S.K.

Parasia
 Introduction
For the purpose of effective and satisfactorily
implementation of any law certain penalties &
prosecutions are provided.
therefore Under the IT Act certain penalties and
prosecution have been provided .
As the number of tax payers is increasing, the tax
administration has necessity to rely more and more
on voluntary compliance of tax laws by the assessees
and therefore appropriate penal and prosecution
provisions are provided.
S.K.Parasia
 PENALTY U/S 140A(3)
NATURE OF DEFAULT:
Failure to pay the whole or any part of self assessment
tax or interest or both in accordance with the
provisions of se. 140A(1).
MINIMUM PENALTY:
Amount impose by AO for default or continuing
default.
MAXIMUM PENALTY:
Amount of tax in arrears.
WHO CAN IMPOSE PENALTY?
Assessing Officer.
S.K.Parasia
 PENALTY U/S 221(1)
NATURE OF DEFAULT:
Failure in making payment of tax within prescribed
time.
MINIMUM PENALTY:
As amount impose by AO.
MAXIMUM PENALTY:
Amount of tax in arrears.
WHO CAN IMPOSE PENALTY?
Assessing Officer.

S.K.Parasia
 PENALTY U/S 271(1)(b)
NATURE OF DEFAULT:
Failure to comply with a notice u/s 142(1) or 143(2) or
with a direction issued u/s 142(2A)
Sec. 142(1): regarding giving notice to the assessee for
return of income, furnishing document and accounts,
furnishing other information,
Sec. 143(2): regarding the producing any evidence
Sec. 142(2A): direction regarding books of accounts
audited

S.K.Parasia
MINIMUM PENALTY:
10000 for each failure
MAXIMUM PENALTY:
10000 for each failure
WHO CAN IMPOSE PENALTY?
Assessing Officer
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed.

S.K.Parasia
 PENALTY U/S 271(1)(c)/(d)
NATURE OF DEFAULT:
Concealment of the particulars of income or furnishing
inaccurate particulars of income.
MINIMUM PENALTY:
100% of tax sought to be evaded
MAXIMUM PENALTY:
300% of tax sought to be evaded
WHO CAN IMPOSE PENALTY?
AO / CIT(appeal)/ CIT

S.K.Parasia
sec. 271(1)(c) is applicable if the
following conditions are satisfied-
penalty can be imposed by AO /
CIT(appeal)/CIT
It can be imposed in the course of
proceedings and
Assessee has concealed particulars of his
income or furnished inaccurate
particulars
S.K.Parasia
Explanations to Sec. 271(1):
Explanation 1 to sec.271
if any addition are made in the total income
because of following reasons then these additon
is deemed to be concealed income.
a) If assessee fails to offer an explanation or
expalnation is offer but it found to be false.
b) An explanation is given by assessee but he is
not able to prove that such explanation is
true.

S.K.Parasia
Judicial decisions:
1) Penalty should be imposed by the AO and first appeallate
authority/commissioer [kamlapat Motilal v CIT(1962)]
2) Involumtary surrender of income does not avoid penalty
[CIT v Mohd. Mohtram Farooqui(2003)]
3) No penalty if the facts of the transation are
disclosed[Chandrapal Bagga v IT Appellate Trebunal
(2003)]
4) Revised return after detection of concealed income offers
no immunity from penalty [CIT v Dr. A. Mohd. Abdul
Khadir (2003)]

S.K.Parasia
5) No penalty for concealment if the claim of the assessee is
arguable [CIT v Harshvardhan Chemicals & Minerals
Ltd. (2003)]
6) Penalty u/s 271(1)(c) may be imposed in case of a
surrender [CIT v Kerala Transport Co. (2004)]
7) No penalty unless there is a deliberate attempt (mens-
rea) [CIT v Ashim Kumar Agarwal (2005)]
Mens-rea: if a person does something incorrect deliberately
even though he know that his act is against law.
8) Order of penalty must clearly state the nature of penalty
[New Sorathia Engineering Co. v CIT (2006)]
S.K.Parasia
Explanation: 2 to sec.271:
Sometimes addition made by AO for purely tech. reason
e.g. disallowances of certain expenses, shortfalls,
presumptive rate of GP etc.
No penalty shall be levied in respect of these addition if
assessee provide adequate evidence.
WHEN EXPLANATION : 2 IS APPLICABLE
1. The source of any receipt, deposit, expense or
investment in any current year is claimed by
assessee to be amount which had been added in
computing the income or deducted the loss in the
assessment of such person for any earlier year.

S.K.Parasia
2). in earlier year no penalty had been levied on
account of such addition, etc. under sec. 271(1)(c)
3). That part of the amount so added or deducted in
such earlier year which is sufficient to cover the
amount represented by such receipt, Deposit or
expense or value of such investment shall be treated
as the income of the assessee, particulars of which
had been furnished for the earlier year.

S.K.Parasia
For example:
For the previous year 2007-08(AY 2008-09) the AO
makes the following observations:
The assessee has purchased gold on 3-06- 2007 for Rs.
2 lakh for which he is unable to offer any explanation
On his daughter’s marriage, the assessee spends Rs. 12
lakh on May 15, 2007. and the assessee fails to explain
the source of expenditure,
1. Can the AO levy penalty u/s 271(1)(c)?
2. Is it possible for the assessee to argue in the penalty
proceedings that the aforesaid investment /
expenditure have been made out of following
additions made by the Department in earlier years-

S.K.Parasia
 Assessment Year ADDITIONS MADE IN PEENALTY LEVIED U/S
TOTAL INCOME 271(1)(c)
Rs.
2002-03 2000000 120000
2003-04 300000 80000
2004-05 NIL --
2005-06 700000 NO
2006-07 50000 NO
SOLUTION:
1.The AO can levy penalty u/s 271(1)(c) an unexplained investment /
expenditure of Rs. 1400000
2.The assessee can explain that the investment is made out of additons made
during earlier years- Anantharam Veerasinghaiah & Co. v CIT(1980). However,
by adopting such plea, application of Explanation 2 to sec. 271(1) cannot be
avoided Rs. 14 lakh will be treated as cancealed income of the earlier years as
follows .

S.K.Parasia
Assessment Year ADDITIONS MADE PENALTY AMOUNT OF
IN TOTAL ALREADY CONCEALED
INCOME LEVIED ON INCOME ON
ADDITION WHICH
PENALTY SHALL
BE LEVIED
2006-07 50000 -- 50000
2005-06 700000 -- 700000
2003-04 300000 80000 220000
2002-03 350000 120000 230000
(1400000-50000-
700000-300000)

S.K.Parasia
EXPLANATION 3 to sec.271:
If a person does not file a return of
income for an assessment year voluntarily
within 21 months from the end of the AY
in which income was first assessable and
no notice u/s 142(1) and 148 is issued to
him till the expiry of the period of filling
return, he is treated to have concealed his
income and penalty is leviable.
Sec.148:regarding issue of notice where
income has escaped from assessment.

S.K.Parasia
Explanation 4 to Sec.271:
SITUATION-1: Where the loss declared in the
return is reduced or is converted into income:
where the concealed income or inaccurate
particulars has the effect of reducing the loss
or converting that loss into income, then the
tax sought to be evaded shall be the tax that
would have been chargeable on the concealed
income as total income:

S.K.Parasia
EXAMPLE-1:
determine minimum penalty and maximum penalty
of assessee on tax sought to be evaded:
 Return of loss furnished by assessee for
AY 2009-10 :-(-)700000
 Concealed income : 300000
 SOLUTION:
In the above case the loss declared in the return has
been reduced by Rs. 300000 due to concealed income.
 Therefore penalty will be levied on the tax sought to be
evaded Rs. 300000.
Tax + EC + SHEC on Rs. 300000(160000 to 300000=10%)
14000+1%+2%=14420. Therefore,
 Minimum penalty @ 100% = 14420
 Maximum penalty @ 300 %= 43260.

S.K.Parasia
SITUATION-2:
Where no return has been furnished by the
assessee :
amount of tax sought to be evaded =
Tax on total income assessed xxxx
LESS: (1)Advanced tax xx
(2) TDS/ TCS xx
(3) self assessment tax xx

S.K.Parasia
SITUATION-3:
any other case i.e. where total income assessed
exceeds the concealed income.:

amount of tax sought to be evaded =

Tax on total income assessed xxxx
LESS: tax on (total income assessed -
concealed income) xx

S.K.Parasia
EXAMPLE:
PARTICULARS Rs. AMOUNT
Rs.
Return of income submitted by assessee for AY 2010-11 170000

Addition made by the assessing officer

(1) Wrong application of law unknowingly and the 50000
explanation offered is not found as false by the
assessing officer
(2) Deliberate attempt to conceal income by applying 90000 150000
law incorrectly, even no explanation is offered

Assessed income 310000

Compute the tax payable and penalty imposable

u/s 271(1)(c)

S.K.Parasia
SOLUTION:
TAX PAYABLE:
PARTICULARS AMOUNT
Tax payable on assessed income of Rs. 310000 16000
ADD: EC + SHEC (1% + 2%) 480
Tax liability 16480
PENALTY PAYABLE:
PARTICUYLARS AMOUNT
tax on assessed income 16480
LESS: tax on (total income assessed - concealed income) 6180
[tax on Rs. 220000 (310000 - 90000)]
Tax sought to be evaded 10300

Minimum penalty @ 100% = 10300

Maximum penalty @ 300% = 30900
S.K.Parasia
EXPLANATION 5 & 5A TO SEC. 271:
where a search is initiated on or after 1-06-2007, the
following two penalties shall be leviable:
Penalty u/s 271(1)(c) given in explanation 5A
Penalty u/s 271AAA
(explanation 5A):
Undisclosed income for any previous year found in
search initiated on or after 1-06-2007 but the
assessee did not file the return of that PY
although due date of filing had expired
1. Any assets and the assessee claims that such assets have
been acquired by him by utilizing his income for any
PY;
2. The word assets refrred: Any money, bullion, jewellery
or other valuable article or thing
S.K.Parasia
2) Any income based on any entry in any books of
account or other documents or transactions and
he claims that such entry is for an PY. Which has
ended before the date of the search and
a) Where the return of income for such PY has
been furnished before the said date but such
income has not been declared in return, or
b) The due date for filing the return of income for
such year has expired and the assessee has not
filed the return, then, u/s 271(1)(c), be deemed
to have concealed the particulars of his income
or furnished inaccurate particulars of such
income.
S.K.Parasia
EXPLANATION 6 to Sec. 271:
 Penalty for concealment of income shall not be imposed on
so much of the income on which additional tax has been
charged u/s 143(1A)
EXPLANATION 7 to Sec. 271:
 where in the case of an assessee who has entered into an
international transaction defined 92C(4) then the amount so
added or disallowed shall be deemed to have been concealed
or inaccurate particulars have been furnished.
 Satisfaction of the AO or the Commissioner (Appeals) or
Commissioner that the price charged (or paid) in such
transaction has been determined is in good faith and with
due diligence. Then no penalties is leviable under this
section.
 Sec.92C(4):Regarding computation of ALP.

S.K.Parasia
 PENALTY U/S 271A
NATURE OF DEFAULT:
Failure to keep, maintain or retain books of account,
documents, etc. as required u/s 44AA and rules there
under
MINIMUM PENALTY:
Fixed at Rs. 25000
WHO CAN IMPOSE PENALTY?
AO / CIT (Appeal)
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed

S.K.Parasia
 PENALTY U/S 271AA
NATURE OF DEFAULT:
 Failure to keep and maintain any such information and
document as required u/s 92D(1) & (2) in relation to
international transaction.
MINIMUM PENALTY:
 2% of the value of each inter-national transaction.
MAXIMUM PENALTY;
 Same as minimum
WHO CAN IMPOSE PENALTY?
 AO / CIT (Appeal)
Sec. 273(B): if assessee having a reasonable cause for said
failure then no penalty or prosecution shall be imposed

S.K.Parasia
 PENALTY U/S 271AAA
NATURE OF DEFAULT:
Income found in course of search which is not recorded
on or before the date of search in books of accounts or
other documents maintained or otherwise not disclosed
to CCIT/CIT.
MINIMUM PENALTY:
10% of the undisclosed income
MAXIMUM PENALTY;
Same as minimum
WHO CAN IMPOSE PENALTY?
Assessing officer

S.K.Parasia
 PENALTY U/S 271AAA
1. Penalty @ 10 % of the undisclosed income
of the specified PY [Sec. 271AAA(1)]:
the AO may, notwithstanding anything
contained in any other provisions of this
Act, direct that,
In a case where search has been initiated u/s
132 on or after 1-06-2007. the assessee shall
pay by way of penalty, in addition to tax, if
any, payable by him, a sum computed at the
rate of 10% of the undisclosed income of the
specified PY.
S.K.Parasia
2. No penalty u/s 271AAA in the following case [Sec.271AAA(2)]
Where the assessee—
i. If the asseessee specifies the manner in which undisclosed
income has been derived;
ii. Substantiates the manner in which the undisclosed income was
derived; and
iii. Pays the tax, together with interest, if any, in respect of the
undisclosed income.
3. “Specified PY” means the PY-
i. Which has ended before the date of search, but the date of filing
the return of income us 139(1) for such year has not expired before
the date of search and the assessee has not furnished the return of
income for the PY before the prescribe date; or
ii. In which search was conducted.

S.K.Parasia
S.K.Parasia
 PENALTY U/S 271B
NATURE OF DEFAULT:
Failure to get accounts audited or to furnish a report of
such audit as required u/s 44AB
MINIMUM PENALTY:
0.5 % of total sales, turnover or gross receipts, as the
case may be.
MAXIMUM PENALTY:
Rs. 100000
WHO CAN IMPOSE PENALTY?
Assessing Officer

S.K.Parasia
When a person commits the offence u/s 44 AA , the
offence is complete. After that there can be no
possibility of any offence as contemplated by sec 44
AB and therefore, penalty cannot be imposed u/s 271
B.

Delay on part of the statutory auditors in completing

audit of the assessee co-operative society would not
justify levy of penalty on the assessee. - Ahmedabad
Co-operative dept.stores ( Apna Bazaar) v. ITO[2001]
73 TTJ (Ahd.) 784.

S.K.Parasia
Where the accountant left service without finalising
accounts, another accountant was engaged and that
resulted in delay in finalising accounts as well as
getting accounts audited and assessment year under
consideration was the first A.Y for compliance of Sec
44AB
Where the assessee contended that as its books of
accounts were seized by Customs Department, which
had been later taken over by the Income Tax
Department, audit was completed late, the assessee
had a reasonable and sufficient cause for not getting
accounts audited in time as provided in Act.

S.K.Parasia
Penalty is impossible in case of failure of Assessee
Builder to get accounts audited on ground that it has
only received Advance from Customers and as such
there is no receipt , sales or turnover as required u/s
44 AB.

Where total sales by the assessee does not exceed Rs.

40 lakh but by including interest receipt, his total
receipts exceed Rs.40 lakh, and the assessee is under
bona fide belief that it is , in view of above position ,
not required to get its accounts audited , imposition of
penalty on the assessee is not justified – Patel Ambalal
Somnath Sarkar v. ITO (2006) 100 TTJ ( Ahd.) 735.

S.K.Parasia
 PENALTY U/S 271BA
NATURE OF DEFAULT:
Failure to furnish report from an accountant as
required u/s 92E
MINIMUM PENALTY:
Fixed at Rs 100000
WHO CAN IMPOSE PENALTY?
Assessing Officer.
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed
S.K.Parasia
 PENALTY U/S 271C
(A)
NATURE OF DEFAULT:
 Failure to deduct the whole or any part of tax as required
under Chapter XVIIB
MINIMUM PENALTY:
 Amount equal to tax which has not been deducted.
MAXIMUM PENALTY:
 Same as minimum
WHO CAN IMPOSE PENALTY?
 Joint Commissioner
Sec. 273(B): if assessee having a reasonable cause for said
failure then noS.K.Parasia
penalty or prosecution shall be imposed
CASES
The Tribunal held that penalty u/s 271 C cannot be
levied in doubtful cases where the assessee had acted
in a bona fide manner on basis of opinion of its
counsel. - ITO v. ABN Amro Bank [2008] 23 SOT 52
( Delhi)

Tax is not deductible at source u/s 195 in respect of

transaction relating to commission and retainer fees
payable to non – resident having no office or business
operation in India, on export earnings . - Ind Telesoft
P. Ltd . In re [2004] 140 taxman 463 ( AAR – New Delhi)

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Where tax has already been paid by the payee, on
penalty can be levied on the assessee – payer for the
failure to deduct tax at source – Wipro GE Medical
Systems Ltd. V. Ito [2005] ( Bang.)
 Penalty is leviable for default in payment of tax and
not for default in payment of interest – Great Valule
Foods v. CIT [2009] (Asr.) (Mag.).

S.K.Parasia
 PENALTY U/S 271C
(B)
NATURE OF DEFAULT:
 Failure to pay the whole or any part of the corporate
dividend tax as required u/s 115-O or 194B
MINIMUM PENALTY:
 Amount equal to tax which has not been paid.
MAXIMUM PENALTY:
 Same as minimum
WHO CAN IMPOSE PENALTY?
 Joint Commissioner
Sec. 273(B): if assessee having a reasonable cause for said
failure then noS.K.Parasia
penalty or prosecution shall be imposed
 PENALTY U/S 271CA
NATURE OF DEFAULT:
Failure to collect the whole or any part of tax as
required under Chapter XVIIBB
MINIMUM PENALTY:
Amount equal to tax which has not been collected.
MAXIMUM PENALTY:
Same as minimum
WHO CAN IMPOSE PENALTY?
Joint Commissioner
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed
S.K.Parasia
 PENALTY U/S 271D
NATURE OF DEFAULT:
 Any loan or deposit taken or accepted in contravention of
section 269SS
MINIMUM PENALTY:
 Amount equal to the loan or deposit taken or accepted.
MAXIMUM PENALTY:
 Same as minimum
WHO CAN IMPOSE PENALTY?
 Joint Commissioner
Sec. 273(B): if assessee having a reasonable cause for said
failure then noS.K.Parasia
penalty or prosecution shall be imposed
 PENALTY U/S 271E
NATURE OF DEFAULT:
Any loan or deposit which is repaid in contravention of
section 269T
MINIMUM PENALTY:
Amount equal to the deposit which is repaid
MAXIMUM PENALTY:
Same as minimum
WHO CAN IMPOSE PENALTY?
Joint Commissioner
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed
S.K.Parasia
SEC – 269 SS :-
 Sec269 SS provides that if the amount of loan / deposit or
the aggregate amount of such loan / deposit is Rs. 20000/-
or more , then the same shall not be taken / accepted
otherwise than by an account payee cheque / draft. The
scheme of legislation is quite clear that no penalty is
attracted with reference to amount of loan / deposit below
of RS. 20000/- and that penalty would only be exigible
with reference to further loan / deposit in exceed of Rs.
20000/- - Ravi Iron & Scrap Co. v. CIT [2001]

S.K.Parasia
Ignorance of law is no excuse for violation of
provisions of sections 269SS and 269TT [Udaichand
Santoshkumar Jain vs ITO 2003]
Where the assessee obtains certain loans from his
wife in case for construction of house which was
naturally a joint venture for prosperity of family and
the transaction did not involve any interest limit and
there was no promise to return amount with or w/o
interest , it could be said that there was reasonable
causes for non complying with section 269SS.[Dr. B.G.
Panda v. CIT 2000]

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In case the assessee had accepted deposit or taken
loan from agriculturalist who had no bank account
default was mainly technical in nature and penalty
was not attracted [ITO v. Tarlochan Singh 2003]
When the credit entry made in books of account of
assessee are by way of transfer entry, there had been
no deposit as per mode of section 269SS.[CIT v. Lala
Murari Lal and Sons 2004]

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No penalty can be levied where the loan had been
received by the assessee in a case exceeding the
prescribed limit from the family member on a Sunday,
to be kept in safe custody and use in business.[CIT v.
T. R. Renagrajan 2005]

S.K.Parasia
 PENALTY U/S 271F
NATURE OF DEFAULT:
Failure to furnish a return of income as required by
section 139(1) before the end of the relevant assessment
year.
MINIMUM PENALTY:
Fixed at Rs. 5000
WHO CAN IMPOSE PENALTY?
Assessing Officer.
Sec. 273(B): if assessee having a reasonable cause for
said failure then no penalty or prosecution shall be
imposed
S.K.Parasia
S.K.Parasia