“INCOME TAX APPELLATE TRIBUNAL (ITAT) MUMBAI HELD NO PENALTY TO BE IMPOSED FOR NON-DISCLOSURE OF INTEREST IN THE INCOME TAX RETURN (ITR) UNLESS RECEIVED”

In this case a Mumbai-based senior citizen filed her Income Tax (IT) returns for the financial year 2016-17 and declared a taxable income of approximately Rs 1.9 crore.

Her return was considered for scrutiny assessment by the Income Tax deptt. as she had not disclosed at the time of filing her IT return that she had received the difference amount of Rs. 9.7 lakh as interest on her income-tax refund.

Under Section 244A of the Income Tax Act, per month or part of the month, the tax department needs to pay 0.5% interest on the refund amount. This interest is taxable under the head ‘income from other sources’.

In cases of underreporting of income as also misreporting, Section 270A of the IT Act declares heavy penalties on lawless taxpayers.

A show cause notice was issued on her by the Income Tax Deptt. for imposition of penalty under Section 270A.

It was contended during the scrutiny assessment that she had voluntarily offered interest on her IT refund before the show cause notice was issued to her. Hence it cannot be considered to be an act of ‘underreporting’ of income.

Further at the time of filing her IT return, she neither had received any refund by cheque or electronic bank transfer nor had any intimidation of the refund amount.

However here above contentions were not accepted by the tax authorities. Therefore she filed an appeal with the ITAT based on the said grounds and submissions.

The ITAT in the appeal stressed that the penalty levied for non-disclosure of interest earned on a tax refund on her is not valid.

It was declared by the ITAT while allowing her appeal that the interest element cannot be determined unless the refund is received, and therefore, non-disclosure cannot be considered as ‘underreporting’ of income.

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