Section 270A has been inserted by
the Finance Act, 2016, with effect from 01.04.2017 i.e. from the assessment
year 2017-18. Section 270A contains the provisions relating to penalty
for under-reporting and misreporting of income. The provisions of section 270A
provide for various situations for the purposes of levy of penalty under this
section. Under this
section, the Assessing Officer, Commissioner (Appeals) or Principal
Commissioner or Commissioner may, during the course of any proceedings under
the Act, levy penalty if a person has under-reported his income. The penalty may range from 50% to 200%.
Under-reported income [Section
270A(2)]
A person shall be considered to have under-reported his
income, if –
(a) the income
assessed is greater than the income determined in the return processed under
clause (a) of sub-section (1) of section 143;
(b) the income
assessed is greater than the maximum amount not chargeable to tax, where no
return of income has been furnished; or where return has been
furnished for the first time under section 148
(c) the income reassessed is greater than the income
assessed or reassessed immediately before such reassessment;
(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 clause (a)
of sub-section (1) of section 143;
(e) 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, where no return
of income has been filed or where return has been furnished for the first time under
section 148
(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;
(g)
the income assessed or reassessed has the effect of reducing the loss or
converting such loss into income.
Computation of
under- reported income [Section 270A(3)]
(i) Income is assessed for the first time
(a) Return is furnished
Ø Assessed income – Income as per intimation under section
143(1)(a)
(b) Return is not furnished or
where return has been furnished for the first time under section 148
(A) In the case of a Company,
firm or local authority
Ø Assessed income
(B) Others
Ø Assessed Income – Maximum amount not chargeable to tax
(ii) Income is reassessed
(a) Reassessed income – Assessed income as per
preceeding order
(b) Loss case
Ø Difference between income or loss assessed and loss claimed
Intangible
Addition Section 270A (4) & (5)
Section 270A(4) is somewhat similar to
erstwhile explanation 2 to section 271(1) and provides that where the source of
any receipt, deposit or investment in any assessment year is claimed to be an
amount added to income or deducted while computing loss, as the case may be, in
any preceding assessment year and no penalty was levied in such preceding
assessment year then, the underreported income shall include such amount as is
sufficient to cover such receipt, deposit or investment.
Further,
section 270A(5) specifies that the amount for the purpose of subsection (4)
shall firstly be from the immediately preceding assessment year and then from
the year preceding that and so on.
Under-reporting
exclusions - Addition to returned Income – No Under-Reported Income [Section
270A(6)]
Section 270A(6) prescribe following six situations, when
addition to retuned income will not be considered as under-reported income.
(i) Bona fide
(a) Assessee offer an explanation
(b) Assessee should have disclosed all material
facts to substantiate the explanation
(c) the Assessing Officer or the Commissioner
(Appeals) or the Commissioner or the Principal Commissioner, as the case may be
is satisfied that the explanation is bona fide and the assessee has disclosed
all the material facts to substantiate the explanation offered
(ii) Estimated amount of under-reported income if
:
(a) Amounts are correct and complete
(b) But method employed is such that income
cannot be deducted therefrom
(iii) Estimated amount of under-reported income
if :
(a) Ahas estimated addition/ disallowance on same
issue but on a lower side
(b)
offered to tax such lower amount
(c) Disclosure of all related material facts
(iv) Additions on account of ALP (arm’s length price)
determined by Transfer Pricing Officer (TPO)
The amount of
under-reported income is represented by any Transfer Pricing addition made in
conformity with the ALP (arm’s length price) determined by the Transfer
Pricing Officer, where the assessee had maintained information and documents as
prescribed under section 92D, declared the international transaction under
Chapter X, and, disclosed all the material facts relating to the transaction Transfer
Pricing adjustments of information maintained, transaction reported ad
disclosure of facts
(v) Search cases covered by Section 271AAB
The amount of undisclosed income
referred to in section 271AAB
Penalty For Under-Reporting [Section 270A(7)]
The
penalty referred to in section 270A(1) shall be a sum equal to 50% of the
amount of tax payable on under-reported income
Where
the under-reporting is because of misreporting than provision of Section
270A(6) shall not apply [Section 270A(8)]
Section 270A(8) provides that incase where
the under-reporting is because of misreporting than provision of sub-section(6)
shall not apply (i.e. exceptions not applicable in case of Misreporting) and
also that the penalty shall be levied at 200% of the amount of tax payable on
under reported income.
“Misreporting of income” means [Section 270A(9)]
As
per section 270A(9), the cases of misreporting of income reffered to in section
270A(8) shall be the following namely:-
(a)
Misrepresentation or suppression of
facts;
(b)
Failure to record investments in the
books of account;
(c)
Claim of expenditure not
substantiated by any evidence;
(d)
Recording of any false entry in the
books of account;
(e)
Failure to record any receipt in
books of account having a bearing on total income; and
(f)
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.
(g) Consideration received for issue of share
that exceeds the fair market value of such share shall be deemed to be the
income of that company chargeable to income-tax for the previous year in which
such failure has taken place and, it shall also be deemed that the company has
underreported the said income in consequence of the misreporting referred to in
sub-section (8) and sub-section (9) of section 270A for the said previous year.
KEY
NOTE
In
the above cases penalty @ 200% of the tax leviable on the amount of Unreported
Income. Under-reporting shall be considered as misreporting.
Tax payable in
respect of the under-reported income [Section 270A(10)]
The tax payable in respect of the under-reported income
shall be—
(a) where no return
of income has been furnished and the income has been assessed for the first
time or where return has been furnished for the first time under
section 148, 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;
(b) where the total
income determined under clause (a) of sub-section (1) of section 143 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;
(c)
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 clause (a) of sub-section (1) of
section 143 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 clause
(a) of sub-section (1) of section 143 or total income assessed,
reassessed or recomputed in a preceding order.
Quantum
of penalty that can be levied under section 270A
If income is under-reported due to
misreporting of income, then penalty shall be levied at 200% of tax payable on
such under-reported income. However, if income is under-reported due to any
other circumstances, then penalty shall be 50% of tax payable on under-reported
income.
|
In case of under reporting
|
50% of the amount
of tax payable on the under reported income
|
|
In case
of Misreporting of income
|
200% of
the amount of tax payable on under reported income
|
KEY NOTE
For Example
If your income is say Rs. 20,00,000
and you have not reported an income of Rs 4,00,000 while filing your ITR. Then
Assessing Officer can impose a penalty under section 270A of about Rs. 60,000
(50% of the tax on under-reported income, i.e., Rs 1,20,000 (400000*30%)).
However, If the under reporting is due to misreporting of income then penalty
can be up to 200% of the tax on unreported income. That means 200% of Rs.
1,20,000 (400000*30%) amounting to Rs. 2,40,000.
Guidance note to Assessing
Officer on penalty provisions for under section 270A
from Assessment year
2017-18 onwards
|
S.
No.
|
Nature of Additions
|
Assessment
under section
|
Additions under section
|
Tax rate provisions
|
Applicable
penal proceedings
|
Rate of penalty
|
Remarks
|
|
1.
|
Wrong claims of
deductions Chapter VIA by Salaried employees
|
143(3) / 144 / 147
|
16
|
Normal tax rates
|
270A(1)
r.w. 270A(9)(a)
|
200%
|
The Assessing Officer has given
finding of wrong claim rather than assessee failure to furnish the evidences.
|
|
2.
|
Not offering ALV on
the property
|
143(3)
|
22
|
Normal tax rates
|
270A(1)
r.w. 270A(9)(a)
|
200%
|
The assessee is supposed to offer
ALV as per Return of Income. Not offering the house property income is
suppression of fact.
|
|
3.
|
Unaccounted sales, not
recorded in the books of account – gross profit brought to tax
|
143(3)
|
28
|
Normal Tax Rates
|
270A(1)
read with 270A(9)(e)
|
200%
|
Failure to record receipt in books
of account and consequently profit was under reported which amounted to
misreporting under section 270A(9)(e).
|
|
4.
|
Suppression of
receipts- current year (if assessee paid taxes in the relevant previous year
itself)
|
143(3)
|
28
|
Normal tax rates
|
-
|
-
|
No penalty. However, since
suppression of current year receipts can be a finding in surveys, the
evidence of suppression can be used against the assessee in the event of
failure to pay the admitted taxes based on such suppressed receipts.
|
|
5.
|
Suppression of
receipts of earlier years
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(e)
|
200%
|
Failure to record receipts in
books of account is misreporting under section 270A(9)(e). Even in case of
assesses where books were not maintained it amounts to misrepresentation of
facts.
|
|
6.
|
Difference in
valuation of stock
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
Normally the valuation in stock
may differ on application of accounting standards. In such cases there may be
addition but it may not be due to any misrepresentation of the fact.
|
|
7.
|
Depreciation on
vehicles – higher rate of 30% restricted to 15%, not considering the contract
with travel agencies as business activity on plying of vehicles
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
The addition made by the Assessing
Officer is on the interpretation of legal provisions and not with any dispute
on facts.
|
|
8.
|
Sources for cash
deposits explained as turnover with evidences addition made on estimation
basis
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(e)
|
200%
|
The deposits beyond the receipts
shown in the Return of Income are treated as turnover which means
“suppression of receipts which clearly falls under 270A(9)(e)” and even
though estimation is made there was no full disclosure on the part of the
assessee. As such assessee cannot claim exception of under reporting under
section 270A(6)(c).
|
|
9.
|
Receipts as per 26AS
more than 1 crore. Assessee admitted only commission in the Return of Income
Proved by the Assessing Officer as assessee did transport business and
estimated the income on receipts.
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(a)
|
200%
|
The assessee offered income on
commission basis but during the proceedings he could not substantiate the
same. The Assessing Officer proved that the assessee did transport business
and estimated the income. Since there was no full disclosure exception under
section 270A(6) is not available to
assessee.
|
|
10.
|
Books rejected and profits
estimated by the Assessing Officer
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
The Assessing Officer rejected the
books of account for the failure of the assessee to substantiate the claims
of expenditure but there was no finding of misrepresentation of facts.
|
|
11.
|
Disallowance of
additional depreciation (like eligible in the year of installation but
claimed in other years)
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(a)
|
200%
|
Assessee misrepresented the fact
by claiming additional depreciation in different year – other than the years
of installation. Hence considered as misrepresentation of fact.
|
|
12.
|
Provisions made and
debited to P & L A/c but expenditure not incurred during the year.
Provisions disallowed.
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
The provisions were disallowed but
there was no specific finding of falsification of account. In such case it is
only underreporting.
|
|
13.
|
Income offered under
section 44AD claimed excess
remuneration not allowable 40(b)(v)
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(a)
|
200%
|
The claim of partners remuneration
beyond what is allowable as per partnership deed and sec. 40(b)(v) is
misrepresentation of fact.
|
|
14.
|
Excess turnover as per
VAT returns -
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(e)
|
200%
|
Failure to record receipts in
books of account is misreporting under section 270A(9)(e). Even in case of
assesses where books were not maintained it amounts to misrepresentation of
facts.
|
|
15.
|
Difference of gross
receipts in 26AS and Return of Income
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(e)
|
200%
|
Failure to record receipts in
books of account is misreporting under section 270A(9)(e). Even in case of
assesses where books were not maintained it amounts to misrepresentation of
facts.
|
|
16.
|
Trading of commodities
and derivatives not shown in Return of Income
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(a)
|
200%
|
In case of assessing the profit,
it amounted to suppression of fact by the assessee.
|
|
17.
|
The assessee purchased
immovable properties worth Rs.70,22,140/-.
On verification of sources for investment, it was found that part of
the investment was made out of borrowed funds of the business of the
assessee. Hence, the proportionate
interest attributable to the investment in personal property of the assessee
was disallowed and added to the income returned.
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
read with section 270A(9)(a)
|
200%
|
The assessee failed to prove that
the non-interest bearing funds were invested in purchase of personal
asset. Further, the Assessing Officer
also proved that interest bearing funds were diverted for purchase of
personal asset. As such it is treated as misrepresentation of fact.
|
|
18.
|
The assessee admitted
Short Term Capital loss of Rs.25,23,525/- in the Return of Income from
purchase and sale of shares. During the course of assessment proceedings, the
assessee was asked to furnish details of intra-day transactions and other
than intra-day transactions. The assessee submitted scrip-wise profit and
loss statement for the above transactions. On verification of the same, it is
found that assessee made profit of Rs.6,37,861/- from intra-day trading
transactions, which is a speculation profit, and the assessee incurred Short
Term Capital Loss of Rs.31,61,386/- . Since Short Term Capital Loss cannot be
set off against speculation profit, the Short Term Capital Loss is allowed to
be carried forward to subsequent years for setoff as per the provisions of
the Act. The Speculation Profit of Rs.6,37,861/- is brought to tax without
any set off of loss against it under the head ‘Profits and Gains from
Business/Profession’
|
143(3)
|
28
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The Assessing Officer has
given finding of wrong claim rather than assessee failure to furnish the
evidences.
|
|
19.
|
Disallowance was made
under section 14A.
|
143(3)
|
28
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The Assessing Officer made
addition by invoking Rule 8D and the diversion of funds for earning exempted
income is also clearly discussed by the Assessing
Officer. By not making the disallowance or not correctly computing the
disallowance under section 14A, the assessee misrepresented the facts.
|
|
20.
|
Assessee claimed set
off of business loss to the salary income, thereby reducing the Total Income
of the assessee. The claim of business
loss was restricted to other heads of income except salary. The income of the assessee was recomputed
accordingly.
|
143(3)
|
28
|
Normal tax rates
|
Normal tax rates
|
270A(1)
|
50%
|
|
21.
|
The assessee treated
Grants from Govt. as Capital Grants.
However, while completing the assessment, the said grants were treated
as Revenue Grants. Disallowance under
section 80P(2)(d) was also made for
wrong claim.
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
The disallowances not with any dispute on fact but the
interpretation of the facts with the due legal provisions. Hence, the same is
to be considered as underreporting only.
|
|
22.
|
Expenditure towards Income Tax / Wealth tax Payments were not
added back
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
The act of the assessee is underreporting the income. There is
no element of suppression of fact.
|
|
23.
|
Capital expenditure claimed as revenue by the assessee. In the
assessment the Assessing Officer disallowed the claim treating the same as
capital expenditure.
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
Where the claim of the assessee is not allowable on due
appreciation of the facts, but there was no finding of any misrepresentation.
However, if a claim is not substantiated by the evidence, apparently capital
in nature, the Assessing Officer shall
highlight the misrepresentation of fact.
|
|
24.
|
Addition on account of trade payables brought to tax under
section 41(1)
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
Since the assessed income Is varied from the income in 143(1) it
is a case of underreporting. There was no finding of any misrepresentation of
fact.
|
|
25.
|
Disallowance on loss of sale of asset
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
Since the assessed income Is varied from the income in 143(1) it
is a case of underreporting. There was no finding of any misrepresentation of
fact.
|
|
26.
|
Disallowance under section 40(a)(ia)
|
143(3)
|
28
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee has an obligation to disclose the amounts to be
disallowed in the Return of Income. By not disallowing the amount material
fact is misrepresented.
|
|
27.
|
Disallowances for delayed payments of PF & ESI
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
since the disallowance of delayed payments is debatable issue.
It is to be considered as underreporting only.
|
|
28.
|
Disallowances under section 35D
|
143(3)
|
28
|
Normal tax rates
|
270A(1)
|
50%
|
since the disallowance is only restriction of expenditure is
considered as underreporting only.
|
|
29.
|
Disallowance of claim of 80IA
|
143(3)
|
28
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee failed to substantiate the claim of 80IA rather
than legal interpretation of the provisions.
|
|
30.
|
Claim of prior period expenditure
|
143(3)
|
28
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee claimed royalty which found to be pertaining to
previous year. The assessee while following the merchantile system, made the
claim against the consisting accounting method.
|
|
31.
|
Bogus purchases
|
143(3)
|
28
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
As the purchases itself are bogus, it is a false entry in the
books of account.
|
|
32.
|
Claim of exemption under section 54F (for investment in
residential flat) denied because assessee purchased one more flat in the same
assessment year – LTCG brought to tax as per section 54F(2) – (there is no
column in the ITR to disclose second investment in the same assessment year –
wrong claim which is not debatable and not allowable is made in the Return of
Income)
|
143(3)
|
45
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee is not eligible for making the claim since he
purchased another asset within the same year other than the new asset. Since
he is aware of the purchase of the asset, claiming deduction under section 54F
is misrepresentation of fact. This amounted to knowingly making an ineligible
claim.
|
|
33.
|
Capital gains from sale of immovable property not offered to tax
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee suppressed the fact of having the capital gains
income in the ROI already filed .
|
|
34.
|
Claim exemption under section 54F evidences submitted were not to the
extent of claim made – part of the claim disallowed
|
143(3)
|
45
|
Normal tax rates
|
270A(1)
|
50%
|
Evidences given but could not be proved the satisfaction of the Assessing Officer but there is no finding of
wrong claim
|
|
35.
|
Sale of immovable property – LTCG shown by the assessee tax as
STCG by the Assessing Officer
|
143(3)
|
45
|
Normal tax rates
|
270A(1)
|
50%
|
In the case Assessing Officer treating
the period of holding different from the view of the assessee and the
assessee’s view is on bonafide belief, it is only underreporting. However, if
the period of holding is undebatedly pertains to STCG it may amount to
misreporting.
|
|
36.
|
Assessee claimed the asset as agriculture land but asseessed as
capital asset (where the distance is more than stipulated kms but assessed
due to the factors like development, cost etc.)
|
143(3)
|
45
|
Normal tax rates
|
270A(1)
|
50%
|
Since the asset was
treated as capital asset on appreciation of facts prone for interpretation,
it is treated only as underreporting.
|
|
37.
|
Assessee claimed exemption as agriculture land but Assessing Officer
proved that within the prescribed distance
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The distance is an irrefutable fact and as such claiming
exemption is misrepresentation of fact.
|
|
38.
|
Capital gains arising in Joint Development Agreements (JDA) not
admitted in the Return of Income
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
For the AY 2017-18, assessee ought to have offer capital gains
on transfer of asset in JDA. By not admitting the capital gain income the
fact of deriving capital gains income is suppressed.
|
|
39.
|
Restricting cost of acquisition based on SRO value and no
material facts disclosed by the Assessee are proved to be wrong
|
143(3)
|
45
|
Normal tax rates
|
270A(1)
|
50%
|
In the case of Assessing Officer adopting
the SRO value rejecting the value adopted by the assessee and assessee
furnishes reasonable evidence for his claim, it is to be treated as
underreporting only.
|
|
40.
|
Sale cum GPA agreements where the GPA holder transfers in Assessment
year 2017-18 or afterwards
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
In case of sale cum GPA holder transferring the property, it is
the sale cum GPA holder who derived the capital gains. As such he ought to
have offer capital gains to tax but suppressed the same.
|
|
41.
|
Deduction under section 54G claimed but not eligible
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Misrepresentation of fact by claiming wrong deduction.
|
|
42.
|
Cost of acquisition disallowed based on the details as per BRS
application
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Assessee claimed excess value of construction both in terms of
area and value which clearly misrepresentation of facts.
|
|
43.
|
Disallowance of claim of section 54B since the property was not
agriculture land
|
143(3)
|
45
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Misrepresentation of fact by claiming wrong deduction.
|
|
44.
|
LTCG brought to tax by invoking sec. 50C – (Relevant column of
50C in the ROI is not filled in or wrongly filled in)
|
143(3)
|
50C
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Failure to report the correct value under section 50C and thus
by suppressed/ misrepresented the fact of “deemed sale consideration”.
|
|
45.
|
Invoking of section 50C – notice under section 148 issued – no ITR filed in response to
notice under section 148 – LTCG brought to tax
|
144
|
50C
|
Normal Tax Rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee suppressed the fact of having the income chargeable
to tax by his act of not filing the return even in response to notice under
section 148.
|
|
46.
|
Interest on Fixed Deposits not offered to tax
|
143(3)
|
56
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Suppression of the fact of earning interest income is
misreporting.
|
|
47.
|
Purchase of immovable property – difference between document
value and govt. value – difference added under section 56(2)(vii)(b)
|
143(3)
|
56
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
The assessee ought to have reported the difference under the
head income from other sources. But by not reporting the same is suppressed
the fact of having deemed income to this extent.
|
|
48.
|
Cash deposits – in excess to the sale consideration and accepted
as such by the AO (on money receipts)
|
143(3)
|
56
|
Normal tax rates
|
270A(1) read with section
270A(9)(a)
|
200%
|
Not showing the entire amount of on money receipts is a
suppression of fact amounting to misrepresentation
|
|
49.
|
Deemed dividend u/s. 2(22)(e)
|
143(3)
|
56
|
Normal tax rates
|
270A(1)
|
50%
|
There is no column in return for the director to disclose deemed
income under section 2(22)(e). Facts were diclosed before the Assessing Officer. Hence, underreporting only.
|
|
50.
|
Agricultural income brought to tax as income from other sources
|
143(3)
|
56
|
Normal tax rates
|
-
|
-
|
Assessing Officer
assessed the excess amount under the head other sources after estimation of
agricultural income. Such estimation comes within section 270A(6) out of the
purview of underreporting of income.
|
|
51.
|
|
143(3)
|
68/69A
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attracts penalty under section 271AAC.
Here the Assessing Officer has
given a finding that neither the extent of land holdings nor the claim of
lease proved to be bogus. The addition is made under section 68 in case where
books of account were maintained and sec.69A in case where books of account
were not maintained.
|
|
52.
|
Cash credit entries in books of accounts not explained
|
144
|
68
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
53.
|
Cash Deposits in Bank, which are not recorded in books of
account
|
144
|
68
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
54.
|
Opening cash balance not explained
|
143(3)
|
68
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
55.
|
Unexplained credits in capital account
|
143(3)
|
68
|
115BBE (78%)
|
271AAC
|
10%
|
Sources for credits in capital account were not explained.
Additions under section 115BBE attract penalty under section 271AAC
|
|
56.
|
penny stock cases where exemption under section 10(38) was
claimed
|
143(3)
|
68
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
57.
|
Difference in stock found at the time of Survey, treated by the
AO as unexplained investment
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
58.
|
Purchase of immovable property – failure of assessee to explain
the sources of investment – where the assessee is not required to maintain
books of account (salaried employees, assessee covered under section 44AD
etc.)
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
59.
|
Purchase of immovable property – failure of assessee to explain
the sources of investment – where the assessee is required to maintain books
of account but not maintained (auditable cases but did not maintain books)
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
60.
|
Purchase of immovable property – failure of assessee to explain
the sources of investment – where the assessee has maintained books of
accounts
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
61.
|
Acquisition of immovable property – sources not explained
–unexplained investment
|
144
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
62.
|
Investment in shares not explained
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
Sources for Investments was not explained. Additions under
section 115BBE attract penalty under section 271AAC
|
|
63.
|
Sources for investment – creditors confirmed the loan but AO
brought to tax partial amount as no creditworthiness
|
143(3)
|
69
|
115BBE (78%)
|
271AAC
|
10%
|
The Assessing Officer to the
extent of creditworthiness is not proved treated the sources of investment as
unexplained. Additions under section 115BBE attract penalty under section 271AAC
|
|
64.
|
Assessee paid credit card bills could not explain the sources
|
143(3)
|
69A
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
65.
|
Cash deposits – sources explained as receipts from unregistered
sale agreements proved to be not genuine
|
143(3)
|
69A
|
115BBE (78%)
|
271AAC
|
10%
|
Additions under section 115BBE attract penalty under section 271AAC
|
|
66.
|
Expenditure incurred (not debited to P&L A/c) being
personnel in nature – sources not explained
|
143(3)
|
69A
|
115BBE (78%)
|
271AAC
|
10%
|
Source for fee paid to medical college towards daughter’s
education is not explained. Additions under section 115BBE attract penalty under
section 271AAC
|
KEY NOTE
No penalty under section 271AAC
shall be levied in respect of income referred to in section 68, section
69, section 69A, section 69B, section 69C or section
69D to the extent such income has been included by the assessee in the
return of income furnished under section 139 and the tax in
accordance with the provisions of clause (i) of sub-section (1) of section
115BBE has been paid on or before the end of the relevant previous year.
Under-reported
income, for the purposes of section 270A
The under-reported income, for the
purposes of section 270A, shall not include the following, namely:—
(a) The amount of income in respect of which
the assessee offers an explanation and the Assessing Officer or the
Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as
the case may be, is satisfied that the explanation is bona fide and
the assessee has disclosed all the material facts to substantiate the
explanation offered.
(b) The amount of under-reported income
determined on the basis of an estimate, if the accounts are correct and
complete to the satisfaction of the Assessing Officer or the Commissioner
(Appeals) or the Commissioner or the Principal Commissioner, as the case may
be, but the method employed is such that the income cannot properly be deduced
therefrom.
In
contractor's cases addition was made on estimation due to low profit relying on
case laws, profit was estimated as few vouchers were not amenable for
verification. However, cases where the Assessing Officer gives finding on
correctness of the vouchers or the entries in account books is not covered by
exception in this clause. Similarly round some disallowances of expenditure
from particular heads of expenses (travelling, conveyance, repairs and maintenance,
staff welfare etc.) are also covered under this clause provided there is no
specific finding on genuineness of the expenditure or correctness of the
account books.
(c) The amount of under-reported income
determined on the basis of an estimate, if the assessee has, on his own,
estimated a lower amount of addition or disallowance on the same issue, has
included such amount in the computation of his income and has disclosed all the
facts material to the addition or disallowance;
Disallowance due
to personal use of cars etc.,
Where the arm's length price is adjusted on
PLI under TNMM method and all the international transactions were declared by
the assessee.
(e) The amount of undisclosed amount
referred to in section 271AAB.
Additions made in
case of assessments under section 153A are not covered under section 270A. This
clause refers to such additions.
Cases
of misreporting of income referred to in sub-section (8)
The cases of misreporting of income
referred to in sub-section (8) shall be the following, namely:—
(a) Misrepresentation or
suppression of facts
Any fact which ought to have been declared in
the return of income or during the course of assessments proceedings is either
suppressed or facts were misrepresented. For example capital gains income was
not at all shown in the return of income, claims of improvement were made but
proved to be wrong, incorrect claim of section 54/54F, wrong claims under
chapter VIA etc.
(b) Failure to record investments
in the books of account
Prima facie unaccounted investments are brought to tax under
section 115BBE and penalty is leviable under section 271AAC.
(c) Claim of expenditure not
substantiated by any evidence;
When the Assessing
Officer asked for specific evidence on expenditure but no evidence is submitted
or assessee failed to substantiate the expenditure claim. Here the assessing
officer gave finding that assessee failed to produce any evidence on the claim
of expenditure (roundsome additions are not covered under this clause). The AO
shall clearly give a finding that claim is not proved.
(d) Recording of any false entry
in the books of account
Bogus purchases,
accommodation entries and any other entry which is proved to be false entry.
(e)
Failure to record any receipt in books of account having a bearing on total
income; and Suppression of turnover,
not recording interest income, rents etc where books of accounts were
maintained.
(f)
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. The report furnished by the assessee omits
certain international transactions and the TPO / Assessing Officer determained
arm's length price on such transactions which results in addition.
(g) Consideration
received for issue of share that exceeds the fair market value of such share
shall be deemed to be the income of that company chargeable to income-tax for
the previous year in which such failure has taken place and, it shall also be
deemed that the company has underreported the said income in consequence of the
misreporting referred to in sub-section (8) and sub-section (9) of section 270A
for the said previous year.
KEY NOTE
Notice should be issued by invoking
underreporting due to misreporting which attracts 200% penalty, but later after
considering assessee's reply can the penalty be restricted to 50% considering
it as a case of underreporting only not involving misreporting and vis-a-vis.
Examples:
[1] Under Reported Income - Income assessed
is greater than the income determined in the return processed under section
143(1)(a) [Section 270A(2)(a)]
Where the income assessed is greater than the income
determined in the return processed under section 143(1)(a). The amount of under reported income will be
determined as under:
(a) Amount of under
reported income will be determined as under
Under Reported Income = Assessed Income (-) Processed Income
under section 143(3)(1)
(b) Tax on under
reported income will be Tax On
(Under Reported Income + Total
income assessed)
(-) minus = Tax on Total Income assessed
(c) Penalty on under
reported income
50% on the tax on under reported
income – In case of underreporting
200% on the tax on under reported
income – In case of Mis-Reporting
PROVISIONS ILLUSTRATED – 1
|
Under
Reported Income - Section 270A(2)(a)]
|
|||
|
1
|
Income
as per Return
|
|
5,00,000
|
|
|
Add
: Permitted adjustment under section 143(1)(a)
|
|
1,00,000
|
|
2
|
Income
processed under section 143(1)(a)
|
|
6,00,000
|
|
Add
:
|
|
|
|
|
(a)
Disallowance of bonafide Expenses
|
|
1,00,000
|
|
|
(b)
Bogus purchases
|
|
3,00,000
|
|
|
(c)
Bogus Salary claimed
|
|
2,00,000
|
|
|
3
|
Income
assessed under section 143(3)
|
|
12,00,000
|
|
4
|
Under
Reported income (3-2)
|
|
6,00,000
|
|
5
|
(a)
Under Reported
= 2(a)
|
1,00,000
|
30,000
|
|
(b)
Misreported
Income – Bogus Claims = (2b + 2c)
|
5,00,000
|
1,50,000
|
|
|
6
|
Tax
on under reported Income
|
6,00,000
|
1,80,000
|
|
7
|
Penalty
on under reported income 5(a) = 50% of the tax
|
50%
|
15,000
|
|
Penalty
on Misreported income 5(b) = 200% of the tax
|
200%
|
3,00,000
|
|
|
8
|
Total
Penalty under section 270A
|
|
3,15,000
|
[2]
Under Reported Income - No return of income has been furnished or where return has been furnished for
the first time under section 148 [Section
270A(2)(b)]
Where the income assessed is greater than the maximum amount
not chargeable to tax, where no return of income has been furnished or
where return has been furnished for the first time under section 148. The amount of under reported income will be
determined as under:
(a) Amount
of under reported income will be determined as under:
Under Reported Income =
Income assessed (-) Basic Exemption Limit
(b) Tax on under reported income will
be Tax on :
Under Reported
Income + Basic Exemption
Limit
(c)
Penalty on under reported income
50% on the tax on under reported income – In
case of under reporting
200% on the tax on under reported income – In
case of Misreporting of income
PROVISIONS ILLUSTRATED – 2
|
Where no return of income has been
furnished or where return has been furnished
for the first time under section 148
|
|||
|
S.
No.
|
Particulars
|
Company, Firm etc.
|
Individual,
HUF etc.
|
|
1
|
Income
assessed under section 143(3)
|
5,00,000
|
5,00,000
|
|
2
|
(-) Basic Exemption Limit
|
-
|
2,50,000
|
|
3
|
Underreported
Income (1-2)
|
5,00,000
|
2,50,000
|
|
4
|
Underreported Income (For Tax
purpose) [3+2]
|
5,00,000
|
5,00,000
|
|
5
|
(a) Tax on under reported
Income (4) = 30% For Companies
|
1,50,000
|
-
|
|
|
(b) Tax on under reported
Income (4) = At Slab Rates
|
-
|
12,500
|
|
6
|
Tax
on under reported income
|
1,50,000
|
12,500
|
|
7
|
Penalty under section 270A = 50%
of the tax on under reported tax
|
75,000
|
6,250
|
[3] Under Reported Income - On
Reassessment of Income [Section 270A(2)(c)]
Where the income reassessed is greater than the income assessed or
reassessed immediately before such reassessment. The amount of under reported
income will be determined as under:
(a) Amount of under reported income will be
determined as under:
Under Reported Income =
Income reassessed (-) Income assessed in a preceding order
(b) Tax on under reported income will
be Tax on :
Under Reported Income (+) the Reassessed total income (-) Tax
On {the preceding assessed total income
(c)
Penalty on under reported income
50% on the tax on under reported income – In
case of under reporting
200% on the tax on under reported income – In
case of Misreporting of income
PROVISIONS ILLUSTRATED – 3
|
Where the income reassessed is
greater than the income assessed or reassessed immediately before such
reassessment
|
||||
|
S.
No.
|
Particulars
|
|
Company, Firm etc.
|
Individual,
HUF etc.
|
|
1
|
Income
assessed under section 143(3)
|
|
5,00,000
|
5,00,000
|
|
2
|
(+) Bogus Purchases
|
|
3,00,000
|
3,00,000
|
|
|
(+) Undisclosed Investment
|
|
2,00,000
|
2,00,000
|
|
3
|
Income
reassessed under section 147
|
(1+2)
|
10,00,000
|
10,00,000
|
|
4
|
Underreported Income
|
(3-1)
|
5,00,000
|
5,00,000
|
|
5
|
Underreported Income (For Tax
purpose)
|
(4+3)
|
15,00,000
|
15,00,000
|
|
6
|
(a) Tax on under reported
Income (5) = 30% For Companies
|
|
4,50,000
|
-
|
|
|
b) Tax on under reported
Income (5) = Slab Rate
|
|
-
|
2,62,500
|
|
6
|
Tax
on under reported income
|
|
1,50,000
|
12,500
|
|
7
|
Tax on
income assessed under section 147 on (3)
|
|
3,00,000
|
1,12,500
|
|
8
|
Tax on
under reported income
|
|
1,50,000
|
1,12,500
|
|
9
|
Since the under reported income
arises due to misreporting of income, Penalty will be equal to 200% of the tax
|
|
3,00,000
|
2,25,000
|
[4]
Under Reported Income - On MAT Income [Section 270A(2)(d)]
Where 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 clause (a) of sub-section (1) of section 143. The amount of under reported income will be
determined as under :
(a)
Amount of under reported income will be determined as under:
Under Reported Income = Deemed total income assessed under section
115JB or section 115JC (-) minus Deemed total income under section
143(1)(a)
(b)
Tax on under reported income will be Tax on :
Under Reported Income (+) (Deemed
Total Income Assessed) (-) minus
Tax On (Deemed Total Income
Assessed)
(c)
Penalty on under reported income
50% on the tax on under reported income – In case of under
reporting
200% on the tax on under reported income – In case of
Misreporting of income
PROVISIONS
ILLUSTRATED – 4
|
Under
Reporting in case of MAT
|
|||
|
S.
No.
|
Particulars
|
Section
115JB/
115JC
|
|
|
1
|
Deemed
Total Income processed under section 143(1)(a)
|
|
20,00,000
|
|
2
|
(+) Provision of Income Tax
|
|
2,00,000
|
|
3
|
(+) Provision of Income Tax
|
|
1,00,000
|
|
4
|
Deemed
Total Income Assessed under section 115JB
|
|
23,00,000
|
|
5
|
Underreported Income
|
(4-1)
|
3,00,000
|
|
6
|
Underreported Income (For Tax
purpose)
|
(4+5)
|
26,00,000
|
|
(a) Tax on under reported income
on (6)
|
|
4,81,000
|
|
|
(b) Tax on assessed income under
section 115JB on (4)
|
|
4,26,000
|
|
|
7
|
Tax on under reported income
|
(6a - 6b)
|
55,000
|
|
8
|
Since the under reported income
arises due to addition of disallowble expenses , Penalty will be equal to 50% of
the tax
|
|
27,500
|
[5]
Under Reported Income [First
proviso to Section 270A(3)]
Provided that 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 under-reported income shall be determined in accordance with the
following formula:
PROVISIONS ILLUSTRATED – 5
|
S.
No.
|
Particulars
|
Normal Provisions
|
Sec 115JB Book Profit
MAT
|
|
1
|
Deemed
Income processed under section 143(1)(a)
|
10,00,000
|
20,00,000
|
|
(+) Bogus purchases
|
3,00,000
|
-
|
|
|
(+)
Add: Provision of Income Tax
|
|
2,00,000
|
|
|
(+)
Add: Provision of Deferred Tax
|
|
3,00,000
|
|
|
2
|
Deemed
Total Income Assessed under section 115JB
|
|
25,00,000
|
|
3
|
Underreported
Income (2-1)
|
(10,00,000)
|
5,00,000
|
|
4
|
Underreported Income for Tax
Purposes (3+2)
|
(10,00,000)
|
30,00,000
|
|
5
|
Tax on Under Reported Income (30%)
& (18.5%) on (4)
|
(3,00,000)
|
5,55,000
|
|
6
|
Tax on Assessed Income (30%)
& (18.5%) on (2)
|
-
|
4,63,000
|
|
7
|
Tax on Under Reported Income (5-6)
|
(3,00,000)
|
92,000
|
|
8
|
Penalty @200% & 50% of the Tax
(On both the amounts)
|
(6,00,000)
|
46,000
|
|
9
|
Total
Penalty Leviable
|
5,54,000
|
|
|
|
In this case under
reporting happened under both the provisions, so both will be added. Under
Normal provisions, the under reporting is due to to misrepresentation which
is liable to penalty @ 200% while under the MAT provision, the under
reporting is not due to misrepresentation therefore penalty will be levied @
50% of the tax.
|
||
[6]
Under Reported Income - Return not filed on MAT [Section
270A(2)(e)]
Where 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, where no
return of income has been filed or where return has
been furnished for the first time under section 148. The amount of under reported income will be determined
as under :
(a)
Amount of under reported income will be determined as under:
Under Reported Income =
The amount of deemed total income assessed or reassessed under section
115JB or section 115JC (-) minus The Basic Exemption Limit
(b) Tax on under reported income will be Tax on :
Under Reported Income (+) (Basic
Exemption Limit)
(c)
Penalty on under reported income
50% on the tax on under reported income – In case of under
reporting
200% on the tax on under reported income – In case of
Misreporting of income
PROVISIONS ILLUSTRATED – 6
|
MAT where no return of income has
been filed
|
|||
|
S. No.
|
Particulars
|
Section 115JB
|
Section 115JC
|
|
1
|
Book
Profit
|
10,00,000
|
15,00,000
|
|
(+) Undisclosed Book Profit
|
5,00,000
|
4,00,000
|
|
|
(-) Basic Exemption Limit
|
|
2,50,000
|
|
|
2.
|
Deemed
Total Income under section 115JB/115JC
|
15,00,000
|
16,50,000
|
|
3
|
Underreported Income
|
5,00,000
|
1,50,000
|
|
4
|
Underreported Income (For Tax
Purposes)
|
5,00,000
|
4,00,000
|
|
5
|
Tax on under reported income
= (4) @ 18.5%)
|
93,000
|
74,000
|
|
6
|
Tax on Deemed Total Income =
(2) @ 18.5%)
|
2,70,000
|
2,97,000
|
|
7
|
Tax on under reported income (5-6)
|
1,77,000
|
2,23,000
|
|
8
|
Penalty
@ 200% on (7)
|
3,54,000
|
4,46,000
|
[7] Under Reported Income - On
Reassessment of MAT Income [Section 270A(2)(f)]
Where 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-Reassessed under section 147. The amount of under reported income will be determined as under
:
(a) Amount of under
reported income will be determined as under:
Under
Reported Income = The Deemed Total
Income Reassessed (-) minus
The
Deemed Total Income Previously Assessed
(b) Tax on under reported income will be Tax on :
Under Reported Income (+) Reassessed Deemed
Total Income (-) minus
Tax on the previously Deemed Assessed
Total Income
(c)
Penalty on under reported income
50% on the tax on under reported
income – In case of under reporting
200% on the tax on under reported
income – In case of Misreporting of income
PROVISIONS ILLUSTRATED – 7
|
Under Reported
Income - On Reassessment of MAT Income
|
|||
|
S. No.
|
Particulars
|
Company, Firm etc. Income Section
115JB
|
Individual, Firm etc. Income
Section 115JC
|
|
|
|
|
|
|
1
|
Deemed
Total Income – Assessed
|
10,00,000
|
15,00,000
|
|
(+) Provision for DDT
|
1,00,000
|
-
|
|
|
(+) Expenses disallowed
|
3,00,000
|
3,00,000
|
|
|
(-) Amount of Revaluation Reserve
(if Credired)
|
1,00,000
|
-
|
|
|
2.
|
Deemed
Total Income – Reassessed
|
13,00,000
|
18,00,000
|
|
3
|
Underreported Income
|
3,00,000
|
3,00,000
|
|
4
|
Underreported
Income for Tax purposes
|
16,00,000
|
21,00,000
|
|
5
|
Tax on under reported income
@18.5% as Reassessed on (4)
|
2,96,000
|
3,89,000
|
|
6
|
Tax on under reported income
@18.5% as Assessed on (1)
|
2,41,000
|
3,33,000
|
|
7
|
Tax on under-reported income (5-6)
|
55,000
|
56,000
|
|
8
|
Penalty
@ 50% on under reported income
|
27,500
|
28,000
|
[8] Under Reported Income - Assessed Income
has the effect of reducing the
loss or converting such loss into income [Section 270A(2)(g)]
Where the income assessed or reassessed has the effect
of reducing the loss or converting
such loss into income, the amount of under reported income will be
determined as under:
(a) Amount of under reported income will be
determined as under:
(i) The Difference between the loss
determined under section 143(1)(a) and the Assessed Loss whereby the
amount of Loss is reduced.
(ii) The Difference between the loss
determined under section 143(1)(a) and the Assessed Loss where by the amount of
Loss is converted in to Income
(b)
Tax on under reported income will be :
Tax on Under Reported Income as if the Under Reported
Income is the Total Income
(c)
Penalty on under reported income:
50% on the tax on under reported
income – In case of under reporting
200% on the tax on under reported
income – In case of Misreporting of income
PROVISIONS ILLUSTRATED – 8
|
Assessed Income has the effect
of reducing the loss or converting such loss into income
|
||
|
1
|
Loss as per Return
|
(5,00,000)
|
|
|
(+) Expenses disallowable as per Tax Audit Report
|
50,000
|
|
2
|
Income processed under section
143(1)(a)
|
(4,50,000)
|
|
3
|
(+) Hawala Purchases
|
3,00,000
|
|
(+) Undisclosed Income
|
5,00,000
|
|
|
4
|
Income under section 143(3)
|
8,00,000
|
|
5
|
Underreported Income- to be treated as Total income
|
12,50,000
|
|
6
|
Tax on under reported income
|
3,75,000
|
|
7.
|
Penalty under section 270A = 200% of the tax on under
reported tax – being Mis Reported Income
|
7,50,000
|
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