Rs 1.17 crore interest income of minor child: Father faces Rs 12.83 lakh penalty; ITAT Delhi cancels it

ITAT Delhi has ruled that a father cannot be imposed with Rs 12.83 lakh penalty under Section 270A if his ITR-reported income and assessed income are the same and the solitary issue for dispute is the India-United Arab Emirates (UAE) DTAA treaty tax benefit.

This judgement came against the backdrop of a tax dispute case of Mr Lalwani from New Rajendra Nagar, New Delhi. On November 4, 2022, Mr Lalwani filed his income tax return (ITR) declaring an income of Rs 8.43 crore.

However, on March 22, 2025, the Income Tax Assessing Officer (AO) from Jhandewalan opened Lalwani’s file and proceeded to modify the tax rates applicable on interest income of Lalwani’s minor amounting to Rs 1.17 crore and also clubbed it in his hands. While doing so, the Assessing Officer denied Lalwani the benefit of reduced rate of taxation as per the India-UAE treaty.


The AO also denied Lalwani Rs 2.62 lakh TDS credit on the ground that the corresponding rental income has not been offered for taxation. Thus on March 22, 2025, the AO invoked Section 270A and imposed a penalty of Rs 12.83 lakh on Lalwani for under-reporting his income. The Commissioner of Appeals (CIT A) confirmed this penalty order, so Lalwani filed an appeal in the Income Tax Appellate Tribunal (ITAT) Delhi.

Advocate Sudesh Garg and Chartered Accountant Prince Bansal represented Lalwani before ITAT Delhi. On July 28, 2026, Lalwani won the case in ITAT Delhi.

Also read: Income tax implications of investing in shares, mutual funds, bank FDs in child's name

How did Lalwani win this case in ITAT Delhi?

Chartered Accountant Suresh Surana said to ET Wealth Online that in this case, ITAT Delhi decided whether a penalty under section 270A of the Income-tax Act, 1961 could be imposed where there was no difference between the income reported by a taxpayer and the income assessed by the tax officer, and the principal dispute related only to the rate at which certain income was taxable (India-UAE DTAA).

ITAT Delhi ultimately, decided the matter in favour of the taxpayer (Lalwani) and directed deletion of the penalty of Rs 12.83 lakh.

Before the ITAT Delhi, Lalwani contended that his ITR reported income and assessed income were the same and, therefore, there was no under-reporting of income that could attract section 270A.

According to Lalwani, the controversy concerning Rs 1.17 crore was merely about the applicable tax rate under the India-UAE treaty and not about non-disclosure or concealment of that income.

Also read: All about taxability of investments in minor child's name

ITAT Delhi accepted Lalwani’s contention and observed that section 270A contemplates a penalty in cases involving under-reporting or misreporting of income. In the present case, the income in question had already been disclosed in the return and was also included in the assessed income.

Surana says: “The assessment merely altered the tax treatment by denying the concessional treaty rate. Accordingly, ITAT Delhi considered the dispute to be one concerning the rate of tax rather than the quantum or disclosure of income.”

ITAT Delhi also considered the issue relating to the additional TDS credit. On examining Lalwani's explanation as reproduced in the assessment order, the ITAT Delhi recorded that the explanation did not suffer from any major lacuna. Therefore, this issue also did not provide sufficient basis for characterising Lalwani's conduct as under-reporting or misreporting of income warranting penalty under section 270A.

Surana says: “Thus, Section 270A is directed at cases where income has actually been under-reported or misreported; it should not automatically apply merely because an assessment results in a higher tax liability.”

Surana says that Lalwani won the case in ITAT Delhi because there was no difference between his returned and assessed income, the disputed interest income had already been disclosed, and the controversy principally concerned the tax rate applicable under the India-UAE treaty.

According to Surana, a distinction must be drawn between a dispute regarding the existence or amount of taxable income and a dispute regarding the rate at which fully disclosed income should be taxed.

Surana says: “Where the income itself has been correctly reported, and the controversy is essentially one of treaty interpretation or the applicable tax rate, the necessary foundation for a penalty for under-reporting or misreporting may not exist.”