Fake Deductions/Refunds – Approach Before and After Assessment, Reassessment and Penalty Proceedings
The article discusses the Income Tax Department’s verification drive against fraudulent or incorrect deduction and refund claims and outlines approaches available to taxpayers at different stages. It covers revised returns under Section 139(5), condonation under Section 119(2)(b), updated returns under Section 139(8A), reassessment responses under Section 148, and penalty provisions under Section 270A, including immunity under Sections 270A(11A) and 270AA. It states that updated returns may be filed within the prescribed period with additional tax under Section 140B and explains the consequences of choosing a normal return or updated return during reassessment. The article discusses possible defences during penalty proceedings, including bona fide conduct, fraudulent or unauthorised actions by intermediaries, vague penalty notices, and technical defaults in filing Form 68. It cites judicial decisions concerning penalties, immunity and intermediary misconduct. It also discusses prosecution provisions amended by the Finance Act, 2026, including rationalisation of offences, reduced imprisonment and graded offences. The article concludes by emphasising timely action, complete disclosure and deliberate selection among available statutory routes.
The Verification Drive / The high risk of getting caught
1. A press release issued by the Central Board of Direct Taxes (CBDT) dated 14.07.2025, recorded that the Income Tax Department had initiated a large-scale verification operation across multiple locations in the country, targeting individuals and entities who had facilitated fraudulent claims of deductions and exemptions in Income Tax Returns(‘ITRs’). The action followed a detailed analysis of the misuse of tax benefits under the Income-tax Act, 1961 (the Act), frequently in collusion with professional intermediaries.
