Penalty for Misreporting Income

Penalty for Under-Reporting or Misreporting Income

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Penalty for Under-Reporting or Misreporting Income

This article discusses Section 270A of the Income Tax Act which is being effective from A.Y 2017-2018. This section specifies the various provisions in case of under-reporting or misreporting of income. The ordinance to impose penalties is under the sole discretion of the Assessing Officer/Commissioner (Appeals)/Principal Commissioner/ Commissioner.

What is Under-Reporting Income?

Under-reporting, as the name suggests, means that the income recorded by the assessee while filing of returns is comparatively lesser than the actual income. This might occur if the assessee had failed to file the return for those particular incomes like incomes from interest, capital gains, etc – either due to ignorance of such incomes or tenacious negligence in filing tax return.

What is misreporting income?

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 incomecould 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 in writing. Concerned authorities can be any of the following:

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

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