section 270A of the income tax act, 1961 levy penalty in cases of under-reporting of income or misreporting of income. Some of the points are outlined:
1. Cash Deposited more than returned income: Here I am not talking about the deposits up to Rs.10 lakh.
I am talking about the deposits in lakh, crores. Now in case you have deposited huge cash into your account and you are not able to justify then you are under trouble. You will have to pay tax, penalty @ 200% or interest if any.
2. Changing money through illicit practice:
Since people understand the point no.1, so they are looking for different options in order to safeguard themselves. However, they should understand that these measures are temporary and will only making the things worst afterwards.
3. Buying gold:
People are rushing towards buying gold and jewelry. However, here are the following reasons which may prove detrimental:
Jewelers are now covered under excise law, which means that they have to maintain records for inputs and output made during the year.Since everybody will be rushing to jewellers to covert cash into gold, this would surge up the price for gold and ultimately, people will buy it at a higher price. Since it will be a temporary surge, the prices of gold will come down soon. This would lead to fall in value of wealth.Jewelers are raided by the authorities and vigilance is also after them. Hence, government will get all the information about the buy/sell of gold.
Under which situation penalty can’t be levied
Suppose, a professional have legitimate 1 crore with him and he deposited the entire amount in bank and paid the income tax and service tax on the amount. So he conducts the following calculation:
Total Amount Deposited
(A)1 Crore Service tax included in above (Reverse Calculation)
Revenue Amount (A-B)87 lakh
Tax on above amount (assume 30%) (C)26 lakh
In Total he paid (B+C)39 lakh i.e 39% of total amount
He paid the entire amount of Rs.39 lakh and filed the Income tax Return for FY 2016-17.
AO may issue the notice under section 143(2) to open the scrutiny against the assessed based on data in his possession. Further, AO shall ask for justification of the amount credited.
AO may impose section 68 and marked it as cash credits. Further, he shall revoke section 115BBE which will tax the cash credit at the maximum rate possible.
Now let us understand, the implications of said section.
In our case, assessee has already paid the required tax to the government of India. Hence, there will not be any balance tax to be collected.
Furthering our proposition:
AO may impose the section 270A to levy the penalty at 200%. So, let us now discuss the section 270A.
Section 270A has been introduced in finance act, 2016.This section is applicable in case of under-reporting of income.The minimum penalty of 50% and maximum of 200% (only in case of misreporting) is prescribed in this section.
On the plain reading of this section, it is very clear that it is applicable in case of under reporting of income. Under-reporting of income means where assessed income is more than returned income.
In our case, assessed income shall be equal to returned income. As assessee has voluntary disclosed all the facts and information about the income. Since, the basic condition of this section is not triggered and hence, section 270A cannot be imposed.
Other possible options
The other possible option for AO is the recourse of section 148. One may think that he may open the scrutiny proceeding of previous years. However, in that case, AO will have to record reasons to believe to open scrutiny under section 148. In our case, Assessee already declaring and disclosing all the income and paying the required taxes. Hence, this option may remain feasible for AO until he record reasons to believe.
Income tax Raid: Income tax department may initiate IT raid as soon as they get to know about the deposits. However, this may only harass assessee because he has already disclosed all the income and paid all the tax on the cash deposited hence IT raid may become useless in this regard.
Now let us understand which are section where penalties & Prosecution can be levied & under what circumstances.
Penalties & Prosecutions Under Income tax Act, 1961
Default in complying with provisions of or with conditions prescribed under the Income-tax Act would attract certain penalty and in critical cases prosecutions as well.
There are three modes built in the fiscal legislation for encouraging tax compliance: (a) Charge of Interest, (b) imposition of penalty (c) launching of prosecution against tax delinquents. While charging of interest is compensatory on character, the imposition of penalty and institution of prosecution proceedings act as strong deterrents against potential tax delinquents.
What are the defaults which may invite levy of penalty?
Chapters XVII and XXI of Income-tax Act, 1961, contain various provisions empowering an Income-tax Authority to levy penalty in case of certain defaults. The following defaults may invite levy of penalty:
(i) When the assessee is in default or is deemed to be in default in making payment of tax, including the tax deducted at source, advance tax and the self assessment tax. [Section 221 read with Sec.201(1)]
(ii) Failure to pay the advance tax as directed by the Assessing Officer or as estimated by the assessee. [Section 273(1)]
(iii) Failure to comply with a notice issued under section 142(1) or 143(2) or failure to comply with the direction issued under section 142(2A) to get the accounts audited. [Section 271(1)(b)]
(iv) Concealment of particulars of income or furnishing of inaccurate particulars of income. [Section 271(1)(c)]
(v) Failure to maintain books of accounts and documents by persons carrying on profession or business as prescribed under section 44AA. [Section 271A]
(vi) Failure to get the accounts audited in prescribed circumstances or failure to obtain the prescribed audit report within prescribed time period of failure to furnish the audit report along with the return, as required under section 44AB. [Section 271B]
(vii) Failure to subscribe to the eligible issue of capital [Section 271BB]
(viia) Penalty for failure to deduct tax at source. [Section 271C]
(viii) Accepting of any loan or deposit or repayment of deposit of Rs.20,000 or more otherwise than by account payee cheque or account payee draft, in contravention of the provisions of Section 269SS. [Section 271D]
(viiia) Repayment of loan in contravention of the conditions imposed in section 269T. [Section 271E]
(viiib) A. Failure of file the return of income as required under Section 239 (1), shall entail imposition of penalty. [Section 271F]
B. Failure to file the return as required under the proviso to Section 139(1), in the event of assessee fulfilling the prescribed conditions, i.e., certain persons in occupation of immovable property or owner of motor vehicle or subscriber to telephone, one who incurred expenditure on foreign travel, the holder of the credit card or a member of a club, subject to specific conditions, are required to file the return as per proviso to Section 139(1), failing which penalty may be imposed. (Proviso to Section 271F)
(ix) Refusal to answer in contravention of legal obligation. [Section 272A(1)(a)]
(x) Refusal to sign any statement made in the course of income-tax proceedings. [Section 272A(1)(b)]
(xi) Failure to attend or give evidence or produce books of accounts and documents in compliance with the requirements of summons under section 131(1). [Section 272A(1)(c)]
(xii) Failure to comply with the provisions of section 139A dealing with the application for and allotment of Permanent Account Number or General Index Register Number. [Section 272A(1)(d)]
(xiii) Failure to furnish information regarding securities. [Section 272A(2)(a)]
(xiv) Failure to give notice of discontinuance of business or profession. [Section 272A(2)(b)]
(xv) Failure to furnish in due time information sought under section 133 of Income-tax Act. [Section 272A(2)(c)]
(xvi) Failure to furnish in due time prescribed returns/statements. [Section 272A(2)(c)]
(xvii) Failure to allow inspection or take copies of registers of registers of companies. [Section 272A(2)(d)]
(xviii) Failure to furnish in due time the return of income by charitable or religious institutions. [Section 272A(2)(e)]
(xix) Failure to deliver in due time a copy of declaration of non-deduction of tax at source u/s.197A. [Section 272A(2)(f)]
(xx) Failure to furnish a certificate of tax deducted at source to the person on whose behalf tax has been deducted or collected as required by Section 203 or Section 206C. [Section 272A(2)(g)]
(xxi) Failure to deduct and pay tax from salary payable to an employee as directed by the Assessing Officer or the Tax Recovery Officer as required by Section 226(2). [Section 272A(2)(h)]
(xxii) Failure to allow an Income-tax Authority to collect any information useful or relevant to the purposes of Income-tax Act u/s.133B. [Section 272AA)]
(xxiii) Failure to comply with the provisions of section 203a dealing with tax Deduction Account Number [Section 272BB]
Is the levy of penalty automatic?
No penalty under the Income-tax Act is imposed unless the person concerned has been given reasonable opportunity of being heard.
What is the minimum and maximum penalty leviable?
The quantum of penalty leviable depends upon the nature of default. The relevant section of Income-tax Act prescribe the minimum and maximum penalties which can be levied.
Can the penalty be reduced or waived?
The Commissioner of Income-tax may reduce or waive the amount of any penalty imposed or imposable, if prescribed conditions are satisfied. The assessee should voluntarily and in good faith make full and true disclosure of income prior to the detection of concealment by the Assessing Officer. In certain cases of genuine hardship, the penalty levied can be reduced/waived if the assessee has co-operated in any enquiry relating to the assessment and recovery of taxes. The waiver/reduction of penalties is discretionary and dependent upon satisfaction or prescribed conditions. No assessee can, a matter of right, claim waiver or reduction of penalty imposed or imposable upon him. [Section 273A]
Office and prosecution under the income tax act. why is prosecution necessary?
In the fight against tax evasion, the imposition of monetary penalty alone is not sufficient. A calculating tax evader finds it profitable to evade tax for years, if he knows that he may get away with it by paying penalty in the year in which he is caught. However, the prospect of landing in jail is a far more dreaded consequence and works as a deterrent. Further, for more serious defaults, sometimes launching of prosecution is prescribed without prescribing monetary penalties.
The Parliament has, therefore, been enacting deterrent laws for effective implementation of tax laws. The Income-tax Act contains a separate chapter XXII wherein offences have been defined and punishment provided.
What are the offences punishable under the income tax act?
The following offences committed by a person are punishable:
(i) Removal, parting with or otherwise dealing with books of accounts, documents, money, bullion, jewellery or other valuable article or thing put under restraint during the search. [Section 275A]
(ii) Fraudulent removal, concealment, transfer or delivery of any property or any interest in the property with the intention to thwart recovery of tax. [Section 276]
(iii) Failure on the part of a liquidator or receiver of a company to give notice of his appointment to the Assessing Officer or failure to set apart amount notified by the Assessing Officer, or parting away of company’s properties in contravention of income-tax provision. [Section 276A]
(iv) Failure to enter into written agreement or failure to furnish the statement of immovable property intended to be transferred u/s.269UC, or failure to surrender or deliver the property u/s.269UE, purchased by the Appropriate Authority or doing or omitting to do anything u/s.269UL, which will have the effect of transfer of property without the permission of the Appropriate Authority (under the provisions of Chapter XX-C) [Section 276AB]
(v) Failure to pay to the credit of the Central Government the tax deducted at source. [Section 276B]
(va) Failure to pay the tax collected at source. [Section 276BB]
(vi) Willful attempt to evade any tax, penalty or interest [Section 276C(1)]
(vii) Willful attempt to evade the payment of any tax, penalty or interest levied under Income Tax Act. [Section 276C(2)]
(viii) Willful failure to furnish in due time return of income. [Section 276CC)]
(viiia) Failure to furnish return of income in Search Cases as required under section 158BC [Section 276CCC]
(ix) Willful failure to produce accounts and documents as directed by issue of notice under section 142(1) [Section 276D]
(x) Willful failure to get the accounts audited as directed by the Assessing Officer under section 142(2A). [Section 276D]
(xi) Making of a statement in verification or delivery of an account or statement which is false and which the concerned person knows or believes to be false or does not believe to be true. [Section 277]
(xii) Abetting or inducing another person to make and deliver an account or statement or declaration relating to any taxable income which is false and which he either knows or believes to be false. [Section 278]
(xiii) Punishment for 2nd & subsequent offences in cases of certain defaults. [Section 278A]
No person shall be punished for any failure if he proves that there is reasonable cause failure. [Section 278AA].
Who is liable to be prosecuted?
Any person, committing the offence is liable to be prosecuted. In this connection it is not necessary that the person should be an assessee under the Income-tax Act. In the case of an offence committed by a Company, Firm, Association of Persons or Body of Individuals, every person in charge of or responsible for the conduct of the business of the concern as well as the concern are deemed to be guilty. Similarly, in the case of an offence by a Hindu Undivided Family, the karta thereof is deemed to be guilty of the offence.
Is mens rea or culpable mental state or guilty intention necessary?
In case of willful act of omission or commission, the court shall presume the existence of culpable mental state. However, the accused can rebut this presumption by producing necessary evidence before the court. (Section 278E).
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