Section 271 of Income Tax Act 1961
Section 271 is a long-standing penalty provision covering specified failures to comply with income-tax notices and, historically, concealment of income or furnishing inaccurate particulars. Its present application must be read with the statutory transition that applies from Assessment Year 2017-18.
Section 271(1)(b) - Failure to Comply with Notices or Directions
For assessment years to which section 271 applies, clause (b) covers failure to comply with specified statutory notices or directions, including notices under section 142(1) or section 143(2), a direction for special audit under section 142(2A), and the historical fringe-benefit provisions referred to in the section.
The provision historically authorises a penalty of Rs. 10,000 for each such failure, in addition to tax, if any, payable.
Section 271(1)(c) - Historical Concealment Penalty
Clause (c) historically applied where an assessee concealed particulars of income or furnished inaccurate particulars of income. For the assessment years governed by this provision, the penalty under clause (iii) ranged from the amount of tax sought to be evaded up to three times that amount, subject to the law applicable to the relevant assessment year.
The exact version of section 271 must always be checked for the assessment year concerned because the provision was amended repeatedly over time.
Explanation 1 - Unsubstantiated or False Explanation
Explanation 1 creates a deeming rule for an amount added or disallowed in computing total income where the assessee fails to offer an explanation, offers an explanation found to be false, or offers an explanation that cannot be substantiated and also fails to prove that it was bona fide and that all material facts were disclosed.
Explanation 2 - Amounts Traced to Earlier Additions
Explanation 2 addresses a case where the source of a receipt, deposit, outgoing or investment is claimed to be an amount already added to income or deducted while computing loss in an earlier assessment year, but no concealment penalty was levied for that earlier year. The explanation contains a statutory mechanism for attributing the utilised amount to preceding assessment years.
Explanation 3 - Certain Failure to Furnish Return
Explanation 3 contains a historical deeming provision for specified cases of failure, without reasonable cause, to furnish a return within the period stated in section 153 where taxable income existed and the other statutory conditions were satisfied.
Explanation 4 - Tax Sought to be Evaded
Explanation 4 contains the method for determining the amount of tax sought to be evaded for the historical penalty under section 271(1)(c), including rules addressing general provisions, sections 115JB and 115JC, losses and cases covered by Explanation 3.
Search Cases - Explanations 5 and 5A
Explanations 5 and 5A contain special deeming rules for undisclosed income identified in searches under section 132. Their operation depends on matters such as the date of search, the relevant previous year, filing status of the return and the statutory conditions applicable to the particular search.
Transfer Pricing - Explanation 7
Where an assessee entered into an international transaction or specified domestic transaction and an amount was added or disallowed under section 92C(4), Explanation 7 historically treated the amount as income in respect of which particulars were concealed or inaccurate particulars furnished, unless the assessee established that the price was computed under section 92C in the prescribed manner, in good faith and with due diligence.
Section 271(1B) - Satisfaction for Penalty Proceedings
Where an assessment or reassessment order adds or disallows an amount in computing total income or loss and contains a direction to initiate proceedings under section 271(1)(c), section 271(1B) deems that direction to constitute the Assessing Officer's satisfaction for initiating those penalty proceedings.
Section 271(7) - No Application from Assessment Year 2017-18
Section 271 expressly provides that it does not apply to an assessment for an assessment year commencing on or after 1 April 2017. Consequently, its concealment framework should not be presented as the general penalty regime for current assessment years.
Section 270A - Under-reporting and Misreporting from Assessment Year 2017-18
Section 270A introduced the penalty regime for under-reporting and misreporting of income with effect from 1 April 2017. Broadly, penalty for under-reported income is 50 percent of the tax payable on the under-reported income, while penalty where under-reporting results from specified misreporting is 200 percent of the tax payable on that income.
| Relevant period | Main provision | General subject |
|---|---|---|
| Assessment Year 2016-17 and earlier | Section 271, subject to the version applicable to that year | Historical notice defaults, concealment and inaccurate particulars |
| Assessment Year 2017-18 onwards | Section 270A | Under-reporting and misreporting of income |
Reasonable Cause under Section 273B
Section 273B expressly covers clause (b) of section 271(1). Therefore, penalty for a failure falling under section 271(1)(b) is not imposable where the person proves that there was reasonable cause for the failure. The protection is fact-specific and should be supported by evidence.
Opportunity of Hearing under Section 274
Section 274 provides that an order imposing a penalty under Chapter XXI cannot be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The procedural requirements applicable to the relevant year and authority should also be checked.
Official Resources
Income Tax Department - Section 271
Income Tax Department - Section 270A