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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

 
Home Articles Taxation         Share :

Budget 2015 – Direct Tax and FEMA Implications

 

Chapter N. Penalty Provisions:

33. Penalty provisions: [S. 270A & S. 270AA]
 

33.1 It is proposed to amend penalty provisions for concealed incomes earned from FY 2016-17. Current penalty provisions continue to apply to concealed incomes earned upto FY 2015-16.
 

Under the current provisions, there are two stages for levying the penalty. In the first stage, the tax officer has to give an opportunity to the tax payer to explain his position. After considering the tax payer’s explanation, he may not levy the penalty if he satisfied about the explanation. However if he not satisfied about the explanation, he may levy penalty between 100 and 300% of the tax sought to be avoided. This is considered to be discretionary.
 

The new provisions continue with this two stage penalty proceedings. However it has tried to bring in objectivity and reduce the discretion with the officer for levying penalty. Further the penalties are also lowered. (see para 33.4 also).
 

33.2 The new provisions provide that if there is an addition to income, the normal penalty will be 50% of the tax on concealed income. However if the concealment is due misreporting, false entries, etc. the penalty will be 200% of the tax on concealed income.
 

Further the tax payable on concealed income will be @ 30%.
 

33.3 The provision also provides that in the following circumstances the income will not be considered as concealed income if the tax officer increases the income. No penalty will be chargeable.
 

i) the person offers sufficient explanation to the satisfaction of the tax officer.

ii) where accounts are kept properly, however due to the method (of accounting) employed is such that income cannot be determined properly.

iii) for some issues which require an estimate, and if the tax payer has “estimated” a lower of amount of income, but the tax officer considers a higher estimate.

iv) where the tax payer has maintained proper records but the income is increased due to Transfer Pricing adjustment.

v) where penalty is levied in case of a search.

 

33.4 This reconfirms the fundamental principle that penalty is chargeable for intentional avoidance of tax. It cannot be charged if income is increased due to bonafide difference of views between the tax payer and revenue department.
 

The tax payer will be given an opportunity to explain his position. However once the tax officer decides to charge penalty, then he does not have any discretion. The penalty will either be 50% or 200% of the tax sought to be avoided.
 

33.5 Immunity from penalty and prosecution:
 

Another new section 270AA has been introduced to provide for immunity from penalty and prosecution. The tax payer has to make an application for the same within one month of passing of assessment order. The tax payer pays the tax and interest as per assessment order and does not file an appeal.
 

On receipt of such application and fulfillment of conditions, the tax officer will grant immunity from penalty and prosecution.
 

The provision permits the tax officer to reject the application for immunity. Before rejecting the application, he has to provide an opportunity to the tax payer for an explanation.