⚖️ Procedural Error vs. Substantive Right: Wrong ITR Form Cannot Lead to Disallowance of Lawful Expenses

-

Delhi ITAT Remands Case, Ruling that Filing ITR-7 Instead of ITR-5 is a Rectifiable Technical Defect.

In a landmark ruling for educational societies and small institutions, the Delhi ITAT has held that the mere filing of a return in the wrong ITR form cannot defeat an assessee's substantive right to claim lawfully incurred expenditures. The Tribunal emphasized that procedural rules are the "handmaid of justice" and should not be used to recover more than the lawful tax due.

Case Background & The CPC Disallowance

The assessee, New Surya Public School, a society registered under the Societies Registration Act, 1860, was running an educational institution. The dispute arose during the processing of the return for AY 2018-19:

  • The Error: The society inadvertently filed its return using Form ITR-7 (applicable for charitable trusts/exempt entities) instead of Form ITR-5 (applicable for AOPs/BOIs/Societies not claiming exemption).
  • The Result: The Central Processing Centre (CPC) disallowed the entire expenditure incurred towards running the school. The Commissioner (Appeals) dismissed the appeal solely because the "wrong form" was used, ignoring the merits of the expenditure.

ITAT’s Decision: Justice Over Technicality

The Tribunal set aside the lower authorities' orders, providing a clear interpretation of tax compliance vs. statutory rights:

Key Findings by the Bench:

  • Substantive Rights: Procedural defects cannot be allowed to defeat substantive rights. Denying the allowance of expenditure lawfully incurred while running a school is a denial of justice.
  • Lawful Tax Only: Only lawful tax can be recovered by the state. If expenditures are explained and lawful, they must be allowed.
  • Exemption Context: The society was not required to be registered under Section 11 or 12 to claim business expenditures, as it was not seeking those specific exemptions.

The matter has been remanded back to the Assessing Officer (AO) to re-do the assessment. The assessee is directed to submit financial data as per ITR-5, and the AO is tasked with reassessing the income de novo as per law.

Professional Insight: Key Takeaway 💡

This ruling is a reminder that the Income Tax Department's automated processing (CPC) often triggers disallowances based on strict algorithmic parameters (like Form mismatches). However, in appellate forums, substance prevails over form. If your client has used the wrong ITR form, this case serves as a precedent to argue that the error is curable and should not result in the forfeiture of legitimate business deductions.

Case Citation: New Surya Public School vs. ACIT/DCIT [2025] 181 taxmann.com 967 (Delhi - Trib.).

Statutory Reference: Section 57 & Section 143 of the Income-tax Act, 1961.

Comments

Post a Comment

Popular posts from this blog

Partner Remuneration is Business Income: Expenses (Including Depreciation) Allowed

-
Image
Partner Remuneration is Business Income: Expenses (Including Depreciation) Allowed Delhi ITAT Confirms Section 28(v) Classification and Upholds Consistency Rule. The Delhi Income Tax Appellate Tribunal (ITAT) has provided critical clarity for partners of professional firms, confirming that remuneration received is classified as Business Income , not 'Salary'. This classification under Section 28(v) of the Income-tax Act, 1961 , allows the partner to claim legitimate business expenditures against that income. The Dispute: CA Partner's Expense Claim The case involved an assessee, a chartered accountant partner, who received remuneration/salary from his partnership firm (Assessment Year 2018-19). The dispute arose over the treatment of expenses: Assessee's Action: Claimed business-related expenses, including depreciation on a motor car, again...
Read more

Deciphering GSTR-9 Table 8A: The Auto-Population Logic Explained

-
Image
Understanding the ITC Data Flow from GSTR-2B to the Annual Return. Table 8A of GSTR 9 is a crucial component of the Annual Return, as it captures the eligible Input Tax Credit (ITC) details for a specific financial year. This table is entirely auto-populated by the GST system based on the filed returns and statements. Understanding the precise time frame the system uses is essential for reconciling your books with the portal data. What is Table 8A of GSTR 9? Core Function: Table 8A of GSTR 9 for FY 2024-25 capture the details of documents / records pertaining to FY 2024-25 appearing in GSTR 2B . Therefore, this table essentially serves as the system's calculated total of eligible ITC available to the taxpayer as per GSTR-2B for the financial year. How is Table 8A Auto-Populated? The auto-population mechanism follows ...
Read more

Employee Cannot Be Penalized: TDS Credit Allowed Despite Employer's Default

-
Image
Delhi ITAT Upholds Tax Credit Based on Salary Slips, Overruling Form 26AS/Form 16 Denial. A recent ruling by the Delhi Income Tax Appellate Tribunal (ITAT) delivers crucial relief to employees facing denial of Tax Deducted at Source (TDS) credit due to non-compliance by their former employer. The Tribunal confirmed that the Revenue cannot deny tax credit to an employee if the employee can provide substantive evidence (like salary slips) showing that tax was actually deducted from their salary, regardless of the employer's failure to remit the tax or issue Form 16 . Background of the Dispute The Facts: The assessee (an ex-employee of TLPL) received gross salary and had TDS deducted under Section 192 . However, the employer neither provided Form 16 nor remitted the TDS amount to the government account. Disallowance: The assessee...
Read more