05 March 2021
suppose in a search, an undisclosed investments and money were found. department charged penalty @60% of amount because no explanation was received. also imposed tax u/s 115bbe @78% (60%+25%+4% cess).
is it correct as per law? because total of tax+penalty is more than the income.
11 July 2024
The scenario you've outlined involves the imposition of penalties and taxes under specific provisions of the Income Tax Act, primarily aimed at dealing with undisclosed income and investments found during a search operation. Let's break down the components involved:
1. **Penalty @ 60% (under Section 271AAB):** - Section 271AAB of the Income Tax Act deals with penalties for cases where undisclosed income or investments are found during a search and seizure operation. The penalty rate is 60% of the undisclosed income or value of undisclosed property. - This penalty is applicable when the taxpayer fails to furnish a satisfactory explanation for the undisclosed income or investments.
2. **Tax u/s 115BBE @ 78%:** - Section 115BBE of the Income Tax Act deals with taxation of income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C, or Section 69D. These sections primarily cover unexplained cash credits, investments, expenditures, etc. - Income covered under these sections is taxed at a flat rate of 60%. Additionally, a surcharge of 25% of the tax amount is levied, along with a health and education cess of 4% on the aggregate of tax and surcharge. - Therefore, the effective tax rate under Section 115BBE comes to 78% (60% tax + 15% surcharge + 4% cess).
Regarding your concern about the total tax and penalty being more than the income:
- Yes, it is possible for the total tax and penalty to exceed the undisclosed income or investments. This is because the penalty under Section 271AAB and the tax under Section 115BBE are punitive measures aimed at deterring tax evasion and ensuring compliance. - The provisions under these sections are structured to impose significant financial consequences on taxpayers who fail to disclose income or provide satisfactory explanations during a search operation.
Is it correct as per law?
- Yes, the imposition of penalty under Section 271AAB and tax under Section 115BBE is as per the provisions of the Income Tax Act, 1961. - These provisions are designed to ensure that undisclosed income and investments are appropriately taxed and penalized, reflecting a stringent approach towards addressing tax evasion.
If you or your client are facing such a situation, it's advisable to consult with a tax professional or legal advisor who can provide guidance specific to your circumstances. They can review the details of the case and advise on any possible remedies or legal options available.
In summary, while the tax and penalty rates may seem high, they are within the legal framework aimed at enforcing tax compliance and deterring tax evasion related to undisclosed income and investments.
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