Top News

Salaried class taxpayers have got a big relief from a decision of Delhi Income Tax Appellate Tribunal (ITAT). A taxpayer had not filed his income tax return (ITR) for assessment year 2019-20 despite having an annual income of more than Rs 30 lakh. After receiving the notice from the Income Tax Department, the taxpayer gave information about his entire income, but the department imposed a fine of Rs 3.74 lakh on the allegation of 'under-reporting'. ITAT has now canceled this penalty completely. The tribunal says that the taxpayer had not hidden his income, because the income declared by him during re-assessment was accepted by the department without any change.

What was the whole matter after all?

During the financial year 2018-19, the annual income of a person named Aggarwal was more than Rs 30 lakh from salary, but he did not file his return within the time limit prescribed under Section 139(1) of the Income Tax Act. According to the ITAT order, he had changed jobs that year and had not been able to obtain Form 16 from both the companies before the last date to file returns. Additionally, they also believed that since their employers had already deducted and deposited the tax and the TDS was visible in their Form 26AS, their tax liability was covered.

Later, the Income Tax Department got information about his salary income and started the assessment process again. An order under section 148A(d) was issued on 19 April 2023 and then notice under section 148 was sent. In response to the notice, Agarwal filed his return stating his total income of Rs 30,22,900.

The Assessing Officer sought information from the taxpayer by issuing further notices under sections 143(2) and 142(1). After examining all the documents and information, the officer accepted the reported income of Rs 30,22,900 without any additional tax addition or change. But despite this, the Assessing Officer initiated separate proceedings to impose penalty under Section 270A on the basis of underreporting of income.

Why did the tax department impose a fine of Rs 3.74 lakh?

The taxpayer had not filed his original return under section 139(1). For this reason, the Assessing Officer considered the entire amount of Rs 30,22,900 declared in the return filed in response to the Section 148 notice as 'under-reported income'.

The penalty imposed was Rs 3,74,072, which was 50 per cent of the tax payable on the amount of underreported income under section 270A. The taxpayer challenged this penalty before the Commissioner of Income Tax (Appeals), but his appeal was rejected. After this the matter reached the Tribunal (ITAT).

The Revenue Department argued in the tribunal that if the Section 148 notice was not issued, the taxpayer would not have filed his return and his income would have escaped tax assessment. However, the ITAT examined in depth whether these circumstances actually fall within the scope of 'understatement of income' under Section 270A.

Why did ITAT cancel the fine?

The Tribunal noted that section 270A covers certain situations which are considered to be underreporting of income. ITAT cited section 270A(6)(a), under which income is exempted from penalty for which a bona fide explanation has been given by the taxpayer and necessary facts have been furnished to support the same.

In Agarwal's case, the entire income declared in response to the re-assessment notice was accepted by the department without any modification. Therefore, the Tribunal held that this was not a case where the taxpayer had concealed or under-reported his actual income. Ultimately the assessed income turned out to be exactly Rs 30,22,900 as reported by the taxpayer. ITAT also emphasized that complete details of salary income and TDS were already recorded in Form 26AS, which was available with the department.

What does this mean for salaried taxpayers?

This decision does not at all mean that employed people should stop filing ITR just because their TDS has been deducted. In this case, the taxpayer was not able to file the return on time, but the tribunal's decision was based on the specific facts of his case. Later, he himself gave his complete income information, which was accepted without any penalty change and the record of his income was already present in Form 26AS.

This case teaches taxpayers to properly match Form 16, Form 26AS and other income- records before filing ITR. If you are required to file ITR under law, mere deduction of TDS does not relieve you from the legal responsibility of filing returns.