Transcript Levy of Penalties under Income Tax Act

Levy of Penalties,Heads of
Income & Aggregation of
Income under Income Tax Act
Day 3
Session III & IV
slide 3.4
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 brief
Section Nature of default
Minimum
penalty
140A
(3)
Such amount Tax in arrears
as the
Assessing
Officer may
impose [Sec.
221(1)]
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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Maximum
penalty
Penalties in brief
Section Nature of default
Minimum
Maximum
penalty
penalty
221(1) Default in making Such amount Tax in arrears
payment of tax
as the
within prescribed Assessing
time
Officer may
impose
Slide 3.2
slide 3.4
Penalties in brief
Section Nature of default
Minimum
penalty
271(1) Failure to comply Rs. 10,000
(b)
with a notice
(Rs. 1,000
under section
up to May
142(1) or 143(2) 31, 2001) for
or with a direction each failure
issued under
section 142(2A) slide 3.4
Maximum
penalty
Rs. 10,000
(25,000 up to
May 31,
2001) for
each failure
Penalties in brief
Section Nature of default
271(1) Concealment of
(c)
the particulars of
income or
furnishing
inaccurate
particulars of
income
Minimum
penalty
100% of tax
sought to be
evaded
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Maximum
penalty
300% of tax
sought to be
evaded
Penalties in brief
Section Nature of default
271(4)
Minimum
penalty
Distribution of profit
Up to 150%
by registered firm
of difference
otherwise than in
between tax
accordance with
on partner’s
partnership deed and as income
a result of which
assessed and
partner has returned
tax on
income below the real returned
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income
income
Maximum
penalty
----
Penalties in brief
Section Nature of default
271A
Failure to keep or
maintain books of
account, documents,
etc., as required under
section 44AA
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Minimum
penalty
Rs. 25,000
(Rs. 2,000 up
to May 31,
2001)
Maximum
penalty
Rs. 25,000
(Rs.
1,00,000
up to May
31, 2001)
Penalties in brief
Section Nature of default
Minimum
penalty
271AA Failure to keep and
2% of value
maintain information
of each
and documents in
international
respect of international transaction
transaction (applicable
from the assessment
year 2002-03)
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Maximum
penalty
---
Penalties in brief
Section Nature of default
271B
Minimum
Maximum
penalty
penalty
Failure to get accounts ½% of the
Rs.100000
audited under section total sales,
44AB or furnish such turnover, or
report as is required
gross receipts
under section 44AB2
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Penalties in brief
Section Nature of default
Minimum
penalty
271BA Failure to submit report Rs. 1,00,000
under section 92E
(applicable from the
assessment year 200203)
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Maximum
penalty
-----
Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
271C
Amount ----of tax
such
person
has failed
to deduct
or pay
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
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to section 194B
Penalties in brief
Section Nature of default
Minimum Maximum
penalty
penalty
271D
Amount ----of loan/
deposit so
taken or
accepted
Taking or accepting any
loan or deposit in
contravention of the
provisions of section 269SS
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Penalties in brief
Section Nature of default
271E
Minimum Maximu
penalty
m penalty
Repaying any deposit or
Amount ----(with effect from June 1,
of deposit
2003) loan referred to in
so repaid
section 269T otherwise than
in accordance with the
provisions of section 269T
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Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
271F
Rs. 5,000 ----(Rs. 1,000
up to May
31, 2001)
Failure to furnish return of
income as required by
section 139(1) before the
end of relevant assessment
year
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Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
271F
Rs. 5,000 ----(Rs. 1,000
up to May
31, 2001)
Failure to furnish return of
income as required by
proviso to section 139 (1) on
or before the due date†
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Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
271G
2% of
----value of
the
internatio
nal
transactio
n for each
failure
Failure to furnish
information or documents
under section 92D applicable
from the assessment year
2002-03
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Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
272A(1 Failure to answer any
)(a)
question put to a person
(who is legally bound to
state the truth of any matter
touching the subject to his
assessment) by an incometax authority
Rs.
10,000
(Rs. 500
up to May
31, 2001)
for each
default
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Rs.
10,000
for each
default
Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
272A(1 Failure to sign any statement Rs.
)(b)
made by a person in course 10,000
of income-tax proceeding
(Rs. 500
up to May
31, 2001)
for each
default
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Rs.
10,000
for each
default
Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
272A(1 Failure to comply with
)(c)
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
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Rs.
10,000
for each
default
Penalties in brief
Section Nature of default
Minimum Maximu
penalty
m penalty
272A(1 Failure to comply with the
)(d)£
provisions of section 139A
(upto 31.5.2002)
Rs.
10,000
(Rs. 500
up to May
31, 2001)
for each
default
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Rs.
10,000
for each
default
Penalties in brief
Sec
Nature of default
272A Failure
to comply with a
(2)
notice issued under
section 94 ;
to give notice of
discontinuance of
business/profession
under section 176(3);
Min penalty Max penalty
Rs. 100 for
every day
during
which
default
continues
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Rs. 100 for every
day during which
default continues
Penalties in brief
Sec
Nature of default
Min
penalty
272A Failure
to furnish
(2)
Rs. 100
for every
returns/statement
day
mentioned in section 133,
during
206, 206C or 285B ;
which
to allow inspection of
default
register referred in section
continues
134 (or of any entry in
such register or to allow
copies of such register to
be taken) ;
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Max penalty
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)
Penalties in brief
Sec
Nature of default
Min
penalty
272A Failure
to furnish return of
(2)
Rs. 100
for every
income under section
day
139(4A) [or section 139
during
(4C) from April 1, 2003] or
which
to deliver in due time a
default
declaration mentioned in
continues
section 197A ;
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Max penalty
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)
Penalties in brief
Sec
Nature of default
Min
penalty
272A Failure
Rs. 100
to furnish a
for every
(2)
certificate as required day
in section 203 or
during
206C ;
which
to deduct and pay tax
default
under section 226;
continues
(from April 1, 2002)
to furnish a statement
as required by section
192(2C)
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Max penalty
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)
Penalties in brief
Sec
Nature of default
272AA Failure to comply
with the provision of
section 133B
272B Failure to comply
with the provisions of
section 139A (applicable from June 1,
2002)
slide 3.4
Min penalty
Max penalty
Any amount
up to Rs.
1,000
Rs. 10,000
Rs. 1,000
-----
Penalties in brief
Sec
Nature of default
Min penalty
Max penalty
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)
272BB Failure to comply
B
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
slide 3.4
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.

slide 3.4
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 onslideApril
28, 2003 and May 2,
3.4
2003, respectively.

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).
slide 3.4
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).
 n 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).
slide 3.4
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 :slide 3.4
Section 67A [I.T. Act, 1961]
Method Of Computing A Member's Share In Income Of
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;
slide 3.4
Section 67A [I.T. Act, 1961]
Method Of Computing A Member's Share In Income Of
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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Section 67A [I.T. Act, 1961]
Method Of Computing A Member's Share In Income Of
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
slide 3.4


Section 67A [I.T. Act, 1961]
Method Of Computing A Member's Share In Income Of
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 [I.T. Act, 1961]
Cash Credits.

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 [I.T. Act, 1961]
Cash Credits.

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
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assessee of such financial year.

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.
slide 3.4
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.
slide 3.4
Section 69C [I.T. Act, 1961]
Unexplained Expenditure, Etc .

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).
slide 3.4
Section 69C [I.T. Act, 1961]
Unexplained Expenditure, Etc .
 marriage
expenses
 It
is necessary to establish whether the assessee
himself has incurred the expenditure wholly
 Custom 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
slide 3.4
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 :
slide 3.4

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.
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