he Competent Authority may, during the course of any proceedings under this Act, impose penalty on any person who has under-reported his income and such penalty shall be payable in addition to tax, if any. (2) A person shall be deemed to have under-reported his income, if— (a) the income assessed is greater than the income determined in the return processed under section 270(1)(a); (b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 280; (c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment; (d) the amount of deemed total income assessed or reassessed as per section 206 (1) and (2), is greater than the deemed total income determined in the return processed under section 270(1)(a); (e) the amount of deemed total income assessed as per section 206(1) and (2), is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 280; (f) the amount of deemed total income reassessed as per section 206(1) and (2), is greater than the deemed total income assessed or reassessed under the said sections immediately before such reassessment; (g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income. (3) The amount of under-reported income shall be,— (a) if income has been assessed for the first time,— (i) where return has been furnished, the difference between the amount of income assessed and the amount of income determined under section 270(1)(a); (ii) where no return of income has been furnished or where return has been furnished for the first time under section 280,— (A) the amount of income assessed, in the case of a company, firm or local authority; and (B) the difference between the amount of income assessed and the maximum amount not chargeable to tax, in a case not covered in item (A); (b) in any other case, the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order.
(4) If under-reported income arises out of determination of deemed total income as per section 206 (1) and (2), the amount of total under-reported income shall be determined as under— (A-B) + (C-D) where,— A = the total income assessed as per the provisions other than the provisions contained in section 206 (herein referred to as “general provisions”); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under-reported income; C = the total income assessed as per section 206; D = the total income that would have been chargeable had the total income assessed as per section 206 been reduced by the amount of under-reported income. (5)(a) If the amount of under-reported income on any issue is considered both under section 206(1) and (2) and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under D referred to in sub-section (4); (b) in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under-reported income shall be the difference between the loss claimed and the income or loss, assessed or reassessed. (6) Subject to sub-section (8), where the source of any receipt, deposit or investment in any tax year is claimed to be an amount added to income or deducted while computing loss, in the assessment of such person in any year prior to the tax year in which such receipt, deposit or investment appears (herein referred to as the preceding year) and no penalty was levied for such preceding year, then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. (7) The amount referred to in sub-section (6) shall be deemed to be income under-reported for the preceding year in the following order:— (a) the preceding year immediately before the year in which the receipt, deposit or investment appears, being the first preceding year; and (b) where the amount added or deducted in the first preceding year is not sufficient to cover the receipt, deposit or investment, the year immediately preceding the first preceding year and so on. (8) The under-reported income, for the purposes of this section, shall not include the following:— (a) the amount of income in respect of which the assessee offers an explanation and the Competent Authority, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;