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Penalty for Under-Reporting or Misreporting Income

This article discusses Section 270A of the Income Tax Act. The section is having effectiveness with effect from the assessment year 2017-2018. The section specifies the various provisions in case of under-reporting or misreporting of income. The right to impose penalties is under the sole discretion of the Assessing Officer/Commissioner (Appeals)/Principal Commissioner/ Commissioner.

Meaning of Under-Reporting Income

Under-reporting means that the income recorded by the assessee while filing of returns is comparatively lesser than the actual income. Under-reporting might occur if the assessee had failed to file the return for those particular incomes like incomes from interest, capital gains, and so on. The defect on the part of the assessee may be either due to ignorance of such incomes or negligence in filing a tax return.

Under-Reporting vs. Misreporting

Misreporting of income occurs in the event of the following circumstances:

• Misrepresentation or suppression of facts
• Failure to record investments in the books of account
• Claims of expenditure not supported with any evidence
• Recording of any false entry in the books of account
• Failure to record any receipt in books of account which affects the total income
• Failure to report any international transaction / any transaction deemed to be an international transaction / any of the specified domestic transactions

Penalty for Under-Reporting or Misreporting Income

In case of under-reporting of income, a penalty as high as 50% of the tax payable could be levied. Misreporting of income could lead to a levy penalty as high as 200% of the tax payable on the misreported income. However, an assessee may apply to the Assessing Officer (AO) for immunity from imposition of penalty, he/she would have to explain why the specific under-reported or misrepresented income was not intimated. If their response seems satisfactory, the AO might consider not to penalize the assessee. It is also probable that the AO could reduce the penalty for the assessee. In case of levy of penalty, any order of penalty imposed by the concerned authorities must be conveyed. The communication with the assessee should be made in writing. Concerned authorities can be any of the following persons:

• The Assessing Officer
• The Commissioner (Appeals)
• The Commissioner
• The Principal Commissioner