Can Additions to Income by Mutual Consent of Assesse and Assessing Officer lead to Penalty under Income Tax Act

Income tax is a complicated law, and understanding the provisions of the act requires expertise and experience in dealing with taxation laws. Understanding taxable incomes and non –taxable income remains a complex maze for many individual taxpayers across the country.

The Complexities in Determining Taxable and Non- Taxable Income:

The legal options available to tax payers to lessen their tax burden makes the tax laws even more complicated; even experts are at loggerheads in determining the legally accepted options to reduce your tax burden. What income should you disclose and what can you claim as deductions, expenditure remains a complex topic.

There have been many cases of disagreement between the assesse and the assessment officer on whether an item constitutes expenditure, loss or not. In certain cases, where assesse records certain expenditure as necessary for conducting business, assessment officer may dispute it, which leads to referring the case to a court of law.

Similarly, what constitutes wilful concealment of taxable income by disclosing inaccurate income statements has no mention in the income tax act of 1961 makes it even more complex.

Would Additions by Assessing Officer Result in Penalties

In certain cases, the assessing officer may not agree with assesses argument on expenditure, loss incurred, or other income that assesse did not disclose, though not willfully. The assessing officer may add it to the total taxable income with mutual consent of the assesse to agree to such additions.

However, do such mutually agreed additions to your income essentially attract legal penalties?

According to section 271 (1) (c) of the income tax act of 1961, the assesse’s and assessing officer’s mutual consent to include such income in the taxable income do not attract penalties. Such mutual consent does not prove that assesse intentionally disclosed incorrect information and that his behavior is mala fide.

If the assesse has made the tax payment for such additions, he will be liable for penalties only if the assessing officer proves that they could collect such taxes only because of their efforts in unearthing such evasions.

If assesse proves his innocence – though not supported by documented proof- but proves innocence with his statements, explanation there can be no penalties. Wilful concealment of such income do not constitute enough ground for levying penalties. However, such explanations need to be clear and without any ambiguity. If the assesse fails to offer logical explanation, some penalties may be ordered.