Wrong Selection of ITR 7 instead of ITR 5 is Mere Procedural Error: ITAT remits matter to Reassess Income as per ITR 5 [Read Order]

TheDelhi Bench of the Income Tax AppellateTribunal (ITAT)has held that the mere filing of an income tax return in an incorrect form cannot be a ground to disallow genuine expenditure. The Bench also observed that procedural lapses should not override substantive rights of the assessee.

New Surya Public School is a society registered under the Societies Registration Act, 1860, which runs an educational institution in Delhi. It filed an appeal against the order passed by the Commissioner of Income Tax (Appeals), NFAC, for the assessment year 2018-19.

The assessee had filed an ITR declaring taxable income of ₹1.53 lakh. While processing, the Centralised Processing Centre, Bengaluru, disallowed expenditure amounting to ₹62.71 lakh incurred towards running the school. The disallowance was made solely on the ground that the assessee had filed its return in Form ITR-7 instead of Form ITR-5.

The appeal filed before the CIT(A) was dismissed, with the appellate authority upholding the findings of CPC because the assessee had selected an incorrect return form. Aggrieved by this decision, the assessee approached the Tribunal.

Before the Tribunal, it was contended that the selection of ITR-7 instead of ITR-5 was a bona fide procedural error and that the assessee had neither claimed exemption under Sections 11 or 12 of the Act nor concealed any particulars of income or expenditure.

The Tribunal, comprising S. Rifaur Rahman (Accountant Member) and Raj Kumar Chauhan (Judicial Member), observed that it is a settled principle that procedural defects cannot defeat substantive claims, particularly when no prejudice is caused to the Revenue.

The Bench noted that an assessee cannot be denied deduction of legitimate expenditure merely due to a technical error in selecting the return form.

Placing reliance on earlier coordinate bench decisions, including Care Foundation Village v. ITO (Exemption), the Tribunal held that income tax authorities are not expected to penalise assessees for bona fide mistakes.

Accordingly, the Tribunal set aside the order of the CIT(A) and remitted the matter back to the Assessing Officer with a direction to reassess the income of the assessee as per Form ITR-5. The assessee was also directed to submit financial statements and relevant data in the correct return format.

The appeal was thus allowed for statistical purposes.

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