Higher penalty for giving inaccurate statements to Income Tax Authorities

Introduction Tax dodgers have to gulp a bitter dose of quinine medicine, as a brand new penalty provision has been introduced in the Jaitley's budget. For inaccurate statements, before the income tax authorities, the penalty has been steeply hiked from minimum Rs.100 to a mammoth Rs. 50,000, chilling tax evaders. Previously, the penalty was administered in small doses, of Rs.100 on each day of default, for giving inaccurate statement. But, the new government has dealt a body blow to such tax criminals. The hefty penalty, amounting to Rs.50,000 is more effective, than making the tax evaders cough up small amounts, seems to be the thinking of the new government. New Penalty Provision The Finance Bill, 2014 reads: After Section 271FA of the Income Tax Act, the following section shall be inserted with effect from the 1st day of April, 2015, namely as 271FAA. If a person referred to in clause (k) of sub-section (i) of Section 285BA, who is required to furnish a statement under this section, provides inaccurate information in the statement, and where – a) The inaccuracy is due to a failure to comply with due diligence requirement prescribed under sub-section (7) of Section 285BA or is deliberate on the part of that person; or b) The person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed income tax authority, or such other authority or agency; or c) The person discovers the inaccuracy after the statement of financial transactions or reportable account is forwarded and fails to inform and furnish correct info within the time stipulated under sub-section (6) of Section 285BA, then the prescribed income-tax authority may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees. Issues A new penalty section has been placed on the statute book, which would be extremely punitive. The Revenue may generate a lot of money, through this punishment and black money peddlers may also be hauled up, in the process. The penalty may well prove a deterrent to those filing false information. Because, inaccurate information in financial statements or accounts can stop the income tax officials from studying returns properly, this step has come at right time. Impact Another new penalty provision has sprung up, but its bite was long due. By paying Rs.100 per day of default, the tax evaders were making merry and carrying on nefarious activities. The flip side is that even after due diligence, inaccurate information may appear and this would still invite strict action. Every taxpayer has to be extra careful now, while furnishing statements of financial transactions or reportable accounts. Judicial decisions overturned: The judiciary has favoured the assessee, where assessees have innocently furnished facts and penalty was levied. a) CIT v.Harshsiddh Construction [2011] 18 taxmann 760 (Guj.): The judicial pronouncement was that technical breach by assessee, in return should not be penalized, The penalty was removed. b) Pricewaterhouse Coopers Pvt Ltd 348 ITR 388(SC): The apex court ruled that no penalty should be imposed, if inadvertent or silly mistake in computation is made by an assessee. Here, the new penalty proviso has proved to be tough. The judicial decisions of past have been reversed, as it were. An assessee, who after due diligence furnishes a statement may still be caught in grip of penalty, if he has not been wary enough.A spanking new penalty provision has come in - to give a spanking to tax rouges.