Penalty under section 271(1) (c) of the Income Tax Act

The expression “Penalty” has nowhere been defined in the Income Tax Act, 1961. Penalty is generally treated as a liability comprising a punishment upon the person who has committed the breach of contract. Agreement to pay any interest for default does not amount to penalty.

Section 271(1) (c) of the Income Tax Act:

As per the provisions of Section 271(1) (c) of the Income Tax Act, if an assessee has concealed particulars of his income or furnished false details of such income, penalty is imposed under section 271(1)(c)of the Act. Under the explanations to section 271(1) (c), the presumption of concealment is also provided in many circumstances.

Quantum of penalty:

It is provided in the Act that the amount of such penalty for concealment of income shall not be less than 100% and shall not be more than 300% of the amount of tax which was attempted to be evaded.

“Tax on concealed income”:

When concealed income is more than the total income, the tax which should be chargeable on concealed income as if it is the total income of the assessee,  is considered as ‘the tax on concealed income’.

in any other case, ‘the tax on concealed income’ denotes the difference between the tax on total income which is assessed and the tax which should be chargeable on such total income as reduced by the amount of concealed income . The difference between the income filed in the return and the income which is assessed, is  treated as concealed income.

Penalty as discretion:

Penalty cannot be imposed since it is lawful to do so. It is the discretion of the authority and has to be exercised judicially.

When penalty is not imposed under section 271(1) (c)?

If the assessee offers an explanation for such concealment which is satisfactory like bonafide mistake, etc. Penalty is not imposed. On failure to provide any explanation or the explanation given is found to be incorrect, or assessee is not in a position to give an explanation, then it will be considered that the said person has concealed the income.

As per the latest judgment of different High Courts like the judgment of the Punjab & Haryana High Court in the case of Prithipal Singh and Co., the penalty for concealment of income cannot be imposed in cases where the assessment shows a reduction in loss and not any positive income.

The Allahabad High Court in 279 ITR 197, the Delhi High Court in the case of Aditya Chemicals Ltd. (283 ITR 458)  and the  Calcutta High Court in 278 ITR 140, etc. have taken a similar view on the issues that if there is no positive income and no tax is applicable, concealment penalty cannot be imposed.