Section 271AAC of ITA, 1961 : Section 271Aac: Penalty In Respect Of Certain Income

Explanation using Example

Imagine a business owner, Mr. Sharma, has not recorded a cash loan of INR 10 lakhs in his company's books. During an audit, the Income Tax Department discovers this unaccounted cash and deems it to be income under Section 68 of the Income-tax Act, 1961, since Mr. Sharma cannot satisfactorily explain the source of the funds.

As per Section 271AAC, the Assessing Officer determines that Mr. Sharma must pay a penalty in addition to the tax due on this undisclosed income. The penalty is calculated at 10% of the tax payable under Section 115BBE, which taxes undisclosed income at a higher rate than regular income.

However, if Mr. Sharma had voluntarily included this INR 10 lakhs in his tax return and paid the due tax on it before the end of the financial year, as per the proviso to Section 271AAC(1), he would not be liable to pay the penalty.

Moreover, since the undisclosed income is being penalized under Section 271AAC, Mr. Sharma will not face any penalty under Section 270A for this income. The proceedings for the penalty under Section 271AAC would follow the guidelines laid out in Sections 274 and 275.