₹3.74 lakh income tax penalty set aside despite failure to file ITR! Read about this landmark Delhi ITAT ruling..

A salaried taxpayer has received relief following a ruling by the Delhi Income Tax Appellate Tribunal (ITAT). Despite earning over ₹30 lakh, the taxpayer had not filed an income tax return for the Assessment Year 2019-20. Upon receiving an income tax notice, the taxpayer disclosed their full income; however, the tax department imposed a penalty of ₹3.74 lakh, alleging under-reporting of income. The ITAT has now set aside this penalty. The tribunal observed that the taxpayer had not under-reported income, noting that the income declared during the re-assessment proceedings was fully accepted.

**Details of the Case**
During the financial year 2018-19, Agarwal’s income from salary exceeded ₹30 lakh, yet he failed to file a return under Section 139(1) of the Income Tax Act. According to the ITAT order, he had changed jobs that year and could not obtain Form 16 from both employers before the filing deadline. He also believed that since his employers had already deducted tax—which was reflected in the TDS Form 26AS—his tax obligations had been fulfilled.

Subsequently, the Income Tax Department received information regarding his salary income and initiated re-assessment proceedings. An order under Section 148A(d) was issued on April 19, 2023, followed by a notice under Section 148. Agarwal then filed his return, declaring a total income of ₹30,22,900.

The Assessing Officer issued further notices under Sections 143(2) and 142(1), seeking information from the taxpayer. After examining the details provided, the officer accepted the declared income of ₹30,22,900 without any additions or modifications. Despite this, the Assessing Officer initiated separate proceedings to levy a penalty under Section 270A for under-reporting income.

Why did the Tax Department impose a penalty of ₹3.74 lakh?
The taxpayer had not filed an original return under Section 139(1); consequently, the Assessing Officer treated the entire amount of ₹30,22,900—declared in the return filed in response to the Section 148 notice—as ‘under-reported income.’

The penalty imposed was ₹3,74,072, representing 50% of the tax payable on the amount deemed to be under-reported income under Section 270A. The taxpayer challenged the penalty before the Commissioner of Income Tax (Appeals), but the appeal was dismissed. Subsequently, the taxpayer approached the ITAT.

The Revenue Department argued before the Tribunal that had the Section 148 notice not been issued, the taxpayer would not have filed a return, and the income might have escaped assessment. However, the ITAT examined whether these circumstances fell within the scope of ‘under-reporting’ income as intended by Section 270A.

Why did the ITAT set aside the penalty?
The Tribunal noted that Section 270A specifies certain circumstances under which income is deemed to be under-reported. It also considered Section 270A(6)(a), which excludes income for which the taxpayer has provided a correct and *bona fide* explanation and disclosed the material facts necessary to substantiate that explanation.

In Agarwal's case, the Department accepted the income declared in response to the re-assessment notice without any upward revision. Therefore, the Tribunal held that this was not a case where the taxpayer had declared an amount lower than their actual income. Ultimately, the assessed income stood at ₹30,22,900—exactly the amount declared by the taxpayer. The ITAT also took into account that details regarding salary income and TDS were reflected in Form 26AS, which was already available to the Income Tax Department.

What does this mean for salaried taxpayers?
This ruling does not imply that salaried taxpayers should refrain from filing an ITR simply because their employer has deducted TDS. In this specific case, the taxpayer had failed to file their original return, but the Tribunal's decision was based on the specific facts of the matter: the taxpayer subsequently disclosed their entire income—which was accepted without modification—and the details concerning salary and TDS were already available to the Department via Form 26AS.

For taxpayers, this case also highlights the importance of reconciling Form 16, Form 26AS, and other income-related records before filing an ITR. If filing a return is mandatory for a taxpayer under the Income Tax Act, the mere deduction of TDS does not absolve them of the obligation to file the return.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.