ITR Non-Filing Due to Illiteracy: ITAT Orders Fresh Review

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) recently addressed a case where Marappa Gounder Balakrishnan, a power loom job worker, faced tax scrutiny for not filing an Income Tax Return (ITR) despite Rs. 1.03 crore in bank transactions. Citing illiteracy as a reason for non-compliance, the ITAT remanded the case for fresh adjudication with a Rs. 5,000 cost. This ruling highlights the challenges illiterate taxpayers face and the need for a fair tax system. Let’s explore the case, its implications, and key takeaways.

Case Background

Marappa Gounder Balakrishnan, engaged in job work for the power loom industry, had significant cash deposits and withdrawals in his savings account during Assessment Year (AY) 2013-14, totaling Rs. 1.03 crore. The Assessing Officer (AO) noted that no ITR was filed and initiated scrutiny by issuing a notice under Section 148 on March 27, 2021. This was followed by multiple notices under Section 142(1) on July 27, 2021, December 13, 2021, January 25, 2022, and February 11, 2022, and a show-cause notice under Section 144 on March 2, 2022. The assessee’s failure to respond, attributed to his illiteracy, led to the ITAT’s intervention.

ITAT’s Decision

The ITAT recognized illiteracy as a genuine barrier to compliance and ordered a fresh adjudication to give the assessee a fair chance to present his case. However, a Rs. 5,000 cost was imposed to stress the importance of responding to tax notices. The ruling balances empathy for the assessee’s limitations with the need for accountability in tax matters.

Key Aspects of the Ruling:

• Illiteracy Considered: The tribunal accepted that the assessee’s inability to understand notices contributed to non-compliance.
• Fresh Opportunity: The case was sent back to the AO for a fair reassessment.
• Cost Imposed: The Rs. 5,000 penalty underscores that non-compliance, even unintentional, has consequences.
• High-Value Transactions: The significant bank activity warranted scrutiny to ensure no income escaped taxation.
• 
  

Legal Provisions

The case involved key sections of the Income Tax Act, 1961:

• Section 148: Allows reassessment if income is suspected to have escaped taxation.
• Section 142(1): Permits the AO to request documents or information for assessment.
• Section 144: Enables a best judgment assessment if the assessee fails to comply.

The ITAT’s decision prevented an unfair assessment under Section 144, ensuring the assessee’s right to a fair hearing.

Implications for Taxpayers

This ruling has broader implications:

1. Challenges for Illiterate Taxpayers: Illiteracy can hinder compliance, highlighting the need for simplified tax processes.
2. Fairness in Adjudication: The remand ensures taxpayers aren’t penalized without a chance to explain.
3. Scrutiny of Transactions: High-value bank activities attract attention, emphasizing the need for proper reporting.
4. Accountability: The cost imposition reminds taxpayers to seek help to comply with notices.
   
   

Lessons Learned

• File ITRs Timely: Even for low or no taxable income, filing an ITR prevents scrutiny.
• Respond to Notices: Ignoring notices can lead to penalties or adverse assessments.
• Keep Records: Documenting income sources helps explain high-value transactions.
• Seek Help: Illiterate taxpayers should engage professionals to handle tax matters.
  
  

FAQ

1. Why was the assessee’s ITR non-filing an issue?
High-value transactions of Rs. 1.03 crore in his bank account raised suspicions of unreported income, prompting scrutiny.

2. How did illiteracy affect the case?
The assessee’s inability to read or respond to tax notices due to illiteracy led to non-compliance, which the ITAT considered.

3. What does fresh adjudication mean?
The case was sent back to the AO for a new assessment, giving the assessee a chance to present his case.

4. Why was a Rs. 5,000 cost imposed?
The cost was a penalty for non-compliance, emphasizing the need to respond to tax notices despite challenges.

5. What should taxpayers with high-value transactions do?
File ITRs, maintain records, and respond to notices promptly to avoid scrutiny or penalties.

Conclusion

The ITAT Chennai Bench’s ruling in Marappa Gounder Balakrishnan’s case is a step toward a more inclusive tax system. By recognizing illiteracy as a barrier and ordering fresh adjudication, the tribunal ensures fairness while imposing a Rs. 5,000 cost to maintain accountability. Taxpayers must file ITRs, document transactions, and seek assistance to navigate tax obligations, especially if illiterate. This case underscores the need for simplified tax processes to support vulnerable taxpayers while upholding compliance standards.