Penalty on Concealment of Income in Search Cases

Under the Income Tax Act, 1961, if undisclosed income is found during an Income Tax Search (Raid) conducted under Section 132, penalties are levied under Section 271AAB.

1. What is “Undisclosed Income” in Search Cases?

As per Section 271AAB, “undisclosed income” refers to:
✔️ Unaccounted money, assets, or documents found during the search.
✔️ Income that is not recorded in books of accounts and not disclosed before the search.
✔️ False entries or suppression of income detected during the search.

2. Penalty Provisions Under Section 271AAB

The penalty for concealment of income in search cases depends on the circumstances under which the disclosure is made.

📌 Note: If the case falls under Section 271(1)(c) (general penalty for concealment of income) instead of Section 271AAB, the penalty can be 100% to 300% of the tax evaded.

3. Important Considerations

✔️ The penalty is mandatory if undisclosed income is detected in a search.
✔️ If the taxpayer voluntarily discloses the income before the search begins, no penalty is levied.
✔️ If the taxpayer fails to cooperate, the penalty can go up to 90% of the concealed income.

4. How to Avoid Maximum Penalty?

✔️ Voluntarily disclose any unreported income before a search happens.
✔️ Cooperate with tax authorities during the search proceedings.
✔️ File the return on time and pay taxes on undisclosed income.

Final Thought

The penalties under Section 271AAB are severe. If you anticipate any undisclosed income, it’s always better to voluntarily disclose and pay taxes rather than face high penalties and legal action in search cases.

Penalty on Under-Reporting of Income under the Income Tax Act

Under the Income Tax Act, 1961, under-reporting of income is penalized under Section 270A. The penalty is imposed when a taxpayer declares lower income than what is assessed by the tax department.

1. What is Considered Under-Reported Income?

A taxpayer is considered to have under-reported income if:
✔️ The assessed income exceeds the declared income.
✔️ Loss claims are reduced due to incorrect reporting.
✔️ Expenses are disallowed due to non-compliance.
✔️ Income is detected during reassessment exceeding earlier returns.
✔️ Income is found in search/survey operations but not reported.

2. Penalty for Under-Reporting Income (Section 270A)

📌 Example:

• Declared Income = ₹8 lakh
• Assessed Income (after adding under-reported income) = ₹12 lakh
• Additional Tax Due = ₹1.2 lakh
• Penalty (50% of ₹1.2 lakh) = ₹60,000 (if not misreported)
• Penalty (200% of ₹1.2 lakh) = ₹2.4 lakh (if misreported)

3. When No Penalty is Levied?

The penalty will not be imposed if:
✔️ The taxpayer voluntarily revises the return before scrutiny.
✔️ The under-reporting happened due to genuine differences in tax interpretation.
✔️ The income addition is due to a transfer pricing adjustment.
✔️ The taxpayer can justify the mistake with reasonable evidence.

4. How to Avoid Penalty for Under-Reporting?

✅ File accurate tax returns with complete disclosures.
✅ Respond to tax notices and justify any discrepancies.
✅ Maintain proper documentation for deductions and income sources.
✅ If errors are found, revise the return voluntarily before scrutiny begins.

Final Thought

Under-reporting income can attract a minimum 50% penalty and up to 200% in case of misreporting. To avoid penalties, ensure accurate reporting and comply with tax regulations.

Read How tax is calculated on under reported Income?

Who is Required to Furnish Annual Information Return (AIR) Under Section 285BA of the Income Tax Act?

Section 285BA of the Income Tax Act, 1961 mandates the filing of Annual Information Return (AIR), now referred to as the Statement of Financial Transactions (SFT). Certain specified entities are required to report high-value transactions to the Income Tax Department.

1. Who is Required to Furnish AIR/SFT?

The following specified persons/entities must file AIR/SFT if they conduct transactions exceeding prescribed limits:

2. When & How to File AIR/SFT?

✔️ Due Date: May 31 of the following financial year.
✔️ Mode of Filing: Electronically through Form 61A.
✔️ Details Required: PAN of transacting persons, transaction details, and value.

3. What Happens if AIR/SFT is Not Filed?

🔴 Penalty under Section 271FA – ₹500 per day for late filing.
🔴 Higher penalty of ₹1,000 per day if notice is issued by the Income Tax Department.
🔴 Possible scrutiny or inquiry notices if high-value transactions are unreported.

4. How Does the Income Tax Department Use This Data?

✔️ Cross-verifies transactions with ITR filings.
✔️ Identifies tax evasion and undisclosed income.
✔️ Tracks PAN-linked high-value transactions for scrutiny.

Final Thought

If you are a business or entity covered under Section 285BA, ensure timely compliance with AIR/SFT filing to avoid penalties and scrutiny.

Read: What are the financial transactions covered in annual information return?

Which Income Tax Orders Can Be Rectified?

Under Section 154 of the Income Tax Act, the Income Tax Department allows rectification of mistakes in certain orders. This provision helps correct apparent errors without requiring a lengthy appeal process.

1. Orders Eligible for Rectification

The following Income Tax orders can be rectified under Section 154:
✅ Intimation under Section 143(1) – Errors in automatic processing of returns.
✅ Assessment Orders under Section 143(3), 144, 147, 153A, 153C – Incorrect tax calculations or deductions.
✅ TDS/TCS Orders under Section 200A(1) and 206CB – Mismatch in TDS/TCS credit.
✅ Appeal Orders by CIT(A) – If there is an apparent mistake in the appellate decision.
✅ Rectification Orders under Section 154 – If a previous rectification order contained an error.

2. Types of Mistakes That Can Be Rectified

🔹 Clerical/Typographical Errors – Mistake in PAN, name, or assessment year.
🔹 Incorrect Tax Computation – Errors in tax demand or refund calculations.
🔹 TDS Mismatch – TDS credit not given as per Form 26AS.
🔹 Omission of Deductions/Exemptions – Missed deductions under 80C, 80D, 80G, etc.
🔹 Double Taxation of Income – Income considered twice for taxation.
🔹 Incorrect Late Fee or Penalty – Wrong application of fees under 234F, 271B, etc.

3. How to Apply for Rectification?

✅ Step 1: Login to the Income Tax e-Filing Portal.
✅ Step 2: Go to ‘Rectification Request’ under ‘Services’.
✅ Step 3: Select the relevant order and mention the mistake.
✅ Step 4: Upload necessary supporting documents.
✅ Step 5: Submit the request and track the status online.

4. Time Limit for Rectification

🕒 Rectification can be filed within 4 years from the date of the original order. However, this does not apply to revisions under Section 263 or 264.

Final Thoughts

If your Income Tax order contains apparent mistakes, you can request rectification under Section 154. This process is quicker than an appeal and helps correct errors without legal proceedings.
Read: How to point out mistake in an income tax notice which can rectified?

Reassessment Under Income Tax Act – Meaning, Provisions & Process

📌 What is Reassessment?

Reassessment refers to the process where the Assessing Officer (AO) re-examines an already completed assessment if they believe that income has escaped assessment. This is done under Section 147 of the Income Tax Act, 1961.

🔹 Key Provisions of Reassessment (Section 147)

1️⃣ Reason to Believe:

• The AO must have a valid reason to believe that some income was not assessed or was under-reported.
• Mere change of opinion is not a valid ground for reassessment.

2️⃣ Time Limits for Reassessment Notices (Section 148):

• If the escaped income is ₹50 lakh or less → Notice can be issued within 3 years from the end of the relevant assessment year.
• If the escaped income is more than ₹50 lakh → Notice can be issued within 10 years from the end of the relevant assessment year.

3️⃣ Approval Requirement:

• The AO needs prior approval from the specified authority before issuing a reassessment notice.

🔹 Process of Reassessment Under Section 147 & 148

✅ Step 1: Notice under Section 148 is issued to the taxpayer.
✅ Step 2: The taxpayer is required to file an Income Tax Return (ITR) in response to the notice.
✅ Step 3: The AO examines the response and issues a show-cause notice explaining why reassessment should not be done.
✅ Step 4: If valid reasons exist, reassessment proceedings begin, and a fresh assessment order is passed.
✅ Step 5: Taxpayer can challenge the reassessment if they find it unjustified.

🔹 When is Reassessment Not Allowed?

🚫 If the same issue was examined in the original assessment and no new information is available.
🚫 If more than 3 or 10 years have passed (depending on income threshold).
🚫 If AO does not have concrete evidence of income escaping assessment.

⚖️ Legal Safeguards for Taxpayers

• Taxpayers have the right to challenge reassessment before the Commissioner of Income Tax (Appeals) or the Income Tax Tribunal.
• If reassessment is without proper justification, courts can quash the notice.

📢 Final Thoughts

Reassessment is a tool for tax authorities to bring escaped income into the tax net, but it must be conducted lawfully. If you receive a notice under Section 148, consult a tax expert before responding.

Read: What are the time limits of issuing of Notices under Income Tax Act?