NRI Tax Penalty Slashed: Mumbai ITAT Rules

The Income Tax Appellate Tribunal (ITAT), Mumbai, recently reduced a substantial tax penalty levied on a non-resident Indian (NRI) woman. The penalty, initially set at 200% of the tax payable, was for the omission of ₹14.46 lakh in interest income from her tax return. The tribunal revised the penalty rate to 50%, determining that the omission was not necessarily intentional misreporting.

The Assessing Officer had imposed a penalty of approximately ₹4.85 lakh, representing 200% of the tax on the undisclosed income. This action followed a reassessment that identified the unreported interest income. While Section 270A of the Income Tax Act allows for a 200% penalty in cases of misreporting, a standard 50% penalty applies to ordinary under-reporting.

The NRI argued that her overseas residency and reliance on an accountant led to the oversight. She contended that she had no intention of under-reporting income and promptly paid the additional tax and interest, around ₹5 lakh, once aware of the discrepancy. The ITAT acknowledged these circumstances, noting that failure to comply with electronic notices, given her situation, did not automatically prove deliberate misreporting.

Consequently, the tribunal upheld the penalty for under-reporting but mandated that it be calculated at the lower rate of 50% of the tax payable, distinguishing it from a misreporting scenario that would warrant the higher 200% rate.