Concealment/Furnishing Inaccurate Particulars – Section 271(1)(c)

Section 271* under Chapter XXI of the Income Tax Act 1961 (the Act) allows the levy of penalty on a person/Assessee in the course of any proceedings thereunder, as directed by the concerned Assessing Officer (AO) or other such prescribed authority, if satisfied that such person has concealed the particulars of his/her/its income or furnished inaccurate particulars therero. The word “particulars” in general would mean the details of claims made by the concerned person/Assessee before the relevant authority (such as through an Income Tax Return) and “inaccurate particulars” would mean the details so supplied, which are inaccurate, inexact or incorrect, or untruthful or erroneous.

> Read about ‘Income Tax Notice’

As per the said provision, where any amount is added or disallowed in computing the total income or loss of an Assessee in any order of assessment or reassessment and the said order contains a ‘direction’ for initiation of penalty proceedings under section 271(1)(c), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the AO for initiation of the penalty proceedings under the said clause (c).

*The provisions of the above said section 271 of the Act, shall not apply to and in relation to any assessment for the Assessment year commencing on or after the 1 April 2017. (see section 270A and 270AA for replacement provisions for AY2017-18 onwards)

Quantum of Penalty

In addition to the Income Tax (the tax) if any, payable by the said person, the penalty sum could range from a minimum of 100 percent to a maximum of 300 percent of the ‘amount of tax sought to be evaded’ by reason of the concealment/furnishing of inaccurate particulars of such income.

Further, via ‘Explanation 4’ to the said provision, a formula is provided to determine the ‘amount of Income Tax sought to be evaded’ for the above said purpose of levy of penalty.

Deemed Concealment/Furnishing Inaccurate Particulars

The above said provision ‘deems’ certain acts or facts pertaining to the concerned said person as amounting to concealment or furnishing of inaccurate particulars of income, some of which have been detailed below.

(A) Where in respect of any facts material to the computation of the total income of such person under the Act

  • Such person fails to offer an explanation or offers an explanation which is found to be false by above said authority, or
  • Such person offers an unsubstantiated explanation and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of total income have been disclosed.

Consequently, the amount added or disallowed in computing the total income of such person as a result thereof is legally deemed to represent the income in respect of which particulars have been concealed.

(B) Unreasonable Failure to File Return of Income despite Taxable Income

Where any person fails without reasonable cause, to furnish a return of his/her/its income within the period prescribed in respect of an Assessment year, and until the expiry of the said period, no relevant notice has been issued to such person and the AO or the Commissioner (Appeals) is satisfied that in respect of such Assessment year such person has taxable income, then such person is legally deemed for the purposes of the above said provision to have concealed the particulars of the said income in respect of such Assessment year(s).

(C) (Non) Declaration Post-Search Action

For ‘search’ action initiated under section 132 of the Act (on or after 1 June 2007), the concerned person/Assessee is found to be the owner of —

  • Any money, bullion, jewellery or other valuable article or thing (collectively the ‘assets’) and the said Assessee claims that such assets have been acquired by utilising (wholly or in part) income for any previous year; or
  • Any income based on any entry in any books of account or other documents or transactions and claims that such entry/other documents/transactions represents his/her/its income (wholly or in part) for any previous year, which has ended before the date of search; and
  • Where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or
  • The due date for filing the return of income for such previous year has expired but the said Assessee has not filed the return.

In the above said situation(s), notwithstanding that such income is declared by the said person in any return of income furnished on or after the date of search, he/she/it shall, for the purposes of imposition of a penalty under the above said provision of the Act, be deemed to have concealed the particulars or furnished inaccurate particulars of such income.

Reply/Object to Income Tax Notice

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Penalty Notice Safeguards – Fair Hearing, Prior Approval and Bar of Limitation

The Act requires a ‘hearing’ or a ‘reasonable opportunity of being heard’ be given to the said person concerned, before an order is passed imposing a penalty under the above said Chapter and provision.

Furthermore, except with the prior approval of the Joint Commissioner, no such order imposing a penalty under the said Chapter and provision can be made —

  • By the Income-tax Officer, where the said penalty exceeds Rs.10,000;
  • By the Assistant Commissioner or Deputy Commissioner, where the said penalty exceeds Rs.20,000.

The Act also prohibits such penalty order being passed after the expiry of prescribed time periods (depending on whether the relevant assessment or other order is the subject-matter of an appeal, revision or any other case).

Proactive Defence and Legal Grounds

Penalty actions may be initiated pursuant to Assessment and Reassessment proceedings but are conducted independent of the said proceedings, and could be initiated or continued even whilst connected such Assessment/Reassessment orders are subject to an Income Tax Appeal (unless ‘stayed’ by the relevant appellate authority). Therefore, it is important to proactively defend against such penalty action irrespective of the strength and merits of the said Assessment/Reassessment case as put forward, though the outcome and findings of such related proceedings could have a material impact on penalty proceedings as well.

> Read about ‘Income Tax Appeals’

Potential Legal Grounds for Penalty Defence

  • Unacceptable claim but no inaccurate particulars
  • Bona fide belief in claim
  • No concealment where appropriate disclosure etc.

Access Professional Help

What would constitute an ‘appropriate’ reply to a Penalty Notice issued under section 271 and whether one or more of the above stated legal grounds may apply to the facts and circumstances of a person/Assessee cannot be generalised. It is therefore highly prudent and recommended that a tax and legal professional is consulted before such e-reply is sent and an ‘appropriate’ reply is drafted with such help and/or any other legal avenues or strategies that may be available to obtain relief from such penalty action.

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