Compulsory penalty of Rs. 500 per day if Annual Information Return not furnished even after service of notice under Section 285BA(5) and expiry of notice period
(1) Existing provisions:
(a) Section 285BA mandates furnishing of Annual Information Return (‘AIR’) by the specified persons in respect of specified transactions within the time prescribed;
(b) Sub-section (5) of the section empowers the Assessing Officer to issue notice if the AIR has not been furnished by the due date;
(c) The existing provisions contained in section 271FA of the Income-tax Act provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA, fails to furnish such return within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues;
(d) There is no higher/additional penalty if person required to file AIR having not furnished it within prescribed time limit doesn’t hasten to furnish it even after issue of notice within notice period.
(2) Proposed amendments:
(a) If a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA, fails to furnish such return within the time prescribed under sub-section (2) thereof, the income-tax authority prescribed under sub-section (1) of the said section may direct that such person shall pay, by way of penalty, a sum of Rs.100 for every day during which the failure continues.
(b) Provided that where such person fails to furnish the return within the period specified in the notice under sub-section (5) of section 285BA, he shall pay, by way of penalty, a sum of Rs. 500 for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires [New proviso proposed to section 271FA].
This amendment will take effect from 1st April, 2014.
(a) Whether (i) the delay from the time-limit under section 285BA(2) till the date of service of notice under section 285BA(5); (ii)delay from service of notice till expiry of notice period; and (iii) delay after expiry of the notice period has to be adjudicated separately and dealt with separately by adjudication authority?
(b) Can there be said to be reasonable cause within the meaning of section 273B for delay after receipt of notice under section 285BA(5) till expiry of notice period? Will penalty of Rs. 100 per day have to be imposed for this period?
(c) Can there be said to be reasonable cause within the meaning of section 273B for delay after expiry of notice period? Can it be said there is no reasonable cause at all for this period of delay and will Rs. 500 per day be mandatory?
(4) Tax Impact:
(a) This proposed amendment and the new proposed proviso and above issues should be resolved in the light of the ruling of the Gujarat High Court in Patan Nagrik Sahakari Bank Ltd. v. Director of Income-tax (CIB)  20 taxmann.com 754 (Guj.) where facts were as under:
• To cut a long story short, assessee-co-operative bank located in mofussil area and claiming deduction under section 80P was unaware of its obligations to file AIR under section 285BA as there no CAs /other professionals who could guide it.
• Assessee failed to file AIR within due date of 31-8-2007.
• It received first notice under section 285BA(5) for AIR return on 17-12-2008 and failed to file within notice period. Only after it received second notice on 11-9-2009 that society filed AIR
• Penalty was imposed for violation of section 285BA by invoking section 271FA and order imposing penalty was challenged by petition in Gujarat High Court
(b) The Gujarat High Court held as follows:
• For the period after service of the notice dated 17-12-2008 under section 285BA(5) of the Act, it cannot be said that the petitioner had any reasonable cause for not filing the annual information return within a period of 60 days of service of the said notice.
• It is the case of the petitioner that till September 11, 2009, when the second notice was issued, it did not realize the seriousness of the matter and it was only thereafter that it took steps for furnishing the annual information return. The record of the case indicates that such annual information return came to be furnished within a month from the issuance of the second notice, which by itself falsifies the case of the petitioner that there being substantial number of transactions, it took sometime to gather the information.
• However, merely because the petitioner has not immediately taken steps after the issuance of the first notice on December 17, 2008, it cannot be said that the reasonable cause made out by the petitioner, thus, the period prior thereto should not be taken into consideration while considering the quantum of penalty to be imposed under section 271FA of the Act.
• However, with effect from the date of service of the notice dated December 17, 2008, issued under section 285BA(5) of the Act, any default on the part of the petitioner would be viewed as a conscious disregard of its statutory obligation and as such, in respect of the period subsequent thereto, the petitioner would not be entitled to the benefit of the provisions of section 273B of the Act.
(5) Tax impact:
In view of above Gujarat High Court ruling the tax impact of the proposed amendment shall be as under:
(a) If reasons for non-filing of AIR till the date of service of notice under 285BA(5) explained satisfactorily and income-tax authority satisfied from assessee’s explanation that there was reasonable cause for not filing, no penalty imposable by reason of section 273B for this period. Otherwise, Rs.100 per day penalty for delay till date of service of notice not so satisfactorily explained.
(b) If AIR filed within the 60 day notice period after receipt of notice, Rs.100 per day penalty for delay from date of service of notice till date of filing as there can be no reasonable cause within the meaning of section 273B for not filing after date of service of notice. In this case penalty of Rs.500 per day under proviso not applicable.
(c) If AIR filed, after notice period, after receipt of notice, section 273B would not come to the rescue of the assessee. For notice period penalty would be Rs.100 per day. For delay after the expiry of notice period, whether Rs. 500 per day leviable or Rs.600 per day (Rs. 100 per day under main provision and Rs.500 per day under proviso) leviable is the moot question. Proviso does not say “further penalty”. So, it appears that only penalty of Rs. 500 per day leviable for delay after expiry of notice period. However, if period of delay after expiry of notice period falls before 1-4-2014, penalty will be Rs.100 per day as Proviso comes into effect from 1-4-2014 only.
Thus, the three periods of delay will have to be adjudicated independently.