Chapter 19: Provisions to Counteract Unethical Tax Practices & Penalties
1. Section 270A: Penalty for Under-reporting & Misreporting
| Classification | Statutory Definition & Triggers | Penalty Quantum |
|---|---|---|
| Under-reporting of Income | Income assessed is greater than income processed u/s 143(1), or income reassessed is greater than income assessed earlier. (Excludes bona fide explanations). | 50% of the amount of tax payable on under-reported income. |
| Misreporting of Income | • Misrepresentation or suppression of facts. • Failure to record investments in books. • Claim of expenditure not substantiated by evidence. • Recording of false entries in books of account. • Failure to record any receipt in books. |
200% of the amount of tax payable on under-reported income. |
2. Statutory Immunity from Penalty & Prosecution (Section 270AA)
An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty u/s 270A and prosecution u/s 276C/276CC if the following conditions are met:
Conditions for Immunity:
1. Assessee pays the tax and interest payable as per assessment order within the period specified in notice of demand.
2. No appeal has been filed against the assessment order.
3. Application in Form 68 is made within 1 month from the end of the month in which order is received.
4. Crucial Condition: Immunity is available ONLY for Under-reporting, NEVER for Misreporting!
1. Assessee pays the tax and interest payable as per assessment order within the period specified in notice of demand.
2. No appeal has been filed against the assessment order.
3. Application in Form 68 is made within 1 month from the end of the month in which order is received.
4. Crucial Condition: Immunity is available ONLY for Under-reporting, NEVER for Misreporting!
3. Fake Invoicing Penalty (Section 271AAD)
| Target Person | Trigger Action | Penalty Quantum |
|---|---|---|
| The Assessee | Any false entry or omission of entry in books to evade tax (fake GST invoice, bogus accommodation entry). | 100% of the aggregate amount of such false entry or omitted entry. |
| Any Other Person | Any person who causes the assessee to make such false entry or omits entry (middleman, broker, accountant). | 100% of the aggregate amount of such false entry. |
4. Penalty on Unexplained Incomes (Section 271AAC)
Where total income includes any income referred to in Sections 68, 69, 69A, 69B, 69C, 69D (Sec 102-107):
• Tax is charged @ 60% + 25% SC + 4% HEC = 78%.
• Penalty u/s 271AAC: Equal to 10% of tax payable u/s 115BBE.
• Safe Harbor: No penalty if such income has been declared in return of income and tax paid before end of previous year.
• Tax is charged @ 60% + 25% SC + 4% HEC = 78%.
• Penalty u/s 271AAC: Equal to 10% of tax payable u/s 115BBE.
• Safe Harbor: No penalty if such income has been declared in return of income and tax paid before end of previous year.
5. High-Frequency Exam Traps
Trap 1: Immunity u/s 270AA is NOT available for Misreporting!
If the AO has categorized the addition under any of the six clauses of Section 270A(9) (misreporting), an application under Section 270AA will be summarily rejected!
If the AO has categorized the addition under any of the six clauses of Section 270A(9) (misreporting), an application under Section 270AA will be summarily rejected!
Trap 2: Section 271AAD applies to facilitators also!
The entry provider or hawala broker who arranged the bogus invoice is liable to an equal penalty of 100% under Section 271AAD(2)!
The entry provider or hawala broker who arranged the bogus invoice is liable to an equal penalty of 100% under Section 271AAD(2)!