New Concealment Penalties

Section 270A & 270AA
23/6/2016Concelment Panelty 2

 Tax, interest and penalty are three different concepts
 Levy and collection of penalties contravening provision of tax laws
are integral part of tax laws
 Penalty is levied for willful or otherwise violation of law. It is
imposed for dishonest and contumacious conduct of the assessee
 Even though penalty is considered as additional tax, it is not
continuous of assessment proceedings.
 A well‐settled principle of law that the more is the stringent law,
more strict construction thereof would be necessary.
 Even when the burden is required to be discharged by an
assessee, it would not be as heavy as the prosecution.

 Samapth Iyengar’s 11th Edition on page 13680 has observed that
Supreme Court in case of Ashok T Pai 292 ITR 11 has laid 10
propositions as under‐
 Penalty proceedings are quasi‐criminal in character ‐Penalty
proceedings are quasi‐criminal in nature, so that the burden
primarily lies on the department to establish that assessee has
concealed his income.
 Interpretation of penalty provisions ‐ Law relating to penalty should
be construed strictly in favour of the assessee, more stringent the
law, stricter the construction that is required in favour of the
assessee.
 Penalty proceedings are independent proceedings ‐Since penalty
proceedings are independent proceedings, the matter has to be
considered afresh in the light of the law applicable to penalty.

 Burden on initiation of the proceedings ‐ The burden of proof
placed on the assessee under theExplanation is subject to
conditions therein. It is necessary that there should be an
inference of concealment at the time of initiation of the
proceedings.
 Extent of burden on taxpayer ‐ Even where a burden is placed on
the taxpayer, such burden cannot be the same as that of
prosecution as was decided in Krishna Lal (P.N.) v. Government of
Kerala (1995) Supp 2 SCC 187.

 Where there was a false verification in the return filed by a firm
and the partner against whom prosecution was launched, the
defence was a plea, that the signature attributed to the partner
was not his, but it was found that partner had not disputed his
signature either during assessment nor during penalty
proceedings, there is no burden on the prosecution to prove the
signature was that of the partner [Mangat Ram Norata Ram
Narwana 336 ITR 624 (SC)].
 Relevance of mens rea ‐ Inference of mens rea, that is necessary
for concealment penalty, is essentially based on facts. Penalty has
two components, one prescribing conditions for imposition and
the other for computation.

 Relevance of assessment to penalty proceedings ‐ A finding in
the assessment proceedings, that there is an omission in income
does not by itself lead to the inference that there is concealment,
notwithstanding the fact, that the omission may constitute a
good evidence for concealment, but it is not conclusive.
 Effect of omission of requirement of deliberateness ‐ The
omission of the word "deliberate" in the penalty provision is not
of much significance, so as to change the law on penalties.

 Deliberately is not to be lightly inferred ‐ A mere omission or
negligence does not constitute a deliberate act of
suppressioveri or suggestiofalsi even after the amendment to
section 271(1)(c) made in the year 1964. There is no material
change as to the nature of proceedings [Jeevan Lal Sah 205 ITR
244 (SC), K C Builders 265 ITR 562 (SC)] . Penalty provisions under
the income‐tax law is not the same as provisions in commercial
statute, where a breach or contravention is liable for punishment
irrespective of the bona fide as provided in some cases of
absolute liability, so that levy of penalty is not mandatory.

 Legal advice can be a shield ‐ Where an assessee acts on legal
advice, though wrong, the omission should be treated as bona
fide with no deliberateness involved.

 The newly introduced section 270A by the Finance Act, 2016 is in
replacement of Section 271(1)(c) of Income Tax Act, 1961.
 It has been inserted to rationalise & to bring clarity, objectivity &
certainty in the penalty provisions

 The penalty imposable should be in accordance with the law
which is in force on the date when proceedings for the penalty
are initiated.
 Provisions to be applied as it stands at the date when default is
which invites penalty is committed (held in respect to
reassessment proceedings) – CIT v. Onkar Saran & Sons 195 ITR 1
(SC)
 Act specifically provides that
◦ The provisions of penalty as per section 270A shall be applicable w.e.f. 1st
April,2017 i.e. from Assessment year 2017‐18.
◦ The provisions of Section 271 shall cease to apply for assessment
commencing on or after 1st April, 2017

 The section 270A provides for levy of penalty in 2 cases:
◦ Under reporting of income
◦ Misreporting of Income

 The penalty under section 270A may be levied by :
i. Assessing officer,
ii. Commissioner(Appeals)
iii. Principal Commissioner
iv. Commissioner
 The penalty shall be levied by an order in writing.

 Income assessed is greater than income determined in ITR
processed under section 143(1)(a)
 Deemed total income assessed or reassessed as per the Sec115JB
(MAT) or Sec115JC (AMT) is greater than income determined in
ITR processed under section 143(1)(a)
 Where no return is furnished,
◦ Income assessed is greater than maximum amount not chargeable to tax,
or
◦ Deemed total income assessed or reassessed as per the section
115JB or section 115JC is greater than maximum amount not chargeable to
tax

 Income reassessed is greater than income assessed or reassessed
immediately before such reassessment
 Deemed total income assessed or reassessed as per the Section
115JB or Section 115JC is greater than income assessed or
reassessed immediately before such reassessment
 The income assessed or reassessed has the effect of reducing the
loss or converting such loss into income

 Income assessed for the first time & Return is filed
 = ‐
 Whether no penalty payable in respect of adjustments u/s
143(1)(a)?
Income
assessed
Income as per
section
143(1)(a)
Under reported
income

 Income assessed for the first time & Return is filed
Sr. Particulars Working Amount (lacs)
(a) Income as per ITR 100
(b) Income computed u/s 143(1)(a) 110
(c) Income assessed u/s 143(3) 150
(d) Under reported income (c )‐(b) 40

 Income assessed for other than Company, Firm or Local Authority
for the first time & Return is not filed
 = ‐Income
assessed
Maximum
amount not
chargeable to
tax
Under reported
income

 Income assessed for other than Company, Firm or Local Authority
for the first time & Return is not filed
Sr. Particulars Amount (lacs)
(a) Income assessed u/s 143(3) 10.00
(b) Maximum amount not chargeable to tax 2.50
(c ) Under reported income (a)‐(b) 7.50

 Income assessed for  Company, Firm or Local Authority for the
first time & Return is  not filed
 =   Income
assessed
Under reported
income

 Income is not assessed for the first time
 = ‐Amount
reassessed or
recomputed
Amount
assessed or
reassessed or
recomputed in
a preceding
order
Under reported
income

 Income is not assessed for the first time i.e. income assessed
during scrutiny assessment or reassessment
(a) Income declared in return 100
(b) Income computed u/s 143(1)(a) 130
(c ) Income assessed u/s 143(3) 150
(d) Income reassessed u/s 147 180
(e) Under reported income w.r.t. 143(3) 20

 In case of Deemed total income as per section 115JB or 115JC
= +
where,
A = Total income as per general provisions
B = Total income chargeable had the total income assessed as per the
general provisions been reduced by the amount of under‐reported
income
C = Total income as per section 115JB or 115JC
D = Total income 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
Under reported
income
C ‐ DA ‐ B

 It is provided that, where the amount of under reported income on any
issue is considered under both general provisions & deemed provisions
of S. 115JB/115JC such amount shall not be reduced from total income
assessed while determining the amount under item D
 Issue arises that whether penalty on same amount is levied on both
counts i.e. under general provisions and also under deeming provisions
of 115JB / 115JC?
 Similar provisions were introduced u/s 271(1)(c) Explanation 3 by
Finance Act 2015 to overcome judicial decisions
◦ CIT v. Nalwa Sons Investment Ltd. [2012] 21 taxmann.com 184 (SC), it was
held that when assessment was made on income computed under section
115JB and tax had been paid on income so computed, penalty under
section 271(1)(c) would not be imposed with reference to additions that
would have been made taking into account concealment made by assessee
while making assessment under normal procedure.

 S 271(1)(c) has been amended so as to provide that the amount of tax
sought to be evaded shall be the summation of tax sought to be
evaded under the general provisions and the tax sought to be evaded
under the provisions of section 115JB or 115JC of the Income‐tax Act.
 If an amount of concealment of income on any issue is considered both
under the general provisions and provisions of section 115JB or 115JC
then such amount shall not be considered in computing tax sought to
be evaded under provisions of section 115JB or 115JC.
 In a case where the provisions of section 115JB or 115JC are not
applicable, the computation of tax sought to be evaded under the
provisions of section 115JB or 115JC shall be ignored.
◦ Finance Act, 2015 – Circular No. 19/2015, dated 27‐11‐2015 para 55.4

 An assessment or reassessment results in reducing the loss
declared in the return or converting that loss into income
 = ‐Under reported
income
Loss claimed
Income or loss
assessed or
reassessed

 An assessment or reassessment results in reducing the loss
declared in the return or converting that loss into income
(a) Loss as per ITR (Firm) (100)
(b) Loss u/s 143(1)(a) (90)
(c ) Income assessed u/s 143(3) 20
(d) Under reported income w.r.t scrutiny (c )‐(b) 110

 The under reported income shall include such deposit, receipt or
investment ,
where source of such deposit, receipt or investment in any
assessment year is claimed to be added or deducted while
computing loss in the assessment of the assessee in any
assessment year prior to the assessment year in which such
deposit, receipt or investment appears & no penalty was levied
for such preceding year

Preceding year means:
i. Year immediately before the year in which the receipt, deposit or
investment appears, being the first preceding year
ii. Year immediately preceding the first preceding year, where the
amount added or deducted in the first preceding year is not
sufficient to cover the deposit, receipt or investment

 Income for which explanation is offered by the assessee & the
authority levying penalty is satisfied that
◦ the explanation provided by him is bonafide &
◦ all material facts has been disclosed by him to substantiate the
explanation
 Meaning
◦ Satisfied
◦ Bonafide
◦ Material facts
◦ Disclosed
◦ Evidence

 Satisfied
◦ adequately meet or comply with
◦ The phrase 'is satisfied' means simply 'makes up its mind'
◦ '...The mind of the court must be "satisfied"—that is to say, it must arrive at
the required affirmative conclusion—but the decision may rest on the
reasonable probabilities of the case, which may satisfy the court that the
fact was as alleged, even though some reasonable doubt may remain'.
 Words and Phrases Legally Defined: Third Edition: Volume 4 : R‐Z Butterworths pages
131‐132
◦ The term satisfied means make up one's mind not troubled by doubt or
reach a clear conclusion on the evidence before the authority
 Jiten & Co. v.STO [1977] 39 STC 308 (Delhi)

 Bonafide
◦ genuine; real.
◦ without intention to deceive
◦ good faith implying the absence of fraud, unfair dealing or acting, whether
it consists in simulation or dissimulation
◦ everything was done in an open and straight‐forward manner.
 GTO v. Gautam Sarabhai Ltd. [1989] 29 ITD 212 (Ahd.),
 GTO v. Rajmata Shanta Devi P. Gaekwad [2001] 76 ITD 299 (Ahd.)

 'material facts' means primary facts
◦ Seth Kirorimal Adwani v. ITO [1970] 77 ITR 789 (Assam)
 the distinction between "material facts" and "full particulars" is
one of degree. The lines of distinction are not sharp. "Material
facts" are those which a party relies upon and which, if he does
not prove, he fails at the time“
◦ Mohammad Yusuf And Anr. vs Bhairon Singh Shekhawat AIR 1995 Raj 239

 The material facts mean‐
◦ facts necessary to formulate a complete cause of action,
◦ all the preliminary facts which must be proved by the party to establish a cause
of action,
◦ the basic facts which constitute ingredients of particular corrupt practice,
◦ all the facts which are essential to clothe the petitioner with complete cause of
action,
◦ the facts which if established would give the petitioner the relief asked for,
◦ the facts on the basis of which the Court could give a direct verdict in favour of
the election petitioner in case the returned candidate did not appear to
oppose the petition,
◦ facts which if not proved, the petition must fail.
 Mohammad Yusuf And Anr. vs Bhairon Singh Shekhawat AIR 1995 Raj
239

 Disclose ‐ To bring into view by uncovering, to expose, to make
known, to lay bare, to reveal to knowledge, to free from secrecy
or ignorance, or make known
◦ Black's Law Dictionary (6th Edition)
 Disclose : To open up, to unfasten, to hatch, to uncover, to
remove a cover from and expose to view, to uncover (a young
bird), etc., from the egg, to hatch, Barely to lay (Eggs), to discover
to open up to the knowledge of others, to reveal.
◦ Shorter Oxford English Dictionary

 Evidence means‐
◦ all statements which the Court permits or requires to be made before it by
witnesses, in relation to matters to act under inquiry, such are called as oral
evidences
◦ all documents including electronic records produced for the inspection of
the Court
◦ Evidence may be of different types ‐ direct, indirect or real
 Paras Dass Munna Lal v.CIT[1937] 5 ITR 523 (Lah)

 Under reported income based on an estimate & the authority
levying penalty is satisfied that the accounts are correct and
complete, but the method is such that the income cannot be
properly deduced therefrom
◦ E.g. Addition based on GP

 Under reported income determined on the basis of an estimate if
the assessee has estimated a lower amount of addition or
disallowance, which is included in the computation of income &
has disclosed all material facts related to addition or disallowance
◦ E.g. disallowance of personal expenditure

 Under reported income which is an addition in accordance with
ALP made by TPO
◦ assessee has maintained information and documents as per section 92D,
◦ disclosed the internal transaction under Chapter X &
◦ disclosed all the material facts in relation to the same.
 Amount of undisclosed income as per Section 271AAB
◦ Penalty in case of search cases

S. 270A(9)

 Misrepresentation or suppression of facts
◦ Misrepresentation or suppression means
 the action or offence of giving a false or misleading account of the nature of
something
 the wilful nature of the non‐disclosure
 The action of keeping secret; refusal to disclose or reveal.
◦ In short, the intentional suppression of truth or fact known, to the injury or
prejudice of another

 Failure to record investments in the books of account
◦ Failure means ‐ the neglect or omission of expected or required action.
◦ In short a failure to do that which is anticipated, expected, or required
in a given situation.
◦ Is it deliberate act of omission?
◦ What if bonafide mistake?
 Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400
◦ Books of accounts S. 2(12A)
 "books or books of account" includes ledgers, day‐books, cash books, account‐
books and other books, whether kept in the written form or as print‐outs of data
stored in a floppy, disc, tape or any other form of electro‐magnetic data storage
device
 Implication of no books of accounts maintained?

 Claim of expenditure not substantiated by any evidence
◦ the available body of facts or information indicating whether a belief or
proposition is true or valid.
◦ Direct evidence ‐ The existence of a given thing or fact is proved either by
its actual production or by the testimony or admissible declaration of
someone who has himself perceived it
◦ Indirect evidence ‐ when other facts are, thus, proved, the existence of the
given fact may be logically inferred
◦ Primary evidence is an evidence which the law requires to be given first;
secondary evidence is evidence which may be given in the absence of that
better evidence when a proper explanation of its absence has been given.
◦ It covers not only direct but also Circumstantial evidence‐ Paras Dass
Munna Lal v. CIT [1937] 5 ITR 523 (Lah.)
 Whether applied to bogus or false expenditure only?

 Recording of any false entry in the books of account
◦ False means
 not according with truth or fact; incorrect.
 made to imitate something in order to deceive.
 Failure to record any receipt in books of account having a bearing
on total income
◦ S. 2(45) "total income" means the total amount of income referred to
in section 5, computed in the manner laid down in this Act
◦ If no impact on total income?

 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 i.e.
Special Provisions relating to avoidance of tax apply.

Case Description
Amount of tax is
calculated on
1 No ROI filed & income assessed for the
first time
Under reported income
as increased by
maximum amount not
chargeable to tax
2 Total income determined under section
143(1)(a) or assessed, reassessed or
recomputed in a preceding order is a
Under reported income

Case Description Amount of tax is calculated on
3 Other cases Tax = % of (X‐Y)
where,
X = Tax calculated on under reported income as
increased by total income as per section 143(1)(a) or
income assessed, reassessed or recomputed in a
preceding order
Y = Tax calculated on total income as per section
143(1)(a) or income assessed, reassessed or
recomputed in a preceding order

Situation
Penalty as % of tax on
under reported income
Under reporting 50%
Under reporting in consequence of
misreporting
200%

Sr. Particulars Working
Under report‐
ing (lacs)
Mis reporting
(lacs)
(a) Income declared in return 100 100
(b)
Income computed u/s
143(1)(a)
110 110
(c ) Income assessed u/s 143(3) 150 150
(d) Under reported income (c ) – (b) 40 40

Sr. Particulars Working
Under report‐
ing (lacs)
Mis reporting
(lacs)
(a)
Income assessed u/s
143(3)
10.00 10.00
(b)
Maximum amount not
chargeable to tax
2.50 2.50
(c ) Under reported income (a) – (b) 7.50 7.50

 If any addition or disallowance has formed the basis of imposition
of penalty in case of the person for same or any assessment year,
the same shall not form the basis for imposition of penalty under
Section 270A

Sr. Section Description Implication
1. 119 Instructions to
subordinate
authorities
CBDT shall issue general or special orders for
relaxation of provisions of section 270A
2. 253 Appeals to Appellate
Tribunal
The order passed u/s 270A is appealable
before ITAT
3. 271A Failure to keep,
maintain or retain
books of account,
documents, etc.
Penalty shall be levied u/s 271 A (Rs.25000)
without prejudice to the provisions of section
270A

4. 271AA(1) Penalty for failure
to keep and
maintain
information and
document, etc., in
respect of certain
transactions.
Penalty shall be levied u/s 271 AA (2% of
value of international transaction or SDT)
without prejudice to the provisions of
section 270A
5. 271AAB(2) Penalty where
search has been
initiated.
Penalty u/s 270A shall not be levied in
respect of undisclosed income identified in 23/6/2016Concelment Panelty 54

6. 273A(1)
& (2)
Power to reduce or
waive penalty, etc.,
in certain cases.
PC/C has a discretionary power to reduce or
waive penalty imposed or imposable u/s
270A subject to an exception where approval
of PCC/CC/PDG/DG is required in case the
aggregate amount on which the penalty is
imposed, for relevant assessment year or
more than 1 assessment year , exceeds
Rs.5,00,000

7. 279(1A) Prosecution to be at
instance of
PC/C/PCC/CC
A person shall not be proceeded against for
an offence u/s 276C or 277 in relation to the
assessment for an assessment year in respect
of which the penalty imposed or imposable
on him u/s 270A has been reduced or waived
by an order u/s 273A.

 Section 270AA has been inserted after section 270 A in the Finance Act,
2016
 It provides for immunity from:
 The section shall come into effect from 1st April, 2017 i.e from
Assessment year 2017‐18.
Sr. Section Particulars
1. 270A Imposition of penalty for under reporting &
misreporting of income
2. 276C Initiation of proceedings against wilful attempt to
evade tax
3. 276CC Initiation of proceedings against failure to furnish
return of income

 The Assessing officer may grant immunity on an application made
by the assessee
 Immunity is granted subject to following conditions:
◦ The tax or interest as per assessment or reassessment order u/s 143(3) or
147 respectively, is paid within time as mentioned under notice of demand
◦ No appeal has been filed against the order u/s 143(3) or 147

 The order rejecting the application shall not be passed unless the
assessee is given an opportunity of being heard
Sr. Particulars Time limit
1. Application to A.O. Within 1 month from the end of the
month in which the order u/s 143 or
147 has been received by the assessee
2. Order by A.O.
(accepting/ rejecting the
application)
Within 1 month from the end of the
month in which the application is
received by A.O.

 The A.O. shall grant immunity after fulfilling the conditions as u/s
270AA(1) & after expiry of period of filing of appeal u/s 249(2)(b)
i.e. within 30 days of date of service of notice of demand
 The immunity shall not be granted if proceedings u/s 270A for
misreporting of income has been initiated
 The order passed u/s 270AA(4) for accepting or rejecting the
application shall be final
 In case of order accepting the application is made, following shall
not be admissible:
◦ Appeal u/s 246 A i.e. before Commissioner (Appeals)
◦ Application for revision u/s 264 against order u/s 143(3) or 147

Demand contested before CIT(A)

 Instruction No. 1914 dated 21.03.1996 contains guidelines issued
by the Board regarding procedure
 It has been prescribed that a demand will be stayed only if there
are valid reasons for doing so and that mere filing of an appeal
against the assessment order will not be a sufficient reason to
stay the recovery of demand.
 Instructions modified on 29/2/2016 [F.No.404/72/93‐ITCC]

 Stay to be grant on payment of 15% if demand disputed
before CIT(A) except
◦ In view of Assessing Officer higher payment warrants
 E.g. same issue has been confirmed by appellate authorities in earlier
years or
 he decision of the Supreme Court /or jurisdictional High Court is in favour
of Revenue or
 addition is based on credible evidence collected in a search or survey
operation
◦ In view of Assessing Officer higher payment warrants
 in a case where addition on the same issue has been deleted by appellate
authorities in earlier years or
 the decision of the Supreme Court or jurisdictional High Court is in favour of
the assessee
 Refer matter to Pr. CIT/CIT, who after considering facts decide accordingly

 In a case where stay of demand is granted by the assessing officer
on payment of 15% of the disputed demand and the assessee is
still aggrieved, he may approach the jurisdictional administrative
Pr. CIT/ CIT for a review of the decision of the assessing officer.
 Stay application to Assessing Officer shall be disposed off within
two weeks of filing of petition
 In case matter is referred to Pr. CIT/ CIT he shall dispose of within
2 weeks of making such reference

 Require an undertaking from the assessee that he will cooperate
in the early disposal of appeal failing which the stay order will be
cancelled;
 Reserve the right to review the order passed after expiry of
reasonable period (say 6 months) or if the assessee has not
cooperated in the early disposal of appeal, or where a
subsequent pronouncement by a higher appellate authority or
court alters the above situations
 Reserve the right to adjust refunds arising, if any, against the
demand, to the extent of the amount required for granting stay
and subject to the provisions of section 245.

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