suchsatisfaction must be based on some material on record”

Concealment of Income

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• Dictionary meaning - to hide, to keep secret.

• The word conceal is derived from Latin ‘concelare’ which implies to hide.

• Webster in his new international dictionary equates its meaning to hide orwithdraw from observation, to cover or keep from sight, to prevent thediscovery of, to withhold knowledge of.

• For section 271(1)(c):- income is not declared at all or- is not even recorded in the books of account or

• Concealment is non disclosure of particulars of income.

Example : Dividend or interest income not declared or even not recorded in books of account / income shown as gift or loan

Furnishing Inaccurate Particulars

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• It is a case of particulars being disclosed but such disclosure not beingcorrect, true or accurate

• It always in respect of facts, details, the information about someone orsomething.

• It cannot be extended to areas which are subjective i.e.- status of the taxability of an income,- admissibility of a deduction and- Interpretation of law

• A mere rejection of a legal claim would not amount to furnishing ofinaccurate particulars•


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Example :

• “A” has paid employees’ contribution to PF fund after the due datementioned under PF Act but before the due date under the I.T. Act and didnot disallow

• Disclosed these facts in return of income and during the assessmentproceedings

• If amount has been disallowed on the basis of decision of recentJurisdictional High court, it cannot fall under the purview of “FurnishingInaccurate particulars”, therefore not liable for penalty merely because notsustainable in law

However,• At time of filing of return of Income, if Jurisdictional High Court / Supreme

Court decision is against,• It may attract the penal provisions unless you prove the bonafide in claiming

such expenses.


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Supreme Court in case of Reliance Petro-Products 322 ITR 158

• Disallowance was made u/s 14A

• No information given in the return was found to be factually inaccurate orincorrect

Held:

Hon’ble Apex court upheld the view of the tribunal by holding that-

“mere making of the claim, which is not sustainable in law, by itself, willnot amount to furnishing inaccurate particulars regarding the income ofthe assessee.”

Concealment v. Inaccurate particulars

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Example:

• Profit from share transactions / sales of goods is not shown in books ofaccount - concealment of income

• Amount has been shown but at lesser amount - furnishing inaccurateparticulars

• But shown as long term capital gain or exempt income instead of short termcapital gain or business profit - neither concealment nor furnishinginaccurate particulars

Section 271 – Quantum of penalty

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• The person may be directed to pay penalty.

Section Penalty

271(1)(b) Rs. 10,000

271(1)(c) 100- 300% of tax sought to be evaded

Explanation 1 to S. 271

• Where in respect of any facts material to computation of total income ofany person under this act:-

a) such person fails to offer an explanation or offers an explanation whichis found by the AO or the CIT (Appeals) or the CIT to be false, or

b) such person offers an explanation which he is not able to substantiateand fails to prove that such explanation is bona fide and that all thefacts relating to the same and material to the computation of his totalincome have been disclosed by him

• then, the amount added or disallowed be deemed to represent theincome in respect of which particulars have been concealed.

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Onus to prove bonafide on assessee - Post Explanation 1 to Sec 271

• Initial onus on revenue to demonstrate concealment of income orfurnishing of inaccurate particulars

• Onus deemed to be discharged in case of addition where assessee failsto furnish explanation or gives false explanation or it is not substantiated/bona fide

• If explanation is offered by assessee, onus is on revenue to prove it to befalse or not bona fide – M/s.Gem Granites (Karnataka) Tax Case

(Appeal) No.504 of 2009 [2013] • Mad. HC

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Sec 271(1)(c) – Flow to Explanation 1

271(1)(c)

Section

Concealment Inaccurate Particulars

Explanation 1

1.No Explanation OR

2. False Explanation

Fails to :1.Substantiate

explanation; AND2.Prove bona fide;

AND3. Disclosure

Clause (A) Clause (B)

Deemed Concealment


• Suresh Chandra Mittal, 251 ITR 9 • SC :

It is well settled that initial burden lies on revenue to establish that theassessee had concealed /furnished inaccurate particulars of income. Burdenshifts to assessee if he fails to offer any explanation. However, Explanation 1provides for shifting of this burden again where the explanation offered bythe assessee is found to be bonafide.

• K C Builders & Another , 265 ITR 562 • SC :

The word "concealment" inherently carried with it the element of mens rea.Therefore, the mere fact that some figure or some particulars have beendisclosed by itself, even if it takes out the case from the purview ofnondisclosure, it cannot by itself take out the case from the purview offurnishing inaccurate particulars.

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• MAK Data (P) Ltd. v CIT • 358 ITR 593 • SC :

• The AO, in our view, shall not be carried away by the plea of the assesseelike "voluntary disclosure", "buy peace", "avoid litigation", "amicablesettlement", etc. to explain away its conduct.

• The question is whether the assessee has offered any explanation forconcealment of particulars of income or furnishing inaccurate particularsof income.

• Explanation to Section 271(1) raises a presumption of concealment, whena difference is noticed by the AO, between reported and assessedincome. The burden is then on the assessee to show otherwise, bycogent and reliable evidence.

• Followed by Allahbad High Court in U.P. Matsya Vikas Nigam Ltd. TS-612-

HC-2013

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Mens Rea – Essential

A person cannot be convicted and punished in proceeding of criminal nature unless it can be shown that he had a guilty mind.

Supreme Court – Three members bench

Anwar Ali 76 ITR 696 and three other cases

• For failure to carry out a statutory obligation is the result of quasi criminal proceedings - Mens rea is essential.

• Penalty cannot be imposed unless the party, either acted deliberately, or was guilty of conduct or dishonest or acted in conscious disregard of its obligation

Held

In case of Dilip N. Shroff 291 ITR 519

Followed

Held

Dharmendra Textiles Processors 306 ITR 277

• Penalty provision is a civil liability • Wilful concealment is not an

essential ingredient

Penalty is automatic

Department

Supreme Court

Rajasthan Spg & WvgMills 224 CTR 1

• It is for revenue toestablish that suchconditions exist.

• It is only the element ofMens rea which is notrequired to be proved bythe revenue.

Clarified

Reliance Petroproducts322 ITR 158

• Levy of penalty is notautomatic.

• If the conditionsspecified in the sectionare satisfied then alone,penalty is leviable.

FurtherClarified

Explanation 3 – In spite of taxable income no return filed

• If any person fails to file return of Income and AO or CIT(A) is satisfied that inrespect of such assessment year such person has taxable income, for thepurposes of clause (c) of this sub-section, be deemed to have concealed theparticulars of his income in respect of such assessment year.

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Explanation 4

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Tax sought to be evaded

Explanation 4

Any other caseExplanation 3Loss Scenario

Reduce Loss

Loss to Income

Explanation 4 (a) Loss Return

• On the basis of old provision, Courts had previously taken a position that there can be no penalty if there was no tax payable at all. Virtual soft system Ltd. 289 ITR 83 SC.

• Substituted by finance act 2002 from 1-4-2003

• Disallowance/ additions has the effect of reducing the loss declared in thereturn or converting that loss into income,

• Penalty amount would be – tax on disallowance or additions as if it is totalincome

Gold Coin Health Food 304 ITR 308 SC has held that the amendment wasmerely clarificatory and therefore would apply retrospectively.

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Explanation 4 (b) – In case Explanation 3 applies

• 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 he issue of notice under section 148.

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Explanation 4 (c) – In any other case

• Difference between the tax on the total income assessed and tax on income before additions or disallowances

• Penalty cannot be levied when difference is “Nil” in spite of considerable additions

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Explanation 4 (c) – In any other case

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As per return of IncomeIncome from business Rs.5.20 CrB/f Unabsorbed Depreciation Rs.8.20 CrTotal Income NILUnabsorbed Depreciation C/f. Rs.3 .00 Cr.

• Additions/disallowance is of Rs.2 cr. As a result of which the assessedincome is calculated as under:

Income from business Rs.7.20 crB/f Unabsorbed Depreciation Rs.8.20 CrTotal Income NILUnabsorbed Depreciation C/f is Rs.1.00 Cr.

• Ahmedabad Tribunal decisions in case of:Maxima System Ltd. ITA No. 3929/Ahd/2007Zeo chem Pvt. Ltd. ITA no. 1038/Ahd/2010

Would it make any difference in the case if instead of unabsorbeddepreciation there would be unabsorbed business loss?

Explanation 4 (c) – in any other case

On same principle, Supreme court in case of Nalwa Sons Investment Pvt.Ltd. held that

“When income is assessed u/s. 115JB and additions / disallowance is madeunder normal provisions of the act, no penalty is levied on such additions/disallowance as the s. 115JB “book profits” were by a legal fiction deemed tobe the “total income”, the furnishing of wrong particulars had no effect on “theamount of tax sought to be evaded” as defined in Explanation 4 to s.271(1)(c).”

- Gujarat State Fertilizers & Chemicals Ltd [2013] 36 taxmann.com 533(Gujarat)

• Would it make any difference in the case where because ofadditions/disallowance, tax is payable under normalprovisions ?

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Explanation 5A – Additions due to search

• In the course of a search u/s. 132 on or after the 1st day of June, 2007,

• the assessee is found to be the owner any assets or found any entry in books of account or documents or transactions which claims acquired from his income or represents his income

• for any previous year, and for that previous year

(a) return of income has been furnished before the search date but such income has not been declared therein; or

(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,

Such income is declared by him in any return of income furnished on or after the date of search, he shall, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.

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Issue arising out of Explanation 5A

• Would not apply to Survey

• Covers only year in which return of income has been filed or due date of filingreturn of income has expired

Example:

• Search is on 10-05-2014• Would not apply to A.Y. 2015-16, 2014-15 (due date is not expired)• Due date 139(1) or 139(4) : A.Y. 2013-14 up to 31st March, 2015 if it is not

filed u/.s 139(1)• Can declare the assets found during the course of search in that years if no

direct nexus be proved with date of purchase

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Explanation 5A vs. Section 271AAA & 271AAB

• Section 271AAA applied for search initiated on or after 1.6.2007 to 30th

June 2012

• Section 271AAB applied for searched initiated on or after 1st July, 2012

- Would apply to years which are not covered in explanation 5A to section 271(1)

- ‘A’ shall pay 10%/ 20%/30% of amount of undisclosed income as penalty over and above the tax and interest subject to some conditions

- No separate penalty would be leviable u/s 271(1)(c)

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Explanation 6- Adjustment u/s 143(1)(a)

• Where any adjustment is made in the income or loss declared in the return underthe proviso to clause (a) of sub-section (1) of section 143 and additional tax chargedunder that section, the provisions of this sub-section shall not apply in relation to theadjustment so made.

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Explanation 7 – Transfer Pricing Provisions

• Any amount is added or disallowed in computing the total income under sub-section (4) of section 92C, be deemed to represent the income in respect ofwhich particulars have been concealed or inaccurate particulars have beenfurnished, unless the assessee proves to the satisfaction of the AO or CIT(A)or CIT that the price charged or paid in such transaction was computedin accordance with the provisions contained in section 92C and in themanner prescribed under that section, in good faith and with duediligence.

DCIT vs. RBS Equities India Ltd. (ITAT Mumbai) & Serdia Pharmaceuticals(India) (P.) Ltd. 37 Taxman 198 (Mumbai ITAT)

• The assessee adopted the TNMM to determine the ALP. The AO & TPO heldthat the assessee ought to have adopted the CUP method .This was acceptedby the assessee. No fault was found with the computation of ALP as perTNMM method. Instead, the method was rejected on the ground that CUPmethod was applicable. It is a contentious issue whether any priority inthe methods of determining ALPs exists. On that basis penalty deleted.

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Disclosures in Revised Return

• If the act of concealment or furnishing of particulars of income is committedwhile filing original return, the revised return by itself would not mitigate thedefault - G.C.Aggarwal186 ITR 571 SC

• If the revised return u/s 139(5) has been filed voluntarily before detectionand conduct of assessee is bona fide then penalty would not be leviable -100 ITR 524 Guj,107 ITR 423, Ori,129 ITR 703 Del

• If revised return is filed after investigation by revenue authorities, penalty canbe levied - 149 ITR, 737 Ker,110 ITR 602 Mad

• If revised return is filed under amnesty scheme or under any beneficialcircular, penalty cannot be levied - 210 ITR 292 Raj,131 ITR 643 Guj.

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Section 271- Other IssuesPropositions Decisions

No Penalty on inadvertent / Silly mistake incomputation – No penalty

PricewaterhouseCoopers (P) Ltd - 348 ITR306 (SC)

Two views possible / Debatable issue – Nopenalty

AT & T Communication Service India P. Ltd.– 342 ITR 257 (Del)

If appeal on merits is admitted by the HighCourt – No penalty

Rupam Mercantile (91 ITD 237(Ahd)(TM).However it is not in every casethat such view can be held as explained inlater decision of Prakash Vyas.

Issue referred to special bench – Nopenalty

Pfizer Pharmaceuticals (India) (P) Ltd. vs.DCIT (135 TTJ 337)(Mum)

Addition/disallowance made onadhoc/estimate basis- No penalty

Harigopal Singh (258 ITR 85) (P&H)

Penalty not levied in an earlier year(s) – nopenalty leviable in a subsequent year on asimilar issue

Sood Harvester (164 Taxman 55) (P&H)

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No penalty if the assessment itself iscancelled or the additions made in theassessment are deleted

S.P. Viz Construction Co. (176 ITR 47)(Patna); K.C. Builders (265 ITR 562) SC

Wrong interpretation of amendedprovisions won’t attract penalty

M. Ravinder (39 taxmann.com 173) Hyd.ITAT

Which Law is applicable for levy of penaltyu/s 271(1)(c)? Will it be law on the date offiling return or law on the date of initiation ofpenalty?

• B.N. Sharma vs. CIT 226 ITR 442(SC)It should be law on the date of filing return-original or revised in which concealmenttook place.

Can penalty be levied if assessee hasdisclosed income in the return filed aftersurvey?

• SAS Pharmaceuticals – Delhi High court/ Sadbhav Builders vs. ITO ITA No.1418/A/08 dated 2/11/11 (AhmedabadITAT)

Addition to income agreed to by assessee.Whether liable to concealment penalty

• CIT vs. Manjunatha Cotton & GinningFactory (Karnataka) 359 ITR 565

If concealment discovered in appellateproceedings, can AO levy penalty on it.

• CIT vs. Manjunatha Cotton & GinningFactory (Karnataka) 359 ITR 565

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An assessee files a revised return ondetection of concealed income anddiscloses concealed income. Is he liable topenalty?

• CIT vs. Dr. A. Mohd Abdul Khadir 260ITR 650 (Madras)

• LMP Precision Engg. Co. vs.DCIT 330ITR 93 (Gujarat

Waiver of penalty u/s 271(1)(c) by resort tosection 273A:

Application for waiver of penalty fordifferent assessment years. Whether CITcan consider all the years or has to passorder for one year u/s 273A

• Mohinder Singh vs. CIT 353 ITR 278(Patna)

Can penalty be levied if claim made in thereturn was not sustainable in law?

• Reliance Petro Products Ltd. (SC) 322ITR 158

• Harshvardhan Chemicals & mineralLtd.(Raj) 259 ITR 212

Whether appellate authority on an appealagainst penalty order reduce the amount ofpenalty below the minimum prescribedamount.

• CIT vs. A.K. Das 77 ITR 31 (Guj.

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Is it necessary that order of penalty u/s271(1)(c) clearly states the default forwhich penalty is being initiated

• New Sorathia Engg. Co. vs. CIT 282 ITR642(Guj)

Penalty cannot be levied when additions/disallowance is under deeming provisions –Section 40(ia), 50C

Whether levy of penalty is compulsory ordiscretionary?

• Maya Rani Punj 92 ITR 394 (Del)• Poonam Biscuit Factory vs. CIT 99 ITR

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Whether an assessee can be penalised ifaddition u/s68 is made in respect ofdeposits accepted by him for which he isnot in the position to prove the creditworthiness of the party?

• National textiles 249 ITR 125 (Guj.)• Vinaychand Harilal 120 ITR 752 (Guj.)

Whether when claim of deduction is primafacie not allowable, whether penalty isleviable?

• Hotel Sabar (P) Ltd. 264 ITR 381 (Guj)

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What could be the stand of assessee whenthe AO makes observation for initiation ofpenalty in respect of some of thedisallowances in the body of assessmentorder at the places where suchdisallowances are made and thereafter atthe end of the order also mentions aboveinitiation of penalties and utimately leviespenalty on the entire difference betweenassessed income and returned income.

When penalty proceedings were initiatedon the basis of concealment of income andultimately in penalty order the charge thatwas finalised was for furnishing inaccurateparticulars of income, whether penalty issustainable?

• CIT vs. Lakhdir Lalji 85 ITR 77 (Guj)

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Section 273A – Reduce or Waive the penalty

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Section 273A – Reduce or waive the penalty

• Power has been given to the Commissioner

• Whether on his own motion or otherwise

• Reduce the penalty imposable or imposed under clause (iii) of subsection (1) of section 271

• It may be for one year or more than one year – but pass an order only one time (may be for more than one year)

• In a case falling u/s. 271(1)(c) – no order of penalty shall be passed if penalty amount exceed Rs.5,00,000/- without the Chief Commissioner of Director General

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Section 273AA – Immunity from penalty

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Section 273A – Immunity from Penalty

• Power has been given to the Commissioner

• An assessee may make application

• Who has made an application for settlement case u/s. 245C and that proceedings have abated u/s. 245HA

• It should be after the initiation of penalty and before imposing the penalty

• Commissioner may grant immunity on certain terms and conditions and also withdraw immunity if terms and conditions are not satisfied

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Section 273B – Reasonable cause

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Section 273B – No penalty in case of “reasonable cause”

• No penalty imposable, for any failure if proved that there was reasonablecause for the said failure

• Reasonable cause in accordance with various judicial pronouncement:

a. Assessee acted bona fide on expert advise

b. Failure to get accounts audited due to Illness of Chartered Accountant

c. Bona fide belief and default is not deliberate

d. Business Exigencies

• Initial onus lies on assessee to prove that reasonable cause

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Section 273B – No penalty in case of “reasonable cause”

• Section 271(1)(c) is not specifically covered in the above Section, yet courtshave regarded section 273B as having overriding effect on section 271(1)(c)- Emilio Ruiz Berdejo [2009] 29 SOT 3 (Pune)

• Reasonable cause can be reasonably said to be a cause which prevents aman of average intelligence and ordinary prudence, acting under normalcircumstances, without negligence or inaction or want of bona fides - Azadi

Bachao Andolan vs. Union of India 252 ITR 471• Delhi

• The word 'shall' used in section 273B provides that it is mandatory not toimpose penalty, if the assessee gives a reasonable cause for his failure -IL&FS Maritime Infrastructure Co. Ltd.• 184 Taxmann 460 • Mumbai

ITAT (2013)

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Section 275 – Bar of limitation

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Section 275 – Bar of LimitationSection Particulars Limitation Period

275 (1)(a) Where the relevantassessment/other order is thesubject matter of an appeal tothe:● Commissioner (Appeals) u/s

246 or 246A; or● Appellate Tribunal u/s 253.

The later of the following:● End of the financial year in which the

proceedings, in the course of which theaction for the imposition of penalty hasbeen initiated, are completed; or

● Six months from the end of the month inwhich the order of the Commissioner(Appeals) or Appellate Tribunal is receivedby the Chief Commissioner orCommissioner.

Proviso to275(1)(a)

Where the relevantassessment or other order isthe subject matter of an appealto the CIT (A)u/s 246 or 246A,and the CIT(A) passes theorder on or after 01-06-2003disposing of such appealRoyala Corporation 288 ITR452 (Mad)

The later of the following:● End of the financial year in which the

proceedings, in the course of which actionfor imposition of penalty has been initiated,are completed, or

● One year from the end of the financial yearin which the order of the Commissioner(Appeals) is received by the ChiefCommissioner or Commissioner

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Section 275 – Bar of LimitationSection Particulars Limitation Period

275(1)(b) Case where the relevantassessment or other order isthe subject matter of revisionu/s 263 or 264

Six months from the end of the month inwhich such order of revision is passed

275(1)(c). Any other case The later of the following:● End of the financial year in which the

proceedings, in the course of which action for the imposition of penalty has been initiated, are completed; or

● Six months from the end of the month, in which the action for imposition of penalty is initiated

275(1A) Tax authorities are empowered to modify their orders imposing/enhancing/reducing/cancelling penalty or dropping the penalty proceedings upon receipt of appellate or other orders of the higher authorities, tribunal or judiciary, revising the assessment.

Six months from the end of the month in which such order is received by chief commissioner / commissioner or order u/s. 263/264 is passed

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Section 275 – Bar of Limitation

Following periods be excluded while computing period of limitation:

a. the time taken in giving an opportunity to the assessee to be reheardunder the proviso to Section 129;

b. Any period during which immunity granted u/s 245H remained in force;and

c. period during which levy of penalty is stayed by a order or injunction ofany court

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Penalty Proceedings- Stay or to keep in abeyance

• Application was moved before the Mumbai ITAT for stay of penaltyproceedings by the CIT(A) against the enhancement in case of GE IndiaIndustrialPvt. Ltd.

• As per the provisions of Section 275(1)(a) of the Act Assessing Officercannot pass an order imposing penalty u/s 271(1)(c) of the Act till relevantassessment is subject matter of appeal before ld. CIT(A) (i.e. the firstappellate authority). By the same analogy assessee’s prayer for stay ofpenalty proceedings undertaken by ld. CIT(A) till the disposal of appeal by theTribunal does not appear to be unreasonable. We further find that there is nodispute about the fact that as per the provision of Section 275(1)(a) of the Actld. CIT(A) will get six months time to dispose of the penalty proceedings fromthe end of the month in which the order of the Tribunal is received by theCommissioner or the Chief Commissioner. … … … … and to preventmultiplicity of proceedings and harassment to the assessee, we are inclined todirect ld. CIT(A) to keep the penalty proceedings in abeyance till the disposalof quantum appeal by the Tribunal.”

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Penalty Proceedings- Stay or to keep in abeyance

• High court has admitted the appeal of the “A” in quantum proceedings. In thepenalty proceedings, restored the issue to the AO with a direction to decidethe issue of levy of penalty after the decision of the High Court in the quantumappeal. The department challenged the Tribunal’s order

• CIT vs. Wander Pvt. Ltd. (Bombay High Court) held that

The assessee’s quantum appeal has been admitted by the High Court. Ifthe assessee succeeds in the quantum proceedings, it would not even benecessary to consider the s. 271(1)(c) penalty proceedings and so noprejudice has been caused to the department qua the penalty proceedings.The department’s apprehension that the penalty proceedings may be barredby limitation u/s 275(1A) is not well founded. In any event, the apprehensionis set at rest by directing that in the event the proceedings are held to bebarred by limitation, this appeal shall stand revived automatically and withoutfurther orders of the Court.

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Section 271C – Failure to deduct tax at source

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Section 271C- Failure to deduct tax at source

• If any person fails to

- Deduct the whole or any part of tax as per Chapter XVII-B;

- Pay the whole or any part of the tax a required by or under

• Section 115-O(2); or

• the second proviso to section 194B

• Attracts Penalty to the extent of tax to be deducted or paid as aforesaid

• Penalty shall be imposed by Joint Commissioner

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271H- Penalty & 234E – Fees Fails to file TDS/TCS Statement

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Section 271H – Fails to file TDS/TCS Statement

• Penalty for

(a) Non furnishing of statement prescribed in sub section(3) of section 200 orproviso to sub section (3) of section 206C (TDS return and TCS return) or

(b) Furnishing incorrect information in the above statement

• Up to 30-06-2012 – u/s. 272A(k) and from 1-7-2012 under this section

• No penalty shall be levied in respect of (a) above:

If proves that tax deducted and collected has been paid along with fees (234E) &interest and delivered that above statement before expiry of one year from timeprescribed

• Else,

Penalty shall not be less than Rs. 10,000 or Maximum Rs. 1,00,000

“Over and above fees to be paid u/s. 234E”

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Section 234E– fees

• 234E inserted from 1-7-2012 under chapter XVIII

• Penalty is Rs. 200/- per day for failure continues to deliver the statement referredearlier in clause (a)

• Maximum amount is amount of tax deductible or collectable

• It has to be paid before delivering of statement

• It is mandatory like interest.

• S. 273B – reasonable cause would not apply

• Validity of provision has been challenged before the various High Court

• Karnataka , Kerala and Bombay High Court has granted interim stay while RajasthanHigh court has held that whatever the fees recovered will be subject to finaloutcome of writ petition

• Above decision would not apply to “A’ of Gujarat61

Section 221 – Penalty when tax in default

62

Section 221 – Penalty payable when tax in default

– Penalty can be levied if default is made in payment of tax

– Penalty shall be payable in addition to the amount of tax arrears and interestunder Section 220(2)

– Minimum Penalty: Such amount as imposed by Assessing Officer

– Maximum Penalty: Amount of tax in arrears

– Explanation to Section 221 provides that assessee shall not cease to beliable to penalty merely by reason of the fact that before levy of such penaltyhe has paid the tax

– Penalty can not be imposed for default in payment of interest - Shreeniwas& Sons vs. ITO • 96 ITR 562-Calcutta, Great Value Food • TS-580-HC-2013-P&H

– Default in payment of penalty can not lead to further penalty under section221 - CIT vs. P.B. Hathiramani • 207 ITR 483 • Bombay

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Issues for discussion

64

Penalty u/s 271D and 271E

Sr. No.

Issues Decisions

1. Assessee is doing business as Shroff chequediscounting business. Farmers selling their produce totraders against post dated cheques. Farmersdiscounting cheques with Shroffs for cash.

Whether the Shroff as assessee is taking a loan ordeposit from agriculturists or repaying them in cashand violating provisions of section 269SS and 269T.?

• CIT vs.DineshchandraShantilal Shah (HUF)359 ITR 57(Guj)

2. A builder pays back earnest money received from theprospective buyers of the property in cash. Theamount was received as earnest money on sale ofproperty which did not materialize and hence wasrepaid in cash to the parties. AO levied penalty u/s271E.

Is it valid imposition of penalty?

• CIT vs. Madhaventerprises Pvt. Ltd.356 ITR 588 (Guj.)

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Other Penalties

Sr. No. Issues Decisions

1. Can penalty be levied u/s 221 in case ofdefault in making payment of interest?

• Shreeniwas & sons v. ITO96 ITR 562 (Cal)

2. Can penalty u/s 271B for failure to getaccounts audited be imposed forsubsequent year if there was no audit donefor preceding year- Survey u/s 133A-Assessee filed return for AY 1985-86 to1989-90 after survey. AO levied penalty u/s271B for all the years as books of accountswere not audited. The appellate authoritiesconfirmed levy of penalty for AY 1985-86and penalties of subsequent year weredeleted.

• CIT vs. Tea King 123Taxman 162 (Guj)

3. When a penalty u/s 271C is levied canassessee be penalised for default u/s272A(2)(c) and 272A(2)(g)?

• CIT vs. Sri Ram memorialEducation Society 152Taxman 257(All)

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Other Penalties

Sr. No. Issues Decisions

4. Can penalty u/s 272B be levied for nonquoting of PAN in Form 16A given tocontractors?

• CIT vs. GAIL(India) Ltd.356 ITR 711(All)

5. Books of Accounts delivered to Auditor intime. Delay on part of Auditors resulting intonon-compliance of 44AB. Whether penaltyu/s 271B leviable?

• CIT vs. U.P. Rajya SahkariEvam Bhoomi Vikas bankLtd. 353 ITR 152 (All)

6 Penalty u/s 271D- Notice was issued on 23-03-2010 by ACIT. Thereafter matter wasgiven to JCIT who issued show cause noticein March, 2011 and passed order on 28-05-2011.

Whether levy of penalty is time barred?What is the time limit applicable on levy ofpenalty under such cases?

Whether 275(1)(a) would apply or 275(1)(c)would apply?

• CIT vs. Jettendra SinghRathore 352 ITR 327(Raj).

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Prosecution Provisions at a glance

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Important Prosecution Provisions

Sr. No.

Section Offences Punishment

1. 276 Removal, Concealment,transfer or delivery ofproperty to thwart taxrecovery

• Maximum up to 2 years of rigorousimprisonment and also fine

2. 276B Failure to pay tax to thecredit of Central Bank underChapter XII-D or XVII-B (i.e.Dividend Distribution tax orTDS)

• Minimum 3 months and maximum 7years of rigorous imprisonment andfine.

However, only failure to pay tax iscovered. Failure to deduct is notcovered

3. 276BB Failure to pay TCS u/s 206C • Minimum 3 months and maximum 7years of rigorous imprisonment andfine.

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Sr. No.


4 276C (i) Wilful attempt to evadecharge of tax, penalty orinterest

• If amount sought to be evadedexceeds Rs.25 lacs, then minimumperiod of 6 months and maximumperiod of 7 years of rigorousimprisonment

• For other cases, minimum 3months and maximum 2 years ofrigorous imprisonment and fine

276C (ii) Wilful attempt to evadepayment of tax, penalty orinterest

• Minimum 3 months and maximum 2years of rigorous imprisonment andfine

70

Important Prosecution ProvisionsSr. No.


5. 276CC Wilful Failure to furnishreturn of income u/s 139(1);142(1)(i); 148 or 153A

• If amount sought to be evadedexceeds Rs.25 lacs, then minimumperiod of 6 months and maximumperiod of 7 years of rigorousimprisonment


6. 278 Abetment of False Return,account, statement.

• Where potential revenue evadedexceeds Rs.25 lacs, then minimumperiod of 6 months and maximumperiod of 7 years of rigorousimprisonment


7. 278AA Exclusion from Prosecutionin showing reasonableclause

• It applies only to Prosecution u/s276A, 276AB and 276B, TDS andDDT payment failure

71


Sr. No.


8. 278B Offences by Companies • Person in charge of company andresponsible to company for conductof its business shall be deemed tobe guilty of offence with companyand accordingly punished

• However, if such person provesthat offence was committed withouthis knowledge or had exerciseddue diligence to prevent it, nothingwill apply to him.

• If in case of company, offence iscommitted due to connivance ofdirector, manager, secretary orother officer, even they can beprosecuted

• Here company includes firm, AOP,BOI and director includes partner ormember of AOP, or BOI controllingit

72

Other Provisions of Prosecution at glance

Sr. No.

Section Provision

9. 279(1) Prosecution can’t be initiated without previous sanction of CIT orCIT(A) or appropriate authority

10. 279(1A) When an order u/s 273A is passed reducing or waiving penalty u/s271(1)(c) the person can’t be prosecuted u/s 276C or 277 for thatassessment year

11 279(2) Any offence under this chapter may either before or after theinitiation of proceedings be compounded by either CIT or DG.

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Prosecution issue for discussion

74

Prosecution Issues for discussion

Sr. No.

Issues Decisions

1. What are the remedies available toassessee if he is subjected to prosecutionproceedings but feels that there is primafacie case in his favour that he should nothave been proceeded against?

• Section 482 of CriminalProcedure Court - gives right tothe assesse to file theapplication to quashing theprocedure to lower court or writpetition before the High Court

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