Offences & Penalties; PAN — Law of Taxation Notes

Offences & Penalties; PAN

Understating your income is not just a matter of paying the shortfall — it can mean a penalty of up to several times the tax evaded, and in serious cases prosecution and imprisonment. The penalty-and-offence machinery is what gives the Act its teeth, and PAN is the thread that ties every taxpayer to it.

Penalties, offences and PAN

A. Penalties (civil consequences, imposed by the authorities):

1. Under-reporting / mis-reporting of income (s.270A) — penalty of 50% of the tax on under-reported income, rising to 200% for mis-reporting (concealment) — this replaced the old s.271(1)(c) concealment penalty.
2. Failure to file the return (s.234F) — a late-filing fee.
3. Failure to deduct/pay TDS (ss.271C, 201), failure to keep accounts (s.271A), failure to get audited (s.271B), failure to comply with notices (s.272A).
4. Penalties are imposed after notice and hearing; the Commissioner may reduce or waive them (s.273A — Topic 15) for honest voluntary disclosure.

B. Offences (criminal consequences, prosecuted in court):

1. Wilful attempt to evade tax (s.276C) — rigorous imprisonment;
2. Failure to file return (s.276CC); failure to pay TDS to the credit of the government (s.276B);
3. False statement in verification (s.277); fabrication of accounts (s.278). Prosecution requires mens rea (a wilful, deliberate default) and the sanction of the appropriate authority.

C. Permanent Account Number (PAN) — s.139A. A ten-character alphanumeric identifier allotted to every taxpayer, which must be quoted on returns, in specified high-value transactions, and for TDS/TCS. It is the unique thread that links a person to all his transactions, prevents duplication, and enables the department to track income and match TDS. Quoting a false PAN, or failing to obtain/quote it, attracts penalty (s.272B). PAN and Aadhaar are now required to be linked.

🧩 WORKED EXAMPLE — Penalty for concealment

Facts. On scrutiny, ₹5,00,000 of income is found concealed (mis-reported) by an assessee.

Rule. Under s.270A, mis-reporting of income attracts a penalty of 200% of the tax on the mis-reported amount, in addition to the tax and interest; wilful evasion can also invite prosecution under s.276C.

Apply. The AO computes the tax on the ₹5,00,000, then levies a penalty of twice that tax, after giving the assessee a hearing.

Conclusion. The assessee pays the tax, interest and a 200% penalty; had he disclosed voluntarily before detection, the Commissioner could have waived it (s.273A).

In Simple Terms: Cheat on your tax and you face two kinds of consequences — penalties (money, up to 200% of the tax on concealed income, s.270A) imposed by officers, and offences (prosecution, imprisonment, ss.276–278) tried in court for wilful evasion. PAN (s.139A) is the unique 10-character number that ties every taxpayer to all his transactions.

flowchart TD
    ROOT["Enforcement teeth"]:::root
    ROOT --> P["PENALTIES (civil)<br/>270A under/mis-report · 234F late fee · TDS defaults"]:::leaf
    ROOT --> O["OFFENCES (criminal)<br/>276C evasion · 276CC · 277 false statement"]:::bad
    ROOT --> PAN["PAN s.139A<br/>unique 10-char taxpayer ID"]:::sub
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef bad fill:#FDE2E2,stroke:#B00020,color:#000;
    classDef sub fill:#F2F2F2,stroke:#555,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

• Union of India v Dharamendra Textile Processors (2008) — civil penalty for concealment (then s.271(1)(c)) does not require proof of mens rea; it is a civil liability.
• K.C. Builders v ACIT (2004) — once the concealment penalty is cancelled, prosecution for the same concealment cannot stand.

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