In a case involving a senior citizen and the income tax division, the Mumbai bench of the tax tribunal ruled that the fine imposed for failing to disclose the interest received on the elderly citizen’s tax return was invalid.
The ITAT bench, made up of judges Sandeep Singh Karhail and Amarjit Singh, stressed in their ruling that the interest component of the refund cannot be assessed until it is received.
Therefore, failure to disclose information on the I-T return cannot be viewed as an instance of “underreporting” of income. Section 270A of the Internal Revenue Code imposes severe fines on negligent taxpayers in situations where income is both underreported and misreported.
The taxpayer in this case, K Singh, submitted her I-T return for the fiscal year 2016–17, and she reported taxable income of almost Rs 1.9 crore. Her income was estimated to be around Rs 2 crore when her I.T. return was chosen for scrutiny. The interest she received on her income-tax refund, which she had not reported when filing her I-T return, made up the deficit of Rs 9.7 lakh.
The tax department is required to pay 0.5% interest of the refund amount every month or portion of a month under Section 244A of the I-T Act. This interest is subject to taxation under the “income from other sources” heading.
The I-T officer issued a show cause notice for the imposition of a penalty under Section 270A in Singh’s case. Singh retorted that she had voluntarily offered the interest on her I-T refund during the scrutiny assessment, well in advance of receiving the letter. As a result, it cannot be said to be an instance of “underreporting” revenue. Furthermore, she hadn’t received a refund by check or electronic bank transfer at the time she filed her I-T return, nor had she been threatened with one.
She appealed to the ITAT, which ruled in her favor, after the lower tax authorities rejected her pleas.
