The filing of Income-Tax return has changed drastically over the years. We have shifted from manual returns to online returns. Today almost all returns are filed online and physical filing is almost out.
The new Income-Tax website implementation had its challenges. The fast processing of returns and issue of refund by the new website in hours and days, is a big relief to the trouble faced by the tax payer and compliance professionals due to non functional website earlier. There is still a gap in what was promised to the tax payers and what is being delivered. However, the taxpayer on his part will not be able to do anything about it and the process of constant upgradation of the system is the new normal. Whereas there is no system in place in India where the cost of implementation for the tax payer is considered before a new system is implemented under the tax laws, the current article is to explain the small step taken to ease the difficulties faced by tax payers.
Whereas the year 2022 has seen a lot of land mark judgments from the Hon Supreme court on issue under the Income -Tax Act 1961. The judgment of the Honorable Supreme Court in the case of PCIT v. Wipro Limited (2022) 446 ITR 1 (SC) was a judgment which deviated from the long understood and practiced concept that “revised return could be filed by assessee to make any changes which he wanted, including changing stand taken in the original return”. The Honourable Supreme Court however took a different view and held as under :
“The assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income, under Section 139(5) cannot be filed, to withdraw the claim and subsequently claiming the carried forward or setoff of any loss. Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. By filing the revised return of income, the assessee cannot be permitted to substitute the original return of income filed under section 139(1) of the IT Act.”</em >
This makes the life of the assessee filing his return very difficult. He cannot change the stand taken in the return at a later date even if he realizes that the same is incorrect on facts as well as law or is not beneficial in view of interpretation propounded by professional, Courts or Tribunal. I am sure no objection will be raised by the department if a claim for deduction or exemption made is withdrawn and additional tax is paid. However, if the claim to be made by the assessee and he misses the same there is no way of claiming the same.
There is chance that the assessee can claim the deduction or exemption in the course of assessment under section 143(3) of the Income-Tax Act 1961 if the assessment for that year is taken up by the department. However the AO will not allow the claim as per the judgment of Supreme court in Goetz India Ltd v. CIT (2006) 284 ITR 323(SC) “which provides that no claim can be allowed by the assessing officer unless made through the return of income”. The assessee is likely to be successful in appeal against the said rejection by the Assessing officer. The problems of the assessee is aggravated by the fact that the time for revised return is reduced from one year after the assessment year to a period of three months prior to the end of assessment year (31st December) or completion of assessment. The assessee has to therefore be very careful in filing his return and cannot afford to make any mistake in filing the return of income which is a voluminous document required various details. The assessee will have to pay even if the error is by his consultant in filing the return of income.
The question is how does the discard feature help in this situation, the discard feature to a very limited extend addresses this difficulty faced by the assessee by allowing the assessee to discard the return filed before verification, if he realizes the mistake within the period of 30 days( the period within which e verification is to be done) from the filing the return online.
The feature is applicable only if the return is not e-verified by the assessee by the assessee in one of the manners provided by the Income Tax Site and mentioned hereunder:
- Digital Signature Certificate
- Aadhaar OTP
- Electronic Verification Code (using bank account / demat account)
- Electronic Verification Code (using Bank ATM – offline method)
- Net Banking
The return once e-verified cannot be discarded and hence the feature has limited applicability. It is possible that the government realizes the difficulty faced by a common tax payer and bring similar features for other returns also.
The discard feature is applicable only to returns uploaded and not e-verified. If the return is filed within the due date and then discarded and a fresh return is filed after the due date of filing return then the late fees and interest will be applicable to the return filed after the due date of filing return. I will explain this with an example as under. The assessee ABC has to file his return of income on or before 31st July 2023. ABC files his return on 25th July 2023 on the Income Tax website and has not e-verified the return. ABC realizes that there is an error and the claim under chapter VI A is not made in the return. The mistake is realized on 31st July 2023 when he was trying to e-verify the return. ABC on the advise of his consultant discards the return and asks his consultant to file a return taking in to account the deduction under chapter VI A. The consultant was not able to complete the task by 31st July 2023. The return is filed on 1st August 2023, the CPC while processing the return levies late fees under section 234F. The assessee ABC is of the view that since the original return was before due date the fees under section 234F is incorrectly levied and wants it to be rectified, is he correct?
The department has come out with FAQ’s and have clarified that the return filed after discard of the original return filed will be liable to late fees if it is not filed within the due date of filling return under section 139(1) even if the discarded return was filed in time.
In the above example if ABC finds an error again in the return before it is e-verified can he again discard the return second time. The department has in its FAQ’s have clarified that the feature of discard can be used more than once and there is no restriction on the number of times the return is discarded.
However, one has to note that if a return is discarded and the corrected return is not filed within the due date provided for filing return for A Y 2023-24 that is 31st December 2023 then the return will not be allowed to be filed under section 139(4) or 139(5). The only option will be to file an updated return under section 139(8A) and pay the additional tax as provided thereunder along with late fees. Similarly if the return is not filed at all, even prosecution can be launched under 276CC and the fact that a return was filed and discarded will not help. The return discarded would mean return not filed at all.
Further, if the return filed first time is discarded and while filing return of income after the due date of filling return the assessee will have to select section 139(4) and not 139(5) as the date for filing revised return has expired and the discarded return is not recognized and the discarded return number will not be recognized. The department has also clarified that if a person has signed and send physical print of return after filing the return. The person if realizes the mistake in return thereafter but before the return reaches the department he cannot discard the return. The FAQ has clarified that the person cannot discard the return, however if the assessee by mistake discards this return, it is not known whether the department would be above to undo the discard feature and process the return on receipt by CPC.
The department has also clarified that once the return of income is discarded the same cannot be restored back by the assessee. Thus one should be very careful while using this feature of ‘Discard’. The return once discarded cannot be restored. In a recent case where I had asked the assessee to e-verify the return, the assessee had by mistake discarded the return, which let to him being liable to late fees. The return had to be refiled with the extra effort. The placement of the tab (www.incometax.gov.in</a > Login e-File Income Tax Return e-Verify ITR “Discard”) with the e-verification tab may have led to this error.
The feature of discard can be used only for returns filed after 1st April 2023 for A Y 2023- 24 and not for earlier returns filed but not verified like the updated return for A Y 2021-22 and A Y 2022-23. Thus if assessee has filed an updated return for A Y 2022-23 and then before e verification of return he realizes that there is an error, he cannot discard the return and he will have to e-verify the return. It is my view that the discard feature should have been allowed even for cases of old returns as it would help avoiding filing of multiple returns if mistake is identified and he is allowed to file an updated return.
The feature will help the assessee in a limited manner in rectifying error and avoiding enquiries, however in cases where the return has to be e-verified immediately through a digital signature like in the case of Companies or cases where there is audit this feature will not be available. The feature if extended to cases where the return is e-verified also would help in avoiding multiplicity of return and the assessee can avail the chance of take a difference stand or rectify an error or make a revised claim if time for making the same has not lapsed. Why should the assessee not allowed this chance? The filing of return is a complicated process and there are chances of error. Whereas the Income Tax Act gives three chances to a assessing officer in the form of rectification under section 154, review under section 263 by a PCIT and reassessment under section 147 if conditions are satisfied. The assessee is expected to file a perfect return in one go and if there is a claim which is missed or he wants to take a different stand after filling his return the same is not allowed by law. Whereas, equity and fairness is not a feature of revenue laws, there is a need to give a fair chance to the tax payer.
At this juncture I am reminded of a old circular issued by the CBDT as back as in the year 1955 being Circular No. 14 (XL-35), dated 11-4-1955 as to what should be a departmental attitude towards refund and reliefs to the assessees. In this circular, the CBDT has recognized the fact that responsibility for claiming refunds and reliefs rests with the assessees; even then the CBDT has directed the officers to draw the attention of the assessees in respect of any refunds or reliefs to which they are eligible, which they have not claimed for some reason or the other. Further, the Board also issued Circular No. F. 81/27/65- IT(B), dated 18-5-1965 defining the duties of the PROs in providing assistance to the public. In this circular, the CBDT has also advised the PRO to visit the Government/commercial establishments to provide them assistance in filing correct returns and making eligible claims.
The function of the Assessing Officer is to administer the statute with solicitude for public exchequer with an inbuilt idea of fairness to taxpayers. Because the Government is entitled to collect only the tax legitimately due to it, otherwise the tax not so collected would be violative of the Article 265 of the Constitution.