Section 271 — Failure to Furnish Returns, Comply with Notices, Concealment of Income, Etc.
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Largely spent for current years, but foundational. The concealment penalty under section 271(1)(c) does not apply to income of the previous year relevant to assessment year 2017-18 or any subsequent year (that field is occupied by section 270A). Section 271 continues to govern earlier assessment years, which remain in assessment, appeal and litigation pipelines, and its jurisprudence informs the construction of section 270A.
Finance Act, 2026: No amendment by the Finance Act, 2026. Section 271(1)(c) remains inapplicable to AY 2017-18 onwards by virtue of sub-section (7); the Finance Act, 2026 changes the adjacent procedural provisions (sections 270A, 270AA, 274) but not section 271 itself.
Mechanism: For assessment years up to 2016-17: the Assessing Officer/appellate authority, if satisfied in the course of proceedings that the assessee concealed particulars of income or furnished inaccurate particulars, may direct payment of a penalty between 100% and 300% of the tax sought to be evaded; Explanation 1 raises a rebuttable presumption of concealment from an unexplained or non-bona fide difference between returned and assessed income.
Litigation profile: Among the most litigated provisions in the Act. The settled themes are: the civil character of the penalty and the (limited) role of mens rea; the rule that an unsustainable but fully-disclosed claim is not concealment; the operation and shifting burden of Explanation 1; and the procedural requirement that the section 274 notice specify the limb. This learning is the interpretive backdrop to section 270A.
A. COMMENTARY
Sunset for current years, but living law for the pipeline
Sub-section (7) of section 271, read with the scheme of section 270A, makes section 271(1)(c) inapplicable to the income of the previous year relevant to AY 2017-18 and later years. For those years section 270A governs. But a very large volume of assessments, reassessments (including post-search and post-reopening orders) and appeals for AY 2016-17 and earlier remain alive, and the concealment penalty continues to be imposed, contested and decided for them. The section is therefore "spent" only prospectively; it is fully operative for the back-years pipeline.
Civil penalty: the Dharmendra Textile correction
The Supreme Court in Dharmendra Textile Processors held that the concealment penalty is a civil liability and that wilful concealment is not an essential ingredient for attracting it — to that extent overruling Dilip N. Shroff. But Dharmendra Textile did not dispense with the statutory conditions: it removed the requirement of proving mens rea in the criminal sense, not the requirement that concealment or inaccurate particulars in fact exist. Rajasthan Spinning & Weaving Mills clarified that section 271(1)(c) still requires its ingredients to be satisfied; the penalty is not automatic on every addition.
The cardinal rule: a disclosed, unsustainable claim is not concealment
Reliance Petroproducts is the governing authority: merely making a claim in the return that is later found unsustainable in law does not amount to furnishing inaccurate particulars, provided the particulars themselves are not false. Where the assessee discloses all material facts and the dispute is one of legal characterisation or quantum, no concealment penalty lies. This principle is now embedded, in statutory form, in section 270A(6)(a).
Explanation 1: presumption and shifting burden
Explanation 1 to section 271(1)(c) raises a presumption of concealment where the assessee fails to offer an explanation, offers a false explanation, or offers an explanation it cannot substantiate and which is not bona fide. MAK Data holds that once the Assessing Officer records the difference, the onus is on the assessee to discharge the presumption by cogent evidence; a "voluntary" surrender made to buy peace, without a bona fide explanation of the source, does not absolve the assessee. Conversely, where the explanation is bona fide and all facts are disclosed, the presumption is rebutted.
Procedure: the section 274 notice must specify the limb
A pervasive ground of challenge is the defective penalty notice. Following Dilip N. Shroff and the Karnataka High Court in Manjunatha Cotton & Ginning Factory and SSA’s Emerald Meadows (SLP dismissed by the Supreme Court), a notice under section 274 that does not strike off the inapplicable limb — "concealment of particulars" or "furnishing inaccurate particulars" — betrays non-application of mind and vitiates the penalty. The Bombay High Court Full Bench in Mohd. Farhan A. Shaikh affirmed this. The same discipline now governs section 270A notices (Schneider Electric).
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Failure to furnish returns, comply with notices, concealment of income, etc.
271. (1) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or
the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied
that any person—
(a) ***
(b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2)
D = amount of tax that would have been chargeable had the total income assessed as per the
provisions contained in section 115JB or section 115JC been reduced by the amount of income in
respect of which particulars have been concealed or inaccurate particulars have been furnished:
Provided that where the amount of income in respect of which particulars have been concealed or
inaccurate particulars have been furnished on any issue is considered both under the provisions
contained in section 115JB or section 115JC and under general provisions, such amount shall not
be reduced from total income assessed while determining the amount under item D :
Provided further that in a case where the provisions contained in section 115JB or section 115JC
are not applicable, the item (C - D) in the formula shall be ignored;
(b) where in any case the amount of income in respect of which particulars have been concealed or
inaccurate particulars have been furnished has the effect of reducing the loss declared in the return
or converting that loss into income, the amount of tax sought to be evaded shall be determined in
accordance with the formula specified in clause (a) with the modification that the amount to be
determined for item (A - B)in that formula shall be the amount of tax that would have been
chargeable on the income in respect of which particulars have been concealed or inaccurate
particulars have been furnished had such income been the total income;
(c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be
the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at
source, tax collected at source and self-assessment tax paid before the issue of notice under section
148.
Explanation 5.—Where in the course of a search initiated under section 132 before the 1st day of June,
2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or
thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been
acquired by him by utilising (wholly or in part) his income,—
(a) for any previous year which has ended before the date of the search, but the return of income for
such year has not been furnished before the said date or, where such return has been furnished
before the said date, such income has not been declared therein ; or
(b) for any previous year which is to end on or after the date of the search,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the
date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of
this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of
such income, unless,—
(1) such income is, or the transactions resulting in such income are recorded,—
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date,
in the books of account, if any, maintained by him for any source of income or such
income is otherwise disclosed to the Principal Chief Commissioner or Chief Commissioner
or Principal Commissioner or Commissioner before the said date ; or
(2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any
money, bullion, jewellery or other valuable article or thing found in his possession or under his
control, has been acquired out of his income which has not been disclosed so far in his return of
income to be furnished before the expiry of time specified in sub-section (1) of section 139, and
also specifies in the statement the manner in which such income has been derived and pays the tax,
together with interest, if any, in respect of such income.
Explanation 5A.— Where, in the course of a search initiated under section 132 on or after the 1st day of
June, 2007, the assessee is found to be the owner of—
(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation
referred to as assets) and the assessee claims that such assets have been acquired by him by
utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he
claims that such entry in the books of account or other documents or transactions represents his
income (wholly or in part) for any previous year,
which has ended before the date of search and,—
(a) where the return of income for such previous year has been furnished before the said date but such
income has not been declared therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has
not filed the return,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the
date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this
section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of
such income.
Explanation 6.—Where any adjustment is made in the income or loss declared in the return under the
proviso to clause (a) of sub-section (1) of section 143 and additional tax charged under that section, the
provisions of this sub-section shall not apply in relation to the adjustment so made.
Explanation 7.—Where in the case of an assessee who has entered into an international transaction or
specified domestic transaction defined in section 92B, any amount is added or disallowed in computing the
total income under sub-section (4) of section 92C, then, the amount so added or disallowed shall, for the
purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars
have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the
satisfaction of the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner
(Appeals) or the Principal Commissioner or Commissioner that the price charged or paid in such transaction
was computed in accordance with the provisions contained in section 92C and in the manner prescribed
under that section, in good faith and with due diligence.
(1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the
imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the
course of which such penalty proceedings could have been initiated under sub-section (1) have been
completed.
(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any
order of assessment or reassessment and the said order contains a direction for initiation of penalty
proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be
deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the
said clause (c).
(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed
under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of this Act,
the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if
that firm were an unregistered firm.
(3) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
(4) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) in the
course of any proceedings under this Act, is satisfied that the profits of a registered firm have been
distributed otherwise than in accordance with the shares of the partners as shown in the instrument of
partnership on the basis of which the firm has been registered under this Act, and that any partner has
thereby returned his income below its real amount, he may direct that such partner shall, in addition to the
tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of
tax which has been avoided, or would have been avoided if the income returned by such partner had been
accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by
reason of such direction.
(4A) and (4B) Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. Original
sub-sections (4A) and (4B) were inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. Later
on sub-section (4A) was substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws
(Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to
the other provisions of this Act shall be construed as references to those provisions as for the time being in
force and applicable to the relevant assessment year.
(6) Any reference in this section to the income shall be construed as a reference to the income or fringe
benefits, as the case may be, and the provisions of this section shall, as far as may be, apply in relation to
any assessment in respect of fringe benefits also.
(7) The provisions of this section shall not apply to and in relation to any assessment for the assessment year
commencing on or after the 1st day of April, 2017.
C. AUTHORITIES
The authorities are arranged by doctrine: civil character and mens rea; the disclosed-claim rule; Explanation 1; and the defective-notice line. These are the load-bearing Supreme Court and High Court decisions; each remains good law for the back-years pipeline and shapes section 270A.
1. Civil character of the penalty; mens rea not essential
Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 (SC)(3 Judges)
Holding The penalty under section 271(1)(c) is a civil liability; wilful concealment is not an essential ingredient for attracting civil liability, and proof of mens rea in the criminal sense is not required. Dilip N. Shroff is overruled to that limited extent.
Use Defeats the argument that the Revenue must prove a guilty mind; but does not make penalty automatic.
Holding Merely making an unsustainable claim, with full disclosure of particulars, is not furnishing inaccurate particulars; "inaccurate particulars" means details that are not accurate, not exact, or erroneous — a wrong legal claim on disclosed facts does not qualify.
Use The cardinal defence; harmonises with Dharmendra Textile by confirming that the statutory ingredients must still exist.
Holding Dharmendra Textile does not mean that penalty under section 271(1)(c) is automatic; the conditions of the section must be satisfied before penalty can be levied (decided in the context of section 11AC of the Excise Act but applied to section 271(1)(c)).
Use Curbs over-reading of Dharmendra Textile; restores the requirement to satisfy the ingredients.
2. Explanation 1 — presumption, burden and "voluntary" surrender
MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC)
Holding Explanation 1 raises a presumption of concealment when there is a difference between returned and assessed income; the burden is on the assessee to offer a bona fide explanation and substantiate it; a surrender of income "to buy peace" or "to avoid litigation", without explaining the source, does not absolve the assessee of penalty.
Use The Revenue’s principal authority on the shifting burden under Explanation 1; deployed against unexplained surrenders.
CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC)
Holding Where a revised return offering additional income is accepted and the Revenue does not establish concealment independently of the offer, and the explanation is bona fide, the concealment penalty is not warranted.
Use The counterpoint to MAK Data; supports the assessee where the surrender is bona fide and the Revenue has no independent material.
K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC)
Holding The Explanation to section 271(1)(c) is part of the section; no separate notice of intention to apply the Explanation is necessary, and its presumption operates once the conditions are met.
Use Settles that the Explanation applies of its own force; rebuts the argument that it must be separately invoked.
Holding A bona fide and inadvertent error, with full disclosure, does not attract concealment penalty; the assessee’s conduct and the absence of intent to conceal are material.
Use Protects genuine mistakes and inadvertent disallowances from penalty.
Holding Where two views are reasonably possible and the assessee adopts one with full disclosure, the claim, even if rejected, is not concealment.
Use The "debatable issue" shield; foundational to section 270A(6)(a).
4. Procedure — the section 274 notice must specify the limb
Dilip N. Shroff v. JCIT (2007) 291 ITR 519 (SC)
Holding Issuing the standard printed section 274 notice without striking off the inapplicable limb betrays non-application of mind; the words "concealment" and "inaccurate particulars" carry distinct meanings and the assessee must know the precise charge. (Overruled only on the mens rea point by Dharmendra Textile; the notice/limb reasoning survives.)
Holding A penalty notice must specify whether the charge is concealment or furnishing inaccurate particulars; an omnibus notice is invalid and the consequent penalty is unsustainable.
Use The leading High Court statement of the rule, widely followed by Tribunals.
Holding The Supreme Court dismissed the Revenue’s SLP against the Karnataka High Court ruling that a section 274 notice not specifying the limb is bad in law, affirming Manjunatha Cotton.
Use Supreme Court imprimatur on the defective-notice defence.
Mohd. Farhan A. Shaikh v. ACIT (2021) 434 ITR 1 (Bom)(HC)(FB)
Holding A defective section 274 notice that does not delete the inapplicable portion is not a curable irregularity; non-application of mind vitiates the penalty; the assessee is prejudiced by the vagueness of the charge.
Use Full Bench authority settling the Bombay position in the assessee’s favour.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.
CHAPTER XXI — PENALTIES IMPOSABLE
Section 271 — Failure to Furnish Returns, Comply with Notices, Concealment of Income, Etc.
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Largely spent for current years, but foundational. The concealment penalty under section 271(1)(c) does not apply to income of the previous year relevant to assessment year 2017-18 or any subsequent year (that field is occupied by section 270A). Section 271 continues to govern earlier assessment years, which remain in assessment, appeal and litigation pipelines, and its jurisprudence informs the construction of section 270A.
Finance Act, 2026: No amendment by the Finance Act, 2026. Section 271(1)(c) remains inapplicable to AY 2017-18 onwards by virtue of sub-section (7); the Finance Act, 2026 changes the adjacent procedural provisions (sections 270A, 270AA, 274) but not section 271 itself.
Mechanism: For assessment years up to 2016-17: the Assessing Officer/appellate authority, if satisfied in the course of proceedings that the assessee concealed particulars of income or furnished inaccurate particulars, may direct payment of a penalty between 100% and 300% of the tax sought to be evaded; Explanation 1 raises a rebuttable presumption of concealment from an unexplained or non-bona fide difference between returned and assessed income.
Litigation profile: Among the most litigated provisions in the Act. The settled themes are: the civil character of the penalty and the (limited) role of mens rea; the rule that an unsustainable but fully-disclosed claim is not concealment; the operation and shifting burden of Explanation 1; and the procedural requirement that the section 274 notice specify the limb. This learning is the interpretive backdrop to section 270A.
A. COMMENTARY
Sunset for current years, but living law for the pipeline
Sub-section (7) of section 271, read with the scheme of section 270A, makes section 271(1)(c) inapplicable to the income of the previous year relevant to AY 2017-18 and later years. For those years section 270A governs. But a very large volume of assessments, reassessments (including post-search and post-reopening orders) and appeals for AY 2016-17 and earlier remain alive, and the concealment penalty continues to be imposed, contested and decided for them. The section is therefore "spent" only prospectively; it is fully operative for the back-years pipeline.
Civil penalty: the Dharmendra Textile correction
The Supreme Court in Dharmendra Textile Processors held that the concealment penalty is a civil liability and that wilful concealment is not an essential ingredient for attracting it — to that extent overruling Dilip N. Shroff. But Dharmendra Textile did not dispense with the statutory conditions: it removed the requirement of proving mens rea in the criminal sense, not the requirement that concealment or inaccurate particulars in fact exist. Rajasthan Spinning & Weaving Mills clarified that section 271(1)(c) still requires its ingredients to be satisfied; the penalty is not automatic on every addition.
The cardinal rule: a disclosed, unsustainable claim is not concealment
Reliance Petroproducts is the governing authority: merely making a claim in the return that is later found unsustainable in law does not amount to furnishing inaccurate particulars, provided the particulars themselves are not false. Where the assessee discloses all material facts and the dispute is one of legal characterisation or quantum, no concealment penalty lies. This principle is now embedded, in statutory form, in section 270A(6)(a).
Explanation 1: presumption and shifting burden
Explanation 1 to section 271(1)(c) raises a presumption of concealment where the assessee fails to offer an explanation, offers a false explanation, or offers an explanation it cannot substantiate and which is not bona fide. MAK Data holds that once the Assessing Officer records the difference, the onus is on the assessee to discharge the presumption by cogent evidence; a "voluntary" surrender made to buy peace, without a bona fide explanation of the source, does not absolve the assessee. Conversely, where the explanation is bona fide and all facts are disclosed, the presumption is rebutted.
Procedure: the section 274 notice must specify the limb
A pervasive ground of challenge is the defective penalty notice. Following Dilip N. Shroff and the Karnataka High Court in Manjunatha Cotton & Ginning Factory and SSA’s Emerald Meadows (SLP dismissed by the Supreme Court), a notice under section 274 that does not strike off the inapplicable limb — "concealment of particulars" or "furnishing inaccurate particulars" — betrays non-application of mind and vitiates the penalty. The Bombay High Court Full Bench in Mohd. Farhan A. Shaikh affirmed this. The same discipline now governs section 270A notices (Schneider Electric).
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Failure to furnish returns, comply with notices, concealment of income, etc.
271. (1) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or
the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied
that any person—
(a) ***
(b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2)
of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fails
to comply with a direction issued under sub-section (2A) of section 142, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(d) has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such
fringe benefits,
he may direct that such person shall pay by way of penalty,—
(i) ***
(ii) in the cases referred to in clause (b), in addition to tax, if any, payable by him, a sum of ten
thousand rupees for each such failure ;
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum
which shall not be less than, but which shall not exceed three times, the amount of tax sought to be
evaded by reason of the concealment of particulars of his income or fringe benefits or the
furnishing of inaccurate particulars of such income or fringe benefits.
Explanation 1.—Where in respect of any facts material to the computation of the total income of any
person under this Act,—
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing
Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal
Commissioner or Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such
explanation is bona fide and that all the facts relating to the same and material to the computation
of his total income have been disclosed by him,
then, the amount added or disallowed in computing the total income of such person as a result thereof shall,
for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which
particulars have been concealed.
Explanation 2.—Where the source of any receipt, deposit, outgoing or investment in any assessment year is
claimed by any person to be an amount which had been added in computing the income or deducted in
computing the loss in the assessment of such person for any earlier assessment year or years but in respect of
which no penalty under clause (iii) of this sub-section had been levied, that part of the amount so added or
deducted in such earlier assessment year immediately preceding the year in which the receipt, deposit,
outgoing or investment appears (such earlier assessment year hereafter in this Explanation referred to as the
first preceding year) which is sufficient to cover the amount represented by such receipt, deposit or outgoing
or value of such investment (such amount or value hereafter in this Explanation referred to as the utilised
amount) shall be treated as the income of the assessee, particulars of which had been concealed or
inaccurate particulars of which had been furnished for the first preceding year; and where the amount so
added or deducted in the first preceding year is not sufficient to cover the utilised amount, that part of the
amount so added or deducted in the year immediately preceding the first preceding year which is sufficient
to cover such part of the utilised amount as is not so covered shall be treated to be the income of the
assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for
the year immediately preceding the first preceding year and so on, until the entire utilised amount is covered
by the amounts so added or deducted in such earlier assessment years.
Explanation 3.—Where any person fails, without reasonable cause, to furnish within the period specified in
sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in
respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the
period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or
section 148 and the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner
(Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such
person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars
of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his
income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.
Explanation 4.—For the purposes of clause (iii) of this sub-section,—
(a) the amount of tax sought to be evaded shall be determined in accordance with the following
formula—
(A - B)+ (C - D)
where,
A = amount of tax on the total income assessed as per the provisions other than the provisions
contained in section 115JB or section 115JC (herein called general provisions);
B = amount of tax that would have been chargeable had the total income assessed as per the
general provisions been reduced by the amount of income in respect of which particulars have been
concealed or inaccurate particulars have been furnished;
C = amount of tax on the total income assessed as per the provisions contained in section 115JB or
section 115JC;
D = amount of tax that would have been chargeable had the total income assessed as per the
provisions contained in section 115JB or section 115JC been reduced by the amount of income in
respect of which particulars have been concealed or inaccurate particulars have been furnished:
Provided that where the amount of income in respect of which particulars have been concealed or
inaccurate particulars have been furnished on any issue is considered both under the provisions
contained in section 115JB or section 115JC and under general provisions, such amount shall not
be reduced from total income assessed while determining the amount under item D :
Provided further that in a case where the provisions contained in section 115JB or section 115JC
are not applicable, the item (C - D) in the formula shall be ignored;
(b) where in any case the amount of income in respect of which particulars have been concealed or
inaccurate particulars have been furnished has the effect of reducing the loss declared in the return
or converting that loss into income, the amount of tax sought to be evaded shall be determined in
accordance with the formula specified in clause (a) with the modification that the amount to be
determined for item (A - B)in that formula shall be the amount of tax that would have been
chargeable on the income in respect of which particulars have been concealed or inaccurate
particulars have been furnished had such income been the total income;
(c) where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be
the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at
source, tax collected at source and self-assessment tax paid before the issue of notice under section
148.
Explanation 5.—Where in the course of a search initiated under section 132 before the 1st day of June,
2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or
thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been
acquired by him by utilising (wholly or in part) his income,—
(a) for any previous year which has ended before the date of the search, but the return of income for
such year has not been furnished before the said date or, where such return has been furnished
before the said date, such income has not been declared therein ; or
(b) for any previous year which is to end on or after the date of the search,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the
date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of
this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of
such income, unless,—
(1) such income is, or the transactions resulting in such income are recorded,—
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date,
in the books of account, if any, maintained by him for any source of income or such
income is otherwise disclosed to the Principal Chief Commissioner or Chief Commissioner
or Principal Commissioner or Commissioner before the said date ; or
(2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any
money, bullion, jewellery or other valuable article or thing found in his possession or under his
control, has been acquired out of his income which has not been disclosed so far in his return of
income to be furnished before the expiry of time specified in sub-section (1) of section 139, and
also specifies in the statement the manner in which such income has been derived and pays the tax,
together with interest, if any, in respect of such income.
Explanation 5A.— Where, in the course of a search initiated under section 132 on or after the 1st day of
June, 2007, the assessee is found to be the owner of—
(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation
referred to as assets) and the assessee claims that such assets have been acquired by him by
utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he
claims that such entry in the books of account or other documents or transactions represents his
income (wholly or in part) for any previous year,
which has ended before the date of search and,—
(a) where the return of income for such previous year has been furnished before the said date but such
income has not been declared therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has
not filed the return,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the
date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this
section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of
such income.
Explanation 6.—Where any adjustment is made in the income or loss declared in the return under the
proviso to clause (a) of sub-section (1) of section 143 and additional tax charged under that section, the
provisions of this sub-section shall not apply in relation to the adjustment so made.
Explanation 7.—Where in the case of an assessee who has entered into an international transaction or
specified domestic transaction defined in section 92B, any amount is added or disallowed in computing the
total income under sub-section (4) of section 92C, then, the amount so added or disallowed shall, for the
purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars
have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the
satisfaction of the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner
(Appeals) or the Principal Commissioner or Commissioner that the price charged or paid in such transaction
was computed in accordance with the provisions contained in section 92C and in the manner prescribed
under that section, in good faith and with due diligence.
(1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the
imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the
course of which such penalty proceedings could have been initiated under sub-section (1) have been
completed.
(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any
order of assessment or reassessment and the said order contains a direction for initiation of penalty
proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be
deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the
said clause (c).
(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed
under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of this Act,
the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if
that firm were an unregistered firm.
(3) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
(4) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) in the
course of any proceedings under this Act, is satisfied that the profits of a registered firm have been
distributed otherwise than in accordance with the shares of the partners as shown in the instrument of
partnership on the basis of which the firm has been registered under this Act, and that any partner has
thereby returned his income below its real amount, he may direct that such partner shall, in addition to the
tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of
tax which has been avoided, or would have been avoided if the income returned by such partner had been
accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by
reason of such direction.
(4A) and (4B) Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. Original
sub-sections (4A) and (4B) were inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. Later
on sub-section (4A) was substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.
(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws
(Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to
the other provisions of this Act shall be construed as references to those provisions as for the time being in
force and applicable to the relevant assessment year.
(6) Any reference in this section to the income shall be construed as a reference to the income or fringe
benefits, as the case may be, and the provisions of this section shall, as far as may be, apply in relation to
any assessment in respect of fringe benefits also.
(7) The provisions of this section shall not apply to and in relation to any assessment for the assessment year
commencing on or after the 1st day of April, 2017.
C. AUTHORITIES
The authorities are arranged by doctrine: civil character and mens rea; the disclosed-claim rule; Explanation 1; and the defective-notice line. These are the load-bearing Supreme Court and High Court decisions; each remains good law for the back-years pipeline and shapes section 270A.
1. Civil character of the penalty; mens rea not essential
Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 (SC)(3 Judges)
Holding The penalty under section 271(1)(c) is a civil liability; wilful concealment is not an essential ingredient for attracting civil liability, and proof of mens rea in the criminal sense is not required. Dilip N. Shroff is overruled to that limited extent.
Use Defeats the argument that the Revenue must prove a guilty mind; but does not make penalty automatic.
CIT v. Reliance Petroproducts (P) Ltd (2010) 322 ITR 158 (SC)
Holding Merely making an unsustainable claim, with full disclosure of particulars, is not furnishing inaccurate particulars; "inaccurate particulars" means details that are not accurate, not exact, or erroneous — a wrong legal claim on disclosed facts does not qualify.
Use The cardinal defence; harmonises with Dharmendra Textile by confirming that the statutory ingredients must still exist.
CIT v. Rajasthan Spinning & Weaving Mills (2009) 224 CTR 1 / 13 SCC 448 (SC)
Holding Dharmendra Textile does not mean that penalty under section 271(1)(c) is automatic; the conditions of the section must be satisfied before penalty can be levied (decided in the context of section 11AC of the Excise Act but applied to section 271(1)(c)).
Use Curbs over-reading of Dharmendra Textile; restores the requirement to satisfy the ingredients.
2. Explanation 1 — presumption, burden and "voluntary" surrender
MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC)
Holding Explanation 1 raises a presumption of concealment when there is a difference between returned and assessed income; the burden is on the assessee to offer a bona fide explanation and substantiate it; a surrender of income "to buy peace" or "to avoid litigation", without explaining the source, does not absolve the assessee of penalty.
Use The Revenue’s principal authority on the shifting burden under Explanation 1; deployed against unexplained surrenders.
CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC)
Holding Where a revised return offering additional income is accepted and the Revenue does not establish concealment independently of the offer, and the explanation is bona fide, the concealment penalty is not warranted.
Use The counterpoint to MAK Data; supports the assessee where the surrender is bona fide and the Revenue has no independent material.
K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC)
Holding The Explanation to section 271(1)(c) is part of the section; no separate notice of intention to apply the Explanation is necessary, and its presumption operates once the conditions are met.
Use Settles that the Explanation applies of its own force; rebuts the argument that it must be separately invoked.
3. The disclosed-claim and "two views" principle
Price Waterhouse Coopers (P) Ltd v. CIT (2012) 348 ITR 306 (SC)
Holding A bona fide and inadvertent error, with full disclosure, does not attract concealment penalty; the assessee’s conduct and the absence of intent to conceal are material.
Use Protects genuine mistakes and inadvertent disallowances from penalty.
CIT v. Reliance Petroproducts (P) Ltd (2010) 322 ITR 158 (SC)
Holding Where two views are reasonably possible and the assessee adopts one with full disclosure, the claim, even if rejected, is not concealment.
Use The "debatable issue" shield; foundational to section 270A(6)(a).
4. Procedure — the section 274 notice must specify the limb
Dilip N. Shroff v. JCIT (2007) 291 ITR 519 (SC)
Holding Issuing the standard printed section 274 notice without striking off the inapplicable limb betrays non-application of mind; the words "concealment" and "inaccurate particulars" carry distinct meanings and the assessee must know the precise charge. (Overruled only on the mens rea point by Dharmendra Textile; the notice/limb reasoning survives.)
Use The origin of the defective-notice defence.
CIT v. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karn)(HC)
Holding A penalty notice must specify whether the charge is concealment or furnishing inaccurate particulars; an omnibus notice is invalid and the consequent penalty is unsustainable.
Use The leading High Court statement of the rule, widely followed by Tribunals.
CIT v. SSA’s Emerald Meadows (2016) 73 taxmann.com 248 (SC) (SLP dismissed); (2016) 242 Taxman 180
Holding The Supreme Court dismissed the Revenue’s SLP against the Karnataka High Court ruling that a section 274 notice not specifying the limb is bad in law, affirming Manjunatha Cotton.
Use Supreme Court imprimatur on the defective-notice defence.
Mohd. Farhan A. Shaikh v. ACIT (2021) 434 ITR 1 (Bom)(HC)(FB)
Holding A defective section 274 notice that does not delete the inapplicable portion is not a curable irregularity; non-application of mind vitiates the penalty; the assessee is prejudiced by the vagueness of the charge.
Use Full Bench authority settling the Bombay position in the assessee’s favour.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.