Penalty for under-reporting and misreporting of income [Section 270A]

Section 270A has been inserted by the Finance Act, 2016, with effect from 01.04.2017 i.e. from the assessment year 2017-18. 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%.

Text of Section 270A

 ^[1][PENALTY FOR UNDER-REPORTING AND MISREPORTING OF INCOME

“270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

(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 [[1]][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  ^[2][no return of income has been furnished 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.

(3) The amount of under-reported income shall be,—

(i) in a case where income has been assessed for the first time,—

(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;

(b) in a case where  ^[2][no return of income has been furnished or where return has been furnished for the first time under section 148],—

(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 not covered in item (A);

(ii) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order:

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—

(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 underreported 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.

Explanation: For the purposes of this section,—

(a) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated;

(b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that 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.

(4) Subject to the provisions of sub-section (6), 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 the assessment of such person in any year prior to the assessment year in which such receipt, deposit or investment appears (hereinafter referred to as “preceding year”) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment.

(5) The amount referred to in sub-section (4) shall be deemed to be amount of income under-reported for the preceding year in the following order—

(a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and

(b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on.

(6) The under-reported income, for the purposes of this section, 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;

(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;

(d) the amount of under-reported income represented by any addition made in conformity with the 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; and

(e) the amount of undisclosed income referred to in section 271AAB.

(7) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income.

(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income.

(9) The cases of misreporting of income referred to in sub-section (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.

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

(a) where no return of income has been furnished  ^[2][or where return has been furnished for the first time under section 148] 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;

(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.

(11) No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

(12) The penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be.”

Authorities who may impose penalty in case of an under-reporting of income [270A(1)]

Section 270A(1) provides that “The Assessing Officer or the Commissioner (Appeals) or the Pr. Commissioner or Commissioner May direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income”.

Penalty under section 270A is discretionary

Position of penalty under section 270A is discretionary and not mandatory in view of the word “May” used in the said sub-section.Hence, in appropriate cases, the authority may decide not to visit the person concerned with penalty. However, levy of penalty is discretionary but amount of penalty is not discretionary.

May: Refers to discretionary aspect which must be exercised judiciously and with application of mind (refer : Madhushree Gupta v. Union of India (2009) 317 ITR 107 (Del)]

Direct: Requires positive and express satisfaction and recording of reasons in writing on part of authority initiating penalty for under-reporting etc.

During the course of any proceedings under the Act: requires live and pending proceedings during which cognizance of stipulated action can be taken; word “any” used therein should relate to proceedings where income assessment takes place like assessment, revision and enhancement proceedings etc & may not include survey, summon, search as proceedings under the Act which are enquiry and investigation procedures.

Situations where a person can be considered to have under-reported the income

Section 270A(2) lays down the following 7 situations where a person can be considered to have under-reported the income.

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.

Situations leading to under-reporting of Income [Section 270A(2)]

A person can be considered to have under-reported his income in the following different situations, as specified in various clauses:

Clause	Situations	Income	Greater/Less than	Income
(a)	Return filed	Assessed income	Greater than	Returned income [which is pro-cessed under section 143(1)(a)
(b)	Return not filed	Assessed income	Greater than	Maximum amount not liable to tax
(c)	Reassessment	Reassessed income	Greater than	Assessed income/reassessed in-come (as per previous re-assess-ment)
(d)	Assessed reassessed under section 115JB/115JC (return filed)	Assessed/re-as-sessed Deemed to-tal income (under section115JB/115JC	Greater than	Returned deemed total in-come (under section115JB/115JC) [return is processed under section 143(1)(a)]
(e)	Assessed under section115JB/115JC (where no return filed)	Assessed deemed total income (under section 115JB/115JC)	Greater than	Maximum amount not liable to tax
(f)	Assessee/reas-sessed under sec-tion 115JB/115JC	Assessed/reas-sessed Deemed to-tal income (under section115JB/115JC	Greater than	Assessed/reassessed Deemed total income under section 115JB/115JC (as per previous assessment/reas-sessment)
(g)	Loss case	Assessed/reassessed loss Greater than Returned/assessed loss Assessed/ reassessed income	Less than	Returned/assessed loss

PROVISIONS ILLUSTRATED

[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 under-reporting 200% on the tax on under-reported income – In case of Mis-Reporting PROVISIONS ILLUSTRATED

 

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

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	Under-reported Income (1-2)	5,00,000	2,50,000
4	Under-reported Income (For Tax pur-	5,00,000	5,00,000
	pose) [3+2]
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 underreported 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

Where the income reassessed is greater than the income assessed or reassessed immediately before such reassessment

S. No.	Particulars		Company, Firm etc.	Individ-ual, 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	Under-reported Income	(3-1)	5,00,000	5,00,000
5	Under-reported 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 in-come, 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 unde-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

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	Under-reported Income	(4-1)	3,00,000
6	Under-reported 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, Penal-ty will be equal to 50% of the tax		27,500

[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

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	Under-reported Income	5,00,000	1,50,000
4	Under-reported 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

Under Reported Income - On Reassessment of MAT Income

S. No.	Particulars	Company, Firm etc. Income Sec- tion 115JB	Individual, Firm etc. Income Sec- tion 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	1,00,000	-
2.	Deemed Total Income – Reassessed	13,00,000	18,00,000
3	Under-reported Income	3,00,000	3,00,000
4	Under-reported 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 whereby the amount of Loss is converted into 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

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	Under-reported 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

Section 270A(3) provides for the computation of under-reported income

Section 270A(3) provides for the computation of under-reported income as under:

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

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

S. No.	Particulars	Normal Provisions	Section 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	Under-reported Income (2-1)	(10,00,000)	5,00,000
4	Under-reported 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 misrepre-sentation therefore penalty will be levied @ 50% of the tax.

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

To identify the amount of under-reported income, is the first step in the process. The difference between the assessed income and intimation income is treated as under-reported income.

The different situations, as contemplated by the sub-section, are explained and illustrated:

(i) In case where income has been assessed for the first time

Clause	Circumstances	Income under section 143(1)(a) (A)	Income Assessed (B)	Under-reported income (C= A-B)
(a)	Return has been furnished	5,00,000	7,00,000	2,00,000

 

Clause	Circumstances	Income Assessed (A)	Maximum Amount not chargeable to Tax (B)	Under-reported income C= A-B
(b)	No return has been furnished (i) In case of Company/Firm or Local Authority (ii) Any other case	7,00,000   7,00,000	N.A   2,50,000	7,00,000   5,50,000

(ii) In case where income has not been assessed for the first time

Circumstances	Income Assessed/Re-assessed or Recomputed in earlier Order (A)	Income Re-assessed/Recom-puted (B)	Under reported income (C=B-A)
Reassessment/ Recomputation	7,00,000	10,00,000	3,00,000

In case under-reported income arises on account of determination of deemed total income under section 115JB/115JC

It requires aggregation of under-reported income as per normal provisions as well as deemed total income (under section 115JB/115JC).

(i)	Under Reported Income (As per section 115JB/115JC, as returned/assessed)
	Assessed income under section 115JB	12,00,000
	Intimation income as per section 115JB	10,00,000
	Under Reported Income (‘URI’)	2,00,000
(ii)	Total under-reported income = (A-B) + (C-D)

 

Particulars		Amount (Rs.)
Total income assessed as per general provi-sion	(A)	10,00,000
Income assessed under general provision re-duced by URI	(B)	8,00,000
Total income assessed as per under section 115JB/115JC	(C)	12,00,000
Income assessed under section 115JB/115JC reduced by URI	(D)	10,00,000
Total under-reported income	(A-B) + (C-D)	4,00,000

Determination of under-reported income in case of losses

The amount of under-reported income will be difference between:—

♦	amount of losses assessed/re-assessed/re-computed (if it results into reduced losses); and
♦	the amount of losses determined/assessed/re-assessed/re-computed in the preceding assessment order

Illustration 1 : First assessment

Loss assessed	(A)	(Rs. 5,00,000)
Loss determined under section 143(1)(a)	(B)	(Rs. 8,00,000)
Amount of under-reported income	(B) – (A) = (C)	Rs. 3,00,000

Illustration 2 : Second and subsequent assessments

Loss assessed	(A)	(Rs. 3,00,000)
Loss determined in earlier order	(B)	(Rs. 5,00,000)
Amount of under-reported income	(B) – (A) = (C)	Rs. 2,00,000

KEY NOTE

(i) If, in the assessment, there are additions as well as reductions, the net amount would be considered as under-reported income exigible to penalty;

(ii) The tax would be calculated on under Reported Income at the applicable rate.

(iii) In computing the tax payable on under-reported income (or, misreported income) no credit is allowed or allowable for any withholding tax or tax paid in advance in respect of the under-reported income.

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.

Section 270A(6) provides the exclusions from under-reporting of income

Section 270A(6) prescribes following six situations, when addition to retuned income will not be considered as under-reported income:

(i) Bona fide

(a) Assessee offers an explanation

(b) Assessee should have disclosed all material facts to substantiate the explanation

(c) the Assessing Officer/CIT or PCIT/CIT(A) 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) A has 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 and disclosure of facts

(v) Search cases covered by Section 271AAB

The amount of undisclosed income referred to in section 271AAB

Section 270A(7) quantifies the amount of penalty payable on under-reported income i.e. 50% of the amount of tax payable on under-reported income

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.

ILLUSTRATION

WHERE TOTAL INCOME (AS PER INTIMATION) OR ASSESSED/REASSESSED/ RECOMPUTED TOTAL INCOME IS A LOSS [SECTION  270A(7)]

An individual, aged 55 years, filed his return of income for assessment year 2020-21 2021-22. Income is assessed determining loss of Rs. 5,00,000 due to Under-reported income of Rs. 10,00,000; then the penalty will be calculated as under:
SOLUTION
Total income assessed (A)	(5,00,000)
Under reported income (B)	10,00,000
Tax payable on (B)	1,25,000
Penalty under section 270A(7) (50% of the amount of tax payable	62,500

Return of income not furnished and income is assessed for the first time [Section 270A(7)]

An individual, aged 55 years, does not furnish his return of income for assessment year 2020-21 2021-22 and total income assessed Rs. 6,00,000/-, then the penalty will be calculated as under:

Total income assessed (A)		6,00,000
Basic Exemption limit (B)		2,50,000
Under-reported income (A) – (B) = (C)		3,50,000
Tax payable on (B) + (C)		6,00,000
Tax payable on above:
Up to Rs. 2,50,000	Nil
Rs. 2,50,001 to Rs. 5,00,000 @10%	25,000
Rs. 5,00,001 to Rs. 6,00,000 @20%	20,000
Penalty under section 270A(7) (50% of the amount of tax payable)		45,000

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.

In other words, section 270A(8) quantifies the penalty at 200% of the tax payable on under-reported income, which is as a consequence of misreporting. The misreporting of income is a sub-set of under-reporting. Further, the saving clauses of sub-section (6) to section 270A do not apply in cases of misreporting of income.

Cases of misreporting of income referred to in section 270A(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 (round some additions are not covered under this clause). The Assessing Officer 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 under-reported 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.[2]

Section 270A(9) gives an exhaustive list of misreporting of income

“MISREPORTING OF INCOME” MEANS [SECTION 270A(9)]

As per section 270A(9), the cases of misreporting of income referred 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 under-reported 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.[3]

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.

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 (4,00,000 × 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 (4,00,000 × 30%) amounting to Rs. 2,40,000.

Penalty referred to in sub-section (1) shall be imposed, by an order in writing, by the Assessing Officer, the Commissioner (Appeals), the Commissioner or the Principal Commissioner, as the case may be [Section 270A(12)]

“Order” ingredients

• Application of mind

• Consideration of assessee’s reply

• Independent Reasons to be given

• Natural Justice to strictly adhered to (giving of show cause notice etc.)

Types of Penalty

(a) Under-reporting of income [defined under section 270A(2) read with section 270A(6)]

(b) Misreporting of Income [defined under section 270A(9)]

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 When the “under-reporting” is not because of misre-porting, the penalty would be 50% of tax payable on the under-reported income.	50% of the amount of tax payable on the under reported income
IN CASE OF MISREPORTING OF INCOME When the “under-reporting” is because of mis-reporting, the penalty would be 200% of the tax payable on the under-reported income.	200% of the amount of tax payable on under reported income

KEY NOTE

Quantum of penalty under section 270A is not subject to the discretion of the income tax officer and is a fixed percentage (50% or 200%).

Guidance note to Assessing Officer on penalty provisions for under section 270A from Assessment year 2017-18 onwards

S. No.	Nature of Addi-tions	Assessment under section	Additions under section	Tax rate provisions	Applicable penal proceed-ings	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. Section 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. Section 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 ac-count – gross profit brought to tax	143(3)	28	Normal tax rates	270A(1) read with section 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 ad-mitted taxes based on such sup-pressed 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 assessees 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 section 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-report-ing 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 trans-port business and estimated the in-come 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 under-reporting.
13.	Income offered un-der 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 partner’s 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 assessees where books were not maintained it amounts to misrepresentation of facts.
15.	Difference of gross receipts in 26AS and Return of In-come	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 assessees 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 ad-mitted 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 trans-actions and other than intra-day transactions. The assessee submitted scrip-wise profit and loss statement for the above trans-actions. 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 can-not be set off against speculation profit, the Short Term Capital Loss is allowed to be carried forward to subsequent years for set-off 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’s 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 disallow- ance 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 le-gal provisions. Hence, the same is to be considered as under-reporting only.
22.	Expenditure to-wards Income Tax/Wealth tax Payments were not added back	143(3)	28	Normal tax rates	270A(1)	50%	The act of the assessee is under-reporting 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 ac-count 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 section 143(1) it is a case of under-reporting. 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 section 143(1) it is a case of under-reporting. 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 is-sue. It is to be considered as under reporting 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 under-reporting only.
29.	Disallowance of claim of section 80IA	143(3)	28	Normal Tax Rates	270A(1) read with section 270A(9) (a)	200%	The assessee failed to substantiate the claim of section 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 allow-able 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 in-come in the Return of Income al-ready filed.
34.	Claim exemption under section 54F evidences submit-ted 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 under-reporting. 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 under-reporting.

 

 

 

 

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 Re-turn 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 offered 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 reason-able evidence for his claim, it is to be treated as under-reporting only.

 

 

 

40.	S a l e -c u m -G PA 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 de-rived the capital gains. As such he ought to have offered 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 re-ported 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 disclosed before the Assessing Officer. Hence, under-reporting only.
50.	Agricultural in-come 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 under-reporting 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 en-tries 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 ac-count 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 re-quired 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 – un-explained 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 were 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 credit worthiness	143(3)	69	115BBE (78%)	271AAC	10%	The Assessing Officer to the ex-tent 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, shall not include the following

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

(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 found 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;

For example : Disallowance due to personal use of cars etc.,

(d) The amount of under-reported income represented by any addition made in conformity with the 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; and

Where the arm’s length price is adjusted on PLI (profit level indicator) under TNMM method (Transactional Net Margin Method) and all the international transactions were declared by the assessee.

(e) 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.

 

 

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[1] Inserted by the Finance (No.2) Act, 2019, with retrospective effect from 01.04.2017.

[2] Notice should be issued by invoking under-reporting 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 under-reporting only not involving misreporting and vis-a-vis.

[3] In the above cases penalty @ 200% of the tax leviable on the amount of Unreported Income. Under-reporting shall be considered as misreporting.