Wrong ITR form costs trader ₹26.69 lakh in tax demand—ITAT gives major relief

A small trader’s error in choosing the wrong income tax return form led to a tax demand of ₹26.69 lakh after the tax department treated commission receipts already included in his business income as additional income. The Income Tax Appellate Tribunal (ITAT), Chandigarh, has now deleted the entire addition.

The case concerned assessment year 2017-18 and involved commission earned by the taxpayer from selling mobile recharges and SIM cards. While declaring his business income, the taxpayer had filed ITR-4 instead of the applicable ITR-3.

How the ₹26.69 lakh double-taxation issue arose

The dispute started when the Centralized Processing Centre (CPC) processed the taxpayer’s return under Section 143(1) of the Income Tax Act.

According to Form 26AS, the taxpayer had gross commission receipts of ₹26,69,319. The amount had been reported by telecom operators after deducting tax at source under Section 194H.

The tax authorities subsequently treated the entire ₹26.69 lakh reflected in Form 26AS as additional income, without determining whether those receipts had already been included while calculating the business income disclosed in the return.

The taxpayer contended that the commission receipts appearing in Form 26AS were the very same receipts from which his business income had been calculated. Consequently, adding the full amount again meant that the same income was effectively brought to tax twice.

Rectification plea rejected, CIT(A) also upholds addition

The taxpayer first approached the CPC by filing a rectification application under Section 154. However, the application was rejected.

He then challenged the adjustment before the Commissioner of Income Tax (Appeals). The CIT(A) also upheld the addition, with the proceedings focusing significantly on the fact that the taxpayer had used an incorrect ITR form.

The appellate authority observed that ITR-3, rather than ITR-4, should have been filed. It also noted that the taxpayer had not submitted a revised return before the CIT(A) to substantiate his contention.

However, there was no specific finding that the ₹26.69 lakh appearing in Form 26AS represented income earned in addition to the business income that had already been declared by the taxpayer.

ITAT says wrong ITR form cannot establish undisclosed income

The Chandigarh ITAT took a different view of the matter. It noted that the taxpayer was not seeking a fresh deduction or making a new claim. His argument was that income already offered for taxation was being added once again.

During the proceedings before the Tribunal, the taxpayer submitted a corrected return along with supporting documents showing that the commission receipts reported in Form 26AS had already been included in the income disclosed in his original return.

The ITAT considered this evidence significant and held that simply filing an incorrect ITR form could not by itself establish that the corresponding income was undisclosed.

The Tribunal accordingly set aside the CIT(A)'s order and deleted the entire addition of ₹26,69,319.

The ruling reinforces an important tax principle: a procedural mistake in filing the appropriate return form cannot, by itself, justify taxing income twice when the taxpayer can establish that the receipts were already included in the income originally offered to tax.