An assessee shouldn’t be penalized for an incorrect updated return that can’t be revised.
Issue
What is the legal remedy for a taxpayer who is subjected to an unfairly high tax liability due to an inadvertent and significant error made in an “updated return” filed under Section 139(8A) of the Income-tax Act, 1961, given that the law currently provides no mechanism to revise such a return?
Facts
- The assessee’s tax consultant, while filing an updated return under Section 139(8A) for the assessment year 2022-23, made a major error.
- The return was filed showing a much higher income (₹31.66 lakhs instead of the correct ₹17.57 lakhs) and a correspondingly incorrectly high TDS claim.
- This mistake resulted in a significant and unjust tax liability being imposed on the assessee for income they had never actually earned.
- The assessee’s attempt to correct this obvious error through a rectification application under Section 154 was rejected.
- The core problem was that the Income-tax Act, in its current form, does not provide any statutory mechanism to revise an updated return once it has been filed, leaving the assessee in a difficult position.
Decision
The Tribunal ruled in favour of the assessee on equitable grounds.
- It held that a taxpayer should not be penalized for a genuine mistake simply because the statute has a procedural gap and lacks a specific corrective mechanism.
- The court recognized that the assessee was being unfairly and heavily burdened with a tax liability on non-existent income.
- The matter was remanded back to the Jurisdictional Assessing Officer with two alternative directions to resolve the issue:
- Provide a special window for the assessee to file a correct updated return, or
- Allow the assessee to file a correct computation of income along with supporting documents, and to consider this submission for the final assessment.
Key Takeways
- Substantive Justice Over Procedural Gaps: This ruling is a strong example of a judicial body prioritizing fairness and the principle of taxing real income over a rigid adherence to a procedural framework that has a clear gap.
- Tax Should Be on Real Income: A fundamental principle of taxation is that tax should be levied only on the actual income of a person. A taxpayer cannot be forced to pay tax on a higher income figure that was declared purely due to a demonstrable clerical or technical error.
- The Role of the Judiciary: When the statute is silent or provides no remedy for a situation causing genuine hardship, higher judicial forums like the Tribunal can use their inherent powers to devise a practical and just solution and direct the tax authorities to implement it.
- Highlighting a Flaw in the Law: This case brings to light a significant flaw in the updated return scheme—the inability to correct genuine mistakes. The court’s intervention suggests that there is a need for a legislative amendment to introduce a mechanism for revising updated returns.
IN THE ITAT PUNE BENCH ‘SMC’
Nararshabh Sharma
v.
Assessing Officer, Ward-7(3), Pune
Manish Borad, Accountant Member
I.T. Appeal No. 1530 (PUN) of 2025
[Assessment year 2022-2023]
[Assessment year 2022-2023]
SEPTEMBER 9, 2025
Rajkumar Doshi, CA for the Appellant. Deepak Kumar Kedia, JCIT for the Respondent.
ORDER
1. This appeal at the instance of the assessee is directed against the order of ADDL/JCIT (Appeals)-2, Delhi [“CIT(A)”] dated 29/05/2025 framed under section 250 of the Income Tax Act, 1961 (“Act”) for the Assessment Year (AY) 2022-23.
2. The sole ground of appeal raised by the assessee is that Ld.CIT(A) erred both on facts as well as in law in not declaring the income tax return as invalid since the payment of tax as required u/s. 140B was not made and return was defective return as per clause (ca) of explanation to section 139(9) of the Act.
3. Brief facts of the case are that assessee is an individual carrying on the business of advertising and servicing contracts. For filing of return of income for the A.Y. 2022-23, the assessee handed-over the documents to his Income-tax Consultant, who failed to file the return within due date prescribed u/s. 139(1) of the Act. Subsequently, the return filed u/s. 139(8A) of the Act on 07/09/2023 declaring income of Rs. 31,66,540/- and showing tax payable at Rs. 7,18,749/-and late return filing fee at Rs. 5,000/-. In the income tax return, tax deducted at source (TDS) is shown at Rs. 7,23,740/-, however, as per Form 26AS, assessee was entitled TDS credit of Rs. 23,830/- only. The return was processed u/s.143(1)(a) of the Act determining tax liability at Rs.13,13,154/-. Though, the assessee filed application u/s. 154 of the Act stating that the correct income of the assessee is only Rs. 17,56,800/- and that the wrong figures of income and tax deducted at source have been mentioned in the income tax return, but the assessee failed to get any relief.
4. Before Ld.CIT(A), the assessee raised the ground praying for holding the return as invalid and to tax the assessee for the correct income, however, Ld.CIT(A) referring to the provision to section 139(9) of the Act observed that Ld.AO is empowered to condone the delay and treat the return as valid return even after the lapse of permitted time, but before completion of assessment. Therefore, the order of the CPC cannot be held to be unlawful to that extent. The Ld.CIT(A) further held that assessee has submitted its computation and to treat the return as valid/invalid as per law and take necessary corrective steps to bring the computed/assessed income to tax. The Ld.CIT(A), however, rejected the ground of the assessee praying to hold the return as invalid.
5. Aggrieved, the assessee is now in appeal before this Tribunal. Learned counsel for the assessee vehemently argued referring to the written submissions placed at page Nos. 1 to 11 of the paper book and also made reference to various details filed at page Nos. 12 to 195 of the paper book including the correct computation of income for A.Y. 2022-23.
6. On the other hand, ld.DR vehemently argued supporting the order of the Ld.CIT(A).
7. I have heard rival contentions and perused the records placed before me. A very interesting issue has been raised before this Tribunal. The assessee, who is running the business of advertising and servicing contracts, is regularly filing his income tax returns. Documents for preparation of income tax return for the A.Y. 2022-23 have been handed-over by the assessee to his tax consultant. The papers given by the assessee to the tax consultant indicated that there is a TDS of Rs. 23,830/-. As per revised computation of income filed by the assessee before this Tribunal placed at page Nos. 139-193 of the paper book, the total taxable income is shown at Rs. 17,56,797/- which comprises of profits and grains of business or profession at Rs. 4,09,184/-; capital gains at Rs. 12,62,869/-; and income from other sources at Rs. 94,744/-and after claiming deduction u/s. 80TTA, the total income is worked out to Rs. 17,56,800/- and TDS shown at Rs. 23,830/-. However, in the income tax return furnished by the tax consultant, though validly updated with the help of the assessee, the business income has been shown at Rs. 27,26,566/-; capital gains at Rs. 4,75,715/-; and income from other sources at Rs. 1,24,257/- and deduction under ChapterVIA claimed at Rs. 1,60,000/-, the total taxable income is shown at Rs. 31,66,540/- and the tax credit for TDS has been claimed at Rs. 7,23,740/-. This return has been filed on 07/09/2023 after due date and the same could not be revised.
8. Now, the situation is that the assessee in spite of knowing that incorrect income and incorrect claim of TDS has been filed in the income tax return by the tax consultant, but there is no mechanism for revising it. Due to the provisions of the income tax Act which do not provide any mechanism to revise the return after a particular time period, this situation has arisen. Now, on one hand, department cannot treat the return as invalid because it has been filed validly by the assessee and there being wrong claim of TDS made in the return, and on the other hand, the assessee is facing hardship due to mistake advertently or inadvertently committed by the tax consultant. The assessee has also filed a police complaint on 15/01/2025 (copy of the same is placed at page Nos. 93 to 106 of the paper book) which indicates that the assessee has been subjected to face the alleged tax liability due to punching of wrong figures and details in the income tax return by the tax consultant. At this juncture, I take note of the Article 265 of the Constitution of India which states that no tax shall be levied or collected except by authority of law. This fundamental principle ensures that taxes can only be imposed and collected if there is a specific law enacted by the appropriate legislative authority allowing such actions. The article sees that taxation is not arbitrary and is backed by legislation passed by either Parliament or state legislatures, depending on the subject matter. The article serves as a check against unauthorized taxation reinforcing the principle that all fiscal impositions must have legal backing. In the light of the Article 265 of the Indian Constitution, I note that in the instant case, the contentions of the assessee are correct and the income of the assessee is not the income as stated in the income tax return and the assessee is been heavily burdened for the extra tax liability on the income not earned by him. Merely because there is no mechanism to revise such return, the assessee should not be penalized.
9. Under these given facts and circumstances, I am of the considered view that the matter needs to be restored to the learned Jurisdictional Assessing Officer (JAO), who shall either provide a window to the assessee to file correct return of income or in alternative provide opportunity to the assessee to file the correct computation of income along with relevant details and documents. The JAO shall examine these details and carryout necessary investigation and then assess correct income of the assessee. Accordingly, the matter is restored to the file of JAO for denovo assessment to be carried-out strictly as per the directions given herein above. The effective grounds of appeal raised by the assessee are allowed for statistical purposes.
10. In the result, appeal of the Assessee is allowed for statistical purposes.