How to rectify an incorrectly selected Income Tax Return (ITR) form by the taxpayer during e-filing
1. Introduction:-
1.1 Taxpayers should aware that various forms are prescribed for filing Income Tax Returns. When submitting the ITR, it is essential for the taxpayer to select the correct form based on their status and income earned during the relevant year. Only then, the taxpayer entitled to the exemptions and deductions they are seeking. Failing to do so may result in disallowance of these exemptions and deductions during the processing of the return under Section 143(1) of the Income tax Act.
2. Types of ITRs:-
2.1 For sake of clarity the different forms prescribed for filing ITR are tabulated bellow:-
A. ITR-1 or Sahaj:-
Individuals who fall under the following categories should opt for the ITR-1 form, also known as Sahaj:
-
- Salary and pension earners
- Income of up to Rs.50 Lakh
- Income earned from other sources (except winning a lottery or horse racing)
- Agricultural income less than Rs.5,000
- Payments received for a single-house property with certain exclusions
B. ITR-2:-
Individuals and Hindu United Families (HUF) who fall under the following categories should opt for the ITR-2 form:
-
- Income exceeding Rs.50 Lakh
- Income received through salary, pensions, capital gains, and other sources (income received from sources other than business or profession)
- Income generated from foreign assets
- Agricultural income exceeding Rs.5,000
C. ITR-3:-
Individuals and Hindu United Families who fall under the following categories should opt for the ITR-3 form:
-
- Income from a business or profession
- Income received from being a partner in a firm
- Income received through salary, pension, capital gains, and other sources
- Investments in unlisted equity shares
- Individual director in a company
D. ITR-4 or Sugam:-
Individuals, Hindu United Families, and firms with an income up to Rs.50 Lakh from businesses or a profession can opt for the ITR 4 form. Moreover, those who have chosen the presumptive income scheme under Section 44AD, Section 44ADA, and Section 44AE of the Income Tax Act are eligible to file their returns using the ITR 4 form.
E. ITR-5
The ITR-5 form is meant for firms, Body of Individuals, co-operative societies, Limited Liability Partnerships, Association of Persons, local authorities, Artificial Judicial Persons, estates of insolvent, estates of deceased, and business trusts (not individual citizens).
F. ITR-6
The ITR-6 form is to be filed electronically by companies, except for those that claim an exemption under Section 11, which is income from a 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 a property for charitable or religious purposes
Section 139(4B): Political parties and affiliates
Section 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 revenue and losses are not required to be reported as per the rules laid under this section of the Income Tax Act, 1961
3. Let us see how the tribunals view the incorrect ITR forms filed by the taxpayers:-
Case No. 1: The taxpayer was a charitable trust being registered under section 12A of the I.T Act and they were eligible to claim exemption under section 11 and 12 of the I.T Act. For the year under consideration, the Assessing Officer (AO) disallowed the deduction of 15% of total income, being set aside for the application towards charitable or religious purposes claimed by the taxpayer in their ITR for the reason that the taxpayer had filed ITR filed using Form No. 5 instead of Form No. 7. The AO treated the status of the appellant as an AOP, disallowed the accumulated 15% set-aside, 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 delay which was accepted and condoned by the Tribunal. As far as merits of the case is concerned, the ITAT[1], noted that the appellant, as a trust, was required to file its return using ITR-7 and claim the 15% set-aside under Section 11(1)(a) rather than using ITR-5, which did not comply with the provisions necessary to claim 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 disallowed the set-aside. The Tribunal emphasized that the appellant was a registered trust under Section 12AA, entitled to exemptions under Sections 11 and 12, and also held registration under Section 80G(5). Considering the circumstances, the Tribunal viewed the mistake as genuine and inadvertent, particularly given the trust’s activities. The Tribunal noted that had the appellant filed ITR-7 instead, the AO would likely have allowed the claimed deductions. Therefore, the Tribunal remanded the issue back to the AO, allowing the appellant another opportunity to seek the relief claimed. Furthermore, it granted the appellant the option to apply to the Board under Section 119(2)(b) for permission to file ITR-7, given that ITR-5 had already been submitted.
Case No. 2 :- In the case of Young Mens Welfare Society, Kolkata-700069 vs. ADIT (CPC), Bangalore, I.T.A Nos.613&614/Kol/2022 the Kolkata Tribunal[2] held that
“Before us, the ld. AR of the assessee has submitted that the appeal filed by the assessee before the CIT(A) is required to be treated within the limitation period as the same was covered by the decision of the Hon’ble Supreme Court in Suomoto Writ Petition (C) No. 3 of 2020 dated 10.01.2022. The ld. Counsel for the assessee has further submitted that the assessee has filed rectification application which has been dismissed by the Assessing Officer in a mechanical manner. The assessee inadvertently filed the return in ITR 7, however, when the defect was pointed out, the assessee rectified the defect and filed return in ITR 5. It has been held time and again that the Income Tax Authorities are not supposed to punish assessees for their bona fide mistake. We, therefore, set aside the impugned orders of the lower authorities and restore the matter to the file of Assessing Officer with a direction to examine the contentions raised by the assessee and tax the assessee at the rates as applicable to the assessee considering the revised return filed by the assessee.
In the above case, the taxpayer had already filed a revised ITR in Form 5 after rectifying the defects. Therefore, the tribunal directed the Assessing Officer to consider the claim of the taxpayer as filing an incorrect return is genuine mistake.
4. Key Takeaways:-
4.1 If a taxpayer being charitable trust files an incorrect ITR-5 instead of ITR -7, the total income computation part in ITR 5 differs significantly from that of ITR-7. As a result, the AO (CPC) cannot rectify claims that should have been included in ITR-7. Since return processing is an automated procedure, data captured from an incorrectly filed ITR-5 will likely lead to errors in granting exemptions to the taxpayer. Therefore, seeking remedy through rectification application under section 154 of the I.T Act may not be the best approach in cases of incorrect ITR forms. It’s always advisable to file a revised return within the time limit specified under Section 139(5) of the Income Tax Act i.e before 3 months from the end of the relevant assessment year. If the taxpayer misses this deadline, the only option is to approach the competent authorities under Section 119(2)(b) of the Income Tax Act to request a condonation of the delay in filing the revised return. After condonation, the taxpayer can seek a appropriate relief through a revised return of income.
[1] Abacus 3880 (2024) (02) ITAT
[2] I.T.A Nos.613&614/Kol/2022 Assessment years: 2014-15 & 2015-16
Author Bio
