Introduction

It is not a new fact that Sec 270A and Sec 270AA has been inserted to the Income Tax Act by replacing Sec 271. Earlier, authorities used Sec 271 to levy penalty bluntly, aggrieving the assessee and pushing the assessee to the Court. We’ll discuss the income tax penalty.

Objective

The objective is to reduce the legal actions between the taxpayer and the revenue authorities. Tax authorities always levied the income tax penalty when there is an addition or disallowance made by the AO.

Sec 270A

Sec 270A is classified under two heads: “Under Reporting” and “Misreporting”.

Under Reporting

A person will be considered if reported income under if otherwise will be penalized (under income tax penalty):

  • The Income assessed u/s 143(3)/147 is greater than the income determined in the return processed u/s 143(1)(a).
  • If the assessed Income is greater than exemption limit(presently Rs. 2.5 Lakhs) on which no return was filed.
  • Deemed total income assessed or re-assessed u/s 115JB/115JC is greater than u/s 143(1) (a) or the threshold limit.
  • The income assessed or reassessed has the effect of reducing the loss or converting such losses to income.

Exemptions 

  • If the accounts are correct and complete as per the satisfaction of the AO.
  • If the assessee has estimated a lower amount or disallowance at the same time and has included such amount in the computation of income.
  • If the assessee has maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X (Spl. Provisions relating to avoidance of tax), and, disclosed all the material facts relating to the transaction.
  • The amount of undisclosed income referred to in section 271AAB (Penalty where a search has been initiated).

Misreporting

  • Misrepresentation or suppression of facts
  • Investment is not recorded in books of account;
  • Claim of the expenditure but not supported by any evidence;
  • False entry in the books of account is recorded;
  • Fail to record any receipt in BOA having a bearing on total income; and
  • Fail to report any international transaction or any specified domestic transaction, to which the provisions of Chapter X (Spl. Provisions relating to avoidance of tax) apply.

Sec 270AA

It provides the immunity for the assessee from an imposition of penalty in the following situations:

(1) An assessee makes an application to AO, to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC if assessee fulfills following conditions as follows:

  1. The tax and interest payable as per the order of assessment or re-assessment is paid within the period specified in such notice of demand; and
  2. No appeal against the order referred to in clause (a) has been filed.

(2) An application shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received. Form and verified as prescribed.

(3) The AO shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.

(4) The AO shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application:

Provided: No order for rejecting the application shall be passed unless the assessee is given the opportunity of being heard.

(5) The order under sub-section (4) will be final.

(6) No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application

Critical Analysis

  • The Finance Act, 2016 has conveniently removed the word “OR” in Sec 143 (a)(i), thus reducing the excuses that Assessee can provide to reduce/ escape penalty.
  • Sec 27 had a provision where an Assessee can initiate proceedings against the levy of penalty on him, whereas the new provisions do not provide any provision to the Assessee to be heard, which is against natural principles of justice.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.