Penalties

Sec 270A Penalty Leviable for Under Reporting of Income

Case 1 Manner of computation of under-
reported income
Where return is furnished, Assessed income
and assessment is made (-)
for the first time. Income determined u/s 143(1)(a)
[in case of all persons]

Illustration
Details of an individual who filed his return of income is as under:

Returned Income Rs 10,00,000

Income u/s 143(1)(a) Rs 11,00,000
Income assessed u/s 143(3) Rs 25,00,000

Can penalty u/s 270A be imposed?

Solution
Chargeability or section 270A:

The person is considered to have under-reported the income since

Income assessed > Income determined u/s 143(1)(a)

Amount of under-reported Income =

Income assessed u/s 143(3) - Income determined u/s 143(1)(a)

= Rs 25,00,000 – Rs 11,00,000

= Rs 14,00,000

Tax payable on under-reported Income

=Tax on Rs 25,00,000 - Tax on Rs 11,00,000

= Rs 5,85,000 – Rs 1,48,200

= Rs 4,36,800
Penalty for under reporting

= 50% of Rs 4,36,800

= Rs 2,18,400

This penalty shall be 200% if additions made to income are on account of

misreporting

Illustration
If in Illustration above, out of the additions of Rs 14,00,000 made u/s 143(3), Rs

8,00,000 addition is because of following:

Assessee has disallowed in the return 20% car expenses oft Rs 40,00,000 on

account of personal usage of car i.e. Rs 8,00,000. But Assessing Officer disallowed

40% expenses of car i.e. Rs 16,00,000. Now as per section 270A(6)(c), Rs 8,00,000

shall not be regarded as under-reported income.

How much penalty can be levied in this case?

Solution
Amount of under-reported Income

= Rs 14,00,000 – Rs 8,00,000 = Rs 6,00,000

Tax payable on under- reported Income

= Tax on (Rs 6,00,000 + Rs 11,00,000) - Tax on Rs

11,00,000

= Rs 1,87,200

Penalty for under reporting

= 50% of Rs 1,87,200 = Rs 93,600

Sec 270A(3)
Manner of computation of under-reported
Case
income
Where no return has Person Under-reported
been furnished or income
where return has been Company, firm or Assessed income
furnished for the first- local authority
time u/s 148 and the Other persons Assessed income (-)
assessment is made for Basic exemption limit
the first time

Illustration
An Individual does not file return of Income for Assessment Year 2021-22.

The Assessing Officer assess the income u/s 144 at Rs. 10,00,000.

Can the penalty be levied in this case?

If, yes, then determine the quantum of penalty.

Solution

Chargeability of section 270A:

Individual is said to have underreported the income since Assessed Income

> Rs.2,50,000

Under-reported Income:

=Rs. 10,00,000 - Rs. 2,50,000 = Rs. 7,50,000

Tax payable on under-reported Income

=Tax on Rs. 7,50,000 + Rs. 2,50,000

=Rs.10,00,000

= Rs. 1,17,000
Penalty for under reporting

=50% of Rs. 1,17,000

=Rs. 58,500

If this case falls in misreporting of income then penalty shall be 200% of

Rs.1,17,000 i.e. Rs.2,34,000.

Manner of computation of under-

Case
reported income
Where income is not Income reassessed or recomputed
assessed for the first time (-)
[i.e. Reassessment] Income assessed or reassessed or
recomputed in the order immediately
preceding the order during the course of
which penalty u/s 270A(1) has been initiated.

Illustration
Mr. P filed his return of income. His details are as under:

Returned Income u/s 139(1) - Rs.10,00,000

Assessment u/s 143(3) - Rs.15,00,000

Reassessment u/s 147 - Rs. 32,00,000

Additions of Rs.5,00,000 u/s 147 are on the basis of disallowance of an expense in

some other case by Supreme Court.

The assessee had claimed the deduction of Rs. 5,00,000 on basis of High Court

Judgment where in High Court has allowed the deduction.

The Assessing Officer is satisfied u/s 270A(6)(a) that assessee's explanation is

bonafide and assessee has disclosed all material facts to substantiate the

explanation. Addition of Rs. 5,00,000 shall not be treated as under-reported

income.
Solution
Chargeability of section 270A:

Assessee has under-reported the income as:

Income reassessed > Income assessed in preceding assessment

Under-reported Income:

=Rs. 32,00,000 - Rs. 15,00,000

= Rs. 17,00,000

However as per section 270A(6)(a) under-reported income shall be

Rs. 17,00,000 - Rs.5,00 ,000 = Rs.12,00,000

Tax payable on under-reported Income

=Tax on (Rs.12,00,000 + Rs.15,00,000) – tax on Rs. 15,00,000

=Rs. 6,47,400 - Rs. 2,73,000

= Rs. 3,74,400

Penalty for under reporting

=50% of Rs. 3,74,400

Penalty for misreporting shall be as under:

If disallowance of Rs. 12,00,000 u/s 147 is because of

• Failure to record the receipt in books

• Misrepresentation of facts

• Failure to record investment

• False entry in book.

• Expenditure not substantiated by evidence

Then penalty for misreporting shall be 200% of Rs. 3,74,400. Penalty for

under-reporting @ 50% shall not levied in this case.

 Case Manner of computation of under-reported income
Where under (A - B) + (C - D)
reported income where,
arises out of A = Total income assessed as per the general provisions
determination i.e., provisions other than the provisions contained in
of deemed total section 115JB or section 115JC;
income in B = The total income that would have been chargeable had
accordance with the total income assessed as per the general provisions
the provisions of been reduced by the amount of under reported income;
section 115JB or C = The total income assessed as per the provisions
section 115JC contained in section 115JB or section 115JC;
D = The total income that would have been chargeable had
the total income assessed as per the provisions contained
in section 115JB or section 115JC been reduced by the
amount of under reported income.
However, where the amount of under reported income on
any issue is considered both under the provisions
contained in section 115JB or section 115JC and under
general provisions, such amount shall not be reduced from
total income assessed while determining the amount
under item D.

Illustration
Return of income filed by the assessee company is as under:

Total Income as per Income tax Act 80,00,000

Tax as per Normal Provisions 24,96,000

Book profits as per section 115JB 2,00,00,000

Tax as per section 115JB 33,38,400

Income determined u/s 143(1)(a) as per normal provision is Rs.80,00,000 and

book profit is Rs 2,00,00,000. (Turnover of assessee company in F.Y. 2018-19

= Rs 380 crores, F.Y. 2019-20 = Rs 405 crores)

Solution
Assessing Officer has assessed total income u/s 143(3) under general

provisions at Rs 1,10,00,000 and assessed book profits at Rs 2,10,00,000.

Presume that addition of Rs 30,00,000 made to the total income under

general provisions and Rs 10,00,000 additions made to book profits are on

different account.

Under-reported income shall be: (A-B) + (C-D)

A = Total income assessed by A.O. under general provisions of lT Act = Rs

1,10,00,000

B = Total income assessed by A.O. under general provisions of the I.T. Act -

Under-reported Income

= [1,10,00,000 - 30,00,000] = Rs 80,00,000

C = Book profits assessed by Assessing Officer u/s 115JB = Rs 2,10,00,000

D = Book profits assessed by Assessing Officer u/s 115JB - Under-reported

Income

= Rs 2,10,00,000 – Rs 10,00,000 = Rs 2,00,00,000

Under-reported income

= (Rs 1,10,00,000 – Rs 80,00,000) + (Rs.2,10,00,000 – Rs 2,00,00,000)

= Rs 40,00,000

Tax on under-reported Income:

i. Tax on

[(Rs 80,00,000 + Rs 30,00,000) - Rs 80,00,000]

[Rs 1,10,00,000 - Rs 80,00,000]

@30% + 7% +4% @ 30% + 4%

Rs 36,72,240 – Rs 24,96,000

= Rs 11,76,240
 ii. Tax on

[Rs 10,00,000 + Rs 2,00,00,000) - Rs 2,00,00,000]

@15% + 7% + 4% @15% + 7% + 4%

= Rs 1,66,920

iii. Tax on under-reported income

= Rs.13,43, 160

Penalty for under-reporting = 50% of Rs 13,43,160 = 6,71,580

Sec 270A(3)
Case Manner of computation of under-
reported income
Where an assessment or The loss claimed
reassessment has the effect of (-)
reducing the loss declared in the The income or loss, as the case may
return or converting that loss into be, assessed or reassessed.
income

Illustration
Mr. X filed his return of income claiming loss therein:

Returned Income (12,00,000)

Income u/s 143(l)(a) (13,00,000)

Income assessed u/s 143(3) (2,00,000)

Can penalty be levied in this case?

Solution
Chargeability of section 270A:

The person is considered to have under-reported the income since Loss has been

reduced because of assessment.

Income assessed > Income determined u/s 143(1)(a)

Amount of under-reported Income

=Loss assessed u/s 143(3) - Loss determined u/s 143(1)(a)

= (Rs 2,00,000) minus (- Rs 13,00,000)

= + Rs 11,00,000

Tax payable on under-reported Income

= Tax on Rs.11,00,000 i.e. under-r Income as if it

were the total income of the assessee

= Rs 1,48,200

Penalty for under reporting

= 50% off Rs 1,48,200

= Rs 74,100

Illustration
ABC Ltd., an Indian Company furnished its return of income disclosing a loss

of Rs. 50 lakhs.

However, the loss determined u/s 143(1)(a) is only Rs. 40 lakhs. The case was

taken up for scrutiny.

The assessing officer made various additions and the income assessed u/s

143(3) is Rs. 1,10,00,000.

Determine the penalty leviable by Assessing officer. Assume that the

turnover of ABC Ltd. In F.Y. 2019-20 does not exceed Rs. 400 crores
Solution
Chargeability of section 270A: The person is considered to have under-

reported the income since Loss has been converted into income.

Amount of under-reported Income:

Income assessed/s 143(3) – Income Determined u/s 143(1)(a)

=Rs. 1,10,00,000 minus (- Rs. 40,00,000)

=Rs. 1,10,00,000 + 40,00,000

=Rs. 1,50,00,000

Tax payable on under-reported Income

=Tax on Rs. 1,50,00,000

=Rs.41,73,000

Penalty for under reporting

=50% of Rs.41, 73,000

=Rs. 20,86,500

PREPAREDY BY: CA RAM PATIL