Income Tax Department Imposes ₹23 Crore Penalty on ACC Limited: A Comprehensive Analysis of Tax Compliance and Penalty Provisions

Introduction

The Income Tax Department recently imposed a substantial penalty totaling ₹23.07 crore on ACC Limited, one of India’s leading cement manufacturing companies currently owned by the Adani Group. This enforcement action involves two separate penalty orders pertaining to Assessment Years 2015-16 and 2018-19, both predating the company’s acquisition by the Adani conglomerate.[1] The penalties stem from alleged violations related to furnishing inaccurate particulars of income and under-reporting of income, highlighting the stringent compliance requirements under Indian tax legislation. This case underscores the critical importance of accurate financial reporting and the severe consequences that corporate entities face when tax authorities identify discrepancies in their income declarations.

The penalties were imposed on October 1, 2025, affecting periods when ACC Limited was still under the ownership of Switzerland’s Holcim Group, before its acquisition by the Adani Group in September 2022 in a significant $6.4 billion transaction.[1] ACC Limited has announced its intention to contest both tax penalty orders before the Commissioner of Income Tax (Appeals) while simultaneously seeking a stay on the penalty demands. The company maintains that these penalties will not impact its ongoing financial operations, given its substantial revenue base of ₹21,762 crore in Financial Year 2024-25, with cement sales volume reaching 39 million tonnes.[1]

Background of the Tax Penalty Imposition on ACC Limited

The Income Tax Department’s action against ACC Limited comprises two distinct penalty orders, each addressing different assessment years and involving different provisions of the Income Tax Act, 1961. The first penalty of ₹14.22 crore relates to Assessment Year 2015-16 and was imposed under Section 271(1)(c) of the Income Tax Act for allegedly furnishing inaccurate particulars of income. The second penalty of ₹8.85 crore pertains to Assessment Year 2018-19 and was levied for under-reporting of income.

For the Financial Year 2014-15 relevant to Assessment Year 2015-16, the Income Tax Department disallowed certain expenses aggregating to ₹49.25 crore. The department alleged that these adjustments constituted furnishing of inaccurate particulars of income to the extent of such disallowances.[1] Consequently, the department imposed a tax penalty amounting to ₹14.22 crore on ACC Limited, representing 100 percent of the tax effect arising from the aforementioned disallowances. This penalty was calculated under the provisions existing prior to the introduction of Section 270A, which came into effect from April 1, 2017.

In the second instance concerning Assessment Year 2018-19, the Income Tax Department disallowed ACC Limited’s claim for expenditure amounting to ₹12.79 crore and accordingly alleged under-reporting of income to that extent. Following this disallowance, the department levied a tax penalty of ₹8.85 crore on ACC Limited, which represents 200 percent of the tax effect of the disallowances.[1] This higher penalty rate reflects the more stringent approach adopted under the revised penalty provisions that distinguish between simple under-reporting and misreporting of income.

Legal Framework Governing Tax Penalties

Section 271(1)(c) of the Income Tax Act, 1961

Prior to the introduction of Section 270A, Section 271(1)(c) of the Income Tax Act, 1961, served as the primary provision for imposing penalties in cases involving concealment of income or furnishing of inaccurate particulars. This section has been a subject of extensive litigation between taxpayers and revenue authorities due to the discretionary nature of penalty quantum determination by the Assessing Officer.[2]

Section 271(1)(c) of the Income Tax Act, 1961, provides that if the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of income or the furnishing of inaccurate particulars of income.

The application of Section 271(1)(c) requires the Assessing Officer to be satisfied that the assessee has either concealed income or furnished inaccurate particulars. The penalty under this provision can range from 100 percent to 300 percent of the tax sought to be evaded, depending upon the facts and circumstances of each case and the discretion exercised by the Assessing Officer.[3] In ACC Limited case for Assessment Year 2015-16, the tax penalty was imposed at 100 percent of the tax effect, which falls at the lower end of the prescribed range.

The determination of whether an assessee has concealed income or furnished inaccurate particulars involves a careful examination of the facts. Mere making of a claim that is ultimately disallowed does not automatically attract penalty under Section 271(1)(c). The department must establish that there was a deliberate attempt to conceal income or that the particulars furnished were knowingly inaccurate. However, the burden of proof often becomes contentious in litigation, with taxpayers arguing that bona fide errors or legitimate differences in interpretation should not attract penal consequences.

Section 270A of the Income Tax Act, 1961

Section 270A was introduced through the Finance Act of 2016 with effect from April 1, 2017, to rationalize and streamline the penalty provisions relating to income tax compliance.[4] This provision aimed to address the ambiguities and litigation surrounding Section 271(1)(c) by clearly defining the concepts of under-reporting and misreporting of income and prescribing specific penalty rates for each category.

Section 270A(1) of the Income Tax Act, 1961, states that the Assessing Officer or the Commissioner (Appeals) may, during any proceeding under this Act, direct that any person who has under-reported his income shall pay, by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of fifty per cent of the amount of tax payable on under-reported income.

The provision further stipulates that if the under-reported income is in consequence of any misreporting thereof by any person, he shall pay penalty at the rate of two hundred per cent of the amount of tax payable on such misreported income. This distinction between under-reporting attracting 50 percent penalty and misreporting attracting 200 percent penalty represents a significant departure from the earlier regime under Section 271(1)(c).[4]

Under-reporting of income occurs when the income assessed is greater than the income determined in the return processed. Section 270A(2) specifies various situations that constitute under-reporting, including when the income assessed is greater than the income declared in the return, when the assessee fails to furnish a return and income is assessed, when income determined under Section 115JB or Section 115JC exceeds the returned income, when the expenditure or deduction claimed is found to be in excess of the expenditure or deduction allowable, or when any amount of income is found to be understated or any item of expenditure or deduction is found to be overstated.[4]

Misreporting of income, as defined under Section 270A(6), includes more serious violations such as misrepresentation or suppression of facts, failure to record investments in books of account, recording of any false entry in the books of account, failure to record any receipt in books of account having a bearing on total income, and failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction.[4] The significantly higher penalty rate of 200 percent for misreporting reflects the legislature’s intent to impose stricter consequences for deliberate attempts to evade tax through fraudulent means.

In ACC’s case, the penalty for Assessment Year 2018-19 was imposed at 200 percent of the tax effect, suggesting that the Income Tax Department treated the disallowance as falling within the category of misreporting rather than simple under-reporting. This classification substantially increases the financial burden on the company and indicates the department’s view that the income reporting failures were more serious in nature than mere inadvertent errors.

Section 270AA – Immunity from Penalty

Section 270AA of the Income Tax Act provides a mechanism for taxpayers to avoid penalties under Section 270A by accepting the additional income determined by the Assessing Officer and paying the tax along with interest thereon. This provision promotes voluntary compliance and reduces litigation by offering immunity from penalty when the taxpayer acknowledges the under-reported income and discharges the tax liability promptly.[5]

Under Section 270AA(1), no penalty shall be levied under Section 270A if the following conditions are satisfied: the additional amount of income tax payable on the income determined by the Assessing Officer exceeds that declared in the return of income, the assessee pays such additional amount of income tax along with interest payable within the specified time, and the amount of under-reported income does not exceed the higher of the following amounts – ₹2 lakh or ten percent of the income declared in the return of income.

However, this immunity provision is not available in all circumstances. Section 270AA(2) specifically excludes cases where the under-reported income is in consequence of misreporting as defined in Section 270A(6). Therefore, even if a taxpayer is willing to accept the additional income and pay tax with interest, immunity from penalty cannot be claimed when the case involves misreporting elements such as suppression of facts or false entries in books of account.[5]

Furthermore, immunity is not granted on an issue-wise basis but applies to the assessment order in its entirety. This means that a taxpayer cannot selectively accept some additions while contesting others and still claim immunity from penalty. The taxpayer must accept the entire additional income determined in the assessment order to qualify for immunity under Section 270AA.[2]

Regulatory Framework and Compliance Requirements

Assessment Proceedings under the Income Tax Act

The assessment process under the Income Tax Act involves a thorough examination of the returns filed by taxpayers to verify the accuracy of the income declared and the legitimacy of the deductions claimed. The Assessing Officer has wide-ranging powers to conduct inquiries, require production of evidence, and make additions to the returned income when discrepancies are identified.

Assessment proceedings can be initiated in various forms including scrutiny assessment, best judgment assessment, and income escaping assessment. In scrutiny assessments, which were likely conducted in ACC’s case, the Assessing Officer selects returns for detailed examination based on risk parameters or specific information available with the department. During such assessments, the officer can call for detailed explanations regarding specific expenses, examine the supporting documentation, and disallow claims that are not substantiated adequately or do not meet the requirements of the law.

The disallowance of expenses aggregating to ₹49.25 crore for Assessment Year 2015-16 and ₹12.79 crore for Assessment Year 2018-19 suggests that the Income Tax Department found these expenditure claims to be either inadequately supported, not incurred wholly and exclusively for business purposes, or falling within specific disallowance provisions of the Act. Common reasons for expense disallowances include violation of provisions such as Section 40(a)(ia) relating to non-deduction of tax at source, Section 14A relating to expenses incurred for earning exempt income, or disallowance under Section 43B for certain statutory payments not made before the due date for filing the return.

Corporate Tax Compliance Obligations

Corporate entities in India face comprehensive tax compliance obligations that extend beyond merely filing annual tax returns. These obligations include maintenance of proper books of account, preparation of tax audit reports when turnover exceeds specified thresholds, deduction of tax at source on various payments, collection of tax at source on specified transactions, payment of advance tax in installments, and compliance with transfer pricing regulations for international and specified domestic transactions.[6]

The complexity of corporate taxation means that even well-established companies with professional finance teams can face disputes with tax authorities regarding the treatment of specific transactions or the allowability of certain expenses. Differences in interpretation of tax provisions, application of judicial precedents, and evaluation of factual circumstances often lead to assessment adjustments that form the basis for penalty proceedings.

Large corporate taxpayers are also subject to enhanced scrutiny under various compliance programs implemented by the Income Tax Department. The department employs sophisticated data analytics and risk assessment models to identify returns that warrant detailed examination. Information from third-party sources, data from other government agencies, and intelligence gathered through investigations contribute to the selection of cases for scrutiny assessment.

Transfer Pricing and International Taxation Considerations

For multinational corporations and companies engaged in international transactions, transfer pricing compliance forms a critical aspect of tax obligations. Section 92 to 92F of the Income Tax Act contain detailed provisions requiring that transactions between associated enterprises be conducted at arm’s length prices. Failure to comply with transfer pricing regulations can result in transfer pricing adjustments to the taxable income and may also trigger penalty proceedings.[7]

The penalty provisions under Section 271G and Section 271BA specifically address transfer pricing violations. Section 271G provides for penalties when an assessee fails to maintain or furnish documentation required under Section 92D, while Section 271BA deals with penalties for failure to furnish transfer pricing documentation. Additionally, transfer pricing adjustments made to the income can also attract penalties under the general penalty provisions if deemed to constitute under-reporting or misreporting of income.

Although the specific nature of disallowances in ACC’s case has not been fully disclosed in public filings, cement companies with international operations or transactions with group entities must remain vigilant about transfer pricing compliance. The intersection of transfer pricing regulations with general penalty provisions creates additional layers of complexity in tax compliance for multinational corporate groups.

Appellate Remedies and Litigation Process

First Appellate Authority – Commissioner of Income Tax (Appeals)

The Income Tax Act provides a comprehensive appellate mechanism allowing taxpayers to challenge assessment orders and penalty orders before independent appellate authorities. ACC Limited has announced its intention to file appeals against the tax penalty before the Commissioner of Income Tax (Appeals), which represents the first tier of appellate remedy available to taxpayers.[1]

Section 246A of the Income Tax Act specifies the orders against which appeals can be filed before the Commissioner of Income Tax (Appeals). This includes orders of assessment, reassessment, penalty orders passed under various provisions including Section 271(1)(c) and Section 270A, and orders refusing to allow relief claimed under tax treaties. The appeal must be filed in the prescribed form along with the fee and should be accompanied by relevant documentary evidence supporting the grounds of appeal.

The time limit for filing an appeal before the Commissioner of Income Tax (Appeals) is ordinarily thirty days from the date of receipt of the order being challenged. However, the Commissioner has the discretion to admit appeals filed beyond this period if the appellant satisfies the authority that there was sufficient cause for the delay. Given that ACC limited received the tax penalty demands on October 1, 2025, the company would need to file its appeals within the prescribed timeline to preserve its appellate rights.[1]

During the pendency of the appeal, the appellant can seek a stay on the recovery of the disputed demand by filing a stay application before the Commissioner of Income Tax (Appeals). The stay application must be supported by grounds explaining why recovery should be stayed pending disposal of the appeal. Typically, stay may be granted upon payment of a certain percentage of the disputed demand, usually ranging from twenty to thirty percent, though the exact requirement varies based on the facts and merits of each case.

Income Tax Appellate Tribunal

If the taxpayer is aggrieved by the order passed by the Commissioner of Income Tax (Appeals), a further appeal lies to the Income Tax Appellate Tribunal under Section 253 of the Income Tax Act. The Tribunal is the highest fact-finding authority in income tax matters and functions as an independent quasi-judicial body comprising judicial and accountant members.[8]

The Tribunal has wide powers to review the orders of lower authorities and can enhance, reduce, or annul the assessment or penalty. It can also set aside the order and remand the matter to the Assessing Officer or the Commissioner (Appeals) for fresh consideration. The Tribunal’s orders are generally considered final on questions of fact, though appeals on substantial questions of law can be taken to the High Court.

The time limit for filing an appeal before the Income Tax Appellate Tribunal is sixty days from the date of receipt of the order of the Commissioner (Appeals). Similar to the first appellate stage, the Tribunal also has the power to condone delays in filing appeals if sufficient cause is shown. Stay applications can be filed before the Tribunal seeking suspension of demand recovery pending appeal disposal.

High Court and Supreme Court

Beyond the Tribunal, further appeals lie to the High Court under Section 260A of the Income Tax Act, but only on substantial questions of law. The High Court does not reappreciate factual findings made by the Tribunal unless such findings are perverse or based on no evidence. Questions relating to the interpretation of statutory provisions, applicability of legal principles, and consistency with judicial precedents constitute substantial questions of law that can be raised before the High Court.[9]

From the High Court, an appeal lies to the Supreme Court of India under Article 136 of the Constitution or under Section 261 of the Income Tax Act when the High Court certifies that the case involves a substantial question of law of general importance. The Supreme Court’s decisions constitute binding precedents on all courts and tribunals in India, providing finality and uniformity in the interpretation of tax laws.

The entire appellate process from the Commissioner (Appeals) to the Supreme Court can span several years, during which the taxpayer must navigate complex procedural requirements, deposit specified percentages of disputed demands, and engage in extensive legal argumentation. The protracted nature of tax litigation underscores the importance of maintaining accurate records, substantiating all claims at the assessment stage, and seeking professional advice on contentious tax positions.

Impact on Corporate Entities and Best Practices

Financial and Reputational Implications

Tax penalties and disputes with revenue authorities carry significant financial and reputational implications for corporate entities. Beyond the monetary burden of the penalty itself, companies must account for the costs of litigation, including professional fees for tax consultants, chartered accountants, and lawyers who handle the appellate proceedings. The uncertainty surrounding the outcome of appeals can also affect financial planning and capital allocation decisions.

From a financial reporting perspective, penalties imposed by tax authorities must be appropriately disclosed in the financial statements. Depending on the stage of proceedings and the management’s assessment of the likely outcome, provisions may need to be created in the financial statements. If the company believes it has strong grounds for appeal and a reasonable likelihood of success, it may disclose the matter as a contingent liability rather than creating a provision. However, accounting standards require careful judgment in assessing the probability of outflow of economic resources and the reliability of estimation.

Reputational considerations also come into play when companies face substantial tax penalties. While ACC Limited has clarified that the tax penalties relate to periods before it became part of the Adani Group, such enforcement actions can attract media attention and stakeholder scrutiny.[1] Corporate governance principles require transparent disclosure of material litigation and regulatory proceedings to shareholders and investors. Companies must balance the need for appropriate disclosure with the risk of premature or excessive commentary that might prejudice their appellate rights.

Preventive Measures and Compliance Best Practices

To minimize the risk of income under-reporting and the consequent penalty exposure, corporate entities should implement robust tax compliance frameworks incorporating several best practices. Comprehensive documentation stands as the first line of defense against potential disputes with tax authorities. Every business expenditure should be supported by proper invoices, contracts, approvals, and explanatory notes demonstrating the business purpose and allowability under tax law.[6]

Regular internal audits focusing on tax compliance help identify potential issues before they attract regulatory attention. These audits should review expense claims, deduction calculations, transfer pricing documentation, and compliance with various withholding tax obligations. Early identification of potential problem areas allows companies to take corrective action, make voluntary disclosures where appropriate, or at minimum prepare strong defenses for anticipated queries during assessment proceedings.

Tax risk management should be integrated into corporate governance structures through the establishment of tax committees or assignment of oversight responsibilities to audit committees. Senior management and board members should receive periodic updates on significant tax positions taken by the company, ongoing disputes with tax authorities, and emerging tax risks arising from business operations or regulatory changes.

Professional expertise plays a crucial role in navigating the complexities of corporate taxation. Companies should maintain relationships with experienced tax advisors who can provide guidance on technical tax issues, represent the company during assessment proceedings, and handle appellate litigation if disputes arise. The cost of professional tax advice represents a prudent investment compared to the potential exposure from penalties and protracted litigation.

Advance rulings and clarifications from tax authorities provide another avenue for managing tax uncertainty. The Authority for Advance Rulings was established to provide binding rulings on the tax treatment of proposed transactions or arrangements. Although the authority’s jurisdiction is limited to specific categories of applicants and questions, obtaining advance rulings can provide certainty and protection from penalty in cases where the tax treatment is ambiguous or contentious.[7]

Impact of Recent Tax Reforms

Recent years have witnessed significant reforms in India’s tax administration aimed at improving compliance, reducing litigation, and enhancing taxpayer services. The introduction of faceless assessment and faceless appeals represents a fundamental transformation in the assessment process, eliminating the need for physical interface between taxpayers and tax officers in most cases. These reforms aim to reduce subjectivity and enhance the objectivity of assessment proceedings.[8]

The Vivad se Vishwas scheme launched in 2020 provided taxpayers with an opportunity to settle pending disputes by paying the disputed tax amount without interest or penalty. Such dispute resolution schemes recognize the burden of prolonged litigation on both taxpayers and the revenue department and offer pragmatic solutions for resolving longstanding disputes. Companies facing multiple years of pending appeals may find such schemes attractive for resolving disputes efficiently and with certainty.

Increased digitization of tax administration has enhanced the department’s ability to detect non-compliance through data analytics and information matching. The Tax Information Exchange Network integrates data from multiple sources including banks, registrars, customs authorities, and foreign tax administrations. This comprehensive information network enables the department to identify discrepancies between reported income and expenditure patterns with greater accuracy, making it increasingly difficult to escape detection of under-reporting or misreporting.[6]

Conclusion

The imposition of a penalty of ₹23.07 crore on ACC Limited by the Income Tax Department exemplifies the serious consequences that corporate entities face when tax authorities identify income reporting discrepancies.[1] The case involves sophisticated legal issues relating to the application of penalty provisions under Section 271(1)(c) and Section 270A of the Income Tax Act, the distinction between under-reporting and misreporting of income, and the quantum of penalties that can be levied in different circumstances.

For corporate taxpayers, this case reinforces several critical lessons about tax compliance and risk management. Accurate income reporting supported by comprehensive documentation remains paramount in avoiding penalty exposure. The distinction between legitimate tax planning and impermissible tax avoidance must be carefully navigated with professional guidance. When disputes do arise, companies must be prepared to engage in potentially prolonged appellate proceedings while managing the financial and reputational implications of outstanding tax demands.

The appellate process provides multiple opportunities for taxpayers to contest adverse orders, but success in appeals depends on the strength of factual evidence and legal arguments presented at each stage. Companies must maintain detailed records not only for initial return filing but also to support their positions during assessment and appellate proceedings. The availability of immunity provisions like Section 270AA highlights the benefits of voluntary compliance and early resolution of disputes.[5]

As India’s tax administration continues to evolve with increased digitization and data analytics capabilities, corporate entities must enhance their tax compliance frameworks correspondingly. Proactive risk management, regular compliance reviews, professional tax advisory support, and transparent governance structures represent essential components of an effective approach to managing corporate tax obligations. While the cost of robust compliance systems may appear substantial, it pales in comparison to the potential exposure from penalties, litigation costs, and reputational damage arising from tax disputes.

The outcome of ACC Limited appeals against thetax  penalty orders will be watched closely by corporate taxpayers and tax professionals as it may provide guidance on the application of penalty provisions in similar cases. Regardless of the final outcome in this specific case, the broader lessons about the importance of tax compliance, accurate financial reporting, and effective dispute resolution remain universally applicable to all corporate entities operating in India’s taxation framework.

References

[1] Business Standard. (2025). I-T dept imposes penalty of ₹23.07 crore on Adani Cement entity ACC. Retrieved from https://www.business-standard.com/companies/news/i-t-dept-imposes-penalty-of-23-07-crore-on-adani-cement-entity-acc-125100300507_1.html 

[2] Counselvise. New Penalty provision under section 270A. Retrieved from https://counselvise.com/direct-tax/blogs/new-penalty-provision-under-section-270a-a-blessing-in-disguise 

[3] DisyTax. Income-Tax Penalties & Proceedings: Sections 271 & 270A. Retrieved from https://www.disytax.com/penalty-proceedings/ 

[4] ClearTax. (2025). Section 270A of Income Tax Act: Penalty For Under-reporting and Misreporting of Income. Retrieved from https://cleartax.in/s/section-270a-of-income-tax-act 

[5] Counselvise. Penalty u/s. 270A and 271(1)(c). Retrieved from https://counselvise.com/direct-tax/blogs/penalty-u-s-270a-and-2711c 

[6] TaxGuru. (2025). Section 270A Penalty For Concealment of Income under Income Tax Act 1961. Retrieved from https://taxguru.in/income-tax/section-270a-penalty-concealment-income-income-tax-act-1961.html 

[7] IndiaFilings. (2025). Section 271 – Income Tax Act – Penalty for Concealment. Retrieved from https://www.indiafilings.com/learn/section-271-income-tax/ 

[8] iTaxonline. (2020). Penalty U/s 271(1)(c) And S. 270A Read With S. 270AA Of The Income Tax Act. Retrieved from https://itatonline.org/articles_new/penalty-u-s-2711c-and-s-270a-read-with-s-270aa-of-the-income-tax-act-1961-analysis-alongwith-discussion-of-supreme-court-and-high-court-decisions/ 

[9] TaxGuru. (2024). Section 270A: Penalty for under-reporting and misreporting of income. Retrieved from https://taxguru.in/finance/section-270a-penalty-under-reporting-misreporting-income.html 

Authorized by Dhrutika Barad