ITAT: No penalty for income concealed if taxpayer corrects error in revised return
Mumbai, Aug 20, 2024
The Income-Tax Appellate Tribunal (Mumbai bench) has ruled that a penalty for concealment of income cannot be imposed if a taxpayer has rectified all errors in a revised return. According to tax experts, this decision is likely to benefit many taxpayers, as the penalty provisions are quite harsh, leading to steep sums payable.
The case involved R Chatterji, who was based in Singapore. During the financial year 2014-15, which was covered by the litigation, Chatterji was a ‘resident and ordinarily resident' of India. Tax residency in India is based on the number of days stayed in India during a specific period. Thus, his global income (which included income earned outside India), was subject to tax in India.
In his Income-Tax (I-T) return, he declared a total income of Rs 12 lakh odd, which included 50% of the rental income from a property in Singapore. His wife was a co-owner of this property. His tax return was selected for scrutiny.
In 2013-14, he had erroneously offered 100% of the rental income from the Singapore property to tax. In this backdrop, the I-T officer questioned the lower rental income which was now offered to tax and also pointed out that an interest income had not been declared in I-T return.
In response, Chatterji filed a revised return of income, including the interest income and the differential rental income, to avoid dispute. The tax assessment was completed after taking into consideration these additions to his income. However, penalty proceedings under section 271 (1)( c) were separately initiated for furnishing ‘inaccurate particulars of ‘income leading to concealment'. A penalty of Rs 9 lakh-odd was levied, which was 100% of the tax on the differential rent and interest income omitted in the original tax return.
It should be noted that in respect of financial year covered by the ITAT order, penalty under 271(1)(c) was leviable at a rate ranging from 100% to 300% of the tax involved. The 2016 budget substituted this section, with section 270A, which imposes penalties of 50% of the tax due in case of under-reporting and 200% for misreporting.
The two-member bench of Rahul Chaudhary, judicial member, and Padmavathy S, accountant member, observed that the taxpayer had offered 100% of rental income (despite him having only a 50% share). The ITAT bench accepted that financial year in Singapore follows the calendar year and the original return was filed based on information available at the time. There was no willful intent to conceal income, and all errors were rectified in the revised return. "Penalty is not to be imposed if there is no conscious breach of law," held the tribunal.and ordered deletion of the penalty.
[The Times of India]
