Personal Copy of Dr. Naveen Mittal, SRCC (Not for Circulation) – Dec.

2024

Chapter 10
Penalties Imposable

10.1 Penalty for under-reporting and misreporting of income [Sec. 270A]

The Assessing Officer/ the Joint Commissioner (Appeals)/ the Commissioner (Appeals)/ the
Principal Commissioner/ Commissioner may, during the course of any proceedings under the
Income-tax Act, 1961, 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 under-reported income.

Cases when it is treated that a person has under-reported his income –

A person shall be considered to have under-reported his income, if –
1. the income assessed is greater than the income determined in the return processed under
section 143(1)(a);
2. the income assessed is greater than the maximum amount not chargeable to tax, where
no return of income has been furnished or where return has been furnished for the first
time under section 148;
3. the income reassessed is greater than the income assessed/ reassessed immediately
before such reassessment;
4. the amount of deemed total income assessed/ reassessed as per the provisions of section
115JB/ 115JC, as the case may be, is greater than the deemed total income determined
in the return processed under section 143(1)(a);
5. the amount of deemed total income assessed as per the provisions of section 115JB/
115JC is greater than the maximum amount not chargeable to tax, where no return of
income has been furnished or where return has been furnished for the first time under
section 148;
6. the amount of deemed total income reassessed as per the provisions of section 115JB/
115JC, as the case may be, is greater than the deemed total income assessed/ reassessed
immediately before such reassessment; and
7. the income assessed/ reassessed has the effect of reducing the loss (or converting such
loss into income).

Amount of penalty for under-reporting and misreporting of income

The penalty for under-reporting and misreporting of income is 50% of the amount of tax
payable on under-reported income. However, where under-reported income is in consequence
of any misreporting thereof by any person, the penalty is 200% of the amount of tax payable
on under-reported income.

Cases of misreporting of income

The cases of misreporting of income shall be the following –
1. misrepresentation or suppression of facts;
2. failure to record investments in the books of account;
3. claim of expenditure not substantiated by any evidence;
4. recording of any false entry in the books of account;
5. failure to record any receipt in books of account having a bearing on total income; and
6. 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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10.2 Immunity from imposition of penalty, etc. [Sec. 270AA] [MORE IMPORTANT]
An assessee may make an application to the Assessing Officer to grant immunity from
imposition of penalty under section 270A and initiation of proceedings under section 276C/
276CC, if he fulfils the following conditions –
1. the tax and interest payable as per the order of assessment/ reassessment under section
143(3)/ 147, as the case may be, has been paid within the period specified in such notice
of demand; and
2. no appeal against the order referred to in point 1 above has been filed.

Time-limit to make an application

An application shall be made in the prescribed manner within 1 month from the end of the
month in which the order under section 143(3)/ 147, has been received.

Note –
1. The Assessing Officer shall, subject to fulfilment of the conditions specified above and
after the expiry of the period of filing the appeal as specified in section 249(2)(b), grant
immunity from imposition of penalty under section 270A and initiation of proceedings
under section 276C/ 276CC, where the proceedings for penalty under section 270A has
not been initiated because of misreporting of income.
2. The Assessing Officer shall, within a period of 1 month from the end of the month in
which the application is received, pass an order accepting or rejecting such application.
However, no order rejecting the application shall be passed unless the assessee has been
given an opportunity of being heard.
3. No appeal under section 246/ 246A or an application for revision under section 264
shall be admissible against the order of assessment/ reassessment under section 143(3)/
147, in a case where an order of the Assessing Officer has been made accepting the
application.

10.3 Failure to keep, maintain or retain books of account, documents, etc. [Sec. 271A]
If any person fails to keep and maintain any such books of account and other documents as
required by section 44AA (or the rules made thereunder), in respect of any previous year (or
fails to retain such books of account and other documents for the period specified in the said
rules), the Assessing Officer/ the Joint Commissioner (Appeals)/ the Commissioner (Appeals)
may direct that such person shall pay a penalty of Rs. 25,000.

10.4 Penalty in respect of certain income [Sec. 271AAC] [MORE IMPORTANT]

The Assessing Officer/ the Joint Commissioner (Appeals)/ the Commissioner (Appeals) may
direct that, in a case where the income determined includes any income referred to in section
68/ 69/ 69A/ 69B/ 69C/ 69D for any previous year, the assessee shall pay a penalty @ 10% of
the tax payable under section 115BBE. This penalty amount is in addition to tax @ 60%
payable under section 115BBE.

Note –
1. No penalty shall be levied in respect of income referred to in section 68/ 69/ 69A/ 69B/
69C/ 69D to the extent such income has been included by the assessee in the return of
income furnished under section 139 and the tax under section 115BBE has been paid
on or before the end of the relevant previous year.
2. No penalty under the provisions of section 270A shall be imposed upon the assessee in
respect of the income referred to in referred to in section 68/ 69/ 69A/ 69B/ 69C/ 69D.

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10.5 Penalty for false entry, etc., in books of account [Sec. 271AAD]
If during any proceeding under the Income-tax Act, 1961, it is found that in the books of
account maintained by any person, there is a false entry (or an omission of any entry which is
relevant for computation of total income of such person, to evade tax liability), the Assessing
Officer/ the Joint Commissioner (Appeals)/ the Commissioner (Appeals), may direct that such
person shall pay a penalty equal to the aggregate amount of such false (or omitted) entry.

Note –
The Assessing Officer/ the Joint Commissioner (Appeals)/ the Commissioner (Appeals) may
direct that any other person, who causes the person referred to above in any manner to make a
false entry (or omits or causes to omit any entry referred to above), shall pay a penalty equal to
the aggregate amount of such false (or omitted) entry.

Meaning of ‘False entry’ –

‘False entry’ includes use (or intention to use) –
1. forged or falsified documents such as a false invoice or, in general, a false piece of
documentary evidence; or
2. invoice in respect of supply or receipt of goods or services or both issued by the person
or any other person without actual supply or receipt of such goods or services or both;
3. invoice in respect of supply or receipt of goods or services or both to or from a person
who does not exist.

10.6 Failure to get accounts audited [Sec. 271B]

If any person fails to get his accounts audited in respect of any previous year(s) or furnish a
report of such audit as required under section 44AB, the Assessing Officer may direct that such
person shall pay a penalty of 1.5% of the total sales/ turnover/ gross receipts, as the case may
be, in business (or 1.5 % of the gross receipts in profession), in such previous year(s) or Rs.
1.5 lakh, whichever is less.

10.7 Penalty for failure to deduct tax at source [Sec. 271C]

If any person fails to –
1. deduct the whole (or any part) of the tax as required under Chapter XVII-B; or
2. pay (or ensure payment of) the whole (or any part) of the tax as required under specified
sections,
then, such person shall be liable to pay a penalty equal to the amount of tax which such person
failed to deduct or pay (or ensure payment of), as aforesaid.

10.8 Penalty for failure to collect tax at source [Sec. 271CA]

If any person fails to collect the whole (or any part) of the tax as required under Chapter XVII-
BB, then, such person shall be liable to pay a penalty equal to the amount of tax which such
person failed to collect as aforesaid.

10.9 Penalty for failure to comply with the provisions of section 269SS [Sec. 271D]
If a person takes or accepts any loan/ deposit/ specified sum in contravention of the provisions
of section 269SS, he shall be liable to pay a penalty equal to the amount of the loan/ deposit/
specified sum so taken (or accepted).

10.10 Penalty for failure to comply with provisions of section 269ST [Sec. 271DA]
If a person receives any sum in contravention of the provisions of section 269ST, he shall be
liable to pay a penalty equal to the amount of such receipt.

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However, no penalty shall be imposable if such person proves that there were good and
sufficient reasons for the contravention.

10.11 Penalty for failure to comply with provisions of section 269SU [Sec. 271DB]
If a person who is required to provide facility for accepting payment through the prescribed
electronic modes of payment referred to in section 269SU, fails to provide such facility, he
shall be liable to pay a penalty of Rs. 5,000, for every day during which such failure continues.
However, no such penalty shall be imposable if such person proves that there were good and
sufficient reasons for such failure.

10.12 Penalty for failure to comply with the provisions of section 269T [Sec. 271E]
If a person repays any loan/ deposit/ specified advance referred to in section 269T otherwise
than in accordance with the provisions of that section, he shall be liable to pay a penalty equal
to the amount of the loan/ deposit/ specified advance so repaid.

10.13 Penalty for failure to furnish statement of financial transaction or reportable

account [Sec. 271FA]
If a person who is required to furnish a Statement of Financial Transaction (SFT) or reportable
account section 285BA(1), fails to furnish such statement within the prescribed time, the
prescribed income-tax authority may direct that such person shall pay a penalty of Rs. 500 for
every day during which such failure continues.

However, where such person fails to furnish the statement within the period specified in the
notice issued under section 285BA(5), he shall pay a penalty of Rs. 1,000 for every day during
which the failure continues, beginning from the day immediately following the day on which
the time specified in such notice for furnishing the statement expires.

10.14 Penalty for failure to furnish statements, etc. [Sec. 271H]

The Assessing Officer may direct that a person shall pay a penalty, if, he –
1. fails to deliver (or cause to be delivered) a statement within the time prescribed in
section 200(3); or
2. furnishes incorrect information in the statement which is required to be delivered (or
caused to be delivered) under section 206C(3).

Amount of penalty
The penalty shall be a sum which shall not be less than Rs. 10,000 but which may extend to
Rs. 1 lakh.

10.15 Penalty for failure to comply with the provisions of section 139A [Sec. 272B]
If a person fails to comply with the provisions of section 139A, the Assessing Officer may
direct that such person shall pay a penalty of Rs. 10,000.

Note –
1. If a person who is required to quote his PAN or Aadhaar number, as the case may be,
in any document referred to in section 139A (or to intimate such number as required by
section 139A), quotes or intimates a number which is false, and which he either knows
or believes to be false or does not believe to be true, the Assessing Officer may direct
that such person shall pay a penalty of Rs. 10,000 for each such default.
2. No order of imposing penalty shall be passed unless the person, on whom the penalty
is proposed to be imposed, is given an opportunity of being heard in the matter.

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10.16 Penalty for failure to comply with the provisions of section 203A [Sec. 272BB]
If a person fails to comply with the provisions of section 203A, he shall, on an order passed by
the Assessing Officer, pay a penalty of Rs. 10,000.

Note –
1. If a person who is required to quote his ‘tax deduction account number’ or, as the case
may be, ‘tax collection account number’ or ‘tax deduction and collection account
number’ in the challans/ certificates/ statements/ other documents referred to in section
203A, quotes a number which is false, and which he either knows (or believes) to be
false or does not believe to be true, the Assessing Officer may direct that such person
shall pay a penalty of Rs. 10,000.
2. No order of imposing penalty shall be passed unless the person, on whom the penalty
is proposed to be imposed, is given an opportunity of being heard in the matter.

10.17 Power to reduce or waive penalty, etc., in certain cases [Sec. 273A] [MORE
IMPORTANT]
The Principal Commissioner or Commissioner may, in his discretion, whether on his own
motion or otherwise, reduce (or waive) the amount of penalty imposed (or imposable) on a
person under section 270A or section 271(1)(iii), if he is satisfied that such person has, prior to
the detection by the Assessing Officer, of the concealment of particulars of income or of the
inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith,
made full and true disclosure of such particulars, and also has, co-operated in any enquiry
relating to the assessment of his income and has either paid or made satisfactory arrangements
for the payment of any tax or interest payable in consequence of an order passed under the
Income-tax Act, 1961, in respect of the relevant assessment year.

Note –
1. If in a case falling under section 270A, the amount of income in respect of which the
penalty is imposed (or imposable) for the relevant assessment year, or, where such
disclosure relates to more than one assessment year, the aggregate amount of such
income for those years, exceeds a sum of Rs. 5 lakh, no order reducing or waiving the
penalty shall be made by the PC/ C except with the previous approval of the PCC/ CC/
PDG/ DG, as the case may be.

2. The PC/ C may, on an application made in this behalf by an assessee, and after recording
his reasons for so doing, reduce or waive the amount of any penalty payable by the
assessee under the Income-tax Act or stay or compound any proceeding for the recovery
of any such amount, if he is satisfied that =
a) to do otherwise would cause genuine hardship to the assessee, having regard to
the circumstances of the case; and
b) the assessee has co-operated in any inquiry relating to the assessment or any
proceeding for the recovery of any amount due from him:

However, where the amount of any penalty payable under the Income-tax Act or, where
such application relates to more than one penalty, the aggregate amount of such
penalties exceeds Rs. 1 lakh, no order reducing or waiving the amount or compounding
any proceeding for its recovery shall be made by the PC/ C except with the previous
approval of the PCC/ CC/ PDG/ DG, as the case may be.

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Further, the order, either accepting or rejecting the application in full or in part, shall be
passed within 12 months from the end of the month in which the application is received
by the PC/ C. No order rejecting the application, either in full or in part, shall be passed
unless the assessee has been given an opportunity of being heard.

3. Every order made under this section shall be final and shall not be called into question
by any court or any other authority.

10.17 Power of Principal Commissioner or Commissioner to grant immunity from penalty

[Sec. 273AA] [MORE IMPORTANT]
A person may make an application to the Principal Commissioner or Commissioner for
granting immunity from penalty, if –
1. he has made an application for settlement under section 245C and the proceedings for
settlement have abated under section 245HA; and
2. the penalty proceedings have been initiated under the Income-tax Act, 1961.

Note –
1. The application to the Principal Commissioner or Commissioner shall not be made after
the imposition of penalty after abatement.
2. The Principal Commissioner or Commissioner may, subject to such conditions as he
may think fit to impose, grant to the person immunity from the imposition of any
penalty under the Income-tac Act, 1961, if he is satisfied that the person has, after the
abatement, co-operated with the income-tax authority in the proceedings before him
and has made a full and true disclosure of his income and the manner in which such
income has been derived.
However, this order, either accepting or rejecting the application in full (or in part),
shall be passed within 12 months from the end of the month in which the application is
received by the Principal Commissioner/ the Commissioner. Further, no order rejecting
the application, either in full (or in part), shall be passed unless the assessee has been
given an opportunity of being heard.
3. The immunity granted to a person shall stand withdrawn, if such person fails to comply
with any condition subject to which the immunity was granted and thereupon the
provisions of the Income-tax Act, 1961, shall apply as if such immunity had not been
granted.
4. The immunity granted to a person may, at any time, be withdrawn by the Principal
Commissioner or Commissioner, if he is satisfied that such person had, in the course of
any proceedings, after abatement, concealed any particulars material to the assessment
from the income-tax authority or had given false evidence, and thereupon such person
shall become liable to the imposition of any penalty under the Income-tax Act, 1961, to
which such person would have been liable, had not such immunity been granted.

10.18 Procedure of imposing penalty [Sec. 274]

1. No order imposing a penalty shall be made unless the assessee has been heard, or has
been given a reasonable opportunity of being heard.
2. No order imposing a penalty shall be made –
a) by the Income-tax Officer, where the penalty exceeds Rs. 10,000;
b) by the Assistant Commissioner or Deputy Commissioner, where the penalty
exceeds Rs. 20,000,
except with the prior approval of the Joint Commissioner.

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3. The Central Government may make a notified scheme, for the purposes of imposing
penalty so as to impart greater efficiency, transparency and accountability by –
a) eliminating the interface between the income-tax authority and the assessee (or
any other person) to the extent technologically feasible;
b) optimising utilisation of the resources through economies of scale and
functional specialisation;
c) introducing a mechanism for imposing of penalty with dynamic jurisdiction in
which penalty shall be imposed by one or more income-tax authorities.
4. An income-tax authority on making an order imposing a penalty, unless he is himself
the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer.

10.19 Bar of limitation for imposing penalties [Sec. 275] [IMPORTANT]

1. No order imposing a penalty shall be passed –
a) in a case where the relevant assessment or other order is the subject-matter of an
appeal to the Joint Commissioner (Appeals)/ the Commissioner (Appeals) under
section 246/ 246A or an appeal to the ITAT under section 253, after the expiry of
the financial year in which the proceedings, in the course of which action for the
imposition of penalty has been initiated, are completed, or 6 months from the end
of the month in which the order of the Joint Commissioner (Appeals) or the
Commissioner (Appeals) or, as the case may be, the ITAT is received by the
Principal Commissioner or Commissioner, whichever period expires later.
b) in a case where the relevant assessment or other order is the subject-matter of
revision under section 263/ 264, after the expiry of 6 months from the end of the
month in which such order of revision is passed.
c) in any other case, after the expiry of the financial year in which the proceedings, in
the course of which action for the imposition of penalty has been initiated, are
completed, or 6 months from the end of the month in which action for imposition
of penalty is initiated, whichever period expires later.

2. In a case where the relevant assessment or other order is the subject-matter of an appeal
to the Joint Commissioner (Appeals)/ the Commissioner (Appeals) under section 246/
246A or an appeal to the ITAT under section 253 or an appeal to the High Court under
section 260A or an appeal to the Supreme Court under section 261 or revision under
section 263/ 264 and an order imposing/ enhancing/ reducing/ cancelling penalty or
dropping the proceedings for the imposition of penalty is passed before the order of the
Joint Commissioner (Appeals) or the Commissioner (Appeals) or the ITAT or the High
Court or the Supreme Court is received by the Principal Commissioner or
Commissioner or the order of revision under section 263/ 264 is passed, an order
imposing/ enhancing/ reducing/ cancelling penalty or dropping the proceedings for the
imposition of penalty may be passed on the basis of assessment as revised by giving
effect to such order of the Joint Commissioner (Appeals) or the Commissioner
(Appeals) or, the ITAT or the High Court, or the Supreme Court or order of revision
under section 263/ 264.

However, no order of imposing/ enhancing/ reducing/ cancelling penalty or dropping

the proceedings for the imposition of penalty shall be passed –
a) unless the assessee has been heard, or has been given a reasonable opportunity
of being heard;
b) after the expiry of 6 months from the end of the month in which the order of the
Joint Commissioner (Appeals) or the Commissioner (Appeals) or the ITAT or

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the High Court or the Supreme Court is received by the Principal Commissioner
or Commissioner or the order of revision under section 263/ 264 is passed.

Further, no order imposing a penalty shall be made –

a) by the Income-tax Officer, where the penalty exceeds Rs. 10,000;
b) by the Assistant Commissioner or Deputy Commissioner, where the penalty
exceeds Rs. 20,000,
except with the prior approval of the Joint Commissioner.

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