ITAT Rules No Penalty for Not Disclosing Interest on Tax Refund

In a case involving a senior citizen and the income tax department, the Mumbai bench of the tax tribunal has ruled that the penalty is not valid which was imposed for not disclosing the interest earned on tax refund. 

The bench of 4 members emphasized that the interest portion of the refund can not be determined until the refund is actually received. Therefore, not reporting the interest in the income tax return should not be considered "underreporting" income, which would typically incur penalties under Section 270A of the Income Tax Act. 

In this case, the taxpayer had filed her income tax return for the fiscal year 2016-17, declaring a taxable income of around Rs 1.9 crore. Her return was subjected to scrutiny assessment, which determined her income to be approximately Rs 2 crore. 

The difference of Rs 9.7 lakh represented the interest received on her income tax refund, which she had not initially disclosed when filing her return.

Section 244A of the Income Tax Act explains that if the tax department owes you a refund, they also owe you some extra money as interest on that refund. This extra money is like income, and it gets added to your overall income for tax purposes.

In one case, a lady named Ms. Singh got a notice from the Income Tax officer, suggesting she should be penalized for not telling them about the interest she earned on her tax refund. But Ms. Singh said she had actually told them about it when they were checking her taxes, even before they sent the notice. She also didn't know about the refund when she filed her taxes because she hadn't received it yet.

However, the lower tax authorities didn't agree with her, so she took her case to the Income Tax Appellate Tribunal (ITAT), which said she was right.

A partner at Deloitte India explained that sometimes tax refunds, including the extra money (interest), are either put in your bank account or used to pay off any taxes you owe. You might not know this is happening until you get a notice. The ITAT's decision helps people like Ms. Singh who didn't mean to hide anything and shouldn't be punished for small differences in their income reports.

Taxpayers dealing with similar issues in their tax assessments can now use this ITAT order as a reference, along with relevant documents, to support their case and avoid penalties. Stay in touch with myitronline to get all the essential insights about finance, Taxes, GST & so on.

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