Slide 3.4 Levy of Penalties,Heads of Income & Aggregation of Income under Income Tax Act Day 3 Session III & IV

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Levy of Penalties,Heads of Income & Aggregation of

Income under Income Tax ActDay 3

Session III & IV

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INTRODUCTION

Increase in tax payers call for more reliance on voluntary compliance of tax laws by assessees

Appropriate penal provisions needed to impel compliance by imposing additional tax burden in case of non compliance

Penalties to be within reasonable limits to be more effective

Object should be to bend and not to break the tax payer

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Penalties in briefSection Nature of default Minimum

penaltyMaximum 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)

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Such amount as the Assessing Officer may impose [Sec. 221(1)]

Tax in arrears

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Penalties in brief

Section Nature of default Minimum penalty

Maximum penalty

221(1) Default in making payment of tax within prescribed time

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Such amount as the Assessing Officer may impose

Tax in arrears

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Penalties in brief


Maximum penalty

271(1)(b)

Failure to comply with a notice under section 142(1) or 143(2) or with a direction issued under section 142(2A)

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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

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Penalties in brief


Maximum penalty

271(1)(c)

Concealment 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

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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 partner’s income assessed and tax on returned income

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271A Failure 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)

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271AA Failure to keep and maintain information and documents in respect of international transaction (applicable from the assessment year 2002-03)

2% of value of each international transaction

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271B Failure to get accounts audited under section 44AB or furnish such report as is required under section 44AB2

½% of the total sales, turnover, or gross receipts

Rs.100000

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271BA Failure to submit report under section 92E (applicable from the assessment year 2002-03)

Rs. 1,00,000 -----

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271C Failure 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

-----

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271D Taking or accepting any loan or deposit in contravention of the provisions of section 269SS

Amount of loan/ deposit so taken or accepted

-----

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271E Repaying 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

-----

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271F Failure 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)

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271F Failure to furnish return of income as required by proviso to section 139 (1) on or before the due date†

Rs. 5,000 (Rs. 1,000 up to May 31, 2001)

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271G Failure to furnish information or documents under section 92D applicable from the assessment year 2002-03

2% of value of the international transaction for each failure

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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

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272A(1)(b)

Failure to sign any statement made by a person in course of income-tax proceeding



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272A(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



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272A(1)(d)£

Failure to comply with the provisions of section 139A (upto 31.5.2002)



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Penalties in briefSec Nature of default Min penalty Max 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


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Penalties in briefSec Nature of default Min

penaltyMax penalty

272A

(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 (the amount of penalty under sections 206 and 206C shall not exceed the amount of tax deductible or collectible)

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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 (the amount of penalty in relation to declaration under section 197Ashall not exceed the amount of tax deductible or collectible)

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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 (the amount of penalty in relation to certificate in Form No. 16/16A as required under section 203 and the amount of penalty under section 206C shall not exceed the amount of tax deductible or collectible)

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272AA Failure to comply with the provision of section 133B

Any amount up to Rs. 1,000

Rs. 1,000

272B Failure to comply with the provisions of section 139A (ap plicable from June 1, 2002)

Rs. 10,000 -----

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272BB Failure 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)

272BBB

Failure to comply with the provisions of section 206CA (applicable from June 1, 2002)

Rs. 10,000 -----

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WHEN PENALTY IS NOT LEVIABLE

Penalty is not leviable under section 271(1)(b), 271A, 271AA† , 271B, 271BA† , 271BB, 271C, 271D, 271E, 271F, 271G† , 272A(1)(c)/(d), 272A(2), 272AA(1), 272B‡ , 272BB(1) or 272BBB(1)‡ or 273(1), (2)(b)/(c), if the assessee proves that there was reasonable cause for failure

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Time limit for completion of penalty proceedings

Time limit for making an order imposing a penalty is : a. within the financial year in which penalty

proceedings are started ; or b. within 6 months from the end of month in which

action for imposition of penalty is initiated or within 6 months from the end of month in which order of appeal of Commissioner (Appeals) under section 246 or 246A or Tribunal under section 253 is received by Commissioner,

whichever is later.

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Time limit for completion of penalty proceedings

However, in case the relevant assessment or other order is the subject-matter of revision under section 263 (or with effect from June 1, 2003, section 264), then the time-limit for imposing penalty is six months from the end of the month in which such order for revision is passed

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CASE STUDY Find out the time-limit for imposition of

penalty in the following cases : 1. On February 10, 2002, the Assessing Officer

completes the assessment for the assessment year 2000-01 under section 143(3). For imposing concealment penalty under section 271(1)(c), the Assessing Officer initiates penalty proceedings on February 10, 2002.

2. In the aforesaid case suppose the assessee files an appeal to the Commissioner (Appeals). The Commissioner (Appeals) passes the order on April 17, 2003 and which is received by the assessee and the Commissioner on April 28, 2003 and May 2, 2003, respectively.

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CASE STUDY An assessee files a revised return after

some concealment was detected by assessing officer. The assessing officer imposed penalty u/s 271(1)(c) on the income concealed in the original return. However this is contested by the assessee on the ground that a revised return disclosing the income was filed immediately after the detection and as such he is not liable to pay penalty. Discuss.

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CASE STUDY It has been held by Kerala High Court in

the case of P C Joseph & Bros. V CIT (2000) 243 ITR 818 that blameworthiness attached to the assessee with reference to the original return cannot be avoided by filing fresh return after concealment is detected by the assessing authority.

Therefore the assessing officer was justified in imposing the penalty in this case.

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Heads of income (Section 14)

1. Salaries 2. Income from house property 3. Profits and gains of business or

profession 4. Capital gains 5. Income from other sources.

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Heads of income (Section 14) The several heads into which income is divided

under the Act do not make different kinds of taxes. Tax is always one; but it may arise under different heads to which the different rules of computation have to be applied. These heads are in a sense exclusive to one another and income which falls within one head cannot be assigned to or taxed under another head—Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC).

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Heads of income (Section 14) Income has to be brought under one of the

heads under section 14 and can be charged to tax only if it is chargeable under the computing section corresponding to that head—Nalinikant Ambalal Mody v. CIT (supra).

The method of book-keeping followed by an assessee cannot decide under which head a particular income should go—Nalinikant Ambalal Mody v. CIT (supra

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Aggregation of income (Section 66)

Income on which no tax is payable under Chapter VII is also to be considered while computing total income of the assessee

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Chapter VII Charge of tax on member’s share in AOP/BOI - The share of a

member in the income of the association or body is treated in three different ways, depending upon whether the association or body is chargeable to tax at the maximum marginal rate or at the normal rate or is not chargeable to tax at all. These are :

1. Where the association or body is chargeable to tax at the maximum marginal rate or at a rate higher than the maximum marginal rate, the share of a member therein shall not be included in his total income at all.

2. Where the association or body is chargeable to tax at the normal rates applicable to individuals, etc., the share of a member therein shall be included in his total income, but a rebate shall be given on the same under section 86(v).

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Section 67A [I.T. Act, 1961]Method Of Computing A Member's Share In Income Of

Association Of Persons Or Body Of Individuals (1) In computing the total income of an assessee who is a

member of an association of persons or a body of individuals wherein the shares of the members are determinate and known [other than a company or a co-operative society or society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], whether the net result of the computation of the total income of such association or body is a profit or a loss, his share (whether a net profit or net loss) shall be computed as follows, namely :-

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Association Of Persons Or Body Of Individuals (a) any interest, salary, bonus, commission or

remuneration by whatever name called, paid to any member in respect of the previous year shall be deducted from the total income of the association or body and the balance ascertained and apportioned among the members in the proportions in which they are entitled to share in the income of the association or body;

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Association Of Persons Or Body Of Individuals (b) where the amount apportioned to a member

under clause (a) is a profit, any interest, salary, bonus, commission or remuneration aforesaid paid to the member by the association or body in respect of the previous year shall be added to that amount, and the result shall be treated as the member's share in the income of the association or body;

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Association Of Persons Or Body Of Individuals (c) where the amount apportioned to a member

under clause (a) is a loss, any interest, salary, bonus, commission or remuneration aforesaid paid to the member by the association or body in respect of the previous year shall be adjusted against that amount, and the result shall be treated as the member's share in the income of the association or body

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Association Of Persons Or Body Of Individuals (2) The share of a member in the income or loss of the

association or body, as computed under sub-section (1), shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the association or body has been determined under each head of income.

(3) Any interest paid by a member on capital borrowed by him for the purposes of investment in the association or body shall, in computing his share chargeable under the head "Profits and gains of business or profession" in respect of his share in the income of the association or body, be deducted from his share.

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Section 68 [I.T. Act, 1961]Cash Credits.

Where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

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Section 68 enacts deeming provisions : - Section essentially contains a deeming provision, which applies when the assessee’s explanation about a cash credit found in his books is rejected. There is no distinction to be drawn between income resulting from application of section 68 and income accruing from any other of the heads indicated in section 14. [CIT v Ganpatrai Gajanand, (1977) 108 ITR 403] (Orissa

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Section 68 hits also entries in own capital account: - Although the marginal note to section 68 refers to “Cash credits”, the provisions of section 68 can be invoked in relation to an entry in assessee’s capital account. In fact, an entry on the credit side of the capital account shows that the credit entries in that account are larger than the debit entries. The fact some of these credits relate to costs of assets can make no difference. [Dharmavat Provision Stores v CIT (1983) 139 ITR 700 (Bom)]

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Section 69 [I.T. Act, 1961]Unexplained Investments

Under section 69 the value of investments made by the assessee in a financial year immediately preceding the assessment year may be deemed to be the income of the assessee of such financial year if –

i. Such investments are not recorded in the books of account, if any, maintained by him for any source of income; and

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Section 69 [I.T. Act, 1961]Unexplained Investments

ii. (a) the assessee offers no explanation about the nature and source of the investments, or

(b) the explanation offered by him is, in the opinion of the assessing officer not satisfactory

In cases where the assessee is able to satisfy the assessing officer about the nature and source of only a part of the investment, the other unexplained portion may be added as his income (Jatindra Nath Sarmah v ITO (1978) 113 ITR 898 (Guahati).

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Section 69A [I.T. Act, 1961]Unexplained Money, Etc

Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee of such financial year.

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Section 69B [I.T. Act, 1961]Amount Of Investments, Etc., Not Fully

Disclosed In Books Of Account. Where in any financial year the assessee has made investments

or is found to be the owner of any bullion, jewellery, or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.

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Section 69C [I.T. Act, 1961]Unexplained Expenditure, Etc .

Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year;

Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.

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The provisions of section 69C are merely clarificatory and embody a rule of evidence, which is otherwise quite clear. This is so because even otherwise an addition could be made in respect of the amount of expenditure, which the assessee is found to have actually incurred but not satisfactorily explained (Yadu Hari Dalmia v CIT (1980) 126 ITR 48 (Delhi).

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marriage expenses It is necessary to establish whether the assessee

himself has incurred the expenditure whollyCustom in India for maternal and paternal relations

of the bride and bridegroom to contribute for marriage expenses

Only unexplained of expenditure incurred by assessee to be brought to tax

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Section 69D [I.T. Act, 1961]Amount Borrowed Or Repaid On

Hundi. Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be :

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Section 69D [I.T. Act, 1961]Amount Borrowed Or Repaid On

Hundi. Provided that, if in any case amount borrowed on hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.

Documents

Slide 3.4 Levy of Penalties,Heads of Income & Aggregation of Income under Income Tax Act Day 3 Session III & IV