Amendment in Penalty Provisions as per Finance Bill, 2016

1. Penalty Provisions under the Income Tax Act –
Unlearning and Relearning Consequent to The Finance Bill, 2016
By: Rishabh Khandal
Article Assistant
Kalani & Co.
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2. Section 271(1)(c)
V/s
Section 270A and Section 270AA
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3. 271(1)(c) - “Concealment of particulars of income or fringe benefits
or furnishing of inaccurate particulars of income or fringe benefits
 Concealment or Failure of furnishing the particulars of accurate income
will attract penalty under this section.
 Penalty under this section will be levy @ 100% to 300% of the tax to be
evaded .
 This penalty will be in addition of the tax calculated on such concealed
income.
 Decision of rate of penalty is at full discretion of Income Tax officer.
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4. 270A- “Underreporting of Income and Misreporting of Income
 Finance Bill, 2016 amended the existing provision u/s 271(1)(c) to provide
the different categories of misconduct.
 New section 270A provides for levy of penalty in cases of under
reporting and misreporting of income.
 Under this Section rate of penalty is fixed.
 It reduces the discretion powers of tax officers.
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5. 270A(2)- “Underreporting of Income” 5
When return of income is filed When return of income is not filed
Income assessed > income processed u/s
143(1)(a);
Income assessed > Maximum amount not
chargeable to tax
Income reassessed > income assessed or
reassessed previously;
Deemed total income (DTI) assessed or
reassessed u/s 115JB (MAT) or 115JC
(AMT) > DTI processed u/s 143(1)(a);
Deemed total income (DTI) assessed u/s
115JB (MAT) or 115JC (AMT) >
Maximum amount not chargeable to tax.
Total income assessed or reassessed has
the effect of reducing the loss or
converting such loss into income.

6. 270A(2)- “Underreporting of Income” 6
Any addition in the assessment or
reassessment order shall be treated as
under-reporting of income

7. 270A(6)- “Cases of exclusions from under reported income ”
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 Assessee offers explanation which is bonafide and substantiated the same with
material facts.
 Income is computed on the basis of estimate though the accounts are correct and
complete but such income not properly deducible due to the method employed.
 Assessee suo moto does additions or disallowance and compute his income along
with disclosure of all material facts, which disallowance is varied by the tax
authorities.
 Assessee maintains documentation u/s 92D and declares International transactions
under chapter X along with disclosure of all material facts.
 Undisclosed income is detected in search operations and penalty is leviable u/s
271AAB

8. 270A(3)- “Calculation of underreported income ”
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I) Income assessed for the first time
A) If ROI is filed - Difference between Income assessed
and income determined u/s 143(1)(a).
B) If ROI is not filed – Difference between income assessed
and maximum amount not chargeable to tax.
II) Any other case - Difference between income reassessed
or recomputed and income assessed, reassessed or
recomputed previously.

9. 270A(3)- “Calculation of underreported income ”
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 If under reporting arises out of deemed total income u/s 115JB or 115JC then
formula (A-B)+(C-D) shall be applied to compute under
reporting.
where, A = Total income assessed as per the provisions excluding sec 115JB or 115JC.
(herein called general provisions)
B = Total income assessed as per the general provisions reduced by the amount of under-
reported income.
C = Total income assessed as per section 115JB (MAT) or 115JC(AMT).
D = Total income assessed as per section 115JB or 115JC as reduced by the amount of
under-reported income.
[If amount is considered under both normal provision and MAT/AMT, then such amount
shall not be reduced from total income assessed while determining item D.]

10. 270A(7)- “Penalty of underreported income ”
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Rate of penalty u/s 270A(1) is at 50% of the amount
of tax payable on under-reported income.

11. 270A(9)- “Cases of Misreporting of Income”
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 Misrepresentation or suppression of facts; (no where defined in Act)
 Failure to record investments in the books of account; (Sec. 69)
 Claim of expenditure without substantive evidence;
 Recording of false entry in books of account;
 Failure to record any receipt in books of account having a bearing on total income; and
 Failure to report any international transaction or deemed international transactions or any
specified domestic transaction under chapter X.

12. 270A(8)- “Penalty of Misreporting of Income”
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 Where under reported income results from misreporting of income –
penalty u/s 270A(8) shall be levied at 200% of the amount of
tax payable on under-reported income.
 Exclusions provided in section 270A(6) shall not be applicable to
cases where penalty is imposed for misreporting of income.

13. IMMUNITY FROM PENALTY– Section 270AA 13
 To seek immunity from penalty u/s 270A - File an application to the Assessing
officer.
 Following are the conditions to be adhered to –
i. Payment of the tax and interest payable as per the assessment order u/s 143(3) or
147 within specified time
ii. No filing of an appeal against assessment order;
iii. Application to be filed in prescribed form and manner within one month from
the end of the month from receipt of order;
 Immunity not applicable to misreporting of income.

14. Section 271AAB(1):- Where Search has been initiated on or after
01-07-2012 and Undisclosed income found
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In case of search u/s 132 any undisclosed income found then in such
case penalty in addition to tax payable shall be leviable as follows:
a)10% of undisclosed income of the specified previous year if assessee admits the undisclosed
income u/s 132(4); substantiates the manner in which it was derived; and on or before the
specified date pays the tax, together with interest thereon and furnishes the return of income for
the specified previous year declaring such undisclosed income .
b)20% of undisclosed income of the specified previous year if assessee does not admits the
undisclosed income u/s 132(4); substantiates the manner in which it was derived; and on or
before the specified date declare such income in the return of income furnished for the specified
previous year and pays the tax, together with interest thereon.
c)Minimum 30%and maximum 90% of undisclosed income of the specified previous year if it
is not covered by (a) or (b) above .

15. Section 271AAB(1):- Where Search has been initiated on or after
01-07-2012 and Undisclosed income found
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 Finance Bill 2016, amended clause (c) of this sub-section with a objective
to rationalise the rate of penalty and to reduce the discretion of tax
officers.
 As per the amendment made under clause (c), now the penalty on
undisclosed income will be leviable @ 60% of such income.
 This is effective from A.Y. 2017-18.

16. Section 272A: Penalty for failure to answer questions, sign
statements, furnish information, returns or statements,
allow inspections, etc.
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 By Finance Bill, 2016, a new clause (d) added to the sub-section (1) 272A.
 Insertion of clause (d) in 272A(1) is similar to the present Section 271(1)(b).
 Penalty of Sum Rs. 10,000 for each default or failure to comply with the notice
issued under Section 142(1) or Section 143(2) or failure to comply with direction
issued under Section 142(2A).
 From A.Y. 2017-18 Section 271(1)(b) is not applicable.
 This insertion is effective from A.Y. 2017-18.

17. Section 273A: Power to waive or reduce penalty in certain
cases
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 Principal Commissioner or Commissioner to use discretion power to waive the
penalty
 No time limit prescribed for accepting or rejecting the petition for waiver.
 Finance Bill, 2016 provides time limit to pass order u/s 273A.
 Time limit – within 12 months from the end of the month in which petition
received.
 Rejection order should be passed only after petitioner has been heard.

18. Section 273AA: Power to Principal Commissioner to grant immunity
from penalty
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 Principal Commissioner or Commissioner to use discretion power to grant
immunity from penalty imposable on taxpayer, where taxpayer has made an
application u/s 245C for settlement proceedings and prof.
 No time limit prescribed for accepting or rejecting the petition for waiver.
 Finance Bill, 2016 provides time limit to pass order u/s 273A.
 Time limit – within 12 months from the end of the month in which petition
received.
 Rejection order should be passed only after petitioner has been heard.

19. PENALTY – Section 271GB
 Objective - To ensure proper reporting of the international group in
compliance with section 286
 Section 286 - Requires maintenance and furnishing of the CbC report by
multinational enterprises (MNE’s)
 Penalty u/s 271GB is levied on failure in furnishing CbC report.
i. A sum of Rs 5000 per day if failure does not exceed 1 month
ii. A sum of Rs 15000 per day if failure exceeds 1 month
iii. A sum of Rs 5000 per day - Non-submission of information called for by
the prescribed authority for the period of default
iv. A sum of Rs 50,000 per day - Beyond the date of service of order levying
penalty, in case the default continues even after the service of order
levying penalty (in the above-mentioned three cases)
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20. PENALTY – Section 271GB
 Reporting entity providing inaccurate information in the report furnished
under section 286(2) and where the entity has
a) knowledge of the inaccuracy at the time of furnishing the report but fails to
inform the prescribed authority; or
b) discovered the inaccuracy after the report is furnished and fails to inform
the prescribed authority and furnish correct report within a period of
fifteen days of such discovery; or
c) furnished inaccurate information or document in response to the notice
issued under sub-section (6) of section 286
 The prescribed authority may impose a penalty of Rs.5 lakhs on such
reporting entity. [271GB (4) ]
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21. PENALTY – Section 273B
 Finance Bill, 2016 ,new Section 271GB is also inserted in Section 273B.
 It means that penalty u/s 271GB can be waived under Section 273B.
 However, Section 270A is not inserted in 273B.
 Penalty of Section 270A cannot be waived u/s 273B.
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22. THANK
YOU
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