Updated return under Section 139(8A) & Tax as per Section 140B

Dimensions of updated return as per Section 139(8A) & Tax on Updated Return as per Section 140B of Income Tax Act, 1961

Introduction

The Finance Act 2022 provided an opportunity to tax payers to correct omissions or errors by filing “Updated Return” within 2 years from the end of relevant assessment year along with additional payment of tax and incidental interest. After obtaining assent on 31st March, 2022 from the Hon’ble President of India, a new sub section (8A) under section 139 of the Income-tax Act, 1961 (‘the Act”) is inserted for filing of updated return with effect from 1^st April, 2022 i.e Assessment year 2022-23. The objective of introducing this facility is to promote voluntary tax compliance and reduce litigation.

Intention of the Government

The due date under existing provisions of sections 139(4) and 139(5) for filing of belated/revised returns ends at 3 months prior to the end of relevant assessment year. Hence, the total time limit provided after the end of a particular financial year is only 9 months, after which return of income cannot be filed.

This additional timeline for filing a belated/revised return may not be adequate when we factor in utilization of huge information and data available coupled with the “nudge approach” that motivates the taxpayer towards the desired objective of voluntary tax compliance, starting with filing of correct tax returns and IT department will have logical data to arrive to correct conclusion including additional revenue. Therefore, with this objective the new Sections 139(8A) and 140B are inserted in Income Tax Act, 1961.

The challenge here is whether the conditions prescribed in the new section will help the Government to achieve the desired objective. Let us analyze the conditions of Section 139(8A) and Section 140B of Income Tax Act, 1961.

Analysis of Section 139(8A) and 140B of Income Tax Act, 1961.

• Section 139(8A) talks about the time limit within which updated return has to be filed by the assessees who have filed return of income under section 139(1)/(4)/(5) and also for assessees who have not filed their return of income.
• Section 139(8A) also speaks about assesses who are eligible to file updated returns.
• The proviso to section 139(8A) lists out the assessees who are not eligible for filing the updated return under section 139(8A).
• Section 140B talks about the quantum and manner of determining the additional tax to be paid.

Let us understand these two sections with some illustrations

1. Whether the updated return is applicable to all the assessees?

 Yes, as per the provisions of section 139(8A) it starts with the word “Any Person”. Hence, this section is applicable to all the assesses. However, there are some cases mentioned in the proviso where the updated return cannot be filed. If not satisfied, such assessees are not eligible for filing the updated return. The following are the exceptions;

• The updated return is a return of a loss or
• The updated return has the effect of decreasing the total tax liability determined on the basis of return furnished u/s 139(1), (4) or (5) or
• The updated return results in refund or increases the refund due on the basis of return furnished u/s 139(1), (4) or (5)

The main objective of the section is to allow assessee to file the return of income to declare additional income which was not declared in the earlier returns filed or no return of income is filed, the only benefit to the assessee is to voluntarily disclose the error or omission and save themselves from the future litigation.

Further conditions are that the assessees cannot file updated return if –

• a search has been initiated under section 132 or
• books of account or other documents or any assets are requisitioned under section 132A in the case of such person; or
• a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case of such person; or
• a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or
• section 132A in the case of any other person belongs to such person; or
• an updated return has already been furnished by him under this sub-section for the relevant assessment year; or
• any proceeding for assessment or reassessment or recomputation or revision of income under this Act is pending or has been completed for the relevant assessment year in his case; or
• the Assessing Officer has information in respect of such person for the relevant assessment year in his possession under
  • Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 or
  • Prohibition of Benami Property Transactions Act, 1988 or
  • Prevention of Money-laundering Act, 2002 or
  • Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or
• information for the relevant assessment year has been received under an agreement referred to in section 90 or section 90A in respect of such person and the same has been communicated to him, prior to the date of furnishing of return under this sub-section; or
• any prosecution proceedings under the Chapter XXII have been initiated for the relevant assessment year in respect of such person, prior to the date of furnishing of return under this sub-section; or
• Such person/ class of person as notified by the board.

2. What is the time limit specified to file update returns?

The updated return can be filed within period of 24 months from the end of the relevant assessment year. For example, the updated return pertaining to FY 2021-22 can filed latest by 31st March, 2025.

3. If search or survey is conducted in the relevant assessment year whether the assessee can opt for updated return under section 139(8A)?

 No, assessee cannot file updated return under Section 139(8A) for that particular assessment year for which search or survey is conducted and also for any assessment years preceding such assessment year.

4. If any proceeding for assessment or reassessment or recomputation or revision of income under this Act is pending or has been completed for the relevant assessment year whether the assessee can opt for updated return under section 139(8A)?

 No, assessee cannot opt for updated return under Section 139(8A) for that particular assessment year for which any assessment / reassessment proceeding is pending or has been completed. However, he can opt for the preceding assessment year unlike in search and survey cases, provided all other conditions and time lines are satisfied.

5. What is the rate of additional tax to be paid under section 140B if return is filed under section 139(8A) of Income tax Act, 1961?

 If an assessee opts for filing return of income under Section 139(8A) then, they are required to pay additional tax as per section 140B which ranges from 25% to 50% in the following manner:

1. If the return of income is filed within 12 months from the end of relevant assessment year, then additional tax shall be equal to 25% of aggregate of tax and interest payable. (i.e if the return of income is filed on or before 31.03.2024 for assessment year 2022 – 23)

2. If the return of income is filed after 12 months from the end of relevant assessment year but before 24 months from the end of relevant assessment year, then additional tax shall be equal to 50% of aggregate of tax and interest payable. (i.e if the return of income is filed on or before 31.03.2025 for assessment year 2022 – 23)

Let us understand this with the help of an Illustration

Case 1

Mr. X an individual having net income from house property of Rs 9,50,000/- and income from fixed deposit of Rs. 2,40,000/- (not falling under tax audit case) couldn’t file the return of income for AY 2022 – 23 by 31^st July 2022. Further, he also missed the dead line for filing the belated return by 31^st December, 2022.

Case 2

Mr. X an individual having net income from house property of Rs 9,50,000/- and income from fixed deposit of Rs. 2,40,000/- (not falling under tax audit case) filed the return of income for AY 2022 – 23 on 31^st December, 2022 but failed to disclose the income from fixed deposit of Rs. 2,40,000/- in the return. Can Mr. X file the updated return under section 139(8A) and disclose the income from fixed deposit of Rs. 2,40,000/-?

Considering the above two cases on hand if Mr. X can file the updated return within 12 months from the end of relevant assessment year and the tax liability under section 140B of the Income Tax Act.

FY 2021-22, AY 2022-23		Updated return is opted within 12M from the End of Relevant AY
Due date of Filing the return 31.07.2022		Return of Income is not furnished	Return of Income is furnished
Particulars		Case 1	Case 2
		Date of Filing 31.03.2024	Date of Filing 31.12.2022	Date of Filing 31.03.2024
		Total Income Declared in 139(8A) return	Income Declared in Earlier Return	Additional Income Declared in 139(8A) return	Total Income Declared
Income from HP		9,50,000	9,50,000	–	9,50,000
Income From FD Interest		2,40,000	–	2,40,000	2,40,000
Total Income	(A)	11,90,000	9,50,000	2,40,000	11,90,000
Tax on above		1,69,500	1,02,500		1,69,500
Add: Cess @ 4%		6,780	4,100		6,780
Total Tax	(B)	1,76,280	1,06,600		1,76,280
Less: TDS		24,000	–	24,000	24,000
Less: Advance Tax		80,000	80,000	–	80,000
Total Taxes Paid	(C)	1,04,000	80,000		1,04,000
Balance Tax Payable	(D) = (B) – (C)	72,280	26,600		72,280
Add: Interest u/s 234 A/B/C	(E)	38,693	8,307		38,693
Total Tax + Interest	(F) = (D) + (E)	1,10,973	34,907		1,10,973
Less:Self assesment tax paid on 31.12.22 in earlier return	(G)	–	34,907		34,907
Net Tax Payable	(H) = (F) – (G)	1,10,973	–		76,066
Less: Interest paid in Earlier Return	(I)	–			8,307
Total Tax + Interest	(J) = (H) + (i)	1,10,973			67,759
Add: Additional Tax @ 25% on Aggregate of tax + Interest	(K) = 25%*(J)	27,743			16,940
Total Tax Liability for Opting 139(8A)	(L) = (J) + (K)	1,38,717			84,698

* Interest under Section 234 A/B/C shall be calculated till the actual date of filing of return of income.

* In a similar way, additional income-tax tax has to be made @ 50% of aggregate of tax + interest if the return is filed after 12 months but before 24 months from the end of relevant assessment year.

6. Whether updated return can be filed if the Original Return or Belated Return is not filed?

 Yes, the updated return can be filed, whether or not the assessee has furnished an original return, belated return or revised return for a particular assessment year.

7. Whether Surcharge, Health and Education Cess, Fees and Interest included while calculating additional tax of 25% or 50% under Section 140B?

 Yes, Surcharge, Health and Education Cess, Fees and Interest are included while calculating additional tax to be paid under Section 140B of the Income Tax Act.

8. If an assessee receives the notice for scrutiny assessment under section 143(2) from Income Tax Department for AY 2022 – 23 then whether return of income under Section 139(8A) can be filed by the assessee?

No, as per the provisions of section 139(8A), if any proceeding for assessment or reassessment or recomputation or revision of income under this Act is pending or has been completed for the relevant assessment year then the assessee cannot opt for filing his return of income under section 139(8A).

The following are considered as assessment pending:

• Regular assessment under section 143(3): The date on which notice under section 143(2) is issued.
• Reassessment under section 147:

Case 1: If notice under section 148A is issued and order under section 148A(d) is passed stating that the proceedings are dropped. The updated return under section 139(8A) cannot be filed between the date of issue of notice under section 148A and order u/s 148A(d) is passed.

Case 2: If notice under section 148A is issued and order u/s 148A(d) is passed stating that it is a fit case to issue notice under section 148 of the Act. The updated return cannot be filed on or after the date of issue of notice under section 148A of the Act.

9. If assessee files his return of income under Section 139(8A) for AY 2022 – 23 by 31st March 2024 paying the additional tax of 25% as prescribed under the relevant provisions of the Act and later on, a mistake was noted in the return of income filed under Section 139(8A), can assessee file his return of income under Section 139(8A) again to rectify a mistake which has effect of increasing the tax liability?

No, Section 139(8A) states that no updated return shall be furnished by any person for the relevant assessment year, where, an updated return has already been furnished by him under Section 139(8A). Hence, an assessee cannot opt for filing return of income again under section 139(8A) for the same assessment year.

10. Can assessee claim the benefit of Self-Assessment tax paid under Section 140A at the time of filing Original Return under Section 139(1) while computing the revised tax payable at the time of filing the return of income under Section 139(8A) of the Income Tax Act, 1961?

Yes, the tax payer can claim the benefit of Self-Assessment tax paid under Section 140A of the Act if it is already claimed in the original return of income filed u/s. 139(1) or belated / revised return of income u/s. 139(4) / (5) of the Act.

However, if no return of income is filed under section 139(1)/(4)/(5) and self-assessment tax paid any time before filing the updated return under section 139(8A) of the Act, such self-assessment tax cannot be considered for the purpose of computation of additional tax liability. But, such self-assessment tax can be claimed as credit/deduction while arriving at the tax liability.

11. Whether a person who has filed a return of income under section 139(1) of the Act declaring losses can file an updated return under section 139(8A) of the Act.

Yes. Provided the updated return of income is filed declaring income and not a loss.

12. Whether any situation arises for any person to file an updated return for subsequent assessment years in result of filing of updated return for current previous year.

Yes. If any

• Loss carried forward under chapter VI or
• Unabsorbed depreciation carried forward under section 32(2) or
• MAT credit carried forward under section 115JAA or
• AMT credit carried forward under section 115JD

is to be reduced for any subsequent previous year as a result of updated return for current previous year, an updated return has to be filed for such subsequent previous years.

Case1: Return of income filed under section 139(1) declaring loss of Rs. 100Cr. Later realised that the loss to be declared is Rs. 60Cr. Return of income for subsequent assessment year filed utilizing the loss of Rs. 100Cr. Time limit is available to file updated return under section 139(8A) for year 1 and year 2. Whether updated return has to be filed for both assessment years?

Yes. Since time limit is available to file year 1 and year 2, you are legally liable to file the updated return for both the years.

Case2: Time limit expires for 1^st year for filing updated return under section 139(8A). whether is liable to file updated return for year 2?

Yes. Since time limit is available to year 2, you are legally liable to file the updated return for year 2.

CBDT on 29^th April, 2022 released a notification vide G.S.R. 325 (E) [Income Tax Notification No. 48/2022 regarding Income-Tax (Eleventh Amendment) Rules, 2022 – Insertion of Rule 12AC and form ITR – U

12AC. Updated return of income

(1) The return of income to be furnished by any person, eligible to file such return under the sub-section (8A) of section 139, relating to the assessment year commencing on the 1st day of April, 2020 and subsequent assessment years, shall be in the Form ITR-U and be verified in the manner indicated therein.

(2) The return of income referred to in sub-rule (1) shall be furnished by a person, mentioned in column (2) of the Table below in the manner specified in column (3) thereof:

Sl No	Person	Manner of furnishing return of Income
(1)	(2)	(3)
1.	Any person as defined in sub-section (31) of section 2 the Act, whose case accounts are required to be audited under section 44AB of the Act	Electronically under digital signature.
2.	Any person as defined in sub-section (31) of section 2 the Act, other than a person mentioned in column (2) of Sl. No. (1) above.	(A) Electronically under digital signature; (B)Transmitting the data electronically in the return under electronic verification code.

Issue for which section remains silent:

If the assessee is liable to tax audit under section 44AB of Income tax act and assessee opts for filing return of Income under section 139(8A) whether tax audit report under form 3CA/3CB and particulars of tax audit report under form 3D needs to be uploaded?

Concluding thoughts:

The main objective of government to introduce section 139(8A) was to promote voluntary tax compliance and reduce tax litigation. In my personal view if the additional tax rates are kept at such higher rates (i.e 25%/50%) over and above the normal tax rates then the effective tax rates shall be very high for return filers who are opting for 139(8A) and assessees will not be ready to voluntarily file their return of income. Further, there is no assurance that, department shall not pick the case for scrutiny assessment if return is filed under section 139(8A).  Hence, we have to wait and see how effectively this section will be helpful for the assesses for updating there return in the coming days.

For any queries and clarification author can be reached at [email protected]