There are different kinds of penalty imposed upon an assessee under the Indian Income Tax Act for defaulters under the different provisions of the Act. There are many provisions under which penalties are levied by the department. There are some penalties which are mandatory while in many cases levy of penalty is the discretion of the Assessing Officer.
Penalty for concealment is a common issue as assessments are done with certain additions and the assessing officer initiates penalty proceedings for concealment under the Act.
It is important to learn that penalty proceeding for concealment can be initiated against an assessee to deal with two kinds of charges:
(a) Concealment of details of income;
(b) Furnishing of incorrect particulars of income.
Penalty can be levied only for specific charge:
The charge of ‘concealment of details of income’ or ‘furnishing of incorrect particulars of income’ should be specific due to the reason that in case the proceedings are initiated by the assessing officer on the charge of ‘concealment of income’, penalty cannot be imposed upon the assessee on the charge of ‘furnishing incorrect particulars of income’ as well as vice versa. This was held by the Gujarat High Court in the case of Commissioner of Income Tax vs. Lakhdhir Lalji , 85 ITR 77(Guj.) and by the Amritsar Bench of ITAT in the case of Jayesh R. Kumani , I.T.A No.453 (Asr.)of 2007.
The Assessing Officer is bound to state whether penalty is being levied on account of concealment of income or on account of furnishing incorrect particulars of income. In the absence of such finding in the order of penalty, the same would not be justified in law. This was held by the Gujarat High Court in the case of New Sorathia Engg. Co vs. CIT, ITR 642 (Gujarat) 282 and by the Amritsar Bench of ITAT in the case of Mehnga Ram Sharma, DTR 386 (ITAT Amritsar) 26.
It has been held by the Bombay High Court in the case of Commissioner of Income Tax vs. Smt. Kaushalya & Others, 216 ITR 660, that any vagueness or absence of specific charge in the notice to the assessee, would make the penalty imposed invalid.
Distinction between ‘concealment of details of income’ and ‘furnishing of incorrect particulars of income’:
It is necessary to differentiate between the charges i.e. concealment of details of income and furnishing of incorrect particulars of income, based on which penalty can be levied.
The meaning of the word ‘conceal’ is ‘to hide, cover or keep away from sight’. Thus concealment of ‘particulars of income’ refers to non-disclosure of details of income.
Whereas, in case the details furnished by an assessee regarding his income are not correct or genuine, it amounts to ‘furnishing of incorrect particulars of income’.
For example, if an assessee sells his property and does not disclose the transaction, it amounts to concealment of particulars of income. However if the assessee declares such sale but the sale value is reported at a lower amount, it amounts to furnishing of incorrect particulars of income.
Provisions contained in the Act:
Section 271(c) of the Income Tax Act deals with penalty for concealment of particulars of income or for furnishing incorrect particulars of income.
The minimum amount of penalty is 100% and the maximum amount of penalty is 300 % of the tax sought to be evaded. Such amount is in addition to the amount of tax payable.
Section 271(1) provides that if the Assessing Officer or the Commissioner of Appeals, during any proceeding under this Act believes that any person has concealed the particulars of his income or has furnished incorrect particulars of his income, he may impose penalty for concealment upon such person.
Penalty proceedings are independent in nature:
The Supreme Court in the case of Anantaram Veerasinghiah vs. CIT, 127, ITR 457, has held that penalty proceedings are independent in nature and the matter should be looked into afresh as the assessment order is not the final word in such proceedings.
