Income Tax

The Finance Bill, 2015 provides new explanation for determination of penalty as per section 271 in case of concealment of income or furnishing of incorrect details of income

The present explanation 4, which is proposed to be substituted by the Finance Bill,2015, states that for the purposes of clause (iii) of section 271(1), the expression “the amount of tax sought to be evaded”,-
(a) in any case where the amount of income regarding which details have been concealed or incorrect particulars have been filed has the effect of decreasing the loss declared in the return or converting the same into income, means the tax that would have been chargeable on the income for which details have been concealed or incorrect particulars have been filed had such income been the total income;
(b) in any case for which Explanation is applicable, means the tax on the total income assessed as decreased by the amount of advance tax, TDS, tax collected at source and self-assessment tax prior to sending of notice under section 148 of the Act;
(c) in any other case, means the difference between the amount of tax on the total income assessed and that would have been chargeable if the total income would have been reduced by the amount of income for which details have been concealed or inaccurate particulars have been filed.

Present Explanation 3 referred to in Explanation 4 of section 271:

Where any person fails, without any justified reason, to file within the period stated in section 153(1)of the Act, a return which he is required to do as per section 139 for any assessment year beginning on or after the 1.4.1989, and till the end of the period aforesaid, no notice has been issued to him under clause (i) of section 142(1) or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that for such assessment year the assessee has taxable income, then, the assessee shall, for the purposes of this sub-section, be deemed to have concealed the details of his income for the said assessment year, even if he files a return of his income at any time after the expiry of the period aforesaid.
Clause 68 of the Finance Bill, 2015 seeks to amend section 271 of the Income Tax Act in connection with failure to file income tax returns, to comply with notices, concealing income, etc. It proposes to substitute Explanation 4 to provide a mathematical formula for income, loss and tax on book profit, if any.

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The proposed amendment:

The proposed amendment of section 271 states as follows:
In section 271 of the Income Tax Act, with effect from the 1.4.2016, in sub-section (1), for Explanation 4, the following Explanation shall be substituted:
For the purposes of clause (iii) of this sub-section,-
(a) the amount of tax sought to be evaded shall be calculated according to the following formula-
(A – B) + (C – D) [where A represents the amount of tax on the total income assessed as per the provisions of section 115JB or section 115JC, B represents the amount of tax that would have been chargeable if the total income assessed is reduced by the amount of income for which particulars have been concealed or incorrect details have been filed, C represents the amount of tax on the total income assessed as per section 115JB or section 115JC and D represents the amount of tax that would have been chargeable if the total income assessed as per section 115JB or section 115JC been reduced by the amount of income for particulars have been concealed or incorrect details have been furnished].
Provided that where the amount of income for which particulars have been concealed or incorrect details have been filed on any issue is considered both under the provisions contained in section 115JB or section 115JC and under the general provisions, such amount shall not be decreased from total income assessed at the time of determining the amount under “D”.
Provided further that where the provisions of section 115JB or section 115JC are not applicable, the item “(C – D)” shall not be considered;
(b) where the amount of income for which particulars have been concealed or incorrect details have been filed has the effect of reducing the loss as stated in the return or changing the loss into income, the amount of tax sought to be evaded shall be calculated according to the formula stated in clause (a) with the modification that the amount to be determined for the part “(A – B)” shall be the amount of tax that would have been chargeable on the income for which particulars have been concealed or incorrect details have been filed if such income would have been the total income.
(c) where in any case for which Explanation 3 is applicable, the amount of tax sought to be evaded shall be that assessed on the total income upon reducing by the amount of advance tax, TDS, tax collected at source and self-assessment tax paid before the issue of notice under section 148.

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