KSCAA Flags CPC Errors in ITR Processing, Calls for Corrective Measures
The Karnataka State Chartered Accountants Association (KSCAA) has raised concerns over significant errors in the processing of Income Tax Returns (ITRs) by the Centralised Processing Centre (CPC). In a representation to the Central Board of Direct Taxes (CBDT), KSCAA highlighted several issues affecting taxpayers, including incorrect late fee penalties, misclassification of income, and discrepancies in tax liability calculations.
Key Issues Identified by KSCAA
- Incorrect Tax Regime Applied
CPC erroneously calculated tax liability under the old tax regime, despite taxpayers opting for the new tax regime while filing their returns.
- Misinterpreted Due Dates
Taxpayers, especially partners of audited firms who filed their ITRs by the extended deadline (November 15, 2024), received late fee notices under Section 234F for filing beyond July 31, 2024.
- Interest Calculations Errors
CPC incorrectly calculated interest under Sections 234A and 234B, inflating tax liabilities. The lack of detailed breakdowns in notices further complicates taxpayer verification.
- Late Fees for Revised Returns
Taxpayers who filed revised returns under Section 139(5) were penalized under Section 234F, despite filing original returns within the due date.
- Proportionate TDS Credit Denied
TDS credit was disallowed on non-income components like GST and reimbursements, causing taxpayers to lose credit they rightfully deserve.
- Defective ITR Notices
Notices were issued incorrectly based on the TDS section classification, leading to inappropriate suggestions for income categorization (e.g., “Business and Profession” instead of “Other Sources”).
- Incorrect TDS Classification in Form 26AS
Notices were issued even after taxpayers corrected erroneous TDS classifications in Form 26AS.
KSCAA Recommendations
- Rectify Defective ITR Notices
Ensure income is classified based on its true nature and not solely on TDS sections.
Process updated Form 26AS data accurately and allow full TDS credit reflected therein.
- Enhanced Validation Checks
Implement robust validation protocols to respect chosen tax regimes, identify extended due dates, and prevent unwarranted interest and penalty demands.
Provide detailed interest breakdowns under Sections 234A and 234B for transparency.
- Remove Late Fees for Revised Returns
Ensure no penalties under Section 234F for revised returns if the original returns were filed on time.
- TDS Credit Allowance
Allow full TDS credit during return processing, deferring any disputes to assessments or appeals.
Impact on Taxpayers
These issues have caused undue stress and financial burden on taxpayers, undermining the effectiveness of the automated processing system. KSCAA’s representation seeks to restore fairness, transparency, and efficiency in ITR processing, ensuring taxpayers are not penalized for procedural errors beyond their control.
This appeal to the CBDT emphasizes the need for proactive measures to avoid repetitive errors and foster trust in the tax administration system.
