If an Assessing Officer or the Commissioner (Appeals) or the Commissioner during any proceedings under the Income Tax Act, believes that someone has concealed the particulars of his income or has furnished incorrect details of his income, he may direct that such person to pay penalty in addition to tax, if any, a sum of rupees which shall not exceed three times the amount of tax sought to be evaded for the concealment of his income or the furnishing of incorrect details of such income. Apart from this, many other types of penalties are also levied under the Income Tax Act, 1961.
There are many types of penalties leviable under the provisions of the Income Tax Act for defaults committed by an assessee under the act. There are many provisions regarding such penalties.
Types of penalties:
There are some penalties which are mandatory in nature. But in most of the cases penalty is imposed at the discretion of the Assessing Officer.
The major penalties that are imposed under the act depending upon the nature of defaults are as follows:
1. Penalty for concealment of income or furnishing incorrect details of income (section 271(1) (c)).
Minimum quantum of penalty is 100% of the amount of tax sought to be evaded.
Maximum quantum of penalty is 300% of tax sought to be evaded.
2. Penalty for failure to maintain books of accounts which is required under section 44AA (section 271A).
Minimum quantum of penalty is Rs. 25,000/-
3. Penalty for failure to get accounts audited as per section 44AB (section 271B).
Minimum quantum of penalty is ½% of the total sales.
Maximum quantum of penalty is Rs. 100,000/-
4. Penalty for failure to furnish return of Income.
Minimum quantum of penalty is Rs. 5000/-
Procedure of levying penalty:
An order of penalty is imposed only after giving the assessee an opportunity of being heard.
Judgments of the Apex Court relating to levy of penalty:
The Apex Court in Hindustan Steel Ltd, 83 ITR 26 observed that penalty will not be levied as it is lawful to do so. It is a pure discretion of the authority and the power should be exercised judicially.
The Supreme Court in Anwar Ali’s case, 76 ITR 696 observed that since the essence of penalty under section 271(1) (c) is deliberate concealment of particulars of income, as such the department has to establish that the receipt regarding the amount in dispute constitutes income of the assessee.
The Supreme Court in CIT vs. Angidi Chettiar44 ITR 739 held that satisfaction of the concerned tax authority that the assessee has either concealed particulars of income or furnished incorrect details of income is absolutely necessary to levy penalty under section 271(1) (c) of the Act.
The scope of section 271(1)(c) has also been dealt by the Supreme Court in UOI vs. Dharmendra Textile Processors 306 ITR 277 (SC) and CIT vs. Atul Mohan Bindal 317 ITR 1 (SC). It was held that the AO should satisfy himself whether penalty proceedings should be levied or not during the assessment proceedings.