By CA MANOJ KUMAR Penalty under the Income Tax Act Shastri Nagar Study Circle Why penalty Honble Supreme Court in the matter of M/s Gujarat Travancore Agency,Cochin vs. C.I.T., (1989) 3 SCC 52 held that The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. Mens rea or reasonable belief Honorable Apex Court in the case of Commissioner of Sales Tax, Uttar Pradesh Vs. Sanjiv Fabrics, Civil Appeal Nos of held that mens rea is to be judged keeping in view (i) the object and scheme of the statute (ii) the language of the section; and (iii) the nature of penalty. Law of which date applicable to the penalty proceedings Whether law applicable at the time of filling original return or law at the time of initiating penalty proceeding or law when a return of income in response to notice for reassessment was furnished. CIT vs Onkar Saran and Sons 195 itr 1 Penalty proceedings and assessment proceeding The penalty proceedings and assessment proceedings are independent and distinct proceedings and independent of each other CIT vs Dharam Chand L Shah 204 itr 462 (BOM) Remedies available against penalty proceedings Remedies Available: -File Appeal against penalty order -Revision application under section 264 -If there is an apparent mistake, then application under section 154 Initiation of penalty proceedings No bar on initiation of penalty proceedings -If appeal filed against assessment order/appeal order or -Application for waiver of penalty filed and is pending. Penalty under section 271B for failure to get account audited be imposed for subsequent year if there was no audit for preceding years? CIT vs Tea Kings 123 taxman 162(Gujarat) Penalty under section 271B for failure to get account audited if books of account not maintained Ram Prakash C Puri vs CIT 117 TAXMAN 154(Pune) Quantum of penalty under section 269SS -271D Cit vs Ajanta Dyeing and Printing Mills 264 ITR 505(Raj) Defense against penalty Defense Jurisdiction Mens Rea Reasonable Cause Passing of order under limitation period under 275 Jurisdiction Who can levy penalty Onus Proper Opportunity under section 274 Who can initiate penalty proceedings The income tax authority authorized under statue Pecuniary limit Subject Limit CIT vs Shadiram Balmukand 84 ITR 183 (All) Sec 271(1)(c )-Issue Who can initiate penalty proceedings When penalty proceedings can be initiated By the AO before completion of assessment By First Appellant authority before passing an order under 250 By commissioner before order under section 263 Raja Rana Yogender Chandra vs CIT, 117 ITR 473 Recording of satisfaction Full bench of Punjab & Haryana High court, in the case of CIT v- Mohinder Lal 168 ITR 101, held that it is the satisfaction of the ITO in the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of the proceedings for levy of penalty Recording of satisfaction is must View in favor Ram Commercials 246 ITR 568 (Del) Diwan Enterprises 246 ITR 571 (Del) Vikas Promoters 277 ITR 337 (Del) Super Metal Rerollers 265 ITR 082 (Del) Shree Bhagwant Fin Co 280 ITR 412 (Del) Ranjan & co 291 ITR 340 (Del) Manish Iron Store 263 ITR 484 (PH) Dhanjibhai Kanjibhai 189 ITR (Bom) Rampur Engg. Co 309 ITR 143 (del)(FB) View not in favor Becker Gary & co 112 ITR 503 (Cal) Sham Biri Works 259 ITR 625 (All) Nainu Mal Hetram 294 ITR 185 (All) the legislature has inserted sub section (1B) in section 271 by Finance Act 2008 wef which provides that a direction for initiation of penalty proceeding in the order of assessment shall be deemed to constitute such satisfaction. Madhushree Gupta & British Airways 317 ITR 143(Del) In our opinion, the impugned provision only provides that an order initiating penalty cannot be declared bad in law because it states the penalty proceedings are initiated, if otherwise it is discernible from record that the AO has arrived at prima facie satisfaction for initiation of penalty proceedings. The issue is of discernibility of the satisfaction arrived at by the AO during the course of proceeding before him. The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away as the provision stands even today, i.e post amendment. (P 147) If there is no material to initiate penalty proceedings; an assessee will be entitled to recourse to a court of law.( P 147) Charge of penalty Penalty proceeding can be initiated on two charges Concealment of income or/and -Furnishing of inaccurate particulars Show cause notice under section 274/271(1) Have without reasonably cause failed to comply with a notice u/s 23(4)/2392) of the Indian Income-Tax Act, 1922 or u/s 142(1)/143(2) of the I.T. Act, 1961 or Have concealed the particulars of your income or furnished inaccurate particulars of such income. there must be a clear finding about the charge of penalty. It is incumbent upon the AO to state whether penalty was being levied for concealment of income or for furnishing of inaccurate particulars of income. In the absence of such finding, the order would be bad in law. Manu engg. Works 122 ITR 306(Guj), New Sorathia Engg. Co 282 ITR, 642(Guj), Padma Ram Bharali 110 ITR 54(Gau). Even penalty can not be levied for different itemCIT-V- C.K.Nehra & Bros 117 ITR 19 Cal. Distinction between two charges The word conceal as per Websters Dictionary means to hide, withdraw, or remove from observation; cover or keep from sight; to keep secret; to avoid disclosing or divulging. That means non disclosure of particulars of income. On the other hand, where particulars are disclosed but such disclosure is not correct, true or accurate, it would amount to furnishing of inaccurate particulars of income. Particulars the expression particular refers to facts, details, specifics or the information about someone or something. Thus, the details or information about the income would deal with factual details of income and cannot be extended to areas which are subjective such as status of the taxability of an income, admissibility of a deduction and interpretation of law. Kanbay Software India (P) Ltd. 122 TTJ 721(Pune). For example, in case of businessman, if a particular transaction of sale is not shown in the books, it would amount to concealment of particulars of income while sale is shown but at a lesser value, it would amount to furnishing of inaccurate particulars of income. Onus Anwar Ali 76 ITR 697(SC) Jeevan Lal Shah, 205 itr 244(sc) Dilip N shroff, 291 itr 519 UOI vs Dharmentra Textiles Processor 295 ITR 244 Rajasthan Spinning Mills On what amount penalty can be levied Addition can be on following grounds On question of law On Question of facts On intangible addition K.M.O. Chettiar vs CIT 2 ITR DTR 158 (P&H) the claim of A u/s 36(1)(iii) was rejected by the A.O. and the order of A.O. was upheld by the tribunal. As a result thereof, the penalty u/s 271(1) was imposed on account of furnishing of inaccurate particulars of income. The penalty was held to be illegally imposed by the tribunal since factual details of income furnished by the A were found to be correct. The matter ultimately reached the SC and the honble court upheld the view of the tribunal by holding that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate claim regarding the income of the assessee. Supreme Court Judgment in the case of Reliance Petroproducts 322 ITR 158 Penalty in case investment, deposit out of intangible addition is claimed Explanation 2 to section 271(1)(c ) Penalty in case of survey 133A Cit vs SAS Pharmecuticals DHC, ITA No.1058 of 2009 Penalty in case of Search Explanation 5A vs 271 AAA Penalty in case of revised return or surrender of income Before/After detection by AO Substantive Explanation ITR 650 (Mad) itr 93(Guj) itr 149 (ker) Penalty in case no return filed by assessee Explanation 3 Tax sought to be evaded Explanation 4 In case of loss return In case of MAT 115JB In case of no return- benefit of TDS/Advance tax/ self assessment tax Penalty in case of income is increased due to determination of Arms Length price under section 92(4 ) Explanation 7 Whether penalty under section 272A(2) and 272A(2)(g ) be imposed if penalty levied under section 271 C. 158 Taxman 435(All) Can appellant tribunal impose penalty? Imposition of penalty in case of debatable or arguable issue 259 itr 212 Penalty vs Reasonable Cause 273B Time period for imposition of penalty Section 275 Cit VS MOHAIR INVESTMENT AND TRADING CO. P. LTD ITA NO.511/2011, ITA NO.511/2011 DHC Dillu Sine Enterprise P Ltd vs Ad CIT, 17, SEPT 2001 Is it necessary to file appeal against assessment proceedings before filling appeal against penalty order. CIT vs Ganesh Mal Nanak Chand 1976 CTR 193 Is it necessary for AO to impose penalty -92 ITR 394(Del) 157 itr 1 (Karn) Reduction or waiver of penalty under Section 273A by commissioner Which penalty can be waived or reduced 271(1)(iii) for concealment of income as per section 271(1) Condition for waiving penalty The assessee made full and true disclosure before detection by AO CO-operated in enquiry relating to assessment of his income Has paid the tax or made satisfactory arrangement for payment of tax on income assessed Relief only one time in life time. Whether order under section 273A appealable? Whether immunity can be claimed from penalty in case of abatement under section 245HA Penalties in brief SectionNature of default Minimum penalty Maximum penalty 140A (3) Failure to pay whole or any part of income- tax or interest or both in accordance with the provisions of section 140A(1) Such amount as the Assessing Officer may impose [Sec. 221(1)] Tax in arrears SectionNature of default Minimum penalty Maximum penalty 221(1)Default in making payment of tax within prescribed time Such amount as the Assessing Officer may impose Tax in arrears SectionNature of default Minimum penalty Maximum penalty 271(1)(bFailure to comply with a notice under section 142(1) or 143(2) or with a direction issued under section 142(2A) Rs. 10,000 (Rs. 1,000 up to May 31, 2001) for each failure Rs. 10,000 (25,000 up to May 31, 2001) for each failure SectionNature of default Minimum penalty Maximum penalty 271(1)(c)Concealme nt of the particulars of income or furnishing inaccurate particulars of income 100% of tax sought to be evaded 300% of tax sought to be evaded SectionNature of defaultMinimum penalty Maximum penalty 271(4)Distribution of profit by registered firm otherwise than in accordance with partnership deed and as a result of which partner has returned income below the real income Up to 150% of difference between tax on partners income assessed and tax on returned income ---- Sectio n Nature of defaultMinimum penalty Maximum penalty 271AFailure to keep or maintain books of account, documents, etc., as required under section 44AA Rs. 25,000 (Rs. 2,000 up to May 31, 2001) Rs. 25,000 (Rs. 1,00,000 up to May 31, 2001) Sectio n Nature of defaultMinimum penalty Maxim um penalty 271A A Failure to keep and maintain information and documents in respect of international transaction (applicable from the assessment year ) 2% of value of each internationa l transaction --- Sectio n Nature of defaultMinimum penalty Maximum penalty 271BFailure to get accounts audited under section 44AB or furnish such report as is required under section 44AB 2 % of the total sales, turnover, or gross receipts Rs SectionNature of default Minimum penalty Maximum penalty 271BAFailure to submit report under section 92E (applicable from the assessment year ) Rs. 1,00, SecNature of defaultMinimum penalty Max pen alty 271CFailure to deduct the whole or any part of tax as required under sections 192 to 195 or (with effect from June 1, 1997) failure to pay the whole or any part of tax as required under section 115-O(2) or second proviso to section 194B Amount of tax such person has failed to deduct or pay ----- SectionNature of default Minimum penalty Maximum penalty 271DTaking or accepting any loan or deposit in contravention of the provisions of section 269SS Amount of loan/ deposit so taken or accepted ----- Sectio n Nature of defaultMinimu m penalty Maximum penalty 271ERepaying any deposit or (with effect from June 1, 2003) loan referred to in section 269T otherwise than in accordance with the provisions of section 269T Amount of deposit so repaid ----- SectionNature of defaultMinimum penalty Maximum penalty 271FFailure to furnish return of income as required by section 139(1) before the end of relevant assessment year Rs. 5,000 (Rs. 1,000 up to May 31, 2001) ----- SectionNature of default Minimum penalty Maximum penalty 271GFailure to furnish information or documents under section 92D applicable from the assessment year % of value of the internationa l transaction for each failure ----- SecNature of defaultMinimum penalty Maximum penalty 272A (1)(a ) Failure to answer any question put to a person (who is legally bound to state the truth of any matter touching the subject to his assessment) by an income-tax authority Rs. 10,000 (Rs. 500 up to May 31, 2001) for each default Rs. 10,000 for each default SectionNature of default Minimum penalty Maximum penalty 272A(1)(b)Failure to sign any statement made by a person in course of income-tax proceeding Rs. 10,000 (Rs. 500 up to May 31, 2001) for each default Rs. 10,000 for each default SecNature of defaultMinimum penalty Maximum penalty 272 A(1) (c) Failure to comply with summons issued under section 131(1) to attend office to give evidence and produce books of account or other documents Rs. 10,000 (Rs. 500 up to May 31, 2001) for each default Rs. 10,000 for each default SectionNature of default Minimum penalty Maximum penalty 272A(1)(d)Failure to comply with the provisions of section 139A (upto ) Rs. 10,000 (Rs. 500 up to May 31, 2001) for each default Rs. 10,000 for each default SecNature of defaultMin penaltyMax penalty 272A (2) Failure to comply with a notice issued under section 94 ; to give notice of discontinuance of business/profession under section 176(3); Rs. 100 for every day during which default continues SecNature of defaultMin penaltyMax penalty 272 A (2) Failure to furnish returns/statement mentioned in section 133, 206, 206C or 285B ; to allow inspection of register referred in section 134 (or of any entry in such register or to allow copies of such register to be taken) ; Rs. 100 for every day during which default continues Rs. 100 for every day during which default continues (the amount of penalty under sections 206 and 206C shall not exceed the amount of tax deductible or collectible ) SecNature of defaultMin penaltyMax penalty 272A (2) Failure to furnish return of income under section 139(4A) [or section 139 (4C) from April 1, 2003] or to deliver in due time a declaration mentioned in section 197A ; Rs. 100 for every day during which default continues Rs. 100 for every day during which default continues (the amount of penalty in relation to declaration under section 197Ashall not exceed the amount of tax deductible or collectible) SecNature of defaultMin penaltyMax penalty 272A (2) Failure to furnish a certificate as required in section 203 or 206C ; to deduct and pay tax under section 226; (from April 1, 2002) to furnish a statement as required by section 192(2C) Rs. 100 for every day during which default continues Rs. 100 for every day during which default continues subject to max amount deductible or collectible SecNature of defaultMin penaltyMax penalty 272AAFailure to comply with the provision of section 133B Any amount up to Rs. 1,000 Rs. 1, BFailure to comply with the provisions of section 139A (ap plicable from June 1, 2002) Rs. 10, SecNature of defaultMin penaltyMax penalty 272BBFailure to comply with the provisions of section 203A Up to Rs. 10,000 (Rs. 5,000 up to May 31, 2001) Rs. 10,000 (Rs. 5,000 up to May 31, 2001) 272BBBFailure to comply with the provisions of section 206CA (applicable from June 1, 2002) Rs. 10, Thank You MANOJ KUMAR MITTAL & O. CHARTERED ACCOUNTANTS 305, DAKHA CHAMBER 2068/38, NAI WALA KAROL BAGH, NEW DELHI-5 Ph: , ,