Deposit of Cash and Penalty of 200% u/s 270A of the Income Tax Act 1961

With an announcement of demonetization of currency having denomination of Rs.500 and Rs.1000 on 08.11.2016, there is a panic across the country. Everyone is afraid and in dilemma on how to get their savings settled in Bank account. The major problem is there with the people who are having huge savings in the form of cash which may not have been disclosed ever in Income Tax Returns ever.

This panic situation has become worst on 09.11.2016 with a tweet of Ministry of Finance, on levy of penalty of 200%. The tweet is reproduced here in below:

In such case tax amount plus a penalty of 200% of the tax payable would be levied as per section 270A of the Income Tax Act 1961.

Let us understand the levy of penalty u/s 270A of the Income Tax Act 1961 and situation when it can be levied.

Penalty u/s 270A is introduced to be effective from 01.04.2016. The basic concept of this section is to levy of penalty in case there is a difference between the returned income and assessed income. Returned income is an income which an assessee determined himself and filed with the income tax authority every year. The assessed income is an income which being assessed by the assessing officer for that year. If there is a difference between these two penalty u/s 270A attracts. Moreover, there is no concept of attraction of penalty for concealing the particulars of the income or furnishing of inaccurate particulars of income.

Any penalty can be levied only when there is an evasion of tax from taxation. If an assesses deposit a cash in hand into his bank account and consider this deposit in his return as a taxable income and pays tax accordingly on it. There should not be any levy of penalty u/s 270A of the income Tax Act, since there is no escapement / evasion of tax. The income is not remained undisclosed, undeclared and under reporting. Section 270A provides for the levy of penalty @200% in case of misreporting of income and @50% in case of under reporting of income.

The penalty shall be levied after the assessment of income by the assessing officer on the difference of the income returned and income assessed. In the present case of cash deposit there shall be no difference between returned income and assessed income. Hence there is no penalty leviable u/s 270A.

The penalty under this section cannot be levied if there is an addition has been made on estimated basis by the Assessing Officer if the assessee maintained his books of account in correct and complete manner.

If a receipt or income is included in the return there is no need to substantiate the same at the time of assessment later on. There is no provision under the income tax act to charge tax at higher rate than 30% if the income is a disclosed one barring the status of assessee is not a non-resident in that case it is 40%.

Further, there is an insertion of section 270AA with effect from 01.04.2017 to provide immunity to the assessee from imposition of penalty u/s 270A if certain conditions are satisfied. The conditions are as follows:

i. the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and

ii. no appeal against the order referred to in clause (a) has been filed.

In the present case there will be no difference between the returned income and assessed income, no penalty u/s 270A shall be levied. There shall be no need of immunity from imposition of penalty.

The taxation of any income shall be governed by the prevailing provision of the Act in the year in which income is received or accrued. In the current FY 2016-17 the above discussed provision is applicable; hence there should not be any idea of fear and to be panic.

Yes, at the same time Government may not accept the contention and may argue that this will defeat the very object of Income Declaration Scheme 2016. The scheme which could have been fetched upto 45% of the tax including Tax, surcharge and penalty.

In my opinion if someone deposit cash into his bank account and consider that receipt in his income tax return and pays tax accordingly there shall not be any penalty u/s270A of the Income Tax Act 1961.

Note: I would like to clear that my article is not to inspire those who have black money with them to deposit and escape from proceeding but just to clear the stand of section 270A as it is a matter of understanding of Law only among the member of public at large.