₹5.7 lakh taxable income, double deductions: How a salaried taxpayer invited 200% penalty

A salaried taxpayer took the help of a tax preparer to show only ₹5.7 lakh as his taxable income in 2022 and claimed more than double this amount as deductions under the old tax regime. But the joy of gaining from higher deductions didn't last long as the Income-tax department took up his case for scrutiny and found that deductions worth over ₹10 lakh were fake.

After determining that the taxpayer had deliberately claimed fake deductions and taken no corrective steps, the tax department imposed a 200% penalty on him. Even the Income Tax Appellate Tribunal (ITAT), Pune, also refused to offer any respite to the salaried taxpayer.

Here are some key details of the case (ITA No.2606/PUN/2025) in which the ITAT passed its order on February 10, 2026:

• ITR filed on 15.06.2022

• Declared total taxable income: ₹5,71,11

• Case selected for scrutiny on account of large deductions under Chapter-VIA of the Act

The taxpayer had claimed total deductions of ₹13,25,000 as shown below:

Of the above, the following deductions totaling ₹10.65 lakh were found to be fake as he failed to submit any supporting evidence:

Apart from the above, he had claimed an excess HRA of ₹86,593.

The taxpayers sought relief from the tribunal on two grounds

The Assessee sought immunity from the imposition of penalty under Section 270AA of the Income-tax Act, 1961. However, the ITAT denied it, saying it is required to be filed before the assessing officer within one month of the passing of the assessment order. However, the taxpayer had not taken any such step previously.

“Thus, as per Section 270AA, Assessee has to file an application before Assessing Officer within one month of passing of assessment order. In this case, no application has been filed by Assessee u/s.270AA of the Act. Therefore, AO was right in not providing any immunity u/s.270AA of the Act. Accordingly, Ground No.1 raised by the Assessee is dismissed,” the ITAT observed.

The assessee contended before the tribunal that “it was a bonafide mistake” by him. “Assessee’s submission was that it was not a deliberate attempt to evade the taxes.”

However, the tribunal noted that the assessee claimed deductions under Chapter-VIA of ₹10,65,000 for which he was not eligible.

The ITAT said that as per Section 270A of the Act, a person shall be considered to have under-reported his income if the income assessed is greater than the income shown in the return of income. In this case,

• Income assessed is greater than the income determined under section 143(1) of the Act.

• There is an incorrect claim and also mis-representation of facts.

“Assessee has consciously claimed deduction u/s.80DD, 80CCD, 80DDB, 80E, 80EEA, 80EEB and 80GGC of the Act, knowing fully well that Assessee is not eligible,” the ITAT said.

The tribunal highlighted the following deductions as examples:

For example, deduction under section 80GGC is for a donation given to a political party. "Assessee was well aware of the fact that he has not given any donation to a political party. In spite of that Assessee claimed Deduction u/s.80GGC."

Deduction under section 80DDB is for actual payment of medical treatment of the diseases specified in the Income Tax Rules for himself or a dependent. "Assessee knows very well that he had not incurred any such expenditure, but claimed it."

“Had the assessee’s case was not been selected for scrutiny, Assessee would have enjoyed the wrong claims. Therefore, we are of the opinion that it was not a Bonafide mistake at all. Therefore, we are of the opinion that Assessing Officer was right in levying penalty u/s.270A of the Act,” the tribunal said while upholding the tax department's decision to impose a 200% penalty.

Please note that the orders of income-tax tribunals can be appealed before higher courts.

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