No penalty for non-disclosure of interest in ITR: ITAT

The ITAT declared that the interest element cannot be determined unless the refund is received, and therefore, non-disclosure cannot be considered as ‘underreporting’ of income. In cases of underreporting of income as also misreporting, Section 270A of the IT Act declares heavy penalties on lawless taxpayers.

In the case, ITAT, the Mumbai bench comprising Amarjit Singh, accountant member, and Sandeep Singh Karhail, judicial member, emphasized that the penalty levied for non-disclosure of interest earned on a tax refund is not valid.

Mumbai-based senior citizen, named K Singh, filed her IT returns for the financial year 2016-17 and declared a taxable income of approximately Rs 1.9 crore. Her income was held to be approximately Rs 2 crore and her return was selected for scrutiny assessment. 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 I-T 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 this case, the IT officer issued a show cause notice for imposition of penalty under Section 270A. During the scrutiny assessment, she had voluntarily offered interest on her IT refund before the notice was issued to her. Therefore, it cannot be considered to be an act of ‘underreporting’ of income. Moreover, 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. When her submissions were not accepted by the lower tax authorities, she filed an appeal with the ITAI, which came out in her favor.