How to rectify an ITR form incorrectly selected by the taxpayer during electronic filing

How to rectify an income tax return form (ITR) incorrectly selected by the taxpayer during electronic filing

1. Introduction:-

1.1 Taxpayers should be aware that various forms are prescribed for filing income tax returns. While submitting the ITR, it is essential that the taxpayer selects the correct form based on their status and income earned in the relevant year. Only then is the taxpayer entitled to the exemptions and deductions they seek. Failure to do so may result in these exemptions and deductions being denied when processing the return under section 143(1) of the Income Tax Act.

2. Types of ITR:-

2.1 For the sake of clarity, the various forms prescribed for filing the RTI are presented below:-

A. ITR-1 or Sahaj:-

People belonging to the following categories should opt for ITR-1 form, also known as Sahaj:

• • Salaries and pensioners
  • Income up to Rs.50 Lakh
  • Income from other sources (except winning the lottery or horse racing)
  • Agricultural income less than Rs.5,000
  • Payments received for individual property with certain exclusions

B. ITR-2: –

Individuals and Hindu United Families (HUFs) who fall under the following categories should opt for ITR-2 form:

• • Income above Rs.50 Lakh
  • Income from wages, pensions, capital gains and other sources (income from sources other than a business or profession)
  • Income generated by foreign assets
  • Agricultural income above Rs.5,000

C. ITR-3: –

Individuals and joint Hindu families who fall under the following categories should opt for ITR-3 form:

• • Income from a business or profession
  • Income received as a partner in a business
  • Income received in the form of salary, pension, capital gains and other sources
  • Investments in unlisted shares
  • Individual administrator in a company

D. ITR-4 or Sugam: –

Individuals, joint Hindu families and businesses having income up to Rs.50 Lakh from business or profession can opt for ITR Form 4. Additionally, those who have opted for the deemed income scheme under Section 44AD, Section 44ADA and Section 44AE of the Income Tax Act are eligible to file their returns using ITR Form 4.

E.ITR-5

Form ITR-5 is intended for companies, private individuals, cooperative companies, limited liability companies, associations of persons, local authorities, artificial judicial persons, estates of insolvents, estates of deceased persons and to commercial trusts (not individual citizens). .

F.ITR-6

Form ITR-6 must be filed electronically by companies, except those claiming exemption under Section 11, which relates to income from religious or charitable property.

G.ITR-7

Companies filing their return under the below sections of the Income Tax Act, 1961 can use ITR-7:

Section 139(4A): Individuals holding property for charitable or religious purposes

Article 139(4B): Political parties and affiliates

Article 139(4C): Institutions or associations such as medical institutions, news agencies and establishments, educational institutions, think tanks and agencies involved in scientific research.

Section 139 (4D): Colleges and universities, or other institutions where income and losses are not required to be reported in accordance with the rules made under this section of the Income Tax Act, 1961.

3. Let us see how courts view incorrect ITR forms filed by taxpayers:-

Case #1: The taxpayer was a registered charitable trust under section 12A of the IT Act and it was eligible to claim exemption under sections 11 and 12 of the IT Act. For the year in question, the Assessing Officer (AO) disallowed deduction of 15% of the total income, set aside for the purpose of charitable or religious purposes claimed by the taxpayer in his ITR for the reason of which the taxpayer had filed an ITR. using Form No. 5 instead of Form No. 7. The AO treated the appellant’s status as AOP, disallowed the accumulated 15% layaway and added it to the total income.

The appellant appealed to the first appellate authority, but the appeal was dismissed for limitation.

Before the Tribunal, the appellant submitted an affidavit explaining the reasons for the delay, which was accepted and condoned by the Tribunal. Coming to the merits of the case, the ITAT(1) noted that the appellant, as a trust, was required to file its return using ITR-7 and claim the 15% reservation in under section 11(1)( a) rather than using the ITR-5, which did not comply with the necessary provisions for claiming exemptions under sections 11 and 12. The Tribunal observed that the appellant inadvertently filed ITR-5 instead of ITR-7, a fact which was overlooked by the AO, who treated the trust as an AOP and denied set-aside. The Tribunal noted that the appellant was a trust registered under section 12AA, was entitled to exemptions under sections 11 and 12, and was also registered under section 80G(5). In the circumstances, the Court considered that the error was real and unintentional, particularly taking into account the activities of the trust. The Tribunal pointed out that if the appellant had instead filed the ITR-7, the AO would probably have allowed the deductions claimed. Therefore, the Tribunal remitted the matter to the AO, giving the appellant another opportunity to seek the relief claimed. Furthermore, he granted the appellant the opportunity to apply to the Commission, under section 119(2)(b), for permission to file the RTI-7, given that the RTI-5 had already been submitted.

Case #2 :- In the case of Young Mens Welfare Society, Kolkata-700069 v. ADIT (CPC), Bangalore, ITA Nos.613&614/Kol/2022 the Calcutta Court(2) held that

“In front of us, the ld. The assessee’s AR submitted that the appeal filed by the assessee before the CIT(A) must be disposed of within the period of limitation as it was covered by the decision of the Hon’ble Supreme Court in the writ petition written by Suomoto (C). No. 3 of 2020 from 10.01.2022. The ld. Learned counsel for the assessee further submitted that the assessee had filed a rectification application which was mechanically rejected by the assessing officer. The assessee inadvertently filed the return under ITR 7. However, when the defect was pointed out, the assessee rectified the defect and filed the return under ITR 5. It has been held time and again that tax authorities are not supposed to punish assessees for their genuine mistake. We, therefore, set aside the impugned orders of the authorities below and restore the matter to the file of the Assessing Officer with directions to consider the arguments raised by the assessee and tax the assessee at the rates applicable to the assessee account given the revised declaration. filed by the assessee.

In the above case, the taxpayer had already filed a revised ITR in Form 5 after correcting the defects. Therefore, the court directed the Assessing Officer to consider the claim of the taxpayer as filing an incorrect return constitutes a genuine error..

4. Key takeaways:-

4.1 If a taxpayer being a charitable trust files an incorrect ITR-5 instead of an ITR -7, the part of calculation of total income in ITR 5 differs significantly from that in ITR-7. Accordingly, the AO (CPC) cannot rectify the claims which should have been included in the ITR-7. Since return processing is an automated procedure, data entered from an incorrectly filed ITR-5 will likely result in errors in granting exemptions to the taxpayer. Therefore, seeking relief by way of a rectification application under Section 154 of the IT Act may not be the best approach in cases of incorrect ITR forms. It is always advisable to file a revised return within the time limit specified in section 139(5) of the Income Tax Act, i.e. before 3 months from the end of the tax year concerned. If the taxpayer fails to meet this deadline, the only option is to approach the competent authorities under section 119(2)(b) of the Income Tax Act to seek forgiveness for the delay in filing the revised declaration. After forgiveness, the taxpayer can request appropriate relief through a revised tax return.

(1) Abacus 3880 (2024) (02) ITAT

(2) ITA Nos. 613 and 614/Kol/2022 Years of assessment: 2014-15 and 2015-16