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Section 271 — Failure to Furnish Returns / Comply with Notices

Imagine the Income Tax Department sends you a notice asking for your books of account and you simply ignore it. Or worse — you file a return showing ₹8 lakh income when you actually earned ₹12 lakh. Section 271 is the law's way of saying: there are consequences. This section is the backbone of the penalty framework under the Income Tax Act, and it comes up regularly in both theory and problem-based exam questions.

Section 271(1)(b) — Penalty for ignoring notices: When the Assessing Officer (AO) sends a notice under Section 142(1) (asking you to file return or produce accounts) or Section 143(2) (scrutiny notice), or issues a direction under Section 142(2A) (special audit), and the assessee simply doesn't comply — the AO can levy a penalty of ₹10,000 for each such failure. This is a flat amount, not percentage-based. Each missed notice = ₹10,000.

Section 271(1)(c) — Penalty for concealment or inaccurate particulars: This is the big one. If an assessee conceals income or furnishes inaccurate particulars of income, the penalty ranges from 100% to 300% of tax sought to be evaded. The phrase *

📊 Worked example

Example 1 — Section 271(1)(b): Failure to comply with notices

Mr. Sharma received a notice u/s 142(1) requiring him to produce books of account. He ignored it. He then received a scrutiny notice u/s 143(2). He ignored that too. What is the penalty?

Working:

  • Notice u/s 142(1) ignored → Penalty = ₹10,000
  • Notice u/s 143(2) ignored → Penalty = ₹10,000
  • Total penalty u/s 271(1)(b) = ₹10,000 + ₹10,000 = ₹20,000

Note: These are per-failure penalties — each non-compliance is counted separately.

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Example 2 — Section 271(1)(c): Concealment of income

Rajesh & Co. Pvt. Ltd. (a domestic company, tax rate 25%) filed a return declaring total income of ₹15,00,000. During scrutiny, the AO discovered that the company had suppressed cash sales of ₹5,00,000. The AO assesses total income at ₹20,00,000 and levies penalty. Calculate the minimum and maximum penalty u/s 271(1)(c).

Working:

  • Income assessed = ₹20,00,000
  • Income returned = ₹15,00,000
  • Concealed income = ₹20,00,000 − ₹15,00,000 = ₹5,00,000
  • Tax sought to be evaded = ₹5,00,000 × 25% = ₹1,25,000
  • Minimum penalty (100%) = ₹1,25,000 × 100% = ₹1,25,000
  • Maximum penalty (300%) = ₹1,25,000 × 300% = ₹3,75,000

The AO may levy any amount between ₹1,25,000 and ₹3,75,000.

⚠️ Common exam mistakes

  • Confusing Section 271 penalty with Section 234F fee: Students mix these up. Section 234F is a fee for late filing of return (₹5,000 or ₹10,000). Section 271 is a penalty for concealment or non-compliance. They are completely different provisions with different triggers.
  • Forgetting that each notice non-compliance is counted separately: Don't add up the notices and assume one ₹10,000. Each ignored notice under 142(1) or 143(2) attracts its own ₹10,000 — two notices ignored = ₹20,000.
  • Using the wrong base for the 100%–300% calculation: The penalty is on tax sought to be evaded, NOT on the concealed income itself. Calculate tax on the additional income first, then apply the 100%–300%. A common error is applying the percentage directly to ₹5,00,000 instead of to the ₹1,25,000 tax thereon.
  • Ignoring the Explanation 1 presumption: If assessed income > returned income, the difference is presumed to be concealed. Students forget the burden of proof is on the assessee to rebut this — not on the AO to prove concealment.
  • Overlooking Section 273A relief: When a problem mentions the assessee cooperated and made full disclosure, always mention that the CIT can waive/reduce the penalty u/s 273A. Exam answers that raise this get bonus marks in theory questions.
📖 Reference: Section 271 — Income Tax Act 1961
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