Bank interest not reported in ITR? ITAT ruling explains when taxpayers can escape income tax penalties
The Income Tax Appellate Tribunal (ITAT), Delhi, has deleted a penalty of ₹3.08 lakh imposed on a salaried taxpayer for failing to disclose ₹4.49 lakh in bank interest in his original income-tax return. The tribunal held that the omission was bona fide and inadvertent, and that the income-tax department had also failed to specify the precise charge of misreporting in its penalty notice.
In the case of Sidharth Gupta v. Income Tax Officer (ITO), Ward 29(1), the tribunal noted that the taxpayer subsequently disclosed the omitted interest income in his return filed in response to a reassessment notice and paid the applicable tax. The assessing officer accepted the revised income without making any further addition. The tribunal ruled that these circumstances did not establish deliberate misreporting of income warranting a penalty.
The ruling, delivered on 14 October 2026 in ITA No. 6864/DEL/2026, was pronounced by a bench comprising Vice President Mahavir Singh and Accountant Member S. Rifaur Rahman.
Gupta, a salaried individual, filed his original income-tax return for assessment year 2020-21 on 16 October 2020, declaring a total income of ₹81.35 lakh. This included his salary income and bank interest.
The income-tax department subsequently reopened his assessment under Section 147 of the Income-tax Act, 1961, based on information available on its Insight portal. The information included bank interest income and the purchase of a motor vehicle.
Following a notice under Section 148 dated 31 March 2024, Gupta filed a return on 24 April 2024, declaring a higher income of ₹85.84 lakh. This included additional bank interest of ₹4.49 lakh that had not been reported in the original return.
The assessing officer completed the reassessment at the income declared by the taxpayer, without making any further addition. However, the officer subsequently imposed a penalty of ₹3.08 lakh under Section 270A, calculated at 200% of the tax attributable to the additional interest income.
The taxpayer challenged the penalty before the Commissioner of Income Tax (Appeals), but the appeal was rejected. He then approached the ITAT.
The tribunal identified two reasons for deleting the penalty. First, the penalty notice did not specify the exact statutory provision under which the taxpayer was accused of misreporting income.
The notice merely stated that the taxpayer had under-reported income in consequence of misreporting, without identifying the specific clause of Section 270A(9) allegedly violated.
The tribunal observed that Section 270A distinguishes between under-reporting and under-reporting resulting from misreporting. While the former attracts a penalty of 50% of the tax payable on under-reported income, the latter attracts a higher penalty of 200%.
The tribunal said that a general reference to misreporting, without identifying the applicable statutory clause or explaining how the taxpayer's conduct met its requirements, was insufficient.
It relied on the Delhi High Court's judgment in Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, which emphasised the need to clearly specify the charge while initiating penalty proceedings.
Second, the tribunal accepted the taxpayer's explanation that the omission was inadvertent.
Gupta argued that his original return was filed during the Covid-19 pandemic and that the bank interest was not reflected in Form 26AS. Consequently, it escaped his attention while preparing the return.
The tribunal observed that although the pandemic could not, by itself, justify non-disclosure of income, the circumstances were relevant when examining whether the omission was deliberate.
It also noted that Gupta subsequently included the interest income in his return filed in response to the reassessment notice and paid the applicable tax. The assessing officer accepted this return without making any further addition.
The tribunal said the explanation was plausible and bona fide, and that there was no material to establish deliberate misrepresentation or suppression of facts. It also referred to Section 270A(6)(a), which excludes certain under-reported income where the taxpayer provides a bona fide explanation and discloses all material facts to substantiate it.
The tribunal accordingly deleted the entire penalty of ₹3.08 lakh.
The ruling highlights the distinction between an income-tax addition and a penalty for misreporting. A taxpayer may have to pay tax on interest income omitted from an original return, but that does not automatically mean the omission qualifies as deliberate misreporting attracting a 200% penalty.
However, taxpayers should not treat the decision as a blanket exemption for failing to disclose bank interest. The tribunal considered the specific circumstances, including the absence of interest income in Form 26AS, the pandemic-related disruption, subsequent disclosure and payment of tax.
Bank interest from savings accounts and fixed deposits is generally taxable and should be reported in the income-tax return under the applicable head. Taxpayers should reconcile their bank statements, interest certificates, Form 26AS and Annual Information Statement (AIS) before filing their returns.
The case also underscores the importance of checking the specific charge mentioned in a penalty notice. The department must identify the applicable statutory provision and provide the taxpayer with a meaningful opportunity to respond.
Kirti jha
Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.
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