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

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.

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 –

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 –

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

(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.