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Tax sought to be evaded u/s. 271(1)(c)

KALPESH GOHIL (Chartered Accountant) (52 Points)

12 December 2011

On the basis of the information available with I T Dept. case of an assessee has been reopened and At the time of assessment proceedings some undisclosed income of an assessee has been found by AO however against that Income, there were TDS. After an addition of undisclosed income, though returned income has been increase but after giving the credit of TDS untimately tax payable is NIL.

Now My quarry is :

Can penalty u/s. 271(1)(C) can be imposed? since tax sought to be evaded is NIL.

Pls. give the valued openion.

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8 Replies

CA Shraddha (Mcom, CS Exe.) (Service) (224 Points)
Replied 12 December 2011

As per the provisions of section 271(1)(c) the nature of default for attracting the section is

1. Concealment of particulars of income; or

2. Furnishing inaccurate particulars of such income

In my opinion the above basic requirement for attractiong sec. 271(1)(c) is fulfilled. Hence, the action of the AO is correct in attracting the section BUT PENALTY will not be levied the reason being as follows:

1. The quantum of the penalty is to be determined by considering the amount of tax sought to be evaded;

2. In your case the assessee has received the income which he has concealed net of TDS hence no question regarding tax evasion;

3. Hence, basic requirement is the concealment of income should result in tax evasion.

As there is no evasion penalty cannot be levied.

Regards,

Shraddha

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Rahul Gupta (Chartered Accountant) (644 Points)
Replied 12 December 2011

Originally posted by : Shraddha
	As per the provisions of section 271(1)(c) the nature of default for attracting the section is 1. Concealment of particulars of income; or 2. Furnishing inaccurate particulars of such income In my opinion the above basic requirement for attractiong sec. 271(1)(c) is fulfilled. Hence, the action of the AO is correct in attracting the section BUT PENALTY will not be levied the reason being as follows: 1. The quantum of the penalty is to be determined by considering the amount of tax sought to be evaded; 2. In your case the assessee has received the income which he has concealed net of TDS hence no question regarding tax evasion; 3. Hence, basic requirement is the concealment of income should result in tax evasion. As there is no evasion penalty cannot be levied. Regards, Shraddha

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 12 December 2011

As per sec 271(1)(c) if it is proved dat tax have been evaded den penalty as mentioned is calculated on the tax amount sought to be evaded....in your case in ma opinion since finaly no tax is evaded after tds adjusment den penalty is also not levieable....

Pls correct me if m wrong.

Prakash Ramani (B.com,CA) (276 Points)
Replied 13 December 2011

No Doubt AO impose penalty u/s 271 (1)c on concealment of income (i.e.not giving particulars of income in ROI) you can take the ground that tax evaded is NIL therefore penalty should not attracted

CA.PRAMOD KUMAR PANDA (Chartered Accountants) (204 Points)
Replied 13 December 2011

Please refer to Clause-(a) of Explanation-4 to Sec-271(1)(c), which defines the expression "The Amount of Tax Sought to be Evaded" as refered to in Clause (iii) of the Section. In my opinion, penalty can be imposed on the differential tax computed on the income particulars which has been concealed.

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AMIT KUMAR VERMA (CA Final(new Course)) (32 Points)
Replied 13 December 2011

Here explanation 3 of sec 271(1)(c) is imposed, where it was held that the amount which have been diclosed in finding of A.O. should be lible to be taxed as if it was the undiscloed income no amount of set off should be given if there was a loss.

but if there was alraedy a positive income then also penalty for concealment of income u/s 271(1)(c) can be imposed.

so here A.O. contention is correct & penalty can be imposed even if the T.D.S is there & nil amount of tax payable.

CA Prakash Rai (CA) (129 Points)
Replied 13 December 2011

Agree with CA Pramod Kumar Panda Sir.

Section 271(1)(c)(iii) says that penalty will be "a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded"

Explaination 4 clause 1 says that the term "amount of tax sought to be evaded" means "the tax that would have been chargeable on the income in respect of which particulars have been concealed have been furnished had such income been the total income"

for e.g. if there is an interest income that the assesse is concealing on which TDS deducted is @ 10%. but the income of the assesse falls in the 30% tax slab. Now isn't that tax evasion?
So to handle such situation, clause 1 of Explaination 4 is kept different from clause 2 (which provides for credit of prepaid taxes)

CA Pooja (Chartered Accountant) (72 Points)
Replied 15 December 2011

The basic requirement for attracting penalty u/s 271 (1)(c) are:

1. Concealment of Income or

2.Furnishing inaccurate particulars of Income.

So the decision of AO to levy a penalty ,can be upheld in this case on the grounds of Concealment of Income. Now the question arising about the quantum of penalty that could be levied...

In my opinion Clause (c) of Explanation 4 to Section 271(1)(c)(iii) shall be applicable.

According to clause (c) " The amount of Tax sought to be evaded" means the difference between the tax on the total Income assessed ( Regular+ undisclosed) and the tax that would have been CHARGEABLE.......I think the key word here is Chargeable hence the tax on undisclosed income for the purpose of levy of penalty can be considered at GROSS level i.e without considering the impact of TDS etc. I believe HAD the lawmaker used the word PAYABLE the story would have been different.