Non-Disclosure of Bank Interest Is Under-Reporting, Not Misreporting: ITAT Mumbai

Tasneem Feroz Nalwalla Vs ITO (ITAT Mumbai)

Summary: The Mumbai Bench of the Income Tax Appellate Tribunal partly allowed the assessee’s appeal concerning penalty under section 270A of the Income-tax Act, 1961 for Assessment Year 2020-21. The assessee had filed her return under section 139(1), declaring total income of ₹43,796. Information received through the Insight Portal showed interest income of ₹14,46,321, whereas interest income of ₹14,02,525 had not been offered to tax. Reassessment proceedings followed, and after third-party verification from ICICI Bank, ICICI Securities and Kotak Mahindra Bank under section 133(6), the Assessing Officer added ₹14,02,525 as income from other sources and assessed total income at ₹14,46,321.

Penalty proceedings were initiated on the footing that the under-reported income was in consequence of misreporting. The Assessing Officer levied penalty of ₹4,85,178 at 200% of the tax payable, and the CIT(A) confirmed the penalty by treating the omission as misreporting under section 270A(8) read with section 270A(9). Before the Tribunal, the assessee did not dispute that the interest income had remained unoffered but contended that the omission resulted from the manner in which her tax affairs were handled by her accountant. She was a Non-Resident residing outside India, had limited technological knowledge and stated that she remained unaware of electronic notices. After becoming aware of the liability, she paid tax of ₹2,42,589 and interest of ₹3,06,821, aggregating to ₹5,49,410, on 23.01.2025. The Tribunal held that section 270A draws a clear distinction between ordinary under-reporting, attracting penalty at 50%, and under-reporting in consequence of misreporting, attracting penalty at 200%.