NOTE:

1. No penalty shall be levied u/s. 221(1) if the assessee proves that the default was for good and sufficient reasons.

2. No penalty is imposable for any failure u/ss. 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FB, 271FAB, 271G, 271 GA, 271H, 272A(1)(c) or (d), 272A(2), 272AA(1), 272B, 272BB(1), 272BBB(1), 272BB(1A)(b), 273(1)(b), 273(2)(b) or (c) if the person or assessee proves that there was a reasonable cause for such failure (S. 273B).

3. Penalty u/s. 271 can also be levied by Commissioner.

4. Penalty u/s. 271(1) can be levied even if no tax is payable on the income assessed.

5. No penalty shall be imposed u/s. 271AAA, if the assessee admits undisclosed income, substantiates the manner of deriving such undisclosed income and pays tax together with interest in respect of the undisclosed income. It will not be applicable for searches conducted on or after 1st July, 2012.

6. From 1st October, 2014, Transfer Pricing Officer as referred to in section 92CA is also authorised to levy penalty under section 271G.

7. A person shall be considered to have under-reported his income if:

   • income assessed is greater than income determined in the return processed under section 143(1)(a)

   • income assessed is greater than the maximum amount not chargeable to tax (where no return has been furnished)

   • income reassessed is greater than income assessed or reassessed immediately before such reassessment

   • amount of deemed total income re-assessed as per provisions of section 115JB of section 115JC as the case may be is greater than the deemed total income assessed or reassessed before such reassessment.

   • deemed total income assessed or reassessed as per provisions of section 115JB or 115JC is greater than income determined u/s 115JB or 115JC in the return processed under section 143(1)(a)

   • deemed totalincome assessed as per provisions section 115JB or 115JC is greater than maximum amount not chargeable to tax ( where no return has been furnished)

   • income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

8. The tax payable in respect of under-reported income shall be as under:

Where no return of income has been furnished & the income is assessed for the first time	The amount of tax calculated on under-reported income as increased by the maximum amount not chargeable to tax as if it were the total income.
Where total income determined under intimation or total income assessed, reassessed or recomputed in a preceding order is a loss.	The amount of tax calculated on the under-reported income as if it were the total income.
In any other case	In accordance with the formula (X-Y) X – the amount of tax calculated on the under-reported income as increased by the total income determined in intimation or total income assessed or reassessed or recomputed in a preceding order as if it were the total income; and Y - the amount of tax calculated on the total income determined in intimation or total income assessed or reassessed or recomputed in a preceding order.

Where under-reported income arises out of determination of income under section 115JB or 115JC, under-reported income shall be determined based on following formula:

(A-B) + (C-D) where

A= the total income assessed as per general provisions

B=the total income that would be chargeable had the total income assessed as per general provisions been reduced by the amount of under-reported income

C= the total income assessed as per provisions of section 115JB or 115JC

D= the total income that would be chargeable had the total income assessed as per provisions of section 115JB or 115JC been reduced by the amount of under-reported income

Where the amount of under-reported income on any is issue considered both under general provisions as well under provisions of section 115JB or 115JC, such amount shall not be reduced from total income assessed while determining the amount under D above.

In a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

Calculation of under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year is proposed to be provided based on the existing Explanation 2 to sub-section (l) of section 271 (1) i.e. where such amount is claimed to be an amount added to income or deducted while computing loss, in the assessment in any year prior to the assessment in which such receipt, deposit or investment appears (preceding year) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment.

If a person willfully attempts in any manner whatsoever to under-report his income, he shall, without prejudice to any penalty that may be imposable on him under any other provisions of this Act, be punishable-

• in case where the tax on under-reported income exceeds Rs.25,00,000/- with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

• in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

Following cases shall not be considered as under-reporting of income.

• where the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bona fide and all the material facts to substantiate the explanation have been disclosed;

• where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot properly be deducted therefrom;

• where the assessee has, on his own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance;

• where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X and disclosed all the material facts relating to the transaction;

• where the undisclosed income is on account of a search operation and penalty is leviable under section 271AAB.

9. Cases of misreporting of income are specified as under:

   • misrepresentation or suppression of facts;

   • non-recording of investments in books or account;

   • claiming of expenditure not substantiated by evidence;

   • recording of any false entry in books of account;

   • failure to record any receipt in books of account having a bearing on total income;

   • failure to report any international transaction or deemed international transaction under Chapter X.

10. In case of company, firm or local authority, the tax payable on under-reported income shall be calculated as if the under-reported income is the total income. In any other case the tax payable shall be 30% of the under-reported income.

11. No addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

12. Section 270AA provides for immunity from imposition of penalty under section 270A. The salient features are as under:

• Application can be made to the Assessing Officer to grant immunity from imposition of penalty for under-reporting under section 270A and initiation of prosecution proceedings, if the tax and interest payable based on the assessed income has been paid within the specified period and no appeal has been preferred against the order assessing such income;

• Immunity as aforesaid not available where penalty under section 270A has been levied for

• misrepresentation or suppression of facts;

• failure to record in investments in the books of account;

• claim of expenditure not substantiated by any evidence;

• recording of any false entry in the books of account;

• failure to report any receipt in books of account having a bearing on total income;

• failure to report any international/deemed international/specified domestic transaction (dealing with transfer pricing)

• Application is to be made within one month from the end of the month in which the assessment order has been revised.

• An order, accepting or rejecting (after giving an opportunity to be heard) the application is to be passed within a period of one month from the end of the month in which the application is received. Such order made will be final.

• Appeal with Commissioner of Income-tax (Appeals) or an application for revision with Commissioner of Income-tax cannot be filed against the assessment order giving rise to the penalty in respect of which an order accepting the application has been made.

• The period beginning form the date of making such application to the date on which the order rejecting is received it is to be excluded from the period available to file an appeal with the Commissioner of Income-tax (Appeals) against the assessment order.