Penalty for failure to furnish report or for furnishing inaccurate report under section 511.

459(1)

If any reporting entity referred to in section 511, required to furnish the report referred to in sub-section (2) of the said section, for a reporting accounting year, fails to do so, the prescribed authority under that section may impose on such entity, a penalty of—

• (a) five thousand rupees for every day for which the failure continues, if the period of failure does not exceed one month; or
• (b) fifteen thousand rupees for every day for which the failure continues beyond the period of one month.

459(2)

If a reporting entity referred to in section 511 fails to produce the information and documents within the period allowed under sub-section (7) of the said section, the prescribed authority under that section may impose on such entity, a penalty of five thousand rupees for every day during which the failure continues, beginning from the day immediately following the day on which the period for furnishing the information and document expires.

459(3)

If the failure referred to in sub-section (1) or (2) continues after an order imposing a penalty under the said sub-sections, has been served on the entity, then, irrespective of the provisions of the said sub-sections, the prescribed authority may impose penalty of fifty thousand rupees for every day for which such failure continues starting from the date of service of such order.

459(4)

If a reporting entity referred to in section 511 provides inaccurate information in the report furnished under sub-section (2) of the said section, the prescribed authority under that section may impose on such entity, a penalty of five lakh rupees, if—

• (a) the entity has knowledge of the inaccuracy at the time of furnishing the report but fails to inform the prescribed authority; or
• (b) the entity discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within fifteen days of such discovery; or
• (c) the entity furnishes inaccurate information or document in response to the notice issued under section 511(7).

Explanation

Section Summary:

Section 459 of the Income Tax Act imposes penalties on reporting entities (as defined under Section 511) for failing to furnish required reports, failing to provide information or documents within the stipulated time, or furnishing inaccurate information. The penalties are structured to escalate based on the duration of non-compliance and the severity of the violation.

Key Changes:

1. Daily Penalty Structure: Introduces a tiered penalty system based on the duration of non-compliance:
   • ₹5,000 per day for delays up to one month.
   • ₹15,000 per day for delays beyond one month.
   • ₹50,000 per day if non-compliance continues after a penalty order is served.
2. Inaccurate Reporting Penalty: A flat penalty of ₹5 lakh is imposed for furnishing inaccurate information, with specific conditions triggering this penalty.
3. Post-Order Penalty: A higher penalty of ₹50,000 per day applies if non-compliance persists after a penalty order is served.

Practical Implications:

• For Reporting Entities: Entities must ensure timely and accurate submission of reports and documents to avoid escalating penalties. Delays or inaccuracies can lead to significant financial liabilities.
• For Compliance Processes: Entities need robust systems to track reporting deadlines and verify the accuracy of information before submission. Post-submission, they must promptly correct any discovered inaccuracies.
• For Tax Authorities: This section strengthens enforcement by imposing stricter penalties, encouraging compliance and deterring negligence or intentional misreporting.

Critical Concepts:

• Reporting Entity: Refers to entities obligated to furnish reports under Section 511, such as financial institutions, intermediaries, or other specified entities.
• Prescribed Authority: The authority designated under Section 511 to enforce compliance and impose penalties.
• Inaccurate Information: Includes errors, omissions, or misrepresentations in the report, whether intentional or unintentional.

Compliance Steps:

1. Timely Submission: Ensure reports are submitted within the prescribed deadlines.
2. Accuracy Verification: Verify all information and documents for accuracy before submission.
3. Post-Submission Review: If inaccuracies are discovered after submission, inform the prescribed authority and furnish corrected reports within 15 days.
4. Respond to Notices: Provide accurate information and documents in response to notices issued under Section 511(7).

Examples:

1. Scenario 1: A reporting entity fails to submit its report by the due date. The delay continues for 20 days. The penalty would be ₹5,000 per day for 20 days, totaling ₹1,00,000.
2. Scenario 2: The same entity fails to submit the report for 40 days. For the first 30 days, the penalty is ₹5,000 per day (₹1,50,000). For the next 10 days, the penalty increases to ₹15,000 per day (₹1,50,000), totaling ₹3,00,000.
3. Scenario 3: An entity submits a report but later discovers inaccuracies. If it fails to correct the report within 15 days of discovery, it may face a penalty of ₹5 lakh.
4. Scenario 4: After a penalty order is served, the entity continues to delay submission. The penalty increases to ₹50,000 per day until compliance is achieved.