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Updated Return (ITR): Who Cannot File?

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Who Cannot File an Updated Income Tax Return?

In the ever-evolving landscape of income tax regulations, the concept of an updated income tax return has emerged to encourage voluntary compliance among taxpayers who have overlooked their tax obligations. Introduced as part of the Budget 2022, the notion of filing an updated return has brought opportunities and limitations to the forefront. This article delves into the intricacies of updated income tax returns, exploring who can and cannot avail themselves of this avenue.

The foundation of the updated return lies within Section 139(8) of the Income Tax Act, 1961, which stipulates that taxpayers can file an updated return within specified timelines. The primary objective of this provision is to foster a sense of responsibility and voluntary adherence to tax laws, particularly among individuals who have fallen behind in filing income tax returns (ITRs) over the years.

At its core, the concept permits taxpayers to file an updated return regardless of whether they have previously filed an original, belated, or revised ITR or have not filed an ITR for a particular year. This move towards inclusivity aims to rectify past omissions and streamline the taxation process.

Exceptions to the Rule: When Updated Returns Cannot Be Filed

While the updated return seems like a flexible solution, certain scenarios arise where filing such a return is not permissible. These exceptions are pivotal to understanding the nuanced landscape of updated ITRs:

  1. Updated Return Resulting in Loss: If the updated return reflects a loss, it cannot be filed. This safeguard ensures that the provision is not exploited to report artificial losses for taxation benefits.
  2. Decrease in Tax Liability: When an updated return leads to a decrease in total tax liability compared to the original ITR, it cannot be submitted. This prevents taxpayers from manipulating their liabilities.
  3. Increased Refund Amount: If filing an updated return results in a higher tax refund than stated in the original ITR, the provision does not apply. This curbs undue claims for larger refunds.
  4. Claiming Refund Without Original ITR: This option is not available if a taxpayer aims to claim a tax refund through an updated return for a year when the original ITR has not been filed. The provision discourages late or missing filings solely for refund claims.
  5. Disqualifications from Filing Updated Return
    • Previously Filed Updated Return: If an updated return has already been submitted for a particular assessment year, filing another one is prohibited.
    • Initiation of Search or Requisition: When a search is initiated, or assets, documents, or books of account are requisitioned, filing an updated return is restricted. This prevents tampering during investigative procedures.
    • Survey Conducted: Except for TDS/TCS verification surveys, a taxpayer cannot file an updated return if a survey has been conducted.
    • Seized Assets Belonging to Second Person: If assets belonging to a second person are seized or requisitioned, and notice is issued to that person, filing an updated return is off the table.
    • Seized Documents About Second Person: If documents seized relate to a second person and notice is served, the second person cannot file an updated return.
    • Ongoing or Completed Assessment Proceedings: If assessment, reassessment, re-computation, or revision proceedings are pending or concluded for a relevant assessment year, an updated return cannot be filed.
    • Information under Various Acts: If the Assessing Officer possesses information under specific acts like the Smugglers and Foreign Exchange Manipulators Act, the Prohibition of Benami Property Transactions Act, etc., the taxpayer is disqualified from filing an updated return.
    • Double Taxation Avoidance Agreements: If the information has been received under double taxation avoidance agreements and communicated before filing the updated return, filing is prohibited.
    • Initiation of Prosecution Proceedings: The taxpayer is ineligible to file if prosecution proceedings have been instigated for a relevant assessment year before the updated return filing.
    • Class of Persons Notified by CBDT: If the taxpayer falls within a class of persons notified by the Central Board of Direct Taxes (CBDT), filing an updated return is not allowed. Currently, no such class has been announced.

Conclusion

The concept of filing an updated income tax return, introduced in Budget 2022, has illuminated a new path for taxpayers to rectify past discrepancies and align with taxation norms. While the provision encourages voluntary compliance, it is accompanied by several exceptions and limitations to curb potential misuse. Understanding the scenarios where filing an updated return is prohibited is crucial for taxpayers to navigate the complex landscape of income tax regulations effectively. As taxation evolves, staying informed about such provisions becomes paramount for all responsible taxpayers.

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