MUMBAI: The Mumbai bench of the income tax appellate tribunal (ITAT) has reduced a penalty imposed on a 57-year-old non-resident woman from 200% to 50% of the tax payable on under-reported income. It held that every instance of income omission cannot automatically be treated as ‘misreporting’, which entails the higher penalty under Section 270A of I-T Act.The NRI had originally declared a total taxable income of around Rs 44,000. Through the tax department’s Insight Portal, the I-T officer learnt that she had earned interest income of nearly Rs 14.5 lakh, of which around Rs 14 lakh had not been offered to tax. Following reassessment, the omitted income was added to her taxable income.
The penalty has been reduced to 50% of the tax payable
The I-T officer held that it was a case of misreporting and imposed a penalty of Rs 4.8 lakh, equal to 200% of the tax payable on the under-reported income. The appellate commissioner upheld this levy, noting that the omitted interest had been detected through third-party information and the taxpayer had not responded to notices sent to her during reassessment.Before the ITAT, the taxpayer did not dispute the omission of the interest income. But, she stated that she lived outside India, had limited technological knowledge and had entrusted her tax compliance to an accountant. She claimed she was unaware of the electronic notices and the omission of the interest income had resulted from the accountant’s mistake, rather than any intention to misreport income. She also pointed out that once she became aware of the liability, she paid Rs 2.4 lakh in tax and Rs 3 lakh in interest.The ITAT drew a clear distinction between mere ‘under-reporting’ and ‘under-reporting in consequence of misreporting’. It observed that Section 270A(7) prescribes a 50% penalty for under-reported income, while Section 270A(8) enhances this to 200% in the latter instance. It noted that the higher penalty cannot follow automatically merely because income assessed by the I-T officer exceeds the income disclosed in the tax return.While the tax tribunal said appointing an accountant or being a non-resident does not absolve a taxpayer of responsibility, it held that these circumstances were relevant in determining whether the omission amounted to deliberate misreporting. The subsequent payment of the tax and interest was also considered relevant, although it did not erase the original default.Thus, the ITAT upheld the penalty under Section 270A but directed the assessing officer to recompute it at 50% of the tax payable on the under-reported income.
