[Any other interpretation will make the provisions unworkable]<\/strong><\/p>\n\n Penalty – Depending on whether adjustments are classified as Misreporting or not.<\/p>\n<\/td>\n<\/tr>\n<\/table>\n
4. \tAnalysis of Section 270A<\/p>\n
\n (i)\tMeaning\/Definition – Exhaustive or inclusive<\/p>\n
\n The Income tax act does-not define the terms “under-report” or “misreporting”. It merely gives instances which will constitute misreporting (Sub-section (9)) and which will not constitute under-reporting (sub-section (6)). Hence, for the purposes of interpretation and deciding various legal issues which will crop up it is necessary to find out the ordinary or dictionary meaning. <\/p>\n
\n ORDINARY MEANING<\/p>\n
\n UNDER-REPORT<\/p>\n
\n THE FREEDICTIONARY\t– \tTo report as less or fewer than is correct.<\/p>\n
\n CAMBRIDGE DICTIONARY\t–\tTo record that you have earned less than you really have on your tax return.<\/p>\n
\n MERRIAM WEBSTER\t– \tTo report to be less than is actually the case.<\/p>\n
\n OXFORD DICTIONARY \t– \tFail to report (something) fully. <\/p>\n
\n •\tThus, the ordinary meaning does suggest some sort of deliberate attempt to Under-report income. <\/p>\n
\n MISREPORTING<\/p>\n
\n ORDINARY MEANING<\/p>\n
\n OXFORD DICTIONARY \t– \tGive a false or inaccurate account of (something), A false or incorrect report.<\/p>\n
\n THE FREEDICTIONARY \t– \tTo report falsely or inaccurately, an inaccurate or false report\/ to report mistakenly or falsely, An inaccurate or wrong report.<\/p>\n
\n The term falsity is defined as wrong and untruthful assertion of a fact known to the person. The term failure is defined as the neglect or omission of expected or required action. <\/p>\n
\n •\tThus, the term misreporting clearly represents existence of a guilty mind on the part of the assessee. <\/p>\n
\n MEANING AS PER THE SCHEME OF SECTION 270A <\/p>\n
\n UNDER-REPORT.<\/p>\n
\n •\tUnder the provisions of section 270A a difference has to be made between the terms “Under-reported his Income” and “Under-reported Income”. <\/p>\n
\n •\tAs per Sub-Section (1) person is liable to penalty when that person has under-reported his income. Sub-section (2) lays down cases when a person shall be considered to have under-reported his income. It lays down six cases which essentially refer to cases where an assessment takes place and there is an addition or disallowance. The cases to a great extent manifest the ordinary meaning of the term “Under-report”. Sub-section (2) is exhaustive. <\/p>\n
\n •\tOnce sub-section (2) is triggered then the amount of under-reported income is to be computed under sub-section (3) which essentially is the difference between assessed income and income as per intimation or reassessed income and assessed income. This is the under-reported income of the person. This under-reported income computed under sub-section (3) is to be further adjusted by reducing those additions \/ disallowances which satisfy the conditions of sub-section (6). Thus, sub-section (6) gives the “Under-reported Income” on which penalty would be finally levied. <\/p>\n
\n •\tThe sub-section (6) gives five scenarios when a particular addition \/disallowance or amount of income will not form part of Under-reported Income computed under sub-section (3). Sub-section (6) uses the term “shall not include”. The Apex Court in Narpatchand A Bhandari v. Shantilal Moolshankar Jain AIR 1993 SC 1712 was considering the scope of definition of landlord in the Explanation to Section 13(1)(g) which stated that Landlord will not include a rent-farmer or rent collector or estate manager. The Apex court held that a mortgagee with possession would qualify as a landlord as it is not specifically excluded. Thus, scenarios which are not specifically excluded by sub-section (6) would be scenarios where penalty would be imposed. Thus, the exclusion under sub-section(6) is exhaustive. The exhaustive nature of sub-section(2) and sub-section(6) are in line with the object of bringing clarity in penalty provisions which was lacking in the erstwhile section 271. <\/p>\n
\n •\tHowever on must note that Sub-clause(a) of Sub-section(6) is a general\/universal clause which will help assessee to raise all bonafide defences against levy of penalty.<\/p>\n
\n MISREPORT<\/p>\n
\n As per sub-section (8) of section 270A if under-reporting is in consequence of misreporting then the exclusions provided in sub-section (6) will not apply. Further sub-section (9) gives six cases of mis-reporting. These cases are manifestation of the ordinary meaning of misreporting in the context of Income Tax act. Thus enumeration of six cases will make the meaning of misreporting exhaustive. Also as the ordinary meaning suggest culpability or existence of guilty mind , bonafide inadvertence or mistake in not recording investments or not recording any receipt in books of accounts etc can always be taken up as a defence.<\/p>\n
\n (ii)\tBURDEN OF PROOF <\/p>\n
\n POSITION UNDER UNDER SECTION <\/p>\n
\n 271(1)(C)<\/p>\n
\n •\tBoth the words concealment and furnishing inaccurate particulars in the context of section 271(1)(c) indicate prima facie the intention of an assessee to hide his income or particulars thereof from the department. Consequently these words cast a burden on the department to prove the guilty mind as well as concealment. This legal position was confirmed by the Apex court in CIT v. Anwar Ali (1970) 76 ITR 696 (SC), Jain Brothers v. UOI (1970) 77 ITR 107 (SC), Hindustan Steel Ltd v. CIT (1972) 83 ITR 26 (SC) and CIT v. Khoday Eswaras and sons (1972) 83 ITR 369 (SC). <\/p>\n
\n •\tTo get over this interpretation of law, Explanation 1 was introduced in section 271(1)(c). This explanation shifts the burden of proof from the Asessing.Officer. to the assessee. Instead of the A.O. being under an obligation to establish the malafides of the assessee, the burden is on the assessee to establish his bonafides and innocence.<\/p>\n
\n POSITION UNDER SECTION 270A <\/p>\n
\n UNDER-REPORTED INCOME.<\/p>\n
\n •\tA person has under-reported his income as per sub-section (2) the moment there is a difference between assessed income and income as per intimation or reassessed income and assessed income and further the said difference is also his under-reported income as per sub-section (3). Thus till this stage i.e whether a person has “under-reported his income” there is no question of burden of proof as per the mechanism provided to compute under-reported income of a person. It is simply automatic. <\/p>\n
\n •\tThe amount of under-reported income computed under sub-section(3) can be brought down or reduced or eliminated only in terms of sub-section (6). Clause (a) of sub-section (6) requires assessee to offer a bona fide explanation and substantiate such explanation with material facts. It is similar to Explanation 1(B) to Section 271(1)(c). Hence, the initial burden will be on the assessee to show that the benefit of exclusion under sub-section (6) is available to the assessee. Similarly in case of transfer pricing additions the initial burden will be on the assessee. In case of estimated addition referred to in clause (b) to sub-section (6) burden will be on the assessee to show that the accounts are correct and complete. <\/p>\n
\n MISREPORTING<\/p>\n
\n •\tAs already discussed the term misreporting as well as six cases of misreporting will involve some sort of a deliberate attempt to misreport on the part of the assessee. Thus by applying the decisions rendered under section 271(1)( c) prior to insertion of Explanation 1 such as Anwar Ali (supra) etc, it can fairly be concluded that the burden is on the Assessing Officer to prove that there is misreporting. <\/p>\n
\n •\tFurther as sub-section (6) of Section 270A is not applicable or provision similar to Explanation 1 to Section 271(1)(c) is not incorporated for misreporting, the initial burden will not be on the assessee even if penalty under section 270A is held to be a civil liability. The Pune Tribunal in Kanbay software India P Ltd v DCIT [2009] 122 TTJ 721 (Pune) while dealing with the observation of Supreme Court in case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC) to the effect that penalty under section 271(1)(c) is to provide remedy for loss of revenue and is a civil liability held that judgment in Dharamendra Textile Processors case (supra) does not make a radical change in scheme of section 271(1)(c) but it re-emphasizes paradigm shift on burden of proof as brought about by Explanation to section 271(1)(c). Thus, since no such explanation similar to explanation 1 is appended to misreporting the initial burden of proof will be on the revenue. Hence, it will be for the revenue to prove that there is misrepresentation, suppression, failure and falsity in terms of six cases of misreporting. <\/p>\n
\n HOW TO DISCHARGE THE BURDEN.<\/p>\n
\n •\tBefore analyzing how an assessee can discharge the burden cast on him under sub-section (6), it is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive for levying . This was the position under section 271(1)(c) and same is the position under section 270A as sub-section(6) provides the scenario when though there is under-reported income as per sub-section (2) and (3) said under-reported income would not be exigible to penalty. Thus, Assessment proceedings and penalty proceedings are separate and distinct. Thus the law as applicable under the current regime of section 271(1)(c) will also be applicable to Section 270A. <\/p>\n
\n •\tFindings in Assessment proceedings don’t operate as res-judicata in penalty proceedings. This proposition is laid down by the decision in CIT v. Dharamchand L. Shah (1993) 204 ITR 462 (Bom) which decision was rendered in the context of section 271(1)(c). Further in Vijay power generators ltd v. ITO (2008)6 DTR 64 (Del) it is held that “It is well settled that the findings rendered in the assessment proceedings though they constitute good evidence do not constitute conclusive evidence in penalty proceedings. During penalty proceedings, there has to be reappraisal of the very same material on the basis of which the addition was made and if further material is adduced by the assessee in the course of the penalty proceedings, it is all the more necessary that such further material should also be examined in an attempt to ascertain whether the assessee concealed his income or furnished inaccurate particulars thereof.” <\/p>\n
\n •\tThus, under penalty proceedings Assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures of material facts were made and that the explanation of assessee was bona fide. Further if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate.<\/p>\n
\n (iii)\tREQUIREMENT OF MENS REA<\/p>\n
\n •\tUnder section 271(1)(c) the meaning of “Concealment” and “furnishing inaccurate particulars” contained an element of culpable mental state. The Apex Court in Dilip N. Shroff v. CIT [(2007) 291 ITR 519] held therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the assessing authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential.<\/p>\n
\n •\tHowever, subsequently it was on the point of mens rea that the judgment in Dilip N. Shroff v. CIT [supra] was upset by the decision in Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with the Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. <\/p>\n
\n •\tFrom the scheme of section 270A it appears that where there is under-reporting or misreporting of income, the objective is to remedy loss to the revenue and is thus a strict and civil liablity not requiring existence of mens –rea. This issue will be settled only through litigation. However the burden to prove misreporting will be on the revenue as explained earlier.<\/p>\n
\n (iv)\tWHETHER LEVY OF PENALTY U\/S. 270A IS AUTOMATIC <\/p>\n
\n POSITION UNDER SECTION 271(1)(C)<\/p>\n
\n •\tAfter the decision of Apex court in UOI v. Dharmendra Textiles (Supra) in the context of Section 271(1)(c) it was understood by the revenue authorities that penalty proceedings are automatic and that penalty is to be levied the moment addition is made or confirmed. This erroneous understanding was set at naught by the Apex Court in Union of India vs Rajasthan Spinning & Weaving Mill (2009) 180 Taxmann 609(SC) wherein it is held as under:<\/p>\n
\n“At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam,J.) was a party to the decision in Dharmendra Textile and we see no reason to understand or read that decision in that manner.”<\/p>\n
\n•\tIn CIT v. M\/s Sidhartha Enterprises (2009) 184 Taxman 460 (P & H)(HC) it was held that “the judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. Even so, the concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. In view of the finding that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, penalty was not leviable.”<\/p>\n
\n•\tHence, penalty u\/s. 271(1)(c) is not automatic but discretionary and that the assessing officer must exercise the discretion judicially.<\/p>\n
\nPOSITION UNDER SECTION 270A<\/p>\n
\nUNDER-REPORTED INCOME<\/p>\n
\nSub-section (1) of section 270A uses the term “may”. Further sub-section (6) provides for situations when it cannot be said that there is under-reported income. Hence, just because a person has under-reported his income in terms of sub-section (2) and (3) would not automatically lead to the conclusion that penalty u\/s 270A is leviable.<\/p>\n
\nMISREPORTING<\/p>\n
\n•\tAs the burden of proving misreporting will be on the assessing officer, penalty for misreporting cannot be automatic unless AO is satisfied about misrepresentation, suppression, failure and falsity on the part of the Assessee with some degree of deliberateness on the part of the assessee.<\/p>\n
\n•\tThus, a bona-fide mistake or reliance on expert professional opinion would continue as a defence for assessee from levy of penalty even in cases of mis-reporting.<\/p>\n
\n(v)\tCAN PENALTY U\/S. 270A BE LEVIED ON AN INCORRECT LEGAL CLAIM\/DEBATABLE ISSUE<\/p>\n
\nPOSITION UNDER SECTION 271(1)(C)<\/p>\n
\nThe Delhi High court in New Holland Tractors India P Ltd. v. CIT [2015] 275 CTR 291 (Delhi) has held that penalty u\/s 271(1)(c) read with Explanation 1 clause (B) cannot be levied where a legal or a debatable claim is rejected. On this aspect, useful reference can be made also to the following observations of the Supreme Court in the case of Reliance Petroproducts (P.) Ltd.,(supra):-<\/p>\n
\n“11. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the words concerned. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.”<\/p>\n
\nThus penalty u\/s 271(1)(c) cannot be levied on an incorrect legal claim.<\/p>\n
\nPOSITION UNDER SECTION 270A<\/p>\n
\n•\tIn the case of under-reported income, clause (a) of sub-section (6) of Section 270A is similar to Explanation 1 clause (B). Hence, where a debatable issue is involved or an incorrect legal claim is involved then penalty under section 270A for under-reporting of income would not be leviable. Obviously, such under-reporting of income cannot be as a consequence of misreporting.<\/p>\n
\n(vi)\tCOMMENCEMENT OF PENALTY PROCEEDINGS AND INITIATION OF PENALTY AND RECORDING OF SATISFACTION<\/p>\n
\nPOSITION UNDER SECTION 271(1)(C)<\/p>\n
\n•\tSection 271(1) reads “ If the assessing officer or……..in the course of any proceedings under this Act , is satisfied that any person-………….he may direct that such person shall pay by way of penalty” [ emphasis supplied]<\/p>\n
\n•\tThe Apex Court in CIT v. S. V. Angidi Chettiar [1962] 44 ITR 739 (SC) has held that penalty proceedings cannot be commenced by the ITO before the completion of the assessment proceedings by the ITO. However, the power to impose penalty depends upon the satisfaction of the ITO in the course of proceedings under the Act ie it could not be exercised if he is not satisfied about the existence of conditions for penalty before the proceedings are concluded. Satisfaction before conclusion of the proceeding under the Act, is a condition for the exercise of the jurisdiction. Considering the said decision, the Bombay High Court in CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41 (Bom) has held that AO must “record” his satisfaction during the course of assessment proceedings. The Full bench of the Delhi High Court in CIT v. Rampur Engg Co Ltd [2009] 309 ITR 143 (Delhi) has held that the “power to impose penalty under section 271(1) depends upon satisfaction of Assessing Officer in course of assessment proceedings and it cannot be exercised if he is not satisfied and has not recorded his satisfaction about existence of conditions specified in clauses (a), (b) and (c) of sub-section (1) of section 271 before proceedings are concluded.” <\/p>\n
\n•\tHence, there has to be satisfaction, such satisfaction has to be recorded, recording must be before completion of assessment proceedings and penalty proceedings though initiated before completion of assessment proceedings they will have to commence after passing of assessment order. <\/p>\n
\n•\tAfter taking note of the judicial pronouncements in this regard, the Legislature thought it fit to insert Section 271(1)(B), which reads as under:<\/p>\n
\n"271(1)(B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).” <\/p>\n
\nThe above provision came up for interpretation before the Delhi High Court in the case of Ms. Madhushree Gupta v. Union of India [2009] 309 ITR 143(Del) wherein the Delhi High Court held that both in post amendment and pre amendment there is not much difference and the satisfaction is required to be arrived in the course of assessment proceedings and should be discernable in the assessment order. <\/p>\n
\n•\tThe Karnataka High Court in CIT v. Manjunath Cotton and Ginning Factory [2013] 359 ITR 565 (Karnataka) interpreted the term “Direction” IN Section 271(1B) and held at para 50 that <\/p>\n
\n“………..The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous…………As the words used in the legal fiction or the deeming provisions of Section 271(1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(l)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. ……….A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction.”<\/p>\n
\nFollowing the above ratio, in CIT v. MWP Ltd [2014] 264 CTR 502 (Karn) wherein in the assessment order it was recorded "Penalty u\/s 271(1)(c) initiated separately." penalty was deleted.<\/p>\n
\n•\tThus there has to be a satisfaction and direction to initiate penalty should be clear, unambiguous and akin to an order requiring positive compliance. <\/p>\n
\nPOSITION UNDER SECTION 270A.<\/p>\n
\n•\tSection 270A (1) reads as under :<\/p>\n
\n“The AO\/CIT(A)\/CIT\/ Pr. CIT may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any on the unreported income.”<\/p>\n
\n•\tAs pointed out earlier, the Finance Bill did not contain the phrase “during the course of any proceedings under this act”. However with the introduction of the said phrase which also existed under section 271(1) and the interpretation of section 271(1) given by the courts as pointed out above it can be concluded that penalty proceedings can commence only after completion of assessment proceedings but there has to be a direction to initiate penalty proceedings before the completion of assessment proceedings. Obviously such direction has to form part of the assessment order. <\/p>\n
\n•\tAt the first glance of section 270A(1) there seems to be no requirement for AO to have satisfaction and record such satisfaction as was required under the erstwhile section 271(1) as the term satisfaction is not used in S.270A(1). <\/p>\n
\n•\tHowever my view is that there is an implied requirement. This is because the term “may” which qualifies the term “direct” indicates that penalty is not automatic and thus if penalty is to be initiated, AO must be satisfied of the quantum of under-reported income or misreporting and only upon such satisfaction or application of mind he can direct during the course of any proceedings under this act that any person who has under-reported his income shall be liable to pay a penalty. Also, the term “direct” or “direction” as pointed out above in CIT v. Manjunath Cotton and Ginning Factory(supra) itself requires AO to pass an order requiring positive compliance. <\/p>\n
\n•\tThe conclusion is further strengthened by the language used in Section 270AA(3) being “……., where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A”. <\/p>\n
\n•\tHence, if in an assessment an expenditure is disallowed or there is estimation, there will be an unreported income under Sub-section(2) and (3) of S.270A. When the said expenditure is being disallowed \/ income is estimated, AO has a choice to decide whether to direct levy of penalty or not, which will depend on satisfaction of AO as to applicability of Sub-Section (6) in the facts of the case. Thus if AO is satisfied [ie after application of mind] that sub-section (6) will not apply or that expenditure disallowed is on account of misreporting, he will have to direct the levy of penalty under section 270A and such direction will have to be recorded in the assessment order. <\/p>\n
\n(vii)\tWHETHER PENALTY UNDER SECTION 270A IS LEVIABLE ON ADJUSTMENTS TO BOOK PROFIT WHEN INCOME IS ASSESSED UNDER NORMAL PROVISIONS<\/p>\n
\nOnly where the income computed u\/s. 115JB\/ 115JC is deemed to be the total income of the assessee, is the formula ‘(A-B) + (C-D)’ applicable. Where the income is finally assessable under normal provisions only, then any adjustment in Book profit u\/s. 115JB and 115JC may not attract penalty. <\/p>\n
\n(viii)\tWHETHER PENALTY U\/S. 270A CAN BE LEVIED ON AGREED ADDITION<\/p>\n
\nPOSITION UNDER SECTION 271(1)(C) <\/p>\n
\n•\tThere may be cases where assessee agrees to an addition during assessment proceedings, or during survey or does not prefer an appeal. An issue arose whether in such situation penalty u\/s 271(1)(c) would be automatic particularly in view of deeming fiction u\/s Explanation1 to Section 271(1)(c ). In Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705(SC) it was held as under: <\/p>\n
\n“We find that the assessee admitted that these were the incomes of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission”<\/p>\n
•\tThe apex court in the case of K. P. Madhusudan v. CIT (2001) 251 ITR 99 has held that decision in Shadilal’s case (Supra) is no more good law after insertion of Expl-1. After the decision in the case of K. P. Madhusudan, it was noticed that just because the assessee has agreed for the addition, the penalties were levied u\/s 271(1)(c). It is to be stated that the above decision in the case of K. P. Madhusudan is not to be interpreted as meaning that in an agreed addition, penalty would automatically follow. It simply holds that under the Explanation 1, the assessee should show that his failure to return correct income was not due to fraud or neglect. No separate enquiry is necessary for imposing penalty but the assessee is at liberty to show his bonafides in the penalty proceedings and if he does, no penalty can be imposed. This decision of Supreme Court had been so considered and analysed in the following decisions. <\/p>\n
\ni. \tITO v. Smt. DevibaiParmani [84 ITD 342] <\/p>\n
\nii.\tDy. Director of Income Tax v. Chirag Metal Rolling Mills Ltd. [305 ITR 29 (MP)] <\/p>\n
\niii.\tCIT v. P. Govindswamy [263 ITR 509] <\/p>\n
\n•\tInfact, In CIT v. Suresh Chandra Mittal (2000) 241 ITR 124 (M.P.) after considering Explanation 1\tUpheld decision of the Tribunal in which the Tribunal held as under: <\/p>\n
\n“The assessee had no chance of carrying through his explanation and the Assessing Officer too did not record any finding as to the acceptability or otherwise of the explanation of the assessee. Under these circumstances the proviso to Explanation 1 to section 271 is not attracted. The Revenue did not at all discharge the burden to prove that there was concealment of income by the assessee. It simply rested its conclusion on the act of voluntary surrender by the assessee, which obviously was done in good faith and to buy peace.” <\/p>\n
\nThe above decision is upheld by the Supreme Court in CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC). Thus it can be fairly concluded that once assessee gives a bonafide explanation for agreeing to addition then the burden shifts on the revenue to prove concealment. This position is further fortified by the apex Court in MAK Data P Ltd. v. CIT (2013) 358 ITR 593(SC) wherein it is held as under :<\/p>\n
\n“The AO, in our view, shall not be carried away by the plea of the assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise.” <\/p>\n
\n•\tIt may also be noted where declaration is made during survey and the due date of return has not expired and declared amount is offered for tax then there can be no penalty u\/s. 271(1)(c) read with Explanation 1 as held in following decisions: <\/p>\n
\ni)\tShri Dilip M. Shah Mumbai v. ACIT ITA 4413\/Bom\/98 A.Y. 1994- 95 dt. 25\/1\/1999. <\/p>\n
\nii)\tCIT v. SAS Pharmaceuticals (2011) 335 ITR 259 (Del.)(HC). <\/p>\n
\niii) \tACIT v. Crescent Property Developers ITA No. 2770\/M\/2012, Dt. 19\/6\/2014. <\/p>\n
\nPOSITION UNDER SECTION 270A<\/p>\n
\n•\tThis issue has to be seen in the light of section 270AA which provides for immunity from penalty under section 270A if tax and interest is paid. Thus, if assessee chooses not to challenge the assessment order, then he can apply for immunity under section 270AA and subject to the provisions of section 270AA assessee will be granted from immunity from penalty.<\/p>\n
\n•\tHowever, when assessee becomes ineligible to apply for immunity u\/s 270AA say for instance assessee agrees to some addition and files appeal for some other addition or assessee agrees for addition but the charge is of misreporting etc then the issue arises whether <\/p>\n
\npenalty on agreed additions will be leviable or not. <\/p>\n
\n•\tAs far as Under-reported Income is concerned, the ratio deciphered above in the context of Section 271(1)(c) would also apply to Section 270A in view of clause (a) to sub-section (6) to Section 270A which permits assessee to give a bona-fide explanation. However if it is proved that the agreed addition is on account of misreporting then penalty under section 270A would certainly be leviable.<\/p>\n
\n(ix)\tWHETHER ISSUE OF SHOW CAUSE NOTICE IS MANDATORY FOR LEVYING PENALTY U\/S. 270A.<\/p>\n
\n•\tSection 274 of the Income Tax Act which provides for opportunity of hearing before imposing penalty would apply to Section 270A also. <\/p>\n
\n•\tIf the provisions of section 270A are interpreted in the manner that the assessment order must record a proper direction as to whether penalty is initiated for under-reporting or misreporting then even the show cause notice must be in consonance with such direction and the final penalty order must be in consonance with the show cause notice.<\/p>\n
\n•\tThus, it cannot be that SCN is for under-reporting and penalty is levied for misreporting. Even in the context of Section 271(1)(c) it has been held that show cause notices for penalty must strike either concealment if penalty is levied on furnishing inaccurate particulars and vice versa and further penalty order cannot levy penalty on concealment if show cause notice is for furnishing inaccurate particulars and vice –versa. For this proposition reliance can be placed on various decisions such as Commissioner of Income-tax v. SSA’S Emerald Meadows [2016] 73 taxmann.com 248 (SC), CIT v. Manjunath Cotton and Ginning Factory ( 2013) 359 ITR 565(Karn)(Para 59-61 and 63), Suvaprasanna Bhatacharya v ACIT ITA No 1303\/Kol\/2010 AY 06-07, Dt 6-11-2015 (Kol).(Rel para 8),New SorathiaEngg. Co (2006) 282 ITR 642 (Guj), CIT v. LakhdhirLalji [1972] 85 ITR 77 (GUJ.) and CIT v. Manu Engg. Works [1980] 122 ITR 306 (GUJ). The ratio of these decisions would also apply to SCN issued u\/s 274 r.w.S 270A.<\/p>\n
\n(x)\tCERTAIN INCONSISTENCIES.WHICH NEEDS TO BE ADDRESSED<\/p>\n
\n•\tAs per Section 270A, where no return has been filed, the clause specifies that under-reported income shall be difference between the assessed income and maximum amount not chargeable to tax in case of persons other than company, firm and local authority. No exception is carved out in case where tax has been paid but only return is not filed. <\/p>\n
\n•\tNo clarity on rate of tax to be taken in case of firm, company or local authority say where a company which opts for section 115BA (25 %) etc. Further, as per the formula, under-reported income includes addition under normal provision as also under MAT\/AMT provision which totals up to form the under-reported income. Then what shall be the rate applicable to compute the tax payable in such case is not clear.<\/p>\n
\n•\tSection 246A which provides for appealable order before Commissioner (Appeals) specifically provides that order imposing penalty u\/s 271(1) is appealable. However, the Finance Act,2016 does not amend section 246A to specifically provide that order imposing penalty under section 270A will be appealable. Section 246A(1)(q) provides that an order imposing penalty under Chapter XXI is appealable and as Section 270A is in chapter XXI, order imposing penalty under section 270A will be appealable. However a specific amendment will avoid controversy. <\/p>\n
5.\tAmendments consequential to insertion of section 270A<\/p>\n
\n\n| \n SECTION AMENDED<\/strong><\/p>\n<\/td>\n| \n EXISTING PROVISION<\/strong><\/p>\n<\/td>\n| \n AMENDMENT<\/strong><\/p>\n<\/td>\n<\/tr>\n\n| \n 271A<\/p>\n<\/td>\n | \n Section 271A provides for penalty where there is failure of keep, maintain or retain books etc.<\/p>\n<\/td>\n | \n Section 271A is without prejudice to the provisions of section 271 and therefore consequential amendment is made to make it without prejudice to provisions of section 270A also.<\/p>\n<\/td>\n<\/tr>\n | \n| \n 271AA<\/p>\n<\/td>\n | \n Section 271AA provides for penalty in respect of Transfer Pricing documents<\/p>\n<\/td>\n | \n Section 271AA is without prejudice to the provisions of section 271 and therefore consequential amendment is made to make it without prejudice to provisions of section 270A also.<\/p>\n<\/td>\n<\/tr>\n | \n| \n 271AAB<\/p>\n<\/td>\n | \n Section 271AAB provides for penalty for specified assessment years in case where search is initiated.<\/p>\n<\/td>\n | \n Section 271AAB provides for penalty in case of specified assessment years where search has taken place. Those assessment years are outside the ambit of section 271(1)(c) as per section 271AAB(2). Now, amendment is made to keep those assessment years outside the ambit of section 270A also.<\/p>\n<\/td>\n<\/tr>\n | \n| \n 273A<\/p>\n<\/td>\n | \n Section 273A provides for the power of Pr. CIT\/ CIT to reduce or waive penalty levied u\/s 271(1)(iii) if the conditions given are fulfilled.<\/p>\n<\/td>\n | \n Section 273A is proposed to apply to section 270A and the Pr. CIT\/CIT shall have the power to waive or reduce penalty levied under the said section 270A. Section 273A however does not substitute the words concealment of income and furnishing inaccurate particulars of Income by Under-reported Income giving rise to an anamoly.<\/p>\n<\/td>\n<\/tr>\n | \n| \n 279<\/p>\n<\/td>\n | \n Section 279 provides that prosecution it to be at the instance of the Pr. CCIT, CCIT, Pr. CIT, CIT. Sub-section (1A) provides that where the penalty u\/s 271(1)(iii) has been waived off or reduced u\/s 273A, then no such person shall be proceeded against.<\/p>\n<\/td>\n | \n Section 279(1A) is amended to provide that where the penalty u\/s 270A has been waived or reduced u\/s 273A then no prosecution can be initiated.<\/p>\n<\/td>\n<\/tr>\n<\/table>\n 6.\tInsertion of new section – 270AA – immunity from imposition of penalty, etc. <\/p>\n \n The new section 270AA provides for immunity from penalty u\/s 270A and prosecution u\/s 276C in certain cases. <\/p>\n \n Pre-condition for Immunity<\/p>\n \n An assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, provided he pays the tax and interest payable as per the order of assessment or reassessment within the period specified in such notice of demand and does not prefer an appeal against such assessment order.<\/p>\n \n Time Limit for making application<\/p>\n \n The assessee can make such application within one month from the end of the month in which the order of assessment or reassessment is received in the form and manner, as may be prescribed.<\/p>\n \n Conditions for grant of Immunity<\/p>\n \n Immunity from initiation of penalty and proceeding under section 276C will be granted if the penalty proceedings under section 270A has not been initiated on account of the of misreporting u\/s 270A. <\/p>\n \n Time limit for passing order.<\/p>\n \n The Assessing Officer shall pass an order accepting or rejecting such application within a period of one month from the end of the month in which such application is received. However, in the interest of natural justice, no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard. <\/p>\n \n Binding Effect<\/p>\n \n The order of Assessing Officer under the said section shall be final.<\/p>\n \n Effect of order under Section 270AA accepting the application.<\/p>\n \n No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment referred to in clause (a) of sub-section (1), in a case where an order under section 270AA has been made accepting the application.<\/p>\n \n Remedy against order rejecting application.<\/p>\n \n By virtue of amendment in section 249 and section 253, an appeal against order of rejection passed under section 270AA is to be made before the Commissioner (Appeals) within thirty days of the receipt of the notice of demand relating to an assessment order. The period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the thirty days period.<\/p>\n \n ANALYSIS<\/p>\n \n •\tIn case of penalty on under-reported income which is not as a consequence of misreporting AO is bound to grant immunity subject to fulfillment of other conditions. <\/p>\n \n •\tIn case of misreporting AO has a discretion.<\/p>\n \n •\tIt appears that where penalty is levied on certain additions on ground of mis-reporting and certain additions on ground of only under-reporting than assessee will have to make a choice whether to file appeal or make application for immunity as he cannot file appeal on penalty levied on mis-reported income and immunity application for under-reported income. <\/p>\n \n •\tThere is no bar to filing appeal against quantum order with application for condonation of delay after rejection of application for immunity.<\/p>\n \n •\tThere is no specific bar prohibiting revision u\/s 263 of order accepting immunity application.<\/p>\n \n 7. Conclusion <\/p>\n \n The analysis of new section 270A indicates that there will be number of issues on which both the assessee and revenue will be at loggerheads. In-fact majority of those issues would be the ones which are settled u\/s 271(1). Hence, to a substantial extent section 270A will either result in either unsettling settled principles of law or will confirm them but only after litigation. It will be like old wine in new bottle. Hence, this article is made comprehensive so as to give complete up-to-date picture of position u\/s 271(1) as well. The object of introducing Section 270A will be defeated. According to me , the Government must invite views on this Section and decide whether the same needs to be scrapped or retained. The implementation of Easwer committee recommendations as referred in the introduction of this article appears to have been a better way forward.<\/p>\n \nReproduced with permission from the AIFTP Journal<\/div>\n \n\n| Disclaimer: <\/strong>The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n | | | | |
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