The investigation wing of the Income Tax Department in Hyderabad has initiated prosecution proceedings against two software professionals for allegedly attempting to defraud the tax system, despite being offered an opportunity to rectify their filings through the updated return (ITR-U) mechanism.
The accused, employed with prominent city-based IT firms, initially filed returns claiming fake deductions under Section 80GGC of the Income Tax Act, which provides tax relief for political donations. Verification revealed these donations to be bogus, prompting the department to issue notices and allow the taxpayers to voluntarily correct their returns under ITR-U, thereby avoiding harsher penalties.
However, instead of making genuine corrections, both individuals allegedly removed the false political donation claims and inserted new bogus deductions, under-reporting their taxable income and marginally increasing their tax liability.
Rs 1.2 Crore Evasion in First Case
In one case, the taxpayer allegedly claimed Rs 1.2 crore in fraudulent deductions over three years, including fake political donations, exempt gratuity, and retirement-related exemptions. Even after being flagged, he manipulated his updated returns to appear compliant while evading substantial taxes.
Rs 1.02 Crore Fraud in Second Case
The second professional is accused of claiming Rs 1.02 crore in bogus deductions across three years. Investigators uncovered mobile chats between him and his auditor discussing the fabrication of claims to reduce tax liability, providing direct evidence of intentional evasion.
Officials noted that both cases demonstrated a deliberate pattern of tax fraud rather than accidental errors. The misuse of the ITR-U facility-designed to allow genuine rectification of omissions-undermines the trust-based compliance framework, they said.
Prosecution Under the Income Tax Act
Based on the findings, prosecution has been launched under Sections 276C(1) and 277 of the Income Tax Act, 1961. These provisions prescribe rigorous imprisonment of six months to seven years and fines for wilful tax evasion and submission of false statements when the evaded amount exceeds Rs 1 lakh.
The department reiterated that the ITR-U mechanism is a voluntary compliance tool for taxpayers to report unintentional under-reporting of income and pay due taxes, not a loophole for introducing new fraudulent claims.
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