Income Tax Act

Official PDF pages 536–540

SOURCE PDF PAGE 536
( e )   the amount of deemed total income assessed as per section 206(1)   and
(2), is greater than the maximum amount not chargeable to tax, where no
return of income has been furnished or where return has been furnished
for the first time under section 280;
( f )   the amount of deemed total income reassessed as per section 206(1)   and
(2), is greater than the deemed total income assessed or reassessed under
the said sections immediately before such reassessment;
( g )   the income assessed or reassessed has the effect of reducing the loss or
converting such loss into income.
(3) The amount of under-reported income shall be,—
( a )   if income has been assessed for the first time,—
( i )   where return has been furnished, the difference between the amount
of income assessed and the amount of income determined under
section 270(1)( a );
( ii )   where no return of income has been furnished or where return has
been furnished for the first time under section 280,—
( A )   the amount of income assessed, in the case of a company,
firm or local authority; and
( B )   the difference between the amount of income assessed and
the maximum amount not chargeable to tax, in a case not
covered in item ( A );
( b )   in any other case, the difference between the amount of income reas -
sessed or recomputed and the amount of income assessed, reassessed
or recomputed in a preceding order.
(4) If under-reported income arises out of determination of deemed total income
as per section 206(1) and (2), the amount of total under-reported income shall be
determined as under—
(A – B) + (C – D)
where,—
A =   the total income assessed as per the provisions other than the
provisions contained in section 206 (herein referred to as “general
provisions”);
B =   the total income that would have been chargeable had the total
income assessed as per the general provisions been reduced by the
amount of under-reported income;
C =   the total income assessed as per section 206;
D =   the total income that would have been chargeable had the total
income assessed as per section 206 been reduced by the amount
of under-reported income.
(5)( a ) If the amount of under-reported income on any issue is considered both un -
der section 206(1) and (2) and under general provisions, such amount shall not be

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SOURCE PDF PAGE 537
reduced from total income assessed while determining the amount under D referred
to in sub-section (4);
( b ) in a case where an assessment or reassessment has the effect of reducing the loss
declared in the return or converting that loss into income, the amount of under-re -
ported income shall be the difference between the loss claimed and the income or
loss, assessed or reassessed.
(6) Subject to sub-section (8), where the source of any receipt, deposit or invest -
ment in any tax year is claimed to be an amount added to income or deducted
while computing loss, in the assessment of such person in any year prior to the
tax year in which such receipt, deposit or investment appears (herein referred to
as the preceding year) and no penalty was levied for such preceding year, then, the
under-reported income shall include such amount as is sufficient to cover such
receipt, deposit or investment.
(7) The amount referred to in sub-section (6) shall be deemed to be income
under-reported for the preceding year in the following order:—
( a )   the preceding year immediately before the year in which the receipt,
deposit or investment appears, being the first preceding year; and
( b )   where the amount added or deducted in the first preceding year is not
sufficient to cover the receipt, deposit or investment, the year immediately
preceding the first preceding year and so on.
(8) The under-reported income, for the purposes of this section, shall not include
the following:—
( a )   the amount of income in respect of which the assessee offers an explana -
tion   and the Competent Authority, is satisfied that the explanation   is   bona
fide   and the assessee has disclosed all the material facts to substantiate
the explanation   offered;
( b )   the amount of under-reported income determined on the basis of an
estimate, if the accounts are correct and complete to the satisfaction
of the Competent Authority, but the method employed is such that the
income cannot properly be deduced therefrom;
( c )   the amount of under-reported income determined on the basis of an
estimate, if the assessee has, on his own, estimated a lower amount of
addition or disallowance on the same issue, has included such amount
in the computation of his income and has disclosed all the facts material
to the addition or disallowance; and
( d )   the amount of under-reported income represented by any addition made
in conformity with the arm’s length price determined by the Transfer
Pricing Officer, where the assessee had maintained such information
and documents as may be prescribed under section 171, declared the
international transaction under Chapter X, and, disclosed all the material
facts relating to the transaction.
(9) The penalty referred to in sub-section (1) shall be 50% of the tax payable on
under-reported income.

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SOURCE PDF PAGE 538
(10) Irrespective of anything contained in sub-section (8) or (9), where under-reported
income is in consequence of any misreporting thereof by any person, the penalty
referred to in sub-section (1) shall be 200% of the tax payable on under-reported
income.
(11) The cases of misreporting of income referred to in sub-section (10) shall be
the following:—
( a )   misrepresentation or suppression of facts;
( b )   failure to record investments in the books of account;
( c )   claim of expenditure not substantiated by any evidence;
( d )   recording of any false entry in the books of account;
( e )   failure to record any receipt in books of account having a bearing on
total income;  
5
[ *** ]
( f )   failure to report any international transaction or any transaction deemed
to be an international transaction or any specified domestic transaction,
to which the provisions of Chapter X  
6
[ apply; and ]
7
[ ( g )   income referred to in section 195(1)( b ). ]
(12) The tax payable in respect of the under-reported income shall be—
( a )   where no return of income has been furnished or where return has been
furnished for the first time under section 280 and the income has been
assessed for the first time, the amount of tax calculated on the under-re -
ported income as increased by the maximum amount not chargeable to
tax as if it were the total income;
( b )   where the total income determined under section 270(1)( a )   or assessed,
reassessed or recomputed in a preceding order is a loss, the amount of
tax calculated on the under-reported income as if it were the total income;
( c )   in any other case, determined as follows—
(X – Y)
where,—
X =   the amount of tax calculated on the under-reported income
as increased by the total income determined under section
270(1)( a )   or total income assessed, reassessed or recomputed
in a preceding order as if it were the total income; and
Y =   the amount of tax calculated on the total income determined
under section 270(1)( a )   or total income assessed, reassessed
or recomputed in a preceding order.
(13) No addition or disallowance of an amount shall form the basis for imposition
of penalty, if such addition or disallowance has already formed the basis for penalty
in the case of the person for the same or any other tax year.
5.   Word “and” omitted by the Finance Act, 2026, w.e.f.   1-4-2026 .
6.   Substituted for “apply.”,   ibid.
7.   Inserted,   ibid.

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SOURCE PDF PAGE 539
7a
[ (13A) Where additional income-tax is paid in accordance with section 267(5)( ii ),
the income on which such additional income-tax is paid shall not form the basis of
imposition of penalty under this section. ]
(14) The penalty referred to in sub-section (1)   shall be imposed, by an order in
writing by the Competent Authority.
(15) For the purposes of this section,—
( a )   “Competent Authority” means the Assessing Officer or the Joint Commis -
sioner (Appeals) or the Commissioner (Appeals) or the Commissioner or
the Principal Commissioner; and
( b )   “preceding order” means an order immediately preceding the order
during the course of which the penalty under sub-section (1)   has been
initiated.
8
[ Waiver of penalty and immunity from prosecution. ]
440.   [ (1) An assessee may make an application to the Assessing Officer to grant
waiver of penalty levied under section 439 and immunity from initiation of
proceedings under section 478 or 479 on fulfilment of the following conditions: ––
( a )   the tax and interest payable as per the order of assessment under section
270(10) or reassessment under section 279, has been paid within the period
specified in the notice of demand;
( b )   where penalty has been levied under the circumstances referred to in section
439(11)( a ) to ( f ), additional income-tax amounting to 100% of the amount
of tax payable on under-reported income has been paid within the period
specified in the notice of demand,   in lieu   of such penalty;
( c )   where penalty has been levied under the circumstances referred to in sec -
tion 439(11)( g ), additional income-tax amounting to 120% of the amount
of tax payable on under-reported income has been paid within the period
specified in the notice of demand,   in lieu   of such penalty; and
7a.   Inserted by the Finance Act, 2026, w.e.f.   1-4-2026 .
8.   Substituted   by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to their substitution, sub-sections
(1), (2), (3) and (4) read as under :
“(1)   An assessee may make an application to the Assessing Officer for granting immunity
from penalty under section 439 and initiation of proceedings under section 478 or section
479, if––
( a )   the tax and interest payable as per the order of assessment or reassessment under
section 270(10) or section 279, has been paid within the period specified in the notice
of demand; and
( b )   no appeal against the order referred to in clause ( a )   has been filed.
(2) An application referred to in sub-section (1)   shall be made within one month from the
end of the month in which the order referred to in clause ( a )   of the said sub-section has been
received, in such form and manner as may be prescribed.
(3) The Assessing Officer, on fulfilment of the conditions as specified in sub-section (1) ,   and
after the expiry of the period of filing appeal as specified in section 358(3)( a ), shall grant
immunity from penalty under section 439 and initiation of proceedings under section 478
or 479.
(4) No immunity under sub-section (3)   shall be granted if penalty under section 439 has been
initiated under circumstances referred to in section 439(11).”

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SOURCE PDF PAGE 540
( d )   no appeal has been filed against the order of assessment or reassessment
and levy of penalty referred to in clauses ( a ), ( b ) and ( c ).
(2) An application referred in sub-section (1) shall be made within one month from
the end of the month in which the order referred to in the said sub-section is received
by the assessee, in such form and verified in such manner, as may be prescribed.
(3) The Assessing Officer shall, on fulfilment of the conditions as specified in sub-sec -
tion (1), and after the expiry of the period of filing appeal as specified in section
358(3)( a ), grant waiver of penalty under section 439 and immunity from initiation of
proceedings under section 478 or 479.
(4) No waiver or immunity under sub-section (3) shall be granted if any proceeding
has been initiated under Chapter XXII. ]
(5) The Assessing Officer, shall pass an order accepting or rejecting the application
as referred to in sub-section (1) within three months from the end of the month of
its receipt.
(6) No order of rejection under sub-section (5)   shall be made without giving the
assessee an opportunity of being heard.
(7) The order made under sub-section (5)   shall be final.
(8) No appeal under section 356 or 357 or an application for revision under section
378   shall be admissible against the order referred to in sub-section (1)( a ) ,   if an order
under sub-section (5)   has been made accepting the application.
Failure to keep, maintain or retain books of account, documents, etc.
441.   A penalty of   `   25000 may be imposed on a person by the Assessing Officer
or the Joint Commissioner (Appeals) or the Commissioner (Appeals), if he
fails to—
( a )   keep and maintain the books of account and other documents as per
section 62 or the rules made thereunder, in respect of any tax year; or
( b )   retain such books of account and other documents for the period spec -
ified in the said rules.
Penalty for failure to keep and maintain information and document, etc., in
respect of certain transactions.
442.   (1) The Assessing Officer or Commissioner (Appeals) may impose a penalty
of 2% of the value of each international transaction or specified domestic
transaction entered into by a person, if in respect of such transaction he—
( a )   fails to keep and maintain any such information and document as
required by section 171(1);
( b )   fails to report such transaction which he is required to do so; or
( c )   maintains or furnishes an incorrect information or document.
(2) The prescribed income-tax authority referred to in section 171(4) may impose a
penalty of   `   500000 on a person, if he fails to furnish the information and document
required under the said section.