What happens if I deposit cash my bank account? Is it subject to penalty at 200%

200% penalty on Cash Deposits over 2,50,000 is not 100% true
You are aware about 200% penalty on cash deposits. So, the question is
Does all deposits over Rs.2.50 Lakhs in the account is subject to scrutiny and penalty of 200% of tax?
The answer is NO.

Cash lying at home – Let’s accept the fact that most of the people may be keeping some amount of cash at home. Depositing such amount into bank account won’t attract tax or penalty.

Cash in proportion to Income – Say, your income is Rs.30 Lakhs per year and you have been paying taxes and filing return over many years. Now you are depositing, say Rs.15 Lakhs into your bank account. Does this subject to tax and penalty?
Mostly No. First of all, the cases for scrutiny will be picked up in the case of disproportionate cash deposits to the income earned. In the above scenario, it is quite unlikely to get a notice, even if you deposit over Rs.2.50 Lakhs.

If the case is picked up for scrutiny and the Assessing Officer (AO) is not convinced that the deposits are from the genuine source, then he may levy a tax on it.

The penalty of 200% u/s 270A – The burden of proving misreporting or suppression of facts will be on the Assessing Officer. He can’t just levy a penalty at his will. If he levies irrationally, it can be challenged in Appeals. So, the penalty is not automatic. One needn’t fear of it. If there is a reasonableness in your deposits, such cases won’t fit in 200% penalty.

Source : simplifiedlaws

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Important Notes on Penalty under Income Tax Act. 1961.

1. No penalty can be levied u/s. 221(1), if the assessee proves that the default in making payment of tax was for good and sufficient reasons.

2. No order levying penalty can be passed for failure u/ss. 271(1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FB, 271G, 272A(1)(c)/(d), 272A(2), 272AA(1), 272B, 272BB(1)/(1A), 272BBB (1)(b), 273(1)(b), 273(2)(b)/(c). if the person or the assessee proves that there was a reasonable cause by virtue of Section 273B.

3. No penalty shall be imposed on any person unless he is properly heard or has been provided with reasonable opportunity of being heard by virtue of Section 274(1).

4. No order imposing penalty exceeding Rs. 10,000/- can be passed by the Income Tax Officer without previous approval of Joint Commissioner. Further, no order imposing penalty exceeding Rs. 20,000/- can be passed by the ACIT or DCIT without the previous approval of Joint Commissioner by virtue of Section 274(2).

5. Penalty proceedings have to be completed before the end of financial year in which the proceedings, in the course of which action for imposition of penalty is initiated, are complete, or within 6 months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later by virtue of Section 275.

6. While determining the amount of penalty, the law to be applied would be the law operative on the date when default was committed. In case of late filing of return, the default is said to be committed on the date when the return is to be filed and in case of non-compliance of notice, default is taken to be committed on the day when the date given in the notice expires.

7. An application can be made to Commissioner for reducing or waiving any penalty levied under the Income-tax Act, 1961 or for staying or compounding any proceeding for the recovery of any such penalty by virtue of Section 273A(4). In such situations, where the aggregate of such penalties exceed Rs. 1,00,000/-, then the Commissioner can exercise these powers with the previous approval of Chief Commissioner or Director-General as the case may be.

8. Explanation1 to Sec. 271(1)© specifies that assessee shall offer an explanation, and only on failure to offer any explanation or such explanation is found to be false, or assessee is not in a position to substantiate then it will be deemed that such person has concealed the income.

9. Explanation 4 to Sec. 271(1)© specifies that the amount of tax sought to be evaded also shall included reduction in the loss figure.

Source : Income taxmanagement

Imposition of Penalty u/s 270A of Income Tax Act 1961

Imposition of Penalty u/s 270A of Income Tax Act,1961

The demonetization of Indian High Value Currency Notes is creating havoc and sheer chaos in the Indian Markets. Amidst such a scenario, rumours are spreading on imposition of 200% penalty by the Income Tax Department on the cash deposited in banks by the assessee’s.

It has been rumored and spread vigorously that the 200% penalty shall be imposed on the cash deposits in the bank accounts, thus you need to pay more than your income! This kind of unwarranted interpretations has led to sheer panic among the Indian masses.

The bare reading of Section 270 A divulges the fact the penalty under the newly inserted section 270A (be it 50 % or 200%) can only be levied on difference between assessed income and returned income.

Lets us examine the taxability of the unaccounted cash deposits in bank accounts. Brevity may be the soul of wit, but unfortunately, not of The Income Tax Act, 1961.

It is very pertinent to mention here four very important statements, which are to be analyzed both logically and legally keeping in view the relevant sections of the Income Tax Act’1961.

The statements are as follows.
1. “We would be getting reports of all cash deposited during 10th Nov to 30th 2016 above threshold of Rs. 2.50 lacs in each A/C.”
2. “Income Tax department would do matching of this with income returns filled by the And suitable action may follow.”
3. “If cash amount of above Rs. 10 lacs is deposited in a bank a/c not matching with declared income, same will be treated as tax evasion”
4. “In such case, tax amount plus a penalty of 200% of the tax payable would be levied as per Section 2 70(A) of the income tax Act”

The levy of penalty for concealment or furnishing of inaccurate particulars of income under the erstwhile provisions of Section 271(1)(c) of Income-tax Act 1961 has always been a matter of litigation between the revenue authorities and the taxpayers.

With a view to reduce the litigation and remove the discretion of tax authority, the Finance Act, 2016, w.e.f 01-04-2017 has inserted new provisions in the form of new Sections 270A and 270AA in the Act which replaced the existing provisions of section 271(1)(c).

Imposition of penalty under sections 270A and 270AA will apply to cases pertaining to A.Y. 2017-18 onwards and provisions of section 271(1)(c) will continue to be applicable to all cases up to A.Y. 2016-17.

Under the new scheme, the penalty matters are categorized in two parts —
(1) Under reporting of income and
(2) Misreporting of income.

Under reported income has been defined in S. 270A(2) which is to be read with sub-section (6) while misreporting of income is defined in sub sections (8) & (9) of this section.

With a view to remove the discretion of the Assessing Officer, Section 270A imposed fixed % of the amount of penalty under the new scheme.
Hence, penalty for under reported income will be at fixed rate of 50% of the tax payable on unreported income while it will be @ 200% of the tax payable on the misreported income as against 100% to 300% of concealed income under the erstwhile provisions of section 271 ( now applicable for A.Y. 2016-17 and earlier assessment years).

The provisions of Section 270A of the Income Tax Act’1961 are reproduced herein under:-

“Penalty for under reporting and misreporting of income 270A
(1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.
(2) A person shall be considered to have under-reported his income, if the income assessed is greater than the income determined in the return processed under clause (a) of sub¬section (1) of section 143; or
the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;
(3) The penalty referred to in sub-section (1) shall be a sum equal to fifty per cent of the amount of tax payable on under-reported income.
Now, where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred per cent of the amount of tax payable on under-reported income.
(4) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:—
(a) Misrepresentation or suppression of facts;
(b) Failure to record investments in the books of account;
(c) Claim of expenditure not substantiated by any evidence;
(d) Recording of any false entry in the books of account;
(e) Failure to record any receipt in books of account having a bearing on total income; and
(f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

The bare reading of Section 270 A divulges the fact the penalty under the newly inserted section 270A (be it 50 % or 200%) can only be levied on difference between assessed income and returned income.

Therefore, if unaccounted cash is deposited into bank and applicable tax (maximum 30% plus surcharge/Cess) is paid on this additional income, no penalty for under reporting or misreporting can be imposed by assessing officer u/s 270A of Income tax Act.

This is because penalty for concealment can be levied only on difference between assessed income and returned income.

As rumoured, penalty of 200% under no circumstances can be levied on such income disclosed in return of current year with due payment of taxes on the same.

If, however, the case is such that you have intentionally suppressed facts, deposited the unaccounted cash and didn’t declare the same in your return of income u/s 139 of the act, than surely it is a fit case for imposition on penalty u/s 270A of the act.

Let us illustrate the aforementioned contention –
If an assessee deposits Rs. 10 cr., unaccounted cash, in its bank account, show it in its income tax return for the FY 2016-17, and pay tax on its income as per applicable slab tax rate, there can’t be any imposition of penalty, because it is not misreported or underreported income. The tax authorities will see that the assessee have declared it and paid tax on it, thus making the deposit a legitimate credit.

If, on the other hand, the assessee deposit this Rs. 10 Cr. in its bank account, omit it from its declaration of income (and therefore not pay any tax on it), it will be considered misreported income, and it shall be a fit case for imposition of penalty u/s 270A of the act.

To conclude, the demonetization of currency notes is a positive, historic and game-changing move for the Indian economy and also a good lesson to those who are playing with Indian taxation policy so far.

Powers to reduce or waive penalty under Income tax Act

The Income-tax Act has provisions empowering the Principal Commissioner of Income-tax or Commissioner of Income-tax to grant relief from penalty to taxpayers in genuine cases. Such power is granted under section 273A and section 273AA. In this part you can gain knowledge about the provisions of section 273A and section 273AA.
Overview of major penalties under the Income-tax Act
Before understanding the provisions of section 273A and 273AA it is better to take an overview of the penal provisions under the Income-tax Act. Table at below article highlights major penalties imposable under the Income-tax Act.
Penalties & Prosecutions Under Income tax Act,1961
Power of Principal Commissioner or Commissioner to reduce or waive penalty under sections 273A(1), 273A(4) and 273AA
♠ Waiver or reduction of penalty under section 273A(1)
Section 273A(1) empowers the Principal Commissioner or Commissioner to grant waiver or reduction from penalty imposed or imposable under section 271(1)(c) (i.e., penalty for concealment of particulars of income or furnishing inaccurate particulars of income).
Initiation to be taken by Principal Commissioner or Commissioner or the taxpayer
The waiver or reduction under section 273A(1) can be granted by the Principal Commissioner or Commissioner either on his own motion or otherwise, i.e., on an application made by the taxpayer.
Conditions for granting relief
Relief under section 273A( 1) is granted if following conditions are satisfied :
(1) Prior to the detection by the Assessing Officer of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, the taxpayer voluntarily and in good faith, makes a full and true disclosure of such income, the taxpayer voluntarily and in good faith, makes a full and true disclosure of such particulars.
For the purpose of section 273A(1), a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract penalty under section 271(1)(c).
(2) The taxpayer should have co-operated in any enquiry relating to the assessment.
(3) The taxpayer either should have paid or made satisfactory arrangements for paying any tax or interest payable in consequence of an order passed under the Act in respect of the relevant year.
Previous approval of Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General
If the amount of income in respect of which the penalty is imposed or imposable for the relevant year or, where such disclosure relates to more than one year, the aggregate amount of such income for those years exceeds a sum of Rs. 5,00,000, no order reducing or waiving the penalty under section 273A(1) shall be made by the Commissioner, except with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be.
Finality of the order
Every order made under section 273A shall be final and shall not be called into question by any Court or any other authority.
No relief if waiver claimed earlier
As per section 273A(3), where an order has been made under section 273A(1) in favour of any person, whether such order relates to one or more years, he shall not be entitled to any relief under section 273A in relation to any other year at any time after the making of such order.
Thus, if a person has claimed relief under section 237A(1) at any time, then he cannot claim relief under section 273A [i.e., 273A(1) as well as section 273A(4)] thereafter.
♣ Waiver or reduction of penalty under section 273A(4)
Section 273A(4) empowers the Principal Commissioner or Commissioner to waive or reduce any penalty imposable under the Income-tax Act as well as to stay or compound any proceeding for the recovery of penalty.
Initiation to be taken by the taxpayer
For obtaining waiver or reduction or stay or compound any proceeding for the recovery of penalty, the taxpayer has to make an application to the Commissioner.
Conditions for granting relief
Relief under section 273A(4) is granted if following conditions are satisfied :
1. Levy of penalty will cause genuine hardship on the taxpayer.
2. The taxpayer has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
Previous approval of Chief Commissioner or Director General
If the amount of any penalty or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds Rs. 1,00,000, no order of reducing or waiving the amount or compounding any proceeding for its recovery under section 273A(4) shall be made by the Principal Commissioner of Commissioner, except with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be.
Time-limit for passing order under section 273A(4)
The Principal Commissioner or Commissioner, as the case may be, shall pass order, either accepting or rejecting assessee’s application to reduce or waive penalty, within a period of 12 months from the end of the month in which application is received. However, order shall be passed on or before May 31, 2017 in case of application pending as on June 1, 2016.
Further, no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.
Finality of the order
Every order made under section 273A shall be final and shall not be called into question by any Court or any other authority.
No relief if waiver claimed earlier
Section 273A(1) empowers the Principal Commissioner or Commissioner to grant waiver or reduction from penalty levied under section 270A (i.e., penalty for under-reporting and misreporting of income) or under section 271(1 )(c) (i.e., penalty for concealment of particulars of income or furnishing inaccurate particulars of income).
As per section 273A(3), where an order has been made under section 273A(1) in favour of any person, whether such order relates to one or more years, he shall not be entitled to any relief under section 273A in relation to any other year at any time after the making of such order.
Thus, if a person has claimed relief under section 273A(1) at any time, then he cannot claim relief under section 273A [i.e., section 273A( 1) as well as section 273A(4)] thereafter.
Waiver of penalty under section 273AA
Section 273AA empowers the Principal Commissioner or Commissioner to grant immunity from imposition of any penalty under the Income-tax Act in a case where the taxpayer has made an application for settlement under section 245C and the proceedings for settlement have been abated under section 245HA and penalty proceedings are initiated under the Income-tax Act.
Initiation to be taken by the taxpayer
For obtaining waiver, the taxpayer has to make an application to the Commissioner.
Time-limit for passing order under section 273AA
The Principal Commissioner or Commissioner, as the case may be, shall pass order, either accepting or rejecting assessee’s application to reduce or waive penalty, within a period of 12 months from the end of the month in which application is received.
However, order shall be passed on or before May 31, 2017 in case of application pending as on June 1, 2016.
Further, no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.
Other provisions applicable to the case of waiver under section 273AA
• The application to the Commissioner for waiver shall not be made after the imposition of penalty after abatement.
• The Commissioner may, subject to such conditions as he may think fit to impose, grant to the person immunity from the imposition of any penalty under the Income-tax Act.
• Before granting the waiver, the Commissioner should be satisfied that the taxpayer has, after the abatement, co-operated with the Income-tax authority in the proceedings before him and made a full and true disclosure of his income and the manner in which such income has been derived.
• The immunity granted under section 273AA shall stand withdrawn, if such person fails to comply with any condition subject to which the immunity was granted and after the withdrawal of the immunity, the provisions of the Act shall apply as if such immunity had not been granted.
• The immunity granted under section 273AA may, at any time, be withdrawn by the Principal Commissioner or Commissioner, if he is satisfied that such person had, in the course of any proceedings, after abatement, concealed any particulars material to the assessment from the income-tax authority or had given false evidence, and thereupon such person shall become liable to the imposition of any penalty under the Act to which such person would have been liable, had not such immunity been granted.