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Finance Bill 2015 – New Explanation for determination of penalty for concealment of income or furnishing of inaccurate particulars of income- an analysis and observations.

Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 8-4-2015 - Existing Explanation 4, which is proposed to be substituted reads as follows (with highlights added by author for analysis): Explanation 4.-For the purposes of clause (iii) of this sub-section, the expression the amount of tax sought to be evaded ,- 34[(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of red .....

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e of notice under section 148]; (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.] Existing Explanation 3 referred to in Explanation 4 reads as follows: [Explanation 3.-Where any person fails, without reasonable cause, to furnish within the period specified i .....

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on shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.] Clause 68 of the Finance Bill, 2015 proposes to substitute Explanation 4 to prescribe mathematical formula, to cover situations of income, loss and tax on book profit, if applicabl .....

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ng formula- (A - B) + (C - D) where, A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished; C = amount of tax on the total income asse .....

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issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D: Provided further that in a case where the provisions contained in section 115JB or section 115JC are not applicable, the item (C - D) in the formula shall be ignored; (b) where in any case the amount of income in respect of which particulars have been concealed or inaccurate p .....

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ad such income been the total income; (c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148. Notes on Clauses: Clause 68 of the Bill seeks to amend section 271 of the Income tax Act relating to failure to furnish returns, comply with notices, concealmen .....

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that the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A - B) + (C - D) where A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (hereinafter called general provisions); B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been c .....

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ect of which particulars have been concealed or inaccurate particulars have been furnished on any issue is considered both under general provisions and under the provisions contained in section 115JB or section 115JC, such amount shall not be reduced from total income assessed while determining the amount under item D: Provided further that where the provisions contained in section 115JB or section 115JC are not applicable, the item (C - D) in the formula shall be ignored. It is further proposed .....

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hargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income. It is also proposed to provide that where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148. These .....

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se the tax payer must be aware of the provisions applicable in relation to income of any previous year before such previous year commences Formulae are subject to satisfaction of test of furnishing of inaccurate particulars of income or concealment of income. When these tests are not satisfied, a disallowance of expense or addition to income cannot be called furnishing of inaccurate particulars or concealing of income. Penalty in situations where there is no tax at all, and particularly in cases .....

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