This time for the FY 2024-25, IT Department has implemented stricter AI-based model to verify ITRs, particularly those claiming high or 100% refunds.
Processing only occurs after checking, invalid claims halt it. Even if ITR processed by CPC, it does not confirm that everything in the return is correct or fully accepted.
ITR can be forwarded to Assessing Officer if anything looks doubtful or requires deeper verification for further review.
AI-Driven Scrutiny and High Refund Claims
Case 1: Arrears Salary Relief Error
Salary income was Rs. 14 Lakh, arrear received Rs. 7 Lakh, relief u/s 89 Rs. 1,20,000, tax paid only Rs. 3,500. Everything was Ok. No wrong allowance claimed, no deduction 80C to 80U claimed, New Tax Regime filed, nor full refund claimed. Proper ITR-2 was filed showing winning income also.
So what is the reason for not processing ITR?
The reason was there is an error in Filing Relief Form-89.
As per Form 89, Total Income Shown for Calculation of Arrear of Salary:
FY 2016-17: Rs. 1,20,000
FY 2017-18: Rs. 1,50,000
FY 2018-19: Rs. 1,80,000
FY 2019-20: Rs. 1,40,000
But actual ITR filed for previous years:
FY 2016-17: ITR Not Filed
FY 2017-18: Rs. 3,50,000
FY 2018-19: Rs. 4,25,000
FY 2019-20: Rs. 3,75,000
Due to mismatch in income figures entered in Form 10E/Relief Form 89 do not match the actual income of previous years. CPC cannot process the ITR, and processing is stopped until the error in Form 10E/Relief 89 is corrected.
Case 2: Commission Income Misfiled Under Section 44AD
A person filed ITR-3 showing income under 44AD Rs.22 lakh turnover,profit Rs.5 lakh and claimed a refund of Rs.1.6 lakh.But the income is commission income and TDS was deducted u/s 194H for commission of past years.
Why the ITR/refund is not allowed?
- Section 44AD cannot be used for commission income.
- Past years TDS cannot be claimed in the current year.
- Commission income requires proper books of accounts, not presumptive income.
- Notice received because turnover shown is above Rs.20 lakh as per GST
Suggestion
- You must file the ITR for the correct past year, and then apply for Section 119 order from the Commissioner to allow the refund.
- After approval under 119, you can claim the refund, but you must provide expense bills; otherwise, the department will treat it as 100% profit.
Case 3: Wrong ITR Form Despite Share Market Income
Taxpayer ITR-1 despite having share market income, which must be reported in ITR-2/ITR-3.
Consequences
- Initial processing may happen, but later faceless assessment/notice arrives.
- You must submit all documents such as bank statements, demat details, capital-gain statements, P&L, etc.
- Any unexplained transactions can create tax and penalty issues.
Other Cases: New vs Old Regime Mix-ups
New regime filers claiming old regime deductions such as HRA, 80C, 80D,tuition, Sukanya, foreign allowance.
These deductions are not allowed, so their ITR becomes invalid or high-risk, especially when refunds are large.
Know more about - Actual Reasons Behind ITR Refund Delay
What happens if mistakes remain?
- ITR processing gets delayed or stopped.
- You may get notices asking for documents.
- After December 31, corrections will attract penalty + interest.
- One mistake may trigger scrutiny for previous years too.
What to do before 31 Dec 2025?
- Revise your ITR if you claimed anything which are not allowed.
- Match your income with AIS/TDS, correct regime rules, and past ITRs.
- Only claim genuine deductions.
- Do not rely on refunds-AI checks will catch mismatches.
So, if you find any mistake revise your ITR before deadline to avoid escalation.
CAclubindia
