A Salaried Employee’s Tax Nightmare: How an ITAT Ruling Reversed a ₹1.15 Lakh Penalty
Thank you for reading this post, don't forget to subscribe!A recent ruling by the Income Tax Appellate Tribunal (ITAT) in Pune has brought to light a critical issue for salaried employees: the risk of unknowingly becoming involved in tax fraud committed by their consultants. The case involves an employee who was hit with a substantial penalty after a fraudulent tax advisor filed inflated deductions on his behalf.
The Case of Santosh
Santosh, an employee at Bosch Ltd., found himself facing a penalty of ₹1,15,938 after his tax consultant filed fraudulent deductions without his knowledge. The consultant, who was known for securing large refunds for clients, had a sophisticated scheme. By collecting login credentials and discouraging clients from reviewing their returns, he filed doctored ITRs with inflated claims under various sections like 80C, 80D, 80E, 80G, and others.
The fraud came to light during a survey under Section 133A of the Income Tax Act. Upon receiving a notice under Section 148, Santosh immediately took corrective action. He filed a revised return and paid the full tax amount along with the applicable interest, demonstrating his cooperation.
However, the Assessing Officer (AO) still imposed a penalty under Section 270A(9), citing “misreporting of income.”
ITAT Pune’s Intervention
The case was then appealed to the ITAT Pune, which ultimately reversed the penalty. The tribunal’s decision was based on two key factors:
- Procedural Lapses: The ITAT found that the AO had failed to specify which clause of Section 270A(9) was applicable to the misreporting, a “fatal defect” that invalidated the penalty order.
- Taxpayer’s Good Faith: Crucially, the tribunal recognized that Santosh had acted in “good faith,” took prompt corrective action, and was a victim of a fraudulent advisor.
A Broader Trend
This case is not an isolated incident. The Income Tax Department has flagged a growing trend of fraudulent deduction claims, with over 90,000 salaried employees withdrawing false claims totaling ₹1,070 crore as of December 31, 2024. These fraudulent claims are often traced back to employees at the same companies, and many are linked to deceptive tax consultants who exploit their clients’ trust.
The Takeaway for Taxpayers
The case of Santosh serves as a stark reminder of the importance of vigilance, even when using professional tax services. Experts like Sujit Bangar of TaxBuddy.com emphasize that “blind trust in consultants without cross-verifying your return is no longer an option.”
As tax season approaches, individuals are urged to:
- Thoroughly review their Income Tax Returns (ITRs).
- Demand detailed computation sheets from their consultants.
- Utilize official portals to verify the accuracy of their filings.
Ultimately, while the government is stepping up enforcement, the responsibility of ensuring compliance remains with the taxpayer. Poor advice can lead to more than just financial penalties—it can also damage a taxpayer’s compliance record.
