Levy of Interest and Penalty in Block Assessment
Introduction
Sections 158BF and 158BFA govern the levy of interest and penalty in block assessments under Chapter XIV-B. Section 158BF provides immunity from the levy of specified interest and penalty for undisclosed income assessed for the block period, while Section 158BFA empowers authorities to levy interest and penalty in defined circumstances and prescribes procedural and time-limit requirements.
Immunity from penalty and interest (Section 158BF)
No interest shall be levied on the undisclosed income of the block period under:
- Section 234A– default in furnishing return of income;
- Section 234B– default in payment of advance tax;
- Section 234C– deferment of advance tax.
Further, no penalty for under-reporting or misreporting of income under Section 270A shall be imposed in respect of undisclosed income assessed or reassessed for the block period.
Levy of interest and penalty (Section 158BFA)
If the assessee fails to furnish the return of undisclosed income within the period specified in Section 158BC or does not file it at all:
- Interest at 5% per month or part thereofapplies on the tax on undisclosed income;
- Computed from the day immediately following the due date specified in the notice until completion of the assessment.
Further, under Section 158BFA(2):
- AO or CIT(A) may impose a penalty equal to 50% of the taxon the undisclosed income determined under Section 158BC.
- Penalty applies only to the portion of undisclosed income exceedingthe amount declared in the return.
Immunity from penalty
Immunity applies to penalties under:
- Section 158BFA(2);
- Section 271AAD (false entry/omission);
- Section 271D (contravention of Section 269SS);
- Section 271DA (contravention of Section 269ST);
- Section 271E (contravention of Section 269T).
Conditions for immunity
The following conditions must be fulfilled:
- Filing of return under Section 158BC;
- Payment of tax due or offering seized money for adjustment;
- Furnishing proof of tax payment along with the return;
- No appeal against the assessment of disclosed income.
Immunity is not available where undisclosed income determined by the AO exceeds the income declared in the return; a penalty applies on such excess.
Procedure for imposing a penalty
- Opportunity of being heard
The assessee must be granted a reasonable opportunity before the levy of a penalty.
- Authority and approval requirement
Penalty may be imposed only with prior approval of the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director if:
- Penalty exceeds 2 lakh, or
- Penalty is to be imposed by a Dy. CIT, Asst. CIT, Dy. Director or Asst. Director.
- Communication of penalty order
A copy of the penalty order must be sent to the Assessing Officer, except where the AO himself passes the order.
Limitation period for imposition of penalty
Time limits vary depending on the appellate or revisional proceedings:
- Where the assessment is in appeal before CIT(A)
Penalty to be imposed before the later of:
- End of the financial year in which proceedings are completed;
- Six months from the end of the financial year in which the CIT(A)’s order is received by the Principal CIT/CIT.
- Where the assessment is in appeal before the ITAT
Penalty to be imposed before the later of:
- End of the financial year in which proceedings are completed;
- Six months from the end of the financial year in which the ITAT’s order is received.
- Where assessment is in revision
Penalty to be imposed within six months from the end of the financial year in which the revisional order is passed.
- In any other case
Penalty to be imposed before the later of:
- End of the financial year in which proceedings are completed;
- Six months from the end of the financial year in which the notice for penalty is issued.
Exclusions for Computing Limitation Period
The following periods are excluded when computing the limitation:
- Time given to the assessee for being reheard;
- Period during which penalty proceedings are stayed by a court, from the date of stay until the Principal CIT/CIT receives a certified copy vacating the stay.
Where, after such exclusions, the remaining limitation period is less than 60 days, it is extended to:
- 60 days, or
- End of the monthif the extended period ends within a month.