ITAT Deletes ₹3.08 Lakh Penalty on Unreported Bank Interest, Cites Bona Fide Omission

The Income Tax Appellate Tribunal (ITAT), Delhi, has deleted a penalty of ₹3.08 lakh imposed on a salaried taxpayer, Sidharth Gupta, for failing to disclose ₹4.49 lakh in bank interest in his original income-tax return for assessment year 2020-21. The tribunal ruled that the omission was bona fide and inadvertent, and critically, the income-tax department's penalty notice under Section 270A lacked the precise charge of misreporting.

Gupta had initially filed his return on October 16, 2020, declaring an income of ₹81.35 lakh. The IT department subsequently reopened his assessment under Section 147 based on information from its Insight portal, which indicated additional bank interest and a motor vehicle purchase. In response to a Section 148 notice dated March 31, 2024, Gupta filed a revised return on April 24, 2024, declaring a higher income of ₹85.84 lakh, which included the previously omitted ₹4.49 lakh bank interest. The assessing officer accepted this revised income but later imposed the ₹3.08 lakh penalty, calculated at 200% of the tax on the additional interest.

The ITAT, in its ruling delivered on October 14, 2026 (ITA No. 6864/DEL/2026), identified two key reasons for deleting the penalty. Firstly, the penalty notice merely stated "under-reported income in consequence of misreporting" without specifying the exact statutory provision or clause of Section 270A(9) violated. The tribunal emphasized that Section 270A distinguishes between general under-reporting (50% penalty) and under-reporting due to misreporting (200% penalty), citing the Delhi High Court's judgment in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT on the need for clear charges.

Secondly, the tribunal accepted Gupta's explanation that the omission was inadvertent. He argued that his original return was filed during the Covid-19 pandemic, and the bank interest was not reflected in Form 26AS, causing it to escape his attention. While acknowledging that the pandemic alone doesn't justify non-disclosure, the tribunal found the circumstances relevant to assessing deliberateness. His subsequent disclosure and payment of tax, accepted by the assessing officer without further additions, further supported the bona fide nature of the omission, aligning with Section 270A(6)(a).

For taxpayers, this ruling highlights a crucial distinction: while tax may be payable on omitted income, it doesn't automatically trigger a 200% penalty for deliberate misreporting. The ITAT's decision underscores that penalties require specific charges and that a genuine, inadvertent omission, especially when subsequently rectified and where supporting facts are provided, may be treated differently. However, this is not a blanket exemption. Taxpayers must still diligently reconcile bank statements, interest certificates, Form 26AS, and Annual Information Statement (AIS) to ensure all taxable bank interest from savings accounts and fixed deposits is reported in their income-tax returns.

What to watch: Taxpayers should ensure penalty notices specify the exact charge and diligently report all income.

Editor's note: The draft comprehensively covers the tribunal ruling, the reasoning behind the decision, the specific figures involved, and the implications for taxpayers.