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When an assessment adds income, the officer usually starts penalty proceedings for under-reporting. The Sec 274 notice gives you a chance to explain why penalty should not be levied. No penalty has been levied yet at this stage.
ITR
What a penalty notice under 270A and 274 means
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Provisions
Sec 270A (now Sec 439); Sec 274 (now Sec 471)
Analysis
Penalty is a percentage of the tax on the under-reported income, not of the income itself. If ₹4,00,000 was added and the tax on it is ₹1,24,800 at 30% plus cess, under-reporting penalty would be 50%, about ₹62,400. If the officer says it is misreporting, it can be 200%, about ₹2,49,600. Your options are to reply on merits, seek immunity, or ask that penalty wait for your appeal.
Close
- Read the notice to see whether it charges under-reporting or misreporting
- Compute the possible penalty on the tax effect of each addition
- Decide between immunity, appeal and reply on merits
- Reply before the date in the notice
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