No ITR filed despite ₹30 lakh salary: Delhi ITAT explains why ₹3.74 lakh penalty was deleted

A Delhi Income Tax Appellate Tribunal ruling has offered relief to a salaried taxpayer who did not file his income tax return for assessment year 2019-20 despite earning more than ₹30 lakh. The taxpayer later disclosed his entire income after receiving an income tax notice, but the tax department imposed a ₹3.74 lakh penalty for under-reporting of income.

The ITAT has now deleted the penalty, holding that the taxpayer had not under-reported his income because the income declared by him was accepted in full during reassessment.

What happened in the case

Aggarwal had salary income of more than ₹30 lakh during financial year 2018-19 but did not file his return under section 139(1) of the Income Tax Act.

According to the submissions recorded in the ITAT order, he had changed jobs during the year and was unable to obtain Form 16 from both employers before the return filing deadline. He also believed that since tax had already been deducted by his employers and the TDS was reflected in Form 26AS, his tax obligations had been met.

The Income Tax Department subsequently received information about his salary income and reopened the assessment. An order under section 148A(d) was passed on 19 April 2023, followed by a notice under section 148.

Aggarwal then filed his return declaring total income of ₹30,22,900.

The Assessing Officer issued further notices under sections 143(2) and 142(1) and sought details from the taxpayer. After examining the information, the officer accepted the declared income of ₹30,22,900 without making any addition or variation.

Despite this, the Assessing Officer initiated separate penalty proceedings under section 270A for under-reporting of income.

Why did the tax department impose the ₹3.74 lakh penalty?

The Assessing Officer treated the entire ₹30,22,900 declared in the return filed in response to the section 148 notice as under-reported income because the taxpayer had not filed the original return under section 139(1).

The penalty imposed was ₹3,74,072, equivalent to 50% of the tax payable on the amount treated as under-reported income under section 270A. The taxpayer challenged the penalty before the Commissioner of Income Tax (Appeals), but the appeal was dismissed. He then approached the ITAT.

The Revenue argued before the tribunal that had the section 148 notice not been issued, the taxpayer would not have filed his return and the income could have escaped assessment.

The ITAT, however, examined whether the circumstances amounted to under-reporting of income for the purpose of section 270A.

Why the ITAT deleted the penalty

The tribunal noted that section 270A covers specific circumstances in which income is considered to have been under-reported. It also considered section 270A(6)(a), which excludes income where the taxpayer provides a bona fide explanation and has disclosed the material facts necessary to substantiate that explanation.

In Aggarwal's case, the income declared in response to the reassessment notice was accepted by the department without any addition.

The tribunal therefore held that this was not a case where the taxpayer had declared a smaller amount than his actual income. The income ultimately assessed was ₹30,22,900, exactly the amount declared by the taxpayer.

The ITAT also considered the fact that the salary income and TDS were reflected in Form 26AS, which was available to the Income Tax Department.

What does this mean for salaried taxpayers?

The ruling does not mean salaried taxpayers can skip filing their ITR simply because their employers have deducted TDS.

The taxpayer in this case had failed to file his original return, but the tribunal's decision turned on the specific facts. He subsequently disclosed his entire income, the income was accepted without any addition and the relevant salary and TDS information was already available to the department through Form 26AS.

For taxpayers, the case also highlights why Form 16, Form 26AS and other income records should be reconciled before filing an ITR. TDS deduction does not by itself replace the obligation to file a return when a taxpayer is required to do so under the Income Tax Act.