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Page 1: New Concealment Penalties

‐By CA.Paras K. Savla

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Section 270A & 270AA

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Tax, interest and penalty are three different concepts Levy and collection of penalties contravening provision of tax laws are integral part of tax laws 

Penalty is levied for willful or otherwise violation of law. It is imposed for dishonest and contumacious conduct of the assessee

Even though penalty is considered as additional tax, it is not continuous of assessment proceedings.

A well‐settled principle of law that the more is the stringent law, more strict construction thereof would be necessary. 

Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution.

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Samapth Iyengar’s 11th Edition on page 13680 has observed thatSupreme Court in case of Ashok T Pai 292 ITR 11 has laid 10propositions as under‐

Penalty proceedings are quasi‐criminal in character ‐Penaltyproceedings are quasi‐criminal in nature, so that the burdenprimarily lies on the department to establish that assessee hasconcealed his income.

Interpretation of penalty provisions ‐ Law relating to penalty shouldbe construed strictly in favour of the assessee, more stringent thelaw, stricter the construction that is required in favour of theassessee.

Penalty proceedings are independent proceedings ‐Since penaltyproceedings are independent proceedings, the matter has to beconsidered afresh in the light of the law applicable to penalty.

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Burden on initiation of the proceedings ‐ The burden of proof placed on the assessee under theExplanation is subject to conditions therein. It is necessary that there should be an inference of concealment at the time of initiation of the proceedings.

Extent of burden on taxpayer ‐ Even where a burden is placed on the taxpayer, such burden cannot be the same as that of prosecution as was decided in Krishna Lal (P.N.) v. Government of Kerala (1995) Supp 2 SCC 187.

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Where there was a false verification in the return filed by a firm and the partner against whom prosecution was launched, the defence was a plea, that the signature attributed to the partner was not his, but it was found that partner had not disputed his signature either during assessment nor during penalty proceedings, there is no burden on the prosecution to prove the signature was that of the partner [Mangat Ram Norata Ram Narwana 336 ITR 624 (SC)].

Relevance of mens rea ‐ Inference ofmens rea, that is necessary for concealment penalty, is essentially based on facts. Penalty has two components, one prescribing conditions for imposition and the other for computation.

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Relevance of assessment to penalty proceedings ‐ A finding in the assessment proceedings, that there is an omission in income does not by itself lead to the inference that there is concealment, notwithstanding the fact, that the omission may constitute a good evidence for concealment, but it is not conclusive.

Effect of omission of requirement of deliberateness ‐ The omission of the word "deliberate" in the penalty provision is not of much significance, so as to change the law on penalties.

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Deliberately is not to be lightly inferred ‐ A mere omission ornegligence does not constitute a deliberate act ofsuppressioveri or suggestiofalsi even after the amendment tosection 271(1)(c) made in the year 1964. There is no materialchange as to the nature of proceedings [Jeevan Lal Sah 205 ITR244 (SC), K C Builders 265 ITR 562 (SC)] . Penalty provisions underthe income‐tax law is not the same as provisions in commercialstatute, where a breach or contravention is liable for punishmentirrespective of the bona fide as provided in some cases ofabsolute liability, so that levy of penalty is not mandatory.

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Legal advice can be a shield ‐Where an assessee acts on legal advice, though wrong, the omission should be treated as bona fide with no deliberateness involved.

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Section 270A

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The newly introduced section 270A by the Finance Act, 2016 is inreplacement of Section 271(1)(c) of Income Tax Act, 1961.

It has been inserted to rationalise & to bring clarity, objectivity &certainty in the penalty provisions

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The penalty imposable should be in accordance with the law which is in force on the date when proceedings for the penalty are initiated. 

Provisions to be applied as it stands at the date when default is which invites penalty is committed (held in respect to reassessment proceedings) – CIT v. Onkar Saran & Sons 195 ITR 1 (SC) 

Act specifically provides that ◦ The provisions of penalty as per section 270A shall be applicable w.e.f. 1stApril,2017 i.e. from Assessment year 2017‐18.

◦ The provisions of Section 271 shall cease to apply for assessment commencing on or after 1st April, 2017

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The section 270A provides for levy of penalty in 2 cases:◦ Under reporting of income◦ Misreporting of Income

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The penalty under section 270A may be levied by :i. Assessing officer, ii. Commissioner(Appeals)iii. Principal Commissioneriv. Commissioner

The penalty shall be levied by an order in writing.

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Income assessed is greater than income determined in ITRprocessed under section 143(1)(a)

Deemed total income assessed or reassessed as per the Sec115JB(MAT) or Sec115JC (AMT) is greater than income determined inITR processed under section 143(1)(a)

Where no return is furnished,◦ Income assessed is greater than maximum amount not chargeable to tax,or

◦ Deemed total income assessed or reassessed as per the section115JB or section 115JC is greater than maximum amount not chargeable totax

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Income reassessed is greater than income assessed or reassessedimmediately before such reassessment

Deemed total income assessed or reassessed as per the Section115JB or Section 115JC is greater than income assessed orreassessed immediately before such reassessment

The income assessed or reassessed has the effect of reducing theloss or converting such loss into income

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Income assessed for the first time & Return is filed

= ‐

Whether no penalty payable in respect of adjustments u/s 143(1)(a)?

Income assessed

Income as per section 143(1)(a)

Under reported income

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Income assessed for the first time & Return is filed

Sr. Particulars Working Amount (lacs)

(a) Income as per ITR  100 

(b) Income computed u/s 143(1)(a) 110

(c) Income assessed u/s 143(3) 150

(d) Under reported income (c )‐(b) 40

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Income assessed for other than Company, Firm or Local Authority for the first time & Return is  not filed

= ‐Income assessed

Maximum amount not chargeable to 

tax

Under reported income

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Income assessed for other than Company, Firm or Local Authority for the first time & Return is  not filed

Sr. Particulars Amount (lacs)

(a) Income assessed u/s 143(3) 10.00

(b) Maximum amount not chargeable to tax 2.50

(c ) Under reported income (a)‐(b) 7.50

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Income assessed for  Company, Firm or Local Authority for the first time & Return is  not filed

=   Income assessed

Under reported income

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Income is not assessed for the first time  

= ‐Amount reassessed or recomputed

Amount assessed or reassessed or recomputed in a preceding 

order

Under reported income

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Income is not assessed for the first time i.e. income assessed during scrutiny assessment or reassessment   

Sr. Particulars Amount (lacs)

(a) Income declared in return 100

(b) Income computed u/s 143(1)(a) 130

(c ) Income assessed u/s 143(3) 150

(d) Income reassessed u/s 147 180

(e) Under reported income w.r.t. 143(3) 20

(f) U d t d i t 147 3023/6/2016Concelment Panelty 23

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In case of Deemed total income as per section 115JB or 115JC

= +

where,A = Total income as per general provisionsB = Total income chargeable had the total income assessed as per   the 

general provisions been reduced by the amount of under‐reported income

C = Total income as per section 115JB or 115JCD = Total income chargeable had the total income assessed as per the 

provisions contained in section 115JB or section 115JC been reduced by the amount of under‐reported income

Under reported income C ‐ DA ‐ B

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It is provided that, where the amount of under reported income on anyissue is considered under both general provisions & deemed provisionsof S. 115JB/115JC such amount shall not be reduced from total incomeassessed while determining the amount under item D

Issue arises that whether penalty on same amount is levied on bothcounts i.e. under general provisions and also under deeming provisionsof 115JB / 115JC?

Similar provisions were introduced u/s 271(1)(c) Explanation 3 byFinance Act 2015 to overcome judicial decisions◦ CIT v. Nalwa Sons Investment Ltd. [2012] 21 taxmann.com 184 (SC), it washeld that when assessment was made on income computed under section115JB and tax had been paid on income so computed, penalty undersection 271(1)(c) would not be imposed with reference to additions thatwould have been made taking into account concealment made by assesseewhile making assessment under normal procedure.

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S 271(1)(c) has been amended so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC of the Income‐tax Act. 

If an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC. 

In a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored.◦ Finance Act, 2015 – Circular No. 19/2015, dated 27‐11‐2015 para 55.4

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An assessment or reassessment results in reducing the loss declared in the return or converting that loss into income

= ‐Under reported income Loss claimed

Income or loss assessed or reassessed

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An assessment or reassessment results in reducing the loss declared in the return or converting that loss into income

Sr. Particulars Amount (lacs)

(a) Loss as per ITR (Firm) (100) 

(b) Loss u/s 143(1)(a) (90)

(c ) Income assessed u/s 143(3) 20

(d) Under reported income w.r.t scrutiny (c )‐(b) 110

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The under reported income shall include such deposit, receipt or investment ,where source of such deposit, receipt or investment in any assessment year is claimed to be added or deducted while computing loss  in the assessment of the assessee in any assessment year prior to the assessment year in which such deposit, receipt or investment appears & no penalty was levied for such preceding year

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Preceding year means:i. Year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year

ii. Year immediately preceding the first preceding year, where the amount added or deducted in the first preceding year is not sufficient to cover the deposit, receipt or investment

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Income  for which explanation is offered by the assessee & the authority levying penalty is satisfied that ◦ the explanation provided by him is bonafide & ◦ all material facts has been disclosed  by him to substantiate the explanation

Meaning ◦ Satisfied◦ Bonafide◦ Material facts◦ Disclosed◦ Evidence

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Satisfied ◦ adequately meet or comply with◦ The phrase 'is satisfied' means simply 'makes up its mind'◦ '...The mind of the court must be "satisfied"—that is to say, it must arrive at the required affirmative conclusion—but the decision may rest on the reasonable probabilities of the case, which may satisfy the court that the fact was as alleged, even though some reasonable doubt may remain'. Words and Phrases Legally Defined: Third Edition: Volume 4 : R‐Z Butterworths pages 

131‐132◦ The term satisfied means make up one's mind not troubled by doubt or reach a clear conclusion on the evidence before the authority Jiten & Co. v.STO [1977] 39 STC 308 (Delhi)

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Bonafide◦ genuine; real.◦ without intention to deceive◦ good faith implying the absence of fraud, unfair dealing or acting, whether it consists in simulation or dissimulation

◦ everything was done in an open and straight‐forward manner. GTO v. Gautam Sarabhai Ltd. [1989] 29 ITD 212 (Ahd.), GTO v. Rajmata Shanta Devi P. Gaekwad [2001] 76 ITD 299 (Ahd.)

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'material facts' means primary facts◦ Seth Kirorimal Adwani v. ITO [1970] 77 ITR 789 (Assam)

the distinction between "material facts" and "full particulars" is one of degree. The lines of distinction are not sharp. "Material facts" are those which a party relies upon and which, if he does not prove, he fails at the time“◦ Mohammad Yusuf And Anr. vs Bhairon Singh Shekhawat AIR 1995 Raj 239

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The material facts mean‐◦ facts necessary to formulate a complete cause of action, ◦ all the preliminary facts which must be proved by the party to establish a cause of action, 

◦ the basic facts which constitute ingredients of particular corrupt practice, ◦ all the facts which are essential to clothe the petitioner with complete cause of action, 

◦ the facts which if established would give the petitioner the relief asked for, ◦ the facts on the basis of which the Court could give a direct verdict in favour of the election petitioner in case the returned candidate did not appear to oppose the petition, 

◦ facts which if not proved, the petition must fail. Mohammad Yusuf And Anr. vs Bhairon Singh Shekhawat AIR 1995 Raj 239

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Disclose ‐ To bring into view by uncovering, to expose, to make known, to lay bare, to reveal to knowledge, to free from secrecy or ignorance, or make known◦ Black's Law Dictionary (6th Edition)

Disclose : To open up, to unfasten, to hatch, to uncover, to remove a cover from and expose to view, to uncover (a young bird), etc., from the egg, to hatch, Barely to lay (Eggs), to discover to open up to the knowledge of others, to reveal.◦ Shorter Oxford English Dictionary

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Evidence means‐◦ all statements which the Court permits or requires to be made before it by witnesses, in relation to matters to act under inquiry, such are called as oral evidences

◦ all documents including electronic records produced for the inspection of the Court

◦ Evidence may be of different types ‐ direct, indirect or real Paras Dass Munna Lal v.CIT[1937] 5 ITR 523 (Lah)

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Under reported income based on an estimate & the authority levying penalty is satisfied that the accounts are correct andcomplete, but the method is such that the income cannot be properly deduced therefrom◦ E.g. Addition based on GP

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Under reported income determined on the basis of an estimate if the assessee has estimated a lower amount of addition or disallowance, which is included in the computation of income & has disclosed all material facts related to addition or disallowance◦ E.g.  disallowance of personal expenditure 

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Under reported income which is an addition in accordance with ALP made by TPO ◦ assessee has maintained information and documents as per section 92D, ◦ disclosed the internal transaction under Chapter X & ◦ disclosed all the material facts in relation to the same.

Amount of undisclosed income as per Section 271AAB◦ Penalty in case of search cases

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S. 270A(9)

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Misrepresentation or suppression of facts◦ Misrepresentation or suppression means the action or offence of giving a false or misleading account of the nature of 

something the wilful nature of the non‐disclosure The action of keeping secret; refusal to disclose or reveal.

◦ In short, the intentional suppression of truth or fact known, to the injury or prejudice of another

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Failure to record investments in the books of account◦ Failure means ‐ the neglect or omission of expected or required action.◦ In short a failure to do that which is anticipated, expected, or required in a given situation.

◦ Is it deliberate act of omission?◦ What if bonafide mistake?  Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400

◦ Books of accounts S. 2(12A)  "books or books of account" includes ledgers, day‐books, cash books, account‐

books and other books, whether kept in the written form or as print‐outs of data stored in a floppy, disc, tape or any other form of electro‐magnetic data storage device

Implication of no books of accounts maintained? 

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Claim of expenditure not substantiated by any evidence◦ the available body of facts or information indicating whether a belief or proposition is true or valid. 

◦ Direct evidence ‐ The existence of a given thing or fact is proved either by its actual production or by the testimony or admissible declaration of someone who has himself perceived it

◦ Indirect evidence ‐ when other facts are, thus, proved, the existence of the given fact may be logically inferred

◦ Primary evidence is an evidence which the law requires to be given first; secondary evidence is evidence which may be given in the absence of that better evidence when a proper explanation of its absence has been given.

◦ It covers not only direct but also Circumstantial evidence‐ Paras DassMunna Lal v. CIT [1937] 5 ITR 523 (Lah.) 

Whether applied to bogus or false expenditure only?

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Recording of any false entry in the books of account◦ False means not according with truth or fact; incorrect. made to imitate something in order to deceive.

Failure to record any receipt in books of account having a bearing on total income◦ S. 2(45) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act

◦ If no impact on total income? 

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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 i.e. Special Provisions relating to avoidance of tax  apply.

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Case Description Amount of tax is calculated on

1 No ROI filed & income assessed for the first time

Under reported income as increased by maximum amount not chargeable to tax

2 Total income determined under section 143(1)(a) or assessed, reassessed or recomputed in a preceding order is a loss

Under reported income

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Case Description Amount of tax is calculated on

3 Other cases Tax = % of (X‐Y)

where,X = Tax calculated on under reported income as increased by total income as per section 143(1)(a) or income assessed, reassessed or recomputed in a preceding order

Y = Tax calculated on total income as per section 143(1)(a) or income assessed, reassessed or recomputed in a preceding order

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Situation Penalty  as % of tax onunder reported income

Under reporting 50%

Under reporting in consequence of misreporting 200%

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Sr. Particulars Working Under report‐ing (lacs)

Mis reporting(lacs)

(a) Income  declared in return 100 100

(b) Income computed u/s 143(1)(a) 110 110

(c ) Income assessed u/s 143(3) 150 150

(d) Under reported income (c ) – (b) 40 4023/6/2016Concelment Panelty 50

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Sr. Particulars Working Under report‐ing (lacs)

Mis reporting(lacs)

(a) Income assessed u/s 143(3) 10.00 10.00

(b) Maximum amount not chargeable to tax 2.50 2.50

(c ) Under reported income (a) – (b) 7.50 7.50

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If any addition or disallowance has formed the basis of imposition of penalty in case of the person for same or any assessment year,the same shall not form the basis for imposition of penalty under Section 270A

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Sr. Section Description Implication

1. 119 Instructions tosubordinateauthorities

CBDT shall issue general or special orders forrelaxation of provisions of section 270A

2. 253 Appeals to AppellateTribunal

The order passed u/s 270A is appealablebefore ITAT

3. 271A Failure to keep,maintain or retainbooks of account,documents, etc.

Penalty shall be levied u/s 271 A (Rs.25000)without prejudice to the provisions of section270A

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Sr. Section Description Implication

4. 271AA(1) Penalty for failureto keep andmaintaininformation anddocument, etc., inrespect of certaintransactions.

Penalty shall be levied u/s 271 AA (2% of value of international transaction or SDT) without prejudice to the provisions of section 270A

5. 271AAB(2) Penalty wheresearch has beeninitiated.

Penalty u/s 270A shall not be levied in respect of undisclosed income identified in course of search

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Sr. Section Description Implication

6. 273A(1) & (2)

Power to reduce orwaive penalty, etc.,in certain cases.

PC/C has a discretionary power to reduce or waive penalty imposed or imposable u/s 270A subject to an exception where approval of PCC/CC/PDG/DG is required in case the aggregate amount on which the penalty is imposed, for relevant assessment year or  more than 1 assessment  year , exceeds Rs.5,00,000

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Sr. Section Description Implication

7. 279(1A) Prosecution to be atinstance ofPC/C/PCC/CC

A person shall not be proceeded against foran offence u/s 276C or 277 in relation to theassessment for an assessment year in respectof which the penalty imposed or imposableon him u/s 270A has been reduced or waivedby an order u/s 273A.

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Section 270AA

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Section 270AA has been inserted after section 270 A in the Finance Act,2016

It provides for immunity from:

The section shall come into effect from 1st April, 2017 i.e fromAssessment year 2017‐18.

Sr. Section Particulars

1. 270A Imposition of penalty for under reporting & misreporting of income

2. 276C Initiation of proceedings against wilful attempt to evade tax

3. 276CC Initiation of proceedings against failure to furnish return of income

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The Assessing officer may grant immunity on an application made by the assessee

Immunity is granted subject to following conditions:◦ The tax or interest as per assessment or reassessment order u/s 143(3) or 147 respectively, is paid within time as mentioned under notice of demand

◦ No appeal has been filed against the order u/s 143(3) or 147

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The order rejecting the application shall not be passed unless the assessee is given an opportunity of being heard

Sr. Particulars Time limit

1. Application to A.O. Within 1 month from the end of the month in which the order u/s 143 or 147 has been received by the assessee

2. Order by A.O.(accepting/ rejecting the application)

Within 1 month from the end of the month in which the application is received by A.O.

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The A.O. shall grant immunity after fulfilling the conditions as u/s 270AA(1) & after expiry of period of filing of appeal u/s 249(2)(b) i.e. within 30 days of date of service of notice of demand 

The immunity shall not be granted if proceedings u/s 270A for misreporting of income has been initiated

The order passed u/s 270AA(4) for accepting or rejecting the application shall be final

In case of order accepting the application is made, following shall not be admissible:◦ Appeal u/s 246 A i.e. before Commissioner (Appeals)◦ Application for revision u/s 264 against order u/s 143(3) or 147

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Demand contested before CIT(A)

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Instruction No. 1914 dated 21.03.1996 contains guidelines issued by the Board regarding procedure

It has been prescribed that a demand will be stayed only if there are valid reasons for doing so and that mere filing of an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand.

Instructions modified on 29/2/2016  [F.No.404/72/93‐ITCC]

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Stay to be grant on payment of 15% if demand disputed before CIT(A) except ◦ In view of Assessing Officer higher payment warrants E.g. same issue has been confirmed by appellate authorities in earlier years or 

he decision of the Supreme Court /or jurisdictional High Court is in favour of Revenue or 

addition is based on credible evidence collected in a search or survey operation

◦ In view of Assessing Officer higher payment warrants in a case where addition on the same issue has been deleted by appellate authorities in earlier years or 

the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee Refer matter to Pr. CIT/CIT, who after considering facts decide accordingly 

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In a case where stay of demand is granted by the assessing officer on payment of 15% of the disputed demand and the assessee is still aggrieved, he may approach the jurisdictional administrative Pr. CIT/ CIT for a review of the decision of the assessing officer.

Stay application to Assessing Officer shall be disposed off within two weeks of filing of petition

In case matter is referred to Pr. CIT/ CIT he shall dispose of within 2 weeks of making such reference 

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Require an undertaking from the assessee that he will cooperatein the early disposal of appeal failing which the stay order will becancelled;

Reserve the right to review the order passed after expiry ofreasonable period (say 6 months) or if the assessee has notcooperated in the early disposal of appeal, or where asubsequent pronouncement by a higher appellate authority orcourt alters the above situations

Reserve the right to adjust refunds arising, if any, against thedemand, to the extent of the amount required for granting stayand subject to the provisions of section 245.

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