ITR-3 Filed Under New Tax Regime but CPC Processed Under Old Regime: Legal Interpretation & Key Case Laws

Many taxpayers filing ITR-3 have recently faced an unexpected issue: even though they selected the New Tax Regime (Section 115BAC) while filing their return, the CPC processed the ITR under the Old Tax Regime, resulting in higher tax demands.

Let’s understand why this happens and how courts have addressed similar situations.

1. Why CPC Applies the Old Regime Even When the ITR Shows the New Regime

Under Section 115BAC, individuals and HUFs having business or professional income must file a formal declaration (Form 10-IE / 10-IEA) on or before the due date under Section 139(1) to opt for the New Regime. If the form is missing, late, or mismatched, CPC automatically defaults to the Old Regime, regardless of what the taxpayer selected in the ITR.

Courts have clarified that substance should prevail over technicality:

• In Harbans Singh v. AO, CPC (ITAT Amritsar), the Tribunal held that filing Form 10-IE is directory, not fatal. If the form is available before the AO during processing even if filed late the New Regime cannot be denied solely for procedural delay.
• Similarly, Krishna Gopal Diwvedi HUF v. CPC (ITAT Mumbai) held that once Form 10-IE is filed and not withdrawn, CPC cannot ignore it and revert to the Old Regime, even if earlier ITRs were belated or mismatched.

The law is strict but courts have adopted a liberal interpretation when the taxpayer’s intention is clear.

2. Common Grounds That Trigger the ITR-CPC Mismatch

A. Belated ITR Filed Under New Regime

Belated returns cannot opt for the New Regime for business taxpayers. CPC therefore processes such returns under the Old Regime by default. However, case law indicates that if the form was available before processing even if ITR was belated authorities must still examine the substantive intent:

In Rajeev Pandurang Kamat v. ITO (ITAT Pune), the New Regime was allowed despite a late Form 10-IE because the declaration existed before CPC processed the return. The Tribunal rejected CPC’s rigid approach. This supports relief where intention was clear and the only error was delay.

B. Form 10-IE / 10-IEA Filed After Due Date

This is the most common reason for CPC applying the Old Regime. Yet tribunals consistently hold that delay alone cannot defeat substantive rights:

• Akshay Devendra Birari v. DCIT,CPC (2024 TAXSCAN (ITAT) 799) held that filing Form 10-IE even on the same day the CPC processed the return is sufficient. Delay is a procedural defect, not a bar to the concessional tax regime.
• In Annie Joseph v. ITO (ITAT Cochin), the Tribunal ruled that the taxpayer’s choice of New Regime in the ITR must be respected even if Form 10-IE was filed late, as the delay was merely technical.
• Pran Panda v. ITO (2024 TAXSCAN (ITAT) 1448) reinforced that Section 115BAC relief cannot be denied solely for delayed filing of Form 10-IE when intention is unambiguous. Together, these cases show that procedural non-compliance does not automatically invalidate the taxpayer’s legitimate claim.

C. Technical or Data Mismatch Between Form 10-IEA and ITR

• Errors in Assessment Year, business codes, name spelling, or business category often lead CPC to disregard the form.
• Tribunals have emphasized that minor discrepancies should not override clear intent: In Krishna Gopal Diwvedi HUF, the ITAT observed that even if there are mismatches between years, as long as the form is on record and not withdrawn, tax authorities must recognise the taxpayer’s opted regime.
• Courts, therefore, look at the substantive compliance, not minor technical deviations.

D. Portal / System Sync Issues Where Form Exists but CPC Doesn't Pick It Up

In some instances, Form 10-IEA is duly filed, but due to system sync delays, CPC processes the return without reading the form.

Judicial reasoning from other concessional-tax-form cases applies here:

The Gujarat High Court in PCIT v. KGY Glass IndustriesPvt. Ltd. (2023 TAXSCAN (HC) 1663) held that portal-related failures should not prejudice the taxpayer, and procedural filings should be treated as directory when intention and substantive compliance are clear. This reasoning has been repeatedly applied by the ITAT in Section 115BAC disputes involving Form 10-IE/IEA.

3. Remedies Available to the Taxpayer

A. If ITR and Form 10-IEA Were Filed on Time

When the taxpayer has complied in time, CPC’s application of the Old Regime is incorrect and can be rectified.

Action steps:

1. Rectification u/s 154 – Choose “Incorrect Tax Regime Applied.”

[Supported by Harbans Singh, Annie Joseph, and Diwvedi HUF, which hold that when the intention is clear and the form exists, CPC must correct the regime]

2. Revised Return u/s 139(5) – If still within the window.

3. Portal Grievance – Upload Form 10-IEA acknowledgment & ITR-V.

[Courts have consistently granted relief in such cases, reaffirming that substance prevails over procedural defects]

B. If ITR or Form 10-IEA Was Filed Late

Legally, late filing usually locks the taxpayer into the Old Regime, and CPC’s action may be correct. However, important judicial exceptions provide relief:

• Birari and Rajeev Kamat allow the New Regime if the form was filed before CPC processing, even if past due date.
• Pran Panda and Annie Joseph emphasize that procedural lapse should not deny a beneficial regime.

Thus, even belated compliance can be defended under case law if the New Regime option was clear and timely in substance, though not always in form.

4. Interpreting “Intention” - A Critical Principle

Interestingly, courts have also addressed the reverse scenario where Form 10-IE was filed earlier but the ITR was ultimately filed under the Old Regime:

• In Akshay Nitin Malu v. ITO (ITAT Pune), the Tribunal held that the taxpayer cannot be forced into the New Regime merely because Form 10-IE was once filed. The actual ITR represents the taxpayer’s final and binding choice.

This principle strengthens the argument that the ITR itself is the clearest expression of intent supporting taxpayers whose ITR opted for the New Regime but CPC ignored it.

Conclusion

The mismatch between ITR-3 selections and CPC processing arises from the statutory requirements tied to Form 10-IE/10-IEA.

However, courts across the country have repeatedly held that form requirements are procedural, substantive intent must prevail, technical delays should not deprive taxpayers of beneficial regimes, and CPC must respect the taxpayer’s clearly expressed choice when the form exists before processing.

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