Immunity from imposition of penalty and criminal prosecution for misreporting of Income u/s 270AA of the Income-Tax Act, 1961

S. R. Wadhwa, Advocate

The problems concerning the levy of penalty for concealment of income u/s 270A by way of under-reporting and misreporting of income and launching of criminal prosecution for such offences u/s 276C and 276CC of the Income-tax Act, 1961 (the Act) almost in every such case, have assumed great importance in recent years. This is largely because of the selective scheme of scrutiny of a few income tax returns involving, prima-facie, a large under-reporting or misreporting of income and accepting the remaining vast majority of them after a routine arithmetical examination of the correctness of the income disclosed and the tax payable/paid thereon. This selective scheme of scrutiny is given effect to the computer system of the Income-tax Department. The returns indicating material under-reporting or misreporting are selected for detailed examination. The evidence of under-reporting or misreporting is gathered from internal and external sources; such cases are earmarked for the levy of penalty and launching of criminal prosecution. The objective is to provide a strong deterrence against tax evasion so as to protect the integrity of the system on the taxation of income.

2  The mistakes or discrepancies found on examination through the computer system that are largely of computational in nature or small in amount are brought to the notice of the concerned taxpayers by sending them written communications. After considering their replies, if any adjustment to the disclosed income and tax payable becomes necessary in any case, the same is carried out and the deficiency in the income tax payable is made good by the taxpayer concerned and the matter is closed.

3.  The cases selected for detailed examination, as stated above, are those where evasion of tax is proved and the concerned taxpayers need to be awarded exemplary punishment by levying stiff penalties and even launching criminal prosecution in the courts of law. The objective is that the punishment meted out to them should act as a strong deterrence for others so as to create a strong demonstration effect. The fear of stiff punishment, in cases of under-reporting or misreporting of income is believed to ensure compliance with the provisions of the Act by a vast majority of taxpayers both in letter and spirit.

4.  The capability of the Income-tax Department to detect under-reporting or misreporting of income has improved significantly in recent years. It is because of its enhanced access to relevant information regarding business transactions and availability of technology tools to process such information through a fairly advanced computer system. The training of the officers by the Income- tax Department both at the time of their induction and subsequently while working, ensures that their technical knowledge remains upto date and they are capable of detailed examination of taxpayers’ accounts and for making additions to disclosed income successfully. Penalties are imposed for tax evasion and prosecutions are launched against the big tax evaders. But sustaining the additions made by the Assessing Officers and penalties for concealment of income are very long and torturous processes. Success is often denied to the Department largely for technical defects and even additions made to the disclosed income are quite often deleted partially or fully in appeals. Need was, therefore, felt to ensure collection of tax with interest expeditiously after assessment by granting immunity from prosecution if the concerned assessee does not file any appeal and pay the tax with interest as assessed, within the prescribed time as per the notice of demand.

5. To achieve the above objective, section 270AA of the Act was inserted by the Finance Act, 2016 with effect from 1st April 2017 to grant immunity from the imposition of penalty and launching of criminal prosecution. It reads as under:-

“270AA. Immunity from imposition of penalty, etc.—

1. An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C of section 276CC, if he fulfills the following conditions, namely:—
   1. the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and
   2. no appeal against the order referred to in clause (a) has been filed.
2. An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.
3. The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 286CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.
4. The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application: Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.
5. The order made under sub-section (4) shall be final.
6. No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application.”.

6. It will be seen that section 270AA of the Act provides for the grant of immunity from the imposition of penalty for under-reporting or mis-reporting of income within the meaning of sub-section (9) of section 270A; immunity from the initiation of criminal prosecution for willful attempt to evade tax u/s 276C and failure to furnish the returns of income u/s 276CC of the Act.

7. The objective of section 270AA is to avoid tax litigation by not filing the appeal or writ petition by the concerned assessee by disclosing his true and full income and pay the tax and interest due thereon within the prescribed time. Three conditions contained in clauses (a), (b) and (c) of sub-section (1) of section 270AA of the Act have been prescribed to achieve the aforesaid objective:-

1. The tax and interest payable is paid within the specified period, usually of 35 days, from the receipt of the notice of demand in pursuance of an order of assessment or re- assessmentImmunity from imposition of penalty and criminal prosecution for misreporting of Income u/s 270AA . . .
2. No appeal u/s 246 or revision petition u/s 264 of the Act is filed against the order of assessment.
3. The concerned assessee makes an application u/s 270AA within one month from the end of the month in which the order of assessment or re-assessment is received by him or on his behalf.

8. The procedure for the grant of immunity is contained in sub-sections (2) to (4) of section 270AA of the Act and Rule-129 of the Income- tax Rules, 1962. Sub-section (2) of section 270AA requires an application for immunity to be filed by the concerned assessee within one month from the end of the month in which the order of assessment or re-assessment is received by the assessee. The application for immunity is to be filed in Form No. 68 specified in Rule-129 of the Income-tax Rules, 1962. Sub-section (3) provides for grant of immunity from imposition of penalty while sub-section (4) of section 270AA of the Act requires the Assessing Officer to pass an order accepting or rejecting the application within one month from the end of the month in which the application is received. In rejecting the application for grant of immunity, an opportunity of hearing is required to be given to the assessee by the Assessing Officer. His order under sub-section (4) accepting or rejecting the application will be final as stated in sub-section (5) of section 270AA of the Act. No appeal to the Jt. CIT (Appeals) u/s 246 or to the CIT (Appeals) u/s 246A will lie against such rejection. An application for revision of the order u/s 264 to the administrative Commissioner of Income-tax will also not be permissible nor will the CIT himself be able to revise the order of assessment.

9. The conditions imposed under section 270AA of the Act for the grant of immunity from the imposition of penalty and initiation of criminal prosecution against the under-reporting of income are a very welcome step taken by the Government. The prohibition against the filing of an appeal before the CIT (Appeals) or a writ petition in the court where the assessee makes an application u/s 270AA of the Act will eliminate long and torturous tax litigation often involved in cases of understatement of income. The Central Board of Direct Taxes has issued a clarification vide Circular No. 5 of 2018 dated 16.08.2018 on the scope of immunity provided u/s 270AA of the Act. The prohibition against tax litigation will be confined to the years covered by the application filed u/s 270AA of the Act. The assessee will have complete freedom to contest a similar issue in an earlier or later year. Para-3 of the said Circular clarifies that “where an assessee makes an application seeking immunity under section 270AA of the Act, it shall not preclude such assessee from contesting the same issue in any earlier assessment year. Further, the Income-tax Authority, shall not take an adverse view in the proceedings for penalty under section 271(1) (c) of the Act in earlier assessment years merely on the ground that the assessee has acquiesced on the issue in any later assessment year by preferring an immunity on such issue under section 270AA of the Act”.

10. The prohibition for filing an appeal to the Joint Commissioner of Income-tax (Appeals) u/s 246 or to CIT (Appeals) u/s 246A or filing an application for revision to the Commissioner of Income-tax u/s 264 of the Act is applicable to the assessment years for which the application made u/s 270AA is accepted. But where it is rejected, an appeal can be filed to the CIT (Appeals). Second proviso to sub-section (2) of section 249 relaxing the prescribed period of 30 days for filing the appeal from the receipt of the order appealed against provides an exception by stating that “where an application has been made under sub-section (1) of section 270AA, the period beginning from the date on which the application is made, to the date on which the order rejecting the application is served on the assessee, shall be excluded”.

11. Thus the provisions of section 270AA are an alternative to very long, expensive and torturous procedure of filing appeals, writ petitions etc in the courts against additions made in the assessment order, levy of penalty for concealment of income and related offences and launching of criminal prosecution. It is a very welcome initiative of the Central Government and should be taken full advantage by the recalcitrant taxpayers so as to come back to the path of rectitude and lead their balance of lives in peace and tranquility.

 

Immunity from imposition of penalty and criminal prosecution for misreporting of Income u/s 270AA of the Income-Tax Act, 1961

S. R. Wadhwa, Advocate

The problems concerning the levy of penalty for concealment of income u/s 270A by way of under-reporting and misreporting of income and launching of criminal prosecution for such offences u/s 276C and 276CC of the Income-tax Act, 1961 (the Act) almost in every such case, have assumed great importance in recent years. This is largely because of the selective scheme of scrutiny of a few income tax returns involving, prima-facie, a large under-reporting or misreporting of income and accepting the remaining vast majority of them after a routine arithmetical examination of the correctness of the income disclosed and the tax payable/paid thereon. This selective scheme of scrutiny is given effect to the computer system of the Income-tax Department. The returns indicating material under-reporting or misreporting are selected for detailed examination. The evidence of under-reporting or misreporting is gathered from internal and external sources; such cases are earmarked for the levy of penalty and launching of criminal prosecution. The objective is to provide a strong deterrence against tax evasion so as to protect the integrity of the system on the taxation of income.

2  The mistakes or discrepancies found on examination through the computer system that are largely of computational in nature or small in amount are brought to the notice of the concerned taxpayers by sending them written communications. After considering their replies, if any adjustment to the disclosed income and tax payable becomes necessary in any case, the same is carried out and the deficiency in the income tax payable is made good by the taxpayer concerned and the matter is closed.

3.  The cases selected for detailed examination, as stated above, are those where evasion of tax is proved and the concerned taxpayers need to be awarded exemplary punishment by levying stiff penalties and even launching criminal prosecution in the courts of law. The objective is that the punishment meted out to them should act as a strong deterrence for others so as to create a strong demonstration effect. The fear of stiff punishment, in cases of under-reporting or misreporting of income is believed to ensure compliance with the provisions of the Act by a vast majority of taxpayers both in letter and spirit.

4.  The capability of the Income-tax Department to detect under-reporting or misreporting of income has improved significantly in recent years. It is because of its enhanced access to relevant information regarding business transactions and availability of technology tools to process such information through a fairly advanced computer system. The training of the officers by the Income- tax Department both at the time of their induction and subsequently while working, ensures that their technical knowledge remains upto date and they are capable of detailed examination of taxpayers’ accounts and for making additions to disclosed income successfully. Penalties are imposed for tax evasion and prosecutions are launched against the big tax evaders. But sustaining the additions made by the Assessing Officers and penalties for concealment of income are very long and torturous processes. Success is often denied to the Department largely for technical defects and even additions made to the disclosed income are quite often deleted partially or fully in appeals. Need was, therefore, felt to ensure collection of tax with interest expeditiously after assessment by granting immunity from prosecution if the concerned assessee does not file any appeal and pay the tax with interest as assessed, within the prescribed time as per the notice of demand.

5. To achieve the above objective, section 270AA of the Act was inserted by the Finance Act, 2016 with effect from 1st April 2017 to grant immunity from the imposition of penalty and launching of criminal prosecution. It reads as under:-

“270AA. Immunity from imposition of penalty, etc.—

1. An assessee may make an application to the Assessing Officer to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C of section 276CC, if he fulfills the following conditions, namely:—
   1. the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and
   2. no appeal against the order referred to in clause (a) has been filed.
2. An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received and shall be made in such form and verified in such manner as may be prescribed.
3. The Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 286CC, where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.
4. The Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application: Provided that no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.
5. The order made under sub-section (4) shall be final.
6. No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment, referred to in clause (a) of sub-section (1), in a case where an order under sub-section (4) has been made accepting the application.”.

6. It will be seen that section 270AA of the Act provides for the grant of immunity from the imposition of penalty for under-reporting or mis-reporting of income within the meaning of sub-section (9) of section 270A; immunity from the initiation of criminal prosecution for willful attempt to evade tax u/s 276C and failure to furnish the returns of income u/s 276CC of the Act.

7. The objective of section 270AA is to avoid tax litigation by not filing the appeal or writ petition by the concerned assessee by disclosing his true and full income and pay the tax and interest due thereon within the prescribed time. Three conditions contained in clauses (a), (b) and (c) of sub-section (1) of section 270AA of the Act have been prescribed to achieve the aforesaid objective:-

1. The tax and interest payable is paid within the specified period, usually of 35 days, from the receipt of the notice of demand in pursuance of an order of assessment or re- assessmentImmunity from imposition of penalty and criminal prosecution for misreporting of Income u/s 270AA . . .
2. No appeal u/s 246 or revision petition u/s 264 of the Act is filed against the order of assessment.
3. The concerned assessee makes an application u/s 270AA within one month from the end of the month in which the order of assessment or re-assessment is received by him or on his behalf.

8. The procedure for the grant of immunity is contained in sub-sections (2) to (4) of section 270AA of the Act and Rule-129 of the Income- tax Rules, 1962. Sub-section (2) of section 270AA requires an application for immunity to be filed by the concerned assessee within one month from the end of the month in which the order of assessment or re-assessment is received by the assessee. The application for immunity is to be filed in Form No. 68 specified in Rule-129 of the Income-tax Rules, 1962. Sub-section (3) provides for grant of immunity from imposition of penalty while sub-section (4) of section 270AA of the Act requires the Assessing Officer to pass an order accepting or rejecting the application within one month from the end of the month in which the application is received. In rejecting the application for grant of immunity, an opportunity of hearing is required to be given to the assessee by the Assessing Officer. His order under sub-section (4) accepting or rejecting the application will be final as stated in sub-section (5) of section 270AA of the Act. No appeal to the Jt. CIT (Appeals) u/s 246 or to the CIT (Appeals) u/s 246A will lie against such rejection. An application for revision of the order u/s 264 to the administrative Commissioner of Income-tax will also not be permissible nor will the CIT himself be able to revise the order of assessment.

9. The conditions imposed under section 270AA of the Act for the grant of immunity from the imposition of penalty and initiation of criminal prosecution against the under-reporting of income are a very welcome step taken by the Government. The prohibition against the filing of an appeal before the CIT (Appeals) or a writ petition in the court where the assessee makes an application u/s 270AA of the Act will eliminate long and torturous tax litigation often involved in cases of understatement of income. The Central Board of Direct Taxes has issued a clarification vide Circular No. 5 of 2018 dated 16.08.2018 on the scope of immunity provided u/s 270AA of the Act. The prohibition against tax litigation will be confined to the years covered by the application filed u/s 270AA of the Act. The assessee will have complete freedom to contest a similar issue in an earlier or later year. Para-3 of the said Circular clarifies that “where an assessee makes an application seeking immunity under section 270AA of the Act, it shall not preclude such assessee from contesting the same issue in any earlier assessment year. Further, the Income-tax Authority, shall not take an adverse view in the proceedings for penalty under section 271(1) (c) of the Act in earlier assessment years merely on the ground that the assessee has acquiesced on the issue in any later assessment year by preferring an immunity on such issue under section 270AA of the Act”.

10. The prohibition for filing an appeal to the Joint Commissioner of Income-tax (Appeals) u/s 246 or to CIT (Appeals) u/s 246A or filing an application for revision to the Commissioner of Income-tax u/s 264 of the Act is applicable to the assessment years for which the application made u/s 270AA is accepted. But where it is rejected, an appeal can be filed to the CIT (Appeals). Second proviso to sub-section (2) of section 249 relaxing the prescribed period of 30 days for filing the appeal from the receipt of the order appealed against provides an exception by stating that “where an application has been made under sub-section (1) of section 270AA, the period beginning from the date on which the application is made, to the date on which the order rejecting the application is served on the assessee, shall be excluded”.

11. Thus the provisions of section 270AA are an alternative to very long, expensive and torturous procedure of filing appeals, writ petitions etc in the courts against additions made in the assessment order, levy of penalty for concealment of income and related offences and launching of criminal prosecution. It is a very welcome initiative of the Central Government and should be taken full advantage by the recalcitrant taxpayers so as to come back to the path of rectitude and lead their balance of lives in peace and tranquility.