New penal provision –

Section 270A of the Income Tax Act

By CA Jayesh Dadia

Bhayander CPE Study Circle of WIRC

Dated: 17th June’2018
 Penalty under section 270A

► Replacement of existing provision i.e section 271 (1)(c) of the Income Tax Act,1961

► Object -
To reduce litigation.
To remove the discretion of tax authority.
To rationalize and bring objectivity, certainly and clarity.

► Effective from 1st April 2017.

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 Difference between 271(1)(c) & 270A
Section 271(1)(c) Section 270A

Applicable upto 31.03.2016 i.e A.Y.2016-17 Applicable from A.Y.2017-18 onwards

For concealment of income or filing of inaccurate particulars Under-reporting of income & misreporting of income
of income
Variable penalty amount between 100% to 300% of tax sought Fixed penalty
to be evaded -50% of tax payable on under- reported income
-In case of misreporting of income-200% of tax
payable on under-reported income
No Immunity Immunity u/s 270AA

A.O. is required to record his satisfaction in assessment order No such requirement u/s 270A

Time-limit No Time-limit

More litigation Less litigation

Penalty under either normal provision of the Act or provision Peanlty under both normal provision and provision
under MAT which ever is higher under MAT

Discretionary and not automatic Less discretionary and calculated as per set formula

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 Penalty for what ?
-Penalty for “under reporting of income” and “misreporting of income” instead
of concealment of income or filing of inaccurate particulars of income.

 Who can levy ?

-The A.O., CIT(Appeals) or Principal CIT or CIT during the course of any proceedings
under the Act.

 Rate of penalty ?
- 50% of the tax payable on under-reported income.

- where under-reported income is in consequence of any misreporting, the penalty

shall be equal to 200% of the amount of tax payable on under-reported income.

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 What is under reporting of income ?
When return of income is filed When return of income is not filed

Income assessed > income determined u/s 143(1)(a); Income assessed > maximum amount not
chargeable to tax;

Income reassessed > income assessed or reassessed

immediately before such reassessment;

Deemed total income assessed or reassessed u/s 115JB or Deemed total income assessed u/s 115JB or
115JC > Deemed total income processed u/s 143(1)(a); 115JC > maximum amount not chargeable to tax

The income assessed or reassessed has the effect of

reducing the loss or converting such loss into income.

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Situations Quantum of under-reporting of income

ROI is filed
and income
has been ▪ The difference between the amount of income assessed and income determined u/s 143(1)(a)
assessed for
the first time

ROI is not
▪ In the case company/firm/local authority- amount of income assessed
filed and
income has
▪ In any other case- The difference between amount of income assessed and maximum amount not chargeable
been assessed
to tax.
for the first
time

▪ The difference between the amount of reassessed or recomputed and the amount of income assessed,
In any other
reassessed or recomputed in a preceding order
case

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Calculation of under-reported income in case of
applicability of provisions of section 115JB/115JC
It shall be determined on the basis of the following formula :

Under-
reported (A-B) (C-D)
Income

Where,
A= The total income assessed under the general provisions

B= The total income assessed as per the general provisions been reduced by the amount of under-reported income;

C= The total income assessed as per the provisions contained in section 115JB or section 115JC;

D= The total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of
under-reported income. (If amount is considered under both the general provisions and provisions u/s 115JB or 115JC, then
amount shall not be reduced from total income while determining the amount under item D).

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➢ In respect of which the assessee offers an explanation which found to be bonafide and disclose all
material facts to substantiate the explanation offered ;

➢ 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
same issue and included such amount in the computation of his income and disclosed all the facts
material to the addition or disallowance;

➢ where the assessee maintain documentation u/s 92D and declares international transaction under
chapter X along with the disclosure of all material facts;

➢ where undisclosed income is on account of a search operation referred to in section 271AAB.

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➢ Misrepresentation or suppression of facts;
➢ Failure to record 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 record any receipt in books of account having a bearing on total
income; and
➢ 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 apply.

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CASE – 1
An individual below 60 years of age and no return of income has been furnished :

(In Rs)

Total Income assessed under section 143(3) 10,00,000

Under-reported Income 10,00,000-2,50,000* =7,50,000

Tax Payable on under-reported Income 5 % of 2,50,000 = 12,500

20% of 5,00,000 = 1,00,000
Penalty Leviable** 50 % of 1,12,500 = 56,250

* Being maximum amount not chargeable to tax

** Considering under-reported income is not on account of misreporting

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CASE – 2
A company liable to tax at the rate of 30 per cent :

(In Rs lakh)

Returned total Income (loss) (100)

Total Income (loss) determined under section (90)

143(1)(a)

Total Income (loss) assessed under section 143(3) (40)

Total Income reassessed under section 147 20

Assessment under section Re-assessment under section

143 (3) 147
Under-reported Income (-)40 minus (-)90 = 50 20 minus (-)40 = 60
Tax Payable on under- 30 % of 50 = 15 30 % of 60 = 18
reported Income
Penalty Leviable* 50 % of 15 = 7.5 50 % of 18 = 9

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CASE - 3
- A pvt. ltd. company is a domestic company and liable to pay tax at the rate of 25%

- For the A.Y. 2018-19, filed ROI with income of 1,00,00,000

(includes LTCG of RS.10,00,000 & STCG of Rs.20,00,000)

- Addition made in the assessment are following-

Addition because of failure to record investment - 20,00,000

Addition on estimate basis – 5,00,000*
Addition on account of disallowance out of motor car (instead of 1/3 it is 2/3) – 2,00,000*
Disallowance of expenses not supported by documents - 10,00,000

- Total assessed income 1,37,00,000

Calculation of penalty
Under-reported income Misreporting income
10,00,000 20,00,000
Tax payable (25%+SC+EC) 2,75,525 5,51,050
Penalty leviable u/s 270A 1,37,763 11,02,100
- 50% of tax payable (under-reported
income)
- 200% of tax payable (misreporting
of income)
*Addition on estimate basis and addition on account of disallowance out of motor car are exclusions of
under-reported income.

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CASE - 4
X (61 years) does not furnish his return of income for the assessment year 2018-19. The Assessing officer completes the assessment order
u/s 144. Income assessed by the A.O. is Rs.1,20,00,000/-. It incudes an unrecorded/unexplained investment of Rs.50,00,000/- in gold
during the year. Income of Rs.1,20,00,000/- includes a short-term capital gain of Rs.15,00,000/- on transfer of shares in the NSE.
Determine the amount of penalty u/s 270A.

Income as per section 144 Rs.1,20,00,000

Less: Exemption Limit Rs. 3,00,000
Under-reported income Rs.1,17,00,000
(out of which Rs.50,00,000 is misreporting of income)

In this case ROI is not filed and income is assessed for the first time

Under-reported income Rs.1,17,00,000

Add: Exemption limit Rs.3,00,000
Total Rs.1,20,00,000

Tax on Rs.1,20,00,000-
Income-tax (15% of Rs.15,00,000 and normal tax on balance of Rs.105,00,000) Rs.31,85,000
Add: Surcharge @ 15% Rs.4,77,750
Add: Education cess Rs.1,09,883

Tax on under-reported income Rs.37,72,633

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CASE - 4

Under-reported Misreporting of income Total

income Rs. Rs. Rs.
Under-reported income/misreporting 67,00,000 50,00,000 1,17,00,000
of income

Tax on under-reported 21,60,397 16,12,236 37,72,633

income/misreporting of income

Penalty leviable u/s 270A ( 50% of tax 10,80,199 32,24,472 43,04,671

on under-reported income,200% of tax
on misreporting income)

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CASE – 5

In the case of X Ltd. following is the information given for the A.Y. 2018-19
General MAT
provisions Rs.
Rs.

Income/book profit as per return of income 10,00,000 20,00,000

Add: Addition on estimated basis (not representing under-reported income) 10,000 Nil

Add: Misreporting of income ( sale to D Ltd. not recorded in books of account as 30,000 30,000
discovered by the assessing officer) ( as per assessment order)

Add: Under-reported income (weighted deduction is wrongly claimed u/s 35) (as 60,000 Nil
per assessment order)

Add: Under-reported income (deferred tax which appeared on the debit side of P&L Nil 80,000
a/c, not added by X Ltd.) (as per assessment order)

Net income/book profit (as per assessment order) 11,00,000 21,10,000

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CASE - 5
Under- reported income will be calculated as under-
Rs.
A = Total income assessed under general provisions 11,00,000

B = A-under-reported income-misreporting of income (Rs.11,00,000- Rs.30,000-Rs.60,000) 10,10,000

C = Book profit 22,00,000

D = Book profit- under-reported income-misreporting of income (Rs.21,10,000 – Rs.80,000) 20,30,000

(Rs.30,000 which is deducted under B will not be deducted again from D)

Under-reported income = (A-B)+(C-D) ( out of which Rs.30,000 is misreporting of income) 2,60,000

Computation of penalty u/s 270A

Tax on under-reported income-

- 30.9% of Rs. 2,30,000 71,070

- 30.9% of Rs. 30,000 9,270
Penalty leviable u/s 270A

- 50% of tax payable (under-reported income) 35,535

- 200% of tax payable (misreporting of income) 18,540

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Upon fulfillment of certain conditions A.O. grant immunity from imposition of penalty u/s 270A

 Payment of tax alongwith the interest as per the assessment order u/s 143(3) or 147 within specified time
limit;

 No filing of appeal against the assessment order;

 Application within 1 month from the end of the month of the receipt of order;

 Immunity not applicable to misreporting of income.

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