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Penalties and Prosecutions

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Title: Penalties and Prosecutions


1
Penalties and Prosecutions
By - Shantilal K Parasia
2
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.

3
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.

4
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.

5
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

6
  • 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.

7
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

8
  • 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

9
  • 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.
  • If assessee fails to offer an explanation or
    expalnation is offer but it found to be false.
  • An explanation is given by assessee but he is not
    able to prove that such explanation is true.

10
  • Judicial decisions
  • Penalty should be imposed by the AO and first
    appeallate authority/commissioer kamlapat
    Motilal v CIT(1962)
  • Involumtary surrender of income does not avoid
    penalty CIT v Mohd. Mohtram Farooqui(2003)
  • No penalty if the facts of the transation are
    disclosedChandrapal Bagga v IT Appellate
    Trebunal (2003)
  • Revised return after detection of concealed
    income offers no immunity from penalty CIT v Dr.
    A. Mohd. Abdul Khadir (2003)

11
  • No penalty for concealment if the claim of the
    assessee is arguable CIT v Harshvardhan
    Chemicals Minerals Ltd. (2003)
  • Penalty u/s 271(1)(c) may be imposed in case of a
    surrender CIT v Kerala Transport Co. (2004)
  • 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)

12
  • 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
  • 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.

13
  • 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.

14
  • 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 daughters marriage, the assessee spends
    Rs. 12 lakh on May 15, 2007. and the assessee
    fails to explain the source of expenditure,
  • Can the AO levy penalty u/s 271(1)(c)?
  • 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-

15
Assessment Year ADDITIONS MADE IN TOTAL INCOME Rs. PEENALTY LEVIED U/S 271(1)(c)
2002-03 2000000 120000
2003-04 300000 80000
2004-05 NIL --
2005-06 700000 NO
2006-07 50000 NO
  • SOLUTION
  • The AO can levy penalty u/s 271(1)(c) an
    unexplained investment / expenditure of Rs.
    1400000
  • 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 .

16
Assessment Year ADDITIONS MADE IN TOTAL INCOME PENALTY ALREADY LEVIED ON ADDITION AMOUNT OF CONCEALED INCOME ON WHICH PENALTY SHALL BE LEVIED
2006-07 50000 -- 50000
2005-06 700000 -- 700000
2003-04 300000 80000 220000
2002-03 350000 (1400000-50000-700000-300000) 120000 230000
17
  • 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.148regarding issue of notice where income
    has escaped from assessment.

18
  • 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

19
  • 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
    30000010)
  • 140001214420. Therefore,
  • Minimum penalty _at_ 100 14420
  • Maximum penalty _at_ 300 43260.

20
  • 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

21
  • 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

22
  • EXAMPLE
  • Compute the tax payable and penalty imposable u/s
    271(1)(c)

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 explanation offered is not found as false by the assessing officer 50000
(2) Deliberate attempt to conceal income by applying law incorrectly, even no explanation is offered 90000 150000
Assessed income 310000
23
  • SOLUTION
  • TAX PAYABLE
  • PENALTY PAYABLE
  • Minimum penalty _at_ 100 10300
  • Maximum penalty _at_ 300 30900

PARTICULARS AMOUNT
Tax payable on assessed income of Rs. 310000 16000
ADD EC SHEC (1 2) 480
Tax liability 16480
PARTICUYLARS AMOUNT
tax on assessed income 16480
LESS tax on (total income assessed - concealed income) tax on Rs. 220000 (310000 - 90000) 6180
Tax sought to be evaded 10300
24
  • 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
  • Any assets and the assessee claims that such
    assets have been acquired by him by utilizing his
    income for any PY
  • The word assets refrred Any money, bullion,
    jewellery or other valuable article or thing

25
  • 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
  • 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
  • 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.

26
  • 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.

27
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

28
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

29
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

30
PENALTY U/S 271AAA
  • Penalty _at_ 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.

31
  • 2. No penalty u/s 271AAA in the following case
    Sec.271AAA(2)
  • Where the assessee
  • If the asseessee specifies the manner in which
    undisclosed income has been derived
  • Substantiates the manner in which the undisclosed
    income was derived and
  • Pays the tax, together with interest, if any, in
    respect of the undisclosed income.
  • 3. Specified PY means the PY-
  • 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
  • In which search was conducted.

32
Face the challenges Confidently thinking
that If I cant, then who can! And after
winning be humble Enough to say.. If I can,
then who cant
33
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

34
  • 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. ITO2001 73 TTJ (Ahd.) 784.

35
  • 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.

36
  • 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.

37
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

38
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 no penalty or
    prosecution shall be imposed

39
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)

40
  • 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.).

41
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 no penalty or
    prosecution shall be imposed

42
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

43
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 no penalty or
    prosecution shall be imposed

44
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

45
  • SEC 269 SS -
  • Sec 269 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

46
  • 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

47
  • 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

48
  • 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

49
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

50
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