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ITR-U : The great anomaly in an interpretation of section 140B of Income Tax Act, 1961 by CBDT.

As per clause (c) to the first proviso to Section 139(8A) of Income Tax Act, 1961, updated return of income cannot be filed in a case where that updated return results in refund or increases the refund due on the basis of return furnished under sub-section (1)or sub-section (4) or sub-section (5) of section 139.

So based on the above provision, one can file an updated return of income in a situation where, in original return of income, there was a refund and in updated return of income that refund amount gets reduced to some extent.

Problem is not here, but it will arise in the following situation.

Let’s understand it with an example

Original ITR for AY 2020-21 was filed on date 29/12/2020 with a refund claim of Rs. 1,83,000/-

And that refund of Rs. 1,83,000 is received along with the interest under section 244A of around Rs. 17,000 thereon. (Thus, total amount credited in the bank account was around Rs. 2,00,000).

Now on 08/01/2023, it came to the notice of assessee that interest income of Rs. 25,000 was forgotten to be mentioned in ITR filed for said assessment year. So, he decided to file an updated return under section 139(8A). As he was in the tax slab of 20% in that AY, tax effect was only 5,000 (plus cess) and 50% additional tax under section 140B of that tax effect amount. Obviously, he should give back an interest on income tax refund pertaining to this Rs. 5,000 tax which arose due to omission on his part. But in no case, he must be required to give back that entire amount of interest of Rs. 17000 which he got on an entire refund amount of around Rs. 1,83,000.

But when see sr. No 9(i) of ITR – U (notification no. 48/2022 income tax dated 29/04/2022), it says to add amount mentioned at sr. no. 6(ii) which is “Total Refund issued as per last valid return, if any (including interest u/s 244A received)”.  So, in our present case, assessee is required to pay Rs. 33,000[(Rs. 5,000 Tax effect due to additional income of Rs. 25,000 + Rs. 17,000 interest on income tax refund received) * 150%]. So, total amount of Rs. 33,000 is payable on declaration of additional interest income of Rs. 25,000 only.

Hence, In present case, any prudent person can observe that the said wordings are totally erroneous and illogical. When an original ITR with refund turns into an updated ITR with tax payable, then giving back of entire amount of interest on refund is logical, but when an original ITR with refund turns into an updated ITR with some lower amount of refund, giving back an entire amount of interest on refund along with 25% to 50% of additional tax is totally erroneous. This must not be an intention of legislature also. So, even Section  140B (2)(b) of Income Tax Act, 1961 says “as increased by the amount of refund, if any, issued in respect of such earlier return”. Thus, it is not making any clarification to add the amount of interest on income tax refund.

So, CBDT must reconsider this situation and amend the format of ITR-U and also to update the logic in e-filing utility as well at earliest. It must think about canon of economy also while drafting such forms.

Author Bio

He is Chartered Accountant by profession plus Song Writer, Composer, Piano player and Singer. One of his hobbies is to share technological knowledge . He was President of Bhavnagar C. A. Association for two consecutive terms. His Youtube Channel is "CA. Tejas Andharia" (more than 50,000 subscribers) View Full Profile

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