Penalty for failure to comply with the provisions of section 397(1)

468(1)

If a person fails to comply with the provisions of section 397, the Assessing Officer may impose a penalty of ten thousand rupees on him.

468(2)

If a person, required to quote his Tax Deduction and Collection Account Number in documents (such as challans, certificates, or statements) referred to in section 397(1)(b), quotes a number which is false, knowing or believing it to be false, the Assessing Officer may impose a penalty of ten thousand rupees on him.

Explanation

Section Summary:

This section imposes penalties for non-compliance with the provisions of Section 397(1) of the Income Tax Act. Specifically, it penalizes two scenarios:

1. Failure to comply with the requirements of Section 397(1).
2. Providing a false Tax Deduction and Collection Account Number (TAN) in documents like challans, certificates, or statements.

The penalty for both scenarios is ₹10,000, imposed by the Assessing Officer.

Key Changes:

• New Penalty Provision: This section introduces a specific penalty for non-compliance with Section 397(1), which was not explicitly addressed in the prior Income Tax Act.
• Focus on TAN Compliance: The section emphasizes the importance of correctly quoting the TAN in specified documents, with penalties for knowingly providing false information.

Practical Implications:

• Taxpayers and Businesses: Entities responsible for tax deduction or collection (e.g., employers, contractors) must ensure strict compliance with Section 397(1). This includes quoting the correct TAN in all relevant documents.
• Increased Scrutiny: Tax authorities may now impose penalties more frequently for non-compliance or false TAN quotations, leading to stricter enforcement.
• Financial Impact: A penalty of ₹10,000 could be significant for small businesses or individuals, making compliance critical.

Critical Concepts:

• Section 397(1): This section likely mandates specific requirements related to tax deduction or collection, such as quoting TAN in challans, certificates, or statements.
• TAN (Tax Deduction and Collection Account Number): A unique 10-digit alphanumeric identifier required for entities responsible for deducting or collecting tax at source.
• False TAN: Knowingly providing an incorrect TAN in documents, which could be used to evade tax or mislead authorities.

Compliance Steps:

1. Ensure TAN Accuracy: Verify that the TAN quoted in all documents (e.g., challans, TDS certificates, statements) is correct and matches the official records.
2. Adhere to Section 397(1): Comply with all requirements under Section 397(1), such as timely submission of documents and accurate reporting.
3. Maintain Records: Keep detailed records of all TAN-related documents to avoid errors or discrepancies during audits.

Examples:

• Scenario 1: A company deducts TDS from employee salaries but fails to quote its TAN in the TDS certificate issued to employees. The Assessing Officer imposes a penalty of ₹10,000 for non-compliance with Section 397(1).
• Scenario 2: A contractor knowingly provides a false TAN in the challan used for depositing TDS. The Assessing Officer discovers the discrepancy and imposes a penalty of ₹10,000 under Section 468(2).