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Income Tax (Section 271)

The regulation of profits tax in India includes certain provisions to penalise defaulting taxpayers. In this article, we speak of Section 271 of the Income Tax Act, which offers consequences for the concealment of details of profits or furnishing of faulty details of profits. The penalty can be imposed only if there is "virtually conclusive evidence" that the taxpayer intentionally concealed profits in order to avoid paying taxes.

Section 271: Punishment

A penalty under Section 271 of the Income Tax Act could be levied in the case of concealment of details of profits or fringe advantages or furnishing of faulty details of profits or fringe advantages. The minimal penalty for offences charged under Section 271 of the Income Tax Act is 100% of the tax sought to be refrained from plus tax payable. The maximum penalty leviable under this phase is 300% of the tax sought to be abated, in addition to the tax payable.

Penalty Calculation Under Section 271

While calculating the penalty under Section 271, the quantity of tax sought to be refrained from plays a critical role. The amount of tax sought to be refrained from is the combination of tax sought to be refrained from beneath the overall provisions and the tax sought to be refrained from beneath the provisions of MAT or AMT. However, if a quantity of hidden profits is taken into account under both the overall provisions and the provisions of MAT or AMT, the quantity must no longer be taken into account in computing tax sought to be avoided under the provisions of MAT or AMT. Further, in cases in which the provisions of MAT or AMT aren't applicable, the computation of tax sought to be refrained from beneath the provisions of MAT or AMT must be ignored.

Applicability of the Section

The penalty under Section 271 (1) will now no longer be imposed on the assessee unless the Assessing Officer opines that the assessee has either hid the information of profits or has supplied wrong details of profits. The High Courts and the Supreme Courts have made pronouncements on the applicability of this provision. The pronouncements are summarised as follows:

As a first condition, the Assessing Officer must be satisfied that the assessee has concealed any profits for the duration of the evaluation court cases.

The penalty order will now no longer be sustainable in regulation if the findings of the Assessing Officer are found to be uncertain and unambiguous. Issuing a penalty without a specific floor will no longer be considered beneficial under regulation. A tax payer must no longer be penalised for making honest mistakes.

What is a bona fide mistake?

A bona fide error is the one that breaks the eye of the assessee. In this assessment, a "mala fide" mistake is one that is made for the purpose of evading tax. Hence, the applicability of the penalty under Section 271 of the Income Tax Act could depend on distinguishing between a bonafide mistake and a concealment of profits for the purposes of keeping off profit tax.

The provisions of Section 271 clarify that:

1. a) The penalty can be imposed with the help of the Assessing Officer and/or the Commissioner of Income Tax (Appeals), and no government can assist you more than the Income Tax Appellant Tribunal, High Court, and Supreme Court.

2. b) It could only be levied during the Assessment Proceedings under the Income-Tax Act of 1961.

3. c) The penalty is in addition to any tax payable with the assessee's assistance.

4. d) A penalty could not be imposed if the assessee's total income is negative, i.e., a loss after the crowning glory of the Assessment Proceedings under the Income-tax Act, 1961.

Case Law: Commissioner of Income Tax vs. Rajasthan Vanaspati Product Limited (2008),

It's been held that a penalty under phase 271(1)(c) concealment assessment at loss. The penalty under s. 271(1)(c), prior to the modification of Explanation four thereof with the aid of the Finance Act, 2002, w.e.f. April 1, 2003, couldn't be imposed in instances in which, even after including the hid profits, the assessed profits remained a loss.

And concluded that the penalty under s. 271(1)(c), prior to the modification of Explanation four thereof with the aid of the Finance Act, 2002, w.e.f. 1st April, 2003, couldn't be imposed in instances in which, even after including the hid profits, the assessed profits remained a loss.

Conclusion

In the same way that there is hope when there is life, there will also be mistakes when there is a process. However, a factual error in the law is always overlooked, but a legal error is not. The assessee may be truthful and open with the law, and the law will always protect him—but not the person who intentionally breaks the law. The act specifies this. The most crucial thing is to work hard, but there is much more to it than that. Because in many situations, the assessee was making a truly honest living, but because of their ignorance of the law, their association with the wrong people, and their flawed thinking, they were treated as though they had concealed their income and were found guilty.