‘Harassed for being honest?’: Bengaluru techie claims Income Tax officer slapped crores in penalty despite ‘clear records’

A Reddit user, who identifies as an honest taxpayer working in Bengaluru’s software industry for 21 years, has alleged harassment by an income tax officer after their tax return was picked up for scrutiny. The user claims to have diligently filed income tax returns and paid taxes on both salary and capital gains, only to face a hefty penalty due to alleged misinterpretation of their mutual fund (MF) transactions.

The taxpayer stated that the assessment officer questioned the source of their MF investments, despite clear explanations that the funds originated from salary earnings and long-term stock market investments. Even after submitting supporting documents—including bank statements, Zerodha trade records, and a ledger—the officer reportedly failed to understand the transactions and imposed a penalty under Section 271AAC(1), treating the investments as unaccounted income.

Section 271AAC(1) of the Income Tax Act, 1961 pertains to penalties imposed on taxpayers for underreporting income that falls under specific categories. The penalty under this section is mandatory and cannot be waived by the Assessing Officer. However, taxpayers have the right to appeal against the penalty decisions to higher authorities such as the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).

Expressing frustration, the Reddit user wrote, “Every young kid today understands that no one can invest in MFs online without the money coming from an authenticated bank account registered using PAN. It is impossible to invest even a single rupee without proper verification.”

The user also pointed out that the officer did not review their 21-year tax payment history, nor did they check how the investments were made through legitimate sources. Instead, the scrutiny focused on treating consolidated payments—a common feature in Zerodha Coin, where multiple MF purchases are made through a single transaction—as unexplained money.

Despite the taxpayer’s chartered accountant (CA) providing a clear breakdown, the officer allegedly ignored the explanations and imposed penalties, misinterpreting the financial records. The Reddit user also claimed that a virtual hearing was scheduled, but they never received the required login details. Despite requesting a reschedule, the penalty order was passed without allowing them to present their case.

The user questioned the fairness of the taxation system, where compliant taxpayers face harassment while contributing up to “39% of their salary in taxes”. They highlighted poor infrastructure and daily struggles, stating, “All we get are 45-minute traffic jams just to reach the ORR from my home in Bellandur, Bangalore, and broken, potholed roads.”

Frustrated with the ordeal, the taxpayer admitted they were now regretting their decision to stay in India, despite multiple opportunities to move abroad.

The taxpayer also claimed denial of a fair opportunity to defend self. The Redditor applied for a virtual hearing, but despite receiving an appointment email, the password to join the meeting was never sent. Even after filing a complaint and requesting a reschedule, the penalty order was passed without allowing them to present the case.

The post has sparked debate among Reddit users, with many sharing similar experiences of tax scrutiny and bureaucratic inefficiencies. Some users noted that there an increasing number of cases where honest taxpayers face scrutiny while big defaulters often go unpunished.