False income tax refund claims could attract these penalties

Fraudulently claiming tax refunds by misreporting income or showing false losses which reduce taxable income can attract heavy penalties. Section 270 of the Income Tax Act was amended in the last budget post demonetisation to ensure that misreporting and under-reporting of income was heavily penalised.

The income tax department has recently claimed to have busted a racket of fraudulent claim of tax refunds by employees of well known companies. Reportedly, the employees had falsely claimed loss under the head income from house property in order to file fraudulent tax refund claims.

As per the amended section 270A of the Income Tax Act, in case of misreporting of income the income tax officer can levy a penalty of 200 per cent of the amount of tax payable on under-reported income.

Cases of misreporting of income include: -
(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 bo

oks of account;
(e) failure to record any receipt in books of account having a bearing on total income; and
(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 of the Income Tax Act apply.

The tax payable in respect of under-reported income where
(i) the total income determined under clause (a) of sub-section (1) of section 143 or assessed, reassessed or recomputed in a preceding order is a loss, is equal to the amount of tax calculated on the under-reported income as if it were the total income;
(ii) in any other case determined in accordance with the formula-
(X-Y)
where,
X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143 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 clause (a) of sub-section (1) of section 143 or total income assessed, reassessed or recomputed in a preceding order.
(iii) Where no return of income has been submitted then the tax payable on the underreported income is calculated differently.

In case the income tax officer judges the case to be one of concealment of income then a penalty of up to 3 times of the tax payable could be levied.