Section 139(9) of the Income Tax Act, 1961, outlines the procedure for handling defective returns of income (ROI) and the implications for taxpayers. Understanding the consequences of filing a defective return and the steps to rectify it is crucial to avoid penalties, late fees, and procedural complications. Here’s a detailed explanation of the key aspects, supplemented with illustrative examples.
What Constitutes a Defective Return?
A return is classified as defective if it is incomplete or incorrect in crucial respects, such as:
- Missing key information (e.g., PAN, bank account details, or supporting documents).
- Incomplete schedules in the income tax return form.
- Failure to attach required documents like audit reports or proof of deductions.
- Not complying with the format prescribed by the Income Tax Department.
For instance, a taxpayer might submit a return without attaching the tax audit report (Form 3CA/3CB), which is required for certain categories of taxpayers. This would render the return defective under Section 139(9).
Notification by the Assessing Officer (AO)
When a return is deemed defective, the Assessing Officer (AO) will send an intimation to the taxpayer, highlighting the defect and offering the opportunity to rectify it. This intimation will typically be sent via email or post and must specify the nature of the defect.
The taxpayer is then required to rectify the defect within 15 days from the date of receiving the intimation.
Example 1: Rectifying a Defective Return
- Ashu files his return but forgets to include income from other sources (e.g., interest income) in his ROI. The AO issues an intimation that his return is defective under Section 139(9).
- Ashu is given 15 days to correct the defect, i.e., revise his return and include the missing income information.
- If Ashu corrects the return within 15 days, the return is considered valid, and no further consequences arise.
What Happens If the Defect Is Not Rectified?
If the defect is not rectified within the prescribed time or any extended period (if requested), the return is treated as invalid. An invalid return is regarded as if it was never filed. This can have significant consequences:
- The taxpayer is considered to have failed to file the return, triggering potential penalties and consequences of non-filing.
- The taxpayer must then submit a new return, classified as a belated return, under Section 139(4).
Example 2: Invalid Return and Filing a Belated Return
- Sunita files her ROI but does not rectify a defect pointed out by the AO within the 15-day period. As a result, her return is deemed invalid.
- Sunita now needs to file a new belated return.
- Since this new return is filed after the due date, Sunita is liable for a late fee under Section 234F, which could be up to ₹5,000, depending on her income level and the date of filing.
Filing a Belated Return: Penalties and Late Fees
If the return is treated as invalid, the taxpayer must file a new return, known as a belated return. A belated return carries additional penalties:
- Late filing fees under Section 234F:
- ₹1,000 for taxpayers with income up to ₹5,00,000.
- ₹5,000 for taxpayers with income above ₹5,00,000.
- Interest under Section 234A: Interest may be charged on the unpaid tax due from the original filing deadline until the belated return is filed.
Can Defects Be Corrected After the Deadline?
If a taxpayer rectifies the defect after the 15-day period but before the assessment is completed, the AO has the discretion to condone the delay. This means the AO may still accept the original return as valid, even though the correction was made after the deadline. This offers relief to taxpayers who may miss the initial deadline but act before the assessment is finalized.
Example 3: Rectification After Deadline and Condonation of Delay
- Rahul receives an intimation that his return is defective due to missing information on capital gains. However, Rahul fails to rectify the defect within the 15-day window.
- After realizing his mistake, Rahul corrects the return two months later, before the AO has completed the assessment.
- The AO, using his discretion, decides to condone the delay and treats Rahul’s original return as valid, avoiding the need for a belated return and the associated late fees.
Common Mistakes: Filing a Revised Return Instead of a Belated Return
Sometimes, taxpayers mistakenly file a revised return (under Section 139(5)) instead of a belated return when attempting to correct a defective return. This can lead to procedural issues since revised returns are only valid when the original return was correctly filed within the deadline.
If the return is treated as invalid and the taxpayer files a revised return instead of a belated return, the revised return may not be considered valid, and the taxpayer could face late fees and penalties.
Key Takeaways for Taxpayers:
- Timely Rectification: Ensure defects are corrected within the 15-day period to avoid filing a belated return and incurring penalties.
- Request Extension: If more time is needed, taxpayers can request an extension from the AO.
- Condonation of Delay: Even if the defect is rectified after the deadline, taxpayers should submit the correction before the assessment is complete, as the AO may still condone the delay.
- Careful Filing: Avoid filing a revised return when a belated return is required. Filing the wrong type of return can create unnecessary complications.
Conclusion
Section 139(9) of the Income Tax Act is critical for ensuring that taxpayers submit correct and complete returns. Failing to rectify a defective return within the prescribed time can lead to the return being treated as invalid, triggering late fees and penalties. However, timely rectification, or seeking condonation of delay, can help taxpayers avoid these issues. It’s essential for taxpayers to act promptly, communicate clearly with the tax authorities, and follow the correct procedure when filing returns.
