Penalty for under reporting and misreporting of Income
Section 271(1)(c) has been deleted by the Finance Act 2016 and inits place section 270A has been inserted which is applicable from 1 April2017. It seeks to levy penalty on under reporting of income.
Section 270A inserted vide Finance Act 2016 prescribes penalty forunder-reporting of income and misreporting of income. Section 270A (7) ofthe Act prescribes a penalty of 50% of the amount of tax payable on theunder-reported income. Further, Section 270A(6)(d) provides that the under -reported income for the purpose of Section 270A shall not include theamount of under-reported income represented by any addition made inconformity with the arm’s length price determined by the Transfer PricingOfficer, where the Assessee had a) maintained information and documentsas prescribed under section 92D, b) declared the international transactionunder Chapter X, and, c) disclosed all the material facts relating to thetransaction.
Section 270A(8) of the Act provides that where under-reportedincome is in consequence of any misreporting thereof by any person, thepenalty shall be equal to two hundred per cent of the amount of tax payableon under-reported income. Section 270A(9)(f) of the Act provides that thecase of misreporting of income shall be failure to report any internationaltransaction or any transaction deemed to be an international transaction orany specified domestic transaction, to which the provisions of Chapter Xapply.
Penalty for failure to keep and maintaininformation and documents in respect ofinternational transaction or specified domestictransaction:
Section 271AA relates to penalty for failure to keep and maintaininformation and document in respect of international transactions or specifieddomestic transactions.
Section 271AA has been substituted by a new section with effect from 1-7-2012. It provides that without prejudice to the provisions of section 270A orsection 271 or Section 271BA, if any person in respect of an internationaltransaction or specified domestic transaction:
- fails to maintain prescribed documents and information as required bysub-section (1)or sub-section (2) of section 92D;
- fails to report any such transaction which is required to bereported; or
- maintains or furnishes any incorrect information or documents
the Assessing Officer or Commissioner (Appeals) may direct that suchperson shall pay, by way of penalty, a sum equal to two percent of the valueof each international transaction entered into by such person.
Further, Section 271AA(2) inserted vide Finance Act 2016 prescribes penaltyfor failure to furnish master file by prescribed date as INR 5,00,000.
Thus, whether or not an international transaction or specifieddomestic transaction is determined at arm’s length price, any person whohas entered into such transaction, shall keep and maintain theinformation/document in respect of such transaction.
The penalty is invoked for failure to keep and maintain suchinformation/documents or report the same. In other words, the person whohas entered intointernational transaction or specified domestic transactionshould both keep as well as maintain such information/documents as well asreport the same.Any failure in respect of the same attracts a penalty of 2%of the value of each international transaction or specified domestictransaction entered into by him.
Penalty for failure to furnish report under section92E:
Section 271BA provides that if any person fails to furnish a reportfrom an accountant as required by section 92E, the Assessing Officer maydirect that such person shall pay, by way of penalty, a sum of one hundredthousand rupees.
Penalty for failure to furnish information ordocument under section 92D:
Section 271G provides that if any person who has entered into aninternational transaction or specified domestic transaction fails to furnish anysuch information or document as required by sub-section (3) of section 92D,the Assessing Officer or the Commissioner (Appeals) may direct that suchperson shall pay, by way of penalty, a sum equal to two percent, of the valueof the international transaction or specified domestic transaction for eachsuch failure. The power to levy this penalty has also been extended now tothe Transfer Pricing Officer.
Penalty for failure to furnish information ordocuments under Section 286:
Finance Act 2016 introduced Section 286 which requires parent entityor the alternative reporting entity, resident in India, to furnish a prescribedreport on or before the due date for furnishing the return of income for therelevant accounting year.
Section 271GB of the Act provides for penalty for failure to furnish thedocuments prescribed under Section 286. The penalty prescribed underSection 271GB are as follows:
|Nature of penalty||Penalty (INR)|
|Failure to furnish the prescribeddocuments required to bemaintained by the India parententity of the international group:
a. Where period of failure is equalto or less than 1 month
b. Where period of failure isgreater than 1 month
c. Continuing default after serviceof penalty order
5,000 per day
15,000 per day
50,000 per day
|Furnishing of inaccurate particulars(subject to certain conditions)||5,00,000|
|Failure to produce the informationand documents within 30 days(extendable by maximum 30 days)||§ INR 5,000 per day upto service ofpenalty order
§ INR 50,000 per day for default beyonddate of service of penalty order
Penalty for furnishing incorrect information inreports and certificates:
The Finance Act, 2017 has introduced penalty on accountants,merchant bankers and registered valuers for furnishing incorrect informationin reports and certificates issued under any provisions of the Act, by insertingsection 271J to the Act.
In order to ensure that the person furnishing report or certificate undertakesdue diligence before making such certification, section 271J provides that ifan accountant or a merchant banker or a registered valuer, furnishesincorrect information in a report or certificate under any provisions of the Actor the rules made thereunder, the Assessing Officer or the Commissioner(Appeals) may direct him to pay a sum of ten thousand rupees for each suchreport or certificate by way of penalty.