Contesting Income Tax Penalty when Quantum Order Accepted [Section 271(1)(c) of ITA’61 – Section 439 of ITA’25 w.r.t. Sec 270A of ITA’61]

Sometimes when stakes are not huge, assesses may not contest quantum orders to prevent further litigation. Sometimes, when there is a loss and the assessment reduces the loss, the assesses accept the quantum orders. What follows is a penalty order of 50% to 200% of the tax amount involved! The assesses provide the following explanations -

1. Oversight by consultant

2. Oversight by Tax Auditor

3. Admitting Quantum for Buying Peace of mind 

Department contests-

1. Significant inaccuracies cannot be dismissed as inadvertent

2. Deliberate and malafide Intention to evade taxes

3. A Company with professional advisors is not expected to make such mistakes

Section 271(1)(c) states that If the 2[Assessing] Officer or 57[the Joint Commissioner (Appeals) or the Commissioner (Appeals)] 5[or the 54[Principal Commissioner or]

Commissioner] in the course of any proceedings under this Act, is satisfied that any person.. has concealed the particulars of his income or 10[****] furnished inaccurate particulars of such 11[income, or] he may direct that such person shall pay by way of penalty.

Similarly Section 270A (1)states that The Assessing Officer or 5[the Joint Commissioner (Appeals) 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…

(8) Notwithstanding anything contained in sub-section (6) or sub-section (7), 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.

Hence the AO should clearly state what the Assessee has done to invoke penalty –

1. Concealed the particulars of his income or

2. Furnished inaccurate particulars of such 11[income, or

3. Under-reported his income

4. Under-reported income is in consequence of any misreporting

While ITA’25 has not mirrored Section 271 of ITA’61, yet Section 439 of ITA’25 has mirrored Section 270A of ITA’61 and also requires the AO to determine whether the assessee has Under-reported his income or misreported. The Hon’ble Supreme Court in the case of COMMISSIONER OF INCOME TAX & ANR. Versus M/s SSA'S EMERALD MEADOWS - 2016 (8) TMI 1145 - SC Order and following the same, has held that non-issuance of a specific show cause is a illegal infirmity. The same proposition has been reiterated by various Hon’ble Courts including Hon’ble Supreme Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX Versus SHYAM SUNDER JINDAL - 2024 (7) TMI 975 - SC Order. Hence it is very important for the AO to denote the right limb of the Section as an allegation. Further quantum proceedings have attained finality doesn’t automatically lead to levy of penalty where the assessee has made the necessary disclosure.

Hence, to contest the penalties once quantum proceeding reaches finality assesses may do the following –

1. Substantiate by facts as to how they have made full and true disclosures.

2. Substantiate on the basis of facts and circumstances as existed then as to how the mistake (if at all happended).

3. Submit evidences for 2 & 3 above.

4. Contest on why the particular Limb of the Section may not apply.

One may go through the recent case in the matter - DCIT, Circle-14 (1) (1) Versus M/s. Nevales Networks Pvt. Ltd. Mumbai - 2025 (12) TMI 869 - ITAT MUMBAI