Rs 9.6 lakh EPF interest mistakenly shown by him in ITR, but taxman added it to income; ITAT Mumbai orders full relief
When filing your Income Tax Return it is always prudent to be doubly sure. One mistake in entry led to a taxpayer receiving an income tax notice. The taxpayer erroneously added Rs 9.6 lakh as EPF interest.The Income Tax Appellate Tribunal (ITAT) Mumbai has ruled that a Rs 9.6-lakh tax addition cannot be sustained merely because an incorrect entry in an income tax return (ITR) showed the amount as EPF money received by a salaried taxpayer.
What the case is about:
The ruling came in the case of a taxpayer in Mumbai, who filed his ITR on July 25, 2022, declaring total salary income of Rs 28.25 lakh.An error was made while his ITR was being prepared, resulting in Rs 9.6 lakh being incorrectly reported as exempt income under Section 10(11). The provision covers payments received from a statutory provident fund governed by the Provident Funds Act, 1925, as well as certain notified Central Government provident funds.The taxpayer was employed as a plant manager with a private company in Gujarat and was covered by the Employees’ Provident Fund Organisation (EPFO). He had also neither withdrawn money from his EPF account nor received Rs 9.6 lakh as interest from EPFO.The Income Tax Department issued a notice, asking him to substantiate the exemption claimed in his return and furnish supporting documents.The Income Tax Assessing Officer (AO) was not satisfied with the documentary evidence submitted by the taxpayer in support of the Rs 9.6 lakh claimed as exempt under Section 10(11).The AO took the view that because the taxpayer had disclosed the PF amount in his ITR but could not substantiate its exemption from tax, the amount was liable to be brought to tax.Accordingly, on March 11, 2024, the AO completed the assessment under Section 143(3) read with Section 144B and added Rs 9.6 lakh to the individual’s taxable income. The Commissioner of Appeals (CIT A) subsequently upheld the addition.He then challenged the order before ITAT Mumbai. On June 19, 2026, the tribunal ruled in the taxpayer’s favour.
How did he win this case?
The tribunal found that the addition could not stand in the absence of evidence that the taxpayer had actually received the amount from the Employees’ Provident Fund Organisation (EPFO), withdrawn it from his EPF account or received any corresponding credit in his bank account.Chartered Accountant Suresh Surana told ET that the taxpayer’s explanation before ITAT Mumbai was that the Rs 9.6 lakh shown as exempt PF income under Section 10(11) had entered his ITR because of a clerical and data-entry mistake made during preparation of the return. According to him, he had never actually received this amount.To establish this, the taxpayer placed extensive documentary evidence before the tribunal. This included Form No. 16, Form 26AS, his bank statements, EPFO account statements showing that there had been no withdrawal during the relevant financial year, detailed bank reconciliations and a sworn affidavit stating that he had neither withdrawn any provident fund money nor received any other amount of Rs 9.6 lakh.Surana also pointed out that the Rs 9.6 lakh had not been deducted from the person’s salary while arriving at the taxable income declared in the ITR. Therefore, the incorrect entry had not provided him with any tax benefit.ITAT Mumbai accepted this explanation and noted that the Income Tax Department had not brought forward evidence establishing that he had actually received Rs 9.6 lakh.Surana says: “There was no evidence of withdrawal from the EPFO account, no payment by any provident fund authority and no corresponding credit in any of the assessee’s bank accounts.”The evidence submitted, on the other hand, consistently indicated that the Rs 9.6 lakh mentioned in the return did not correspond to any actual income received by him.The tribunal also considered the sworn affidavit. It observed that the affidavit could not simply be disregarded unless the Income Tax Department produced evidence showing that the statement contained in it was false.Surana says: “Mere assumptions or suspicions are not enough to reject it.”Another point considered by ITAT Mumbai was whether Section 10(11) could apply to the taxpayer in the first place. Surana explained that the provision was factually inapplicable because the person was a private-sector employee covered by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.Section 10(11), on the other hand, concerns payments from a Statutory Provident Fund governed by the Provident Funds Act, 1925, or other notified funds.Surana says: “Thus, even the premise on which the AO proceeded was found to be misconceived.”The tribunal consequently held that the mere presence of an erroneous PF-related entry in an ITR could not, by itself, establish that the taxpayer had actually received the amount as income.Once the taxpayer produced credible documentary evidence to show that no such income had been received, the responsibility shifted to the Income Tax Department to establish that the amount had in fact been received.Surana says: “In the absence of any positive evidence, the addition could not be sustained merely because an incorrect entry appeared in the ITR. ITAT Mumbai accordingly directed deletion of the addition of Rs. 9.60 lakh.”
