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Penalty For Under-Reporting And Mis-Reporting Of Income (Section 270A)


  1. Cases Of Under-Reported Income –

  2. Cases of Mis-Reporting of Income [Sec. 270A(9)] –

  3. Quantum Of Under-Reported Income –

  4. (Negative list) - Under-Reported income shall not include the following –

  5. Rate Of Penalty –

  6. How to calculate Tax on Under-Reported Income –

  7. (7) Determination of under-reported income and its computation thereof [Section 270A(2) and (3)]

  8. (8) Tax payable in respect of the under-reported income [Section 270A(10)]

Section 270A has been inserted from the assessment year 2017-18. Under this section, the Assessing Officer, CIT (Appeals) or Principal CIT or CIT may, during the course of any proceedings under the Act, levy penalty if a person has under-reported his income.

1. Cases Of Under-Reported Income –

A person shall be considered to have under-reported his income if, ––

  1. the income assessed is greater than the maximum amount not chargeable to tax, where no return of income is filed;

  2. the assessed income is greater than the income determined upon processing under section 143(1)(a), where return is filed;

  3. the income assessed is greater than the income assessed or reassessed immediately before such reassessment;

  4. the income assessed or reassessed has the effect of reducing the loss or converting such loss into income;

  5. the amount of deemed total income assessed or reassessed under section 115JB/115JC is greater than the deemed total income determined in the return processed under section 143(1)(a);

  6. the amount of deemed total income assessed as per the provisions of section 115JB/115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

  7. the amount of deemed total income reassessed as per the provisions of section 115JB/115JC is greater than the deemed total income assessed or reassessed immediately before such reassessment.

'PENALTIES' Under Income Tax Act. 1961 (Section 270A)

2. Cases of Mis-Reporting of Income [Sec. 270A(9)] –

Cases of misreporting of income shall be the following –

  1. misrepresentation or suppression of facts;

  2. failure to record investments in the books of account;

  3. claim of expenditure not substantiated by any evidence;

  4. recording of any false entry in the books of account;

  5. failure to record any receipt in the books of account having a bearing on total income; and

  6. failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

3. Quantum Of Under-Reported Income –

The amount of under-reported income shall be determined as follows –

Different situations

Quantum Of Under-Reported Income

Return has been furnished and income has been assessed for the first time

The difference between the amount of income assessed and the income determined under section 143(1)(a)

Return has not been furnished and income has been assessed for the first time

  • In the case of company/firm/local authority - Income assessed

 

  • In any other case - The difference between the amount of income assessed and the maximum amount not chargeable to tax

Where income is not assessed for the first time

The difference between the amount of income assessed/reassessed/recomputed and the amount of income assessed/reassessed/recomputed in a preceding order

Where an assessment / reassessment has the effect of reducing the loss declared in the return or converting that loss into income

The difference between the loss claimed and the income (or loss) as assessed / reassessed

Where under-reported income arises out of determination of deemed income in accordance with the provisions of section 115JB/115JC

(A – B) + (C – D)

  • A = The total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (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 115JB or section 115JC.
  • D = The total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of underreported income.

 

4. (Negative list) - Under-Reported income shall not include the following –

  1. 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;

  2. 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;

  3. 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;

  4. where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction and disclosed all the material facts relating to the transaction;

  5. where the undisclosed income is on account of a search operation and penalty is leviable under section 271AAB.

5. Rate Of Penalty –

The rate of penalty shall be 50% of the tax payable on under-reported income.

However, in cases of under-reported income falling under misreporting of income, penalty shall be 200% of the tax payable on such misreporting of income.

6. How to Calculate Tax on Under-Reported Income –

The tax payable on under-reported income shall be calculated as follows –

Different Situations

Mode of Computation of Tax on Under-Reported Income

Case 1 - Where no return has been furnished and the income has been assessed for the first time

Amount of tax computed on (under-reported income + exemption limit)

Case 2 - Where total income determined as under section 143(1)(a) or assessed / reassessed / recomputed in a preceding order is a loss

Amount of tax computed on under-reported income,as if it were total income

Case 3 - In any other case

Tax on under-reported income is (x – y)

x = Amount of tax computed on [under-reported income + total income determined under section 143(1)(a) or total income assessed/reassessed/recomputed in a preceding order]

y = Amount of tax computed on total income determined under section 143(1)(a) or total income assessed/reassessed/recomputed in a preceding order

(7) Determination of under-reported income and its computation thereof [Section 270A(2) and (3)]

When a person shall be considered to have under-reported his income [Section 270A(2)]

The amount of under-reported income [Section 270A(3)]

(a) the income assessed is greater than the income determined in the return processed under section 143(1)(a)

The difference between the amount of income assessed and the amount of income determined under section 143(1)(a);

(b) where no return of income has been furnished and the income assessed is greater than the maximum amount not chargeable to tax;

(A) the amount of income assessed, in the case of a company, firm or local authority; and

(B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case of an assessee other than a company, firm or local authority;

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

The difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:

Explanation: “Preceding order” means an order immediately preceding the order during the course of which the penalty under section 270A(1) has been initiated

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income determined in the return processed under section 143(1)(a);

(e) where no return of income has been furnished and the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax;

(f) the amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, as the case may be, is greater than the deemed total income assessed or reassessed immediately before such reassessment;

Where under-reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total underreported 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 115JB or section 115JC (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 115JB or section 115JC;

D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:

Provided further that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.

(g) the income assessed or reassessed has the effect of reducing the loss or converting such 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.

(8) Tax payable in respect of the under-reported income [Section 270A(10)]

The tax payable in respect of the under-reported income shall be—

  1. where no return of income has been furnished and the income has been assessed for the first time, the amount of tax calculated on the under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income;

  2. where the total income determined under section 143(1)(a) or assessed, reassessed or recomputed in a preceding order is a loss, the amount of tax calculated on the under-reported income as if it were the total income;

  3. in any other case, determined in accordance with the formula—

    (X – Y)

    where ...,

    X – the amount of tax calculated on the under-reported income as increased by the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order as if it were the total income; and

    Y – the amount of tax calculated on the total income determined under section 143(1)(a) or total income assessed, reassessed or recomputed in a preceding order.

    In other words, it will be tax on total income inclusive of under-reported income – Tax on total income determined under section 143(1)(a) or 143(3) or 147, as the case may be.

Related Topics...Penalty

[Section 270AA] : Immunity from Imposition of Penalty and Initiation of Proceedings under Section 276C or 276CC
Penalties for different Defaults under Income Tax Act.
Penalty for default in making payment of Self Assessment Tax [Section 221(1)]
Penalty For Under-Reporting And Mis-Reporting Of Income (Section 270A)
'PENALTIES' Under Income Tax Act. 1961.
Power of Commissioner to Grant Immunity from Penalty [Section 273AA]
Power to Reduce or Waive Penalty (Section 273A)
Types of Penalties imposed under Income Tax Act. 1961
 
 
 
 
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