Mumbai ITAT Restores Case to AO for Tax Exemption U/S 10(25)(ii) Denied Due to Wrong ITR Form

The Mumbai ITAT restored the case to the AO, holding that denying the Section 10(25)(ii) exemption solely because the assessee used the wrong ITR form was only a procedural lapse.

The taxpayer, Tata International Limited Provident Fund, whose income was waived u/s Section 10(25)(ii) of the Act, had filed its income return in Form ITR-7 instead of the correct Form ITR-5. Thereafter, the CPC, while processing the return u/s 143(1), refused the claimed exemption.

The taxpayer claimed before the Commissioner of Income Tax (Appeals)[CIT(A)] that the taxability can not be decided based on the form of return and that filing in the incorrect form was a bona fide mistake. But the CIT(A) said that the return form was important for the accurate disclosure of income and for the proper assessment. He cited that the taxpayer had submitted the returns in Form ITR-7 not only for AY 2022–23 and in earlier years, which strained the claim of a bona fide error.

CIT(A), reliance on the relief granted in AY 2017-18 was lost as the issue of submitting the return in the incorrect form was not analysed in that year. Concluding the same, he kept the order of CPC and dismissed the appeal.

The departmental counsel kept the order of the lower authorities, and the counsel of the taxpayer said that the Commissioner of Income Tax(Appeals) was not accurate in treating the filing of the incorrect form as a serious lapse rather than a genuine procedural mistake. It was indicated that the error was unintentional and that the trust, established in 1980, had always complied with the law.

The two-member bench, including Anikesh Banerjee (Judicial Member) and Prabhash Shanakar (Accountant Member), verified the facts and said that filing the wrong form could not be considered as an intentional or deliberate act, given the taxpayer’s record of compliance.

It was stated that the lapse was a procedural and accidental mistake. The tribunal said that the authorities had not explained. The tribunal determined that the authorities had unjustly denied the genuine claim for exemption due to this error.

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The appellate tribunal, referring to the Apex Court’s decision in Dilip Kumar (2018) 9 SCC, cited the doctrine of compliance, which acknowledges that procedural lapses must not defeat a substantive and rightful claim when the requirements have been fulfilled.

According to the bench, refusing a legitimate exemption shall cause undue hardship and run opposite to the legislative objective. It said that procedural needs must not override the substantive benefits, particularly when the eligibility of the taxpayer u/s 10(25)(ii) was not in dispute.

In the interest of justice, the tribunal remitted the case to the Assessing Officer (AO) with instructions to redo the assessment after getting a corrected income return from the taxpayer. The AO was also required to issue a new order in accordance with the law. The taxpayer was instructed to cooperate throughout the proceedings. Consequently, the appeal was permitted for statistical purposes.