ITR was processed under the old tax regime due to tax consultant's mistake, taxpayer faced Rs 1.23 lakh demand: ITAT Bangalore allowed new tax regime

Mr Shah from Ali Asker Road, Bengaluru, filed his income tax return (ITR) under the new tax regime and declared a total income of Rs 32.55 lakh. Unfortunately, on September 30, 2025, Mr Shah’s consultant mistakenly filed a Form No. 10-IEA, which opted him out of the new tax regime.

This error meant that Shah, who had filed his ITR based on the new tax regime, was now subject to higher taxes under the old tax regime.

In his defence, Mr Shah explained that this mistake was made by his consultant during routine compliance work and didn’t reflect his true intentions. Mr Shah stressed that his ITR clearly indicated his decision to remain in the new tax regime, not the old one.


Sadly, Mr Shah’s worst fears came true as the Centralised Processing Centre (CPC), Bengaluru, processed Shah’s ITR under the old tax regime on January 29, 2026. CPC, Bengaluru said that they relied on Shah’s Form 10-IEA and respected his decision to opt out of the new tax regime and go with the old tax regime.

As a result, Shah now became liable to pay Rs 1.23 lakh extra tax, all because his consultant filed the Form 10-IEA, which opted Shah out of the new tax regime.

The Commissioner of Appeals (CIT A) dismissed Shah’s arguments, prompting him to appeal to ITAT Bangalore. Mr Varun S represented Shah before ITAT Bangalore. On August 17, 2026, he won the case.

How did Shah win this case?

Chartered Accountant Suresh Surana said to ET Wealth Online that Shah clarified that the form 10-IEA had been mistakenly filed by his consultant during routine compliance work and did not reflect his actual intention. Subsequently, on October 24, 2025, he filed his income-tax return computing his entire tax liability under the New Tax Regime under Section 115BAC(1A).

ITAT Bangalore considered Shah's subsequent conduct and the ITR actually filed to be important for determining his genuine choice to remain under the new tax regime.

Surana says that ITAT Bangalore observed that the income-tax return (ITR) is the statutory document through which a taxpayer declares income and computes the tax payable and the regime.

Since Shah’s ITR filed after Form 10-IEA submission clearly and consistently computed his tax under the New Tax Regime, the ITAT Bangalore held that this subsequent and unequivocal choice could not be ignored merely because an inconsistent form had been filed earlier due to an explained inadvertent error.

ITAT Bangalore also considered it significant that Shah had not attempted to obtain benefits under both regimes. He had not claimed deductions, exemptions or allowances available exclusively under the Old Tax Regime while simultaneously seeking the lower tax rates under the New Tax Regime.

The dispute was therefore confined to identifying which regime genuinely represented Shah's choice rather than a case of seeking inconsistent tax benefits.

In reaching its conclusion, the ITAT Bangalore followed the Pune Tribunal's decision in Akshay Nitin Malu v. ITO [2025] 173 taxmann.com 684.

In that case, the situation was that the the taxpayer had initially filed Form 10-IE opting for the New Tax Regime but subsequently filed the return under the Old Tax Regime. The Pune ITAT held that the choice reflected in the subsequently filed return should be respected. Surana says that the Bangalore ITAT held that the same principle applied to Shah’s case even though the direction of the regime change was opposite.

Surana says: “Thus, a bona fide procedural mistake in filing the prescribed option form should not, in the particular facts of the case, result in Shah’s being subjected to a tax regime contrary to the clear choice reflected in the subsequently filed ITR.”

According to Surana, the ITAT Bangalore also clarified that digital verification of Form 10-IEA proves that the form was filed and authenticated, but does not necessarily establish that it represented the taxpayer's final and conscious choice where his subsequent ITR consistently demonstrates the contrary.

Accordingly, Shah won because the ITAT Bangalore accepted the New Tax Regime reflected in the subsequently filed ITR as representing his actual choice, particularly when the earlier Form 10-IEA was explained as an inadvertent filing and no inconsistent tax benefit had been claimed.

The CIT(A)'s order was therefore set aside, and the AO/CPC was directed to process the return under Section 115BAC(1A) and recompute the tax liability accordingly.

The consequential demand arising solely from application of the Old Tax Regime was directed to be deleted, subject to such recomputation.

Form 10-IEA is no longer needed from Tax Year 2026-2027 onwards

Since April 1, 2026 you don’t need to file Form 10-IEA and this is applicable from Tax Year 2026-2027 onwards.

According to Surana, under Section 202(4) of the Income Tax Act, 2025, read together with Rule 136 of the Income Tax Rules, 2026, the option to choose the Old Tax Regime or withdraw such option must be exercised directly in the income-tax return. However, the restriction applicable to taxpayers having business or professional income continues as aforementioned.