Penalty for failure to comply with provisions of section 185.

450

If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 185, the Assessing Officer may impose on him, a penalty equal to the amount of the loan or deposit or specified sum so taken or accepted.

Explanation

Section Summary:

Section 450 of the Income Tax Act imposes a penalty on individuals or entities that fail to comply with the provisions of Section 185. Section 185 restricts the acceptance or taking of loans, deposits, or specified sums under certain conditions. The penalty under Section 450 is equal to the amount of the loan, deposit, or specified sum taken or accepted in violation of Section 185.

Key Changes:

• New Penalty Provision: Section 450 introduces a specific penalty for non-compliance with Section 185, which was not explicitly outlined in the previous Income Tax Act.
• Direct Link to Section 185: The penalty is directly tied to the amount of the loan, deposit, or specified sum taken or accepted in violation of Section 185.

Practical Implications:

• For Taxpayers and Businesses: Individuals or entities accepting loans, deposits, or specified sums must ensure compliance with Section 185 to avoid penalties. Non-compliance could result in a penalty equal to the amount of the transaction.
• For Assessing Officers: They now have a clear mandate to impose penalties for violations of Section 185, ensuring stricter enforcement of the law.

Critical Concepts:

• Section 185: This section restricts the acceptance of loans, deposits, or specified sums under certain conditions, such as limits on cash transactions or requirements for proper documentation.
• Specified Sum: Refers to any amount that falls under the purview of Section 185, which could include loans, deposits, or other financial transactions.

Compliance Steps:

1. Understand Section 185: Ensure that any loan, deposit, or specified sum accepted complies with the conditions outlined in Section 185.
2. Maintain Proper Documentation: Keep records of all transactions to demonstrate compliance with Section 185.
3. Avoid Cash Transactions Beyond Limits: Be aware of the limits on cash transactions and ensure that any acceptance of loans or deposits adheres to these limits.
4. Report Transactions Accurately: Ensure that all relevant transactions are accurately reported in tax filings to avoid scrutiny.

Examples:

• Scenario 1: A business accepts a cash loan of ₹2 lakhs from a friend without proper documentation, violating Section 185. The Assessing Officer imposes a penalty of ₹2 lakhs under Section 450.
• Scenario 2: An individual accepts a deposit of ₹5 lakhs in cash, exceeding the permissible limit under Section 185. The Assessing Officer imposes a penalty of ₹5 lakhs under Section 450.

By understanding and adhering to Section 185, taxpayers can avoid the penalties outlined in Section 450.