Income tax notices, Many taxpayers who successfully completed their income tax returns (ITRs) received defective ITR letters, which the Income Tax Department has recalled. The tax department’s a spot of error in delivering the incorrect tax warnings to taxpayers has shocked experts. Taxpayers are relieved, but it’s also concerning that the tax department is sending inaccurate notices. Some taxpayers may have filed a revised ITR in response to the tax department’s notice. This is due to the fact that not everyone has the time, implies or motivation to fight the government.
What Income Tax Department says about wrong tax notice
On November 29, 2024, several taxpayers received tax notices from the Income Tax Department over a flawed ITR.
On December 5, 2024, the income tax department stated,”A defective return notice was wrongly issued on 29th Nov 2024 stating that income is offered u/s 44AD, even though the gross receipts are more than Rs 2 crore and the balance sheet and profit and loss account have not been filed, and books of accounts are not audited. Kindly ignore the communication in this regard. We regret the above erroneous communication, which was issued, for the return filed for the AY 2024-25. This return is now being taken up for processing. Please await the receipt of intimation for the results of processing.”
Read also:Important Income Tax Penalties under Income Tax Act, 1961
According to chartered accountant , “Taxpayers who have any gross receipts or turnover not exceeding Rs 2 crore can file ITR under section 44AD by opting for it. In other words, if the total turnover or gross receipt of the taxpayer exceeds Rs 2 crore then the scheme of section 44AD cannot be adopted. Under section 44AD, the taxpayer needs to declare 6% or 8% of the gross receipts or turnover as their income. The taxpayer also does not need to file their balance sheet or Profit & Loss statement if opting for an ITR filing under Section 44AD. This communication by the tax department is a relief and solidifies the fact that taxpayers were right and filed a correct ITR.”
Read also: Faceless Income Tax Assessment: How does it work under Income Tax?
Not every taxpayer can opt for the presumptive taxation under Section 44AD.
As long as at least 95% of business transactions and payments are made without cash and gross receipts do not exceed Rs 3 crore, a taxpayer may choose to use section 44AD for presumptive taxes. Additionally, as long as the turnover is less than Rs 10 crore, he or she is exempt from performing a tax audit. However, if cash transactions account for more than 5% of gross receipts or payments, a taxpayer may choose Section 44AD, provided that gross receipts for the financial year do not exceed Rs 2 crore and that a tax audit is also required, according to an expect, A tax audit is not required if section 44AD is chosen. If he or she disagrees that 8% of revenues constitute taxable profit under section 44AD, a tax audit is required.
Not all taxpayers got relief from defective tax notice
When the tax authorities independently recalled the incorrect tax notice delivered for a defective ITR, the relief was felt. Some taxpayers, however, were also concerned about this and promptly filed a corrected ITR in response to tax notices.
On November 29, 2024, the tax notice for the faulty ITR was sent. On December 5, 2024, however, notice was sent regarding the recall and processing of the original ITR. Nearly six days have passed since the tax letter was received. When their clients received the faulty ITR notification, chartered accountants informed that they had made the decision to challenge it with the tax authorities. Other taxpayers, however, might have replied to this tax notice for a defective ITR by filing a revised ITR.
Another expert states that : “This exact defective notice for ITR was received by several of our clients. We responded to this notice in accordance with our decision to dispute with the agency. strangely, several of our clients received this letter despite never having applied for section 44AD taxes. Taxpayers who skipped over this false notice, however, can now lose money. Instead of processing their original ITR, their revised ITR submitted in response to this erroneous notice may now be processed.
Read also: New Income Tax Rates & existing Income Tax Rates : Quick comparison
The experts agrees “According to income tax laws, the revised ITR will supersede the original ITR. However, in this case, the defective notice against which this revised ITR was filed in response was itself defective. So, I think the tax department will process the revised ITR. Had the taxpayer done nothing or decided to fight against the defective notice, the original ITR would have been processed as the department recalled the defective notice a few days later.”
According to an another expert, “Recently, defective return notices were issued by the Income tax department to the taxpayers on 29 November 2024, stating that income is offered under Section 44AD of the Income-tax Act, 1961 even though the gross receipts offered by the taxpayer is more than INR 2 Crore and the taxpayer has not furnished balance sheet, and profit and loss account. Thereafter, on 5 December 2024, the Income tax department recalled all the notices stating that the notices were issued erroneously. Since there was a gap of 6 days for such communication, there may be a situation where taxpayers may have filed a return of income against the defective notices issued. In cases where a return of income is filed by the taxpayer between 29 November and 5 December (with or without rectifying the defect), against the defective notices issued, then it will get processed and an intimation order under Section 143(1) of the Income-tax Act, 1961 would be passed by the Income tax department. However, it is important to note that there is no such limit for filing the revised return of income by the taxpayer. Accordingly, in case any taxpayer wants to file the revised return for incorporating any changes in the original return filed for FY 2023-24, then the last date for filing such a revised return is 31 December 2024. The last revised return of income filed by the taxpayer would be treated as a corrected return for issuing an intimation order under Section 143(1) of the IT Act, 1961.”
A Chartered Accountant says: “We all know that the Income Tax Department and CPC has began using AI based softwares to prevent revenue leakages in various instances and hence have been issuing notices for defective ITR under section 139(9) for past 2-3 years where prima facie mismatch or error exists in the ITR filed by taxpayers.
Read also: 10 Important Income Tax Form under Income Tax Act, 1961, One must know
As recently as 29th November 2024, the Income Tax Department had sent wrong and illogical defective notices to many assessees – pointing out the error that assessee had offered presumptive income under section 44AD of the Act but in reality, the business books of almost all such assessees were audited and ITR-3 was duly filed by submitting the tax audit reports and filling Schedule-BS & Schedule-PL in the same ITR. Bulk intimation orders stating ‘Defective ITR’ had been sent but all such Defective Notices are false and not based on correct data.
Fearing the worst, many taxpayers have already made revisions to their ITRs or looked for experts to do so in the hopes that Defective Notices will be removed and the updated ITR will be processed in accordance with the Income Tax Law.
However, it appears that the CPC and Income Tax Department have finally acknowledged their mistake and have emailed and texted all of the assessees to whom Defective Return Notices for the 44AD issue were given via their e-Campaign program.
Do not be concerned if you have filed a Revised ITR. If the previous Defective Notices were just for the mentioned error, your amended ITR will be processed without any issues. A updated ITR takes the place of the original ITR after it is filed in accordance with Section 139(5). The updated return becomes the most recent and legitimate return for consideration, even if the defective notice was inaccurate. The most recent return filed is processed by the Income Tax Department.
Therefore, unless specifically rejected for good reason, the updated ITR will be considered for approval”.
Read also: FAQs on Income Tax Audit under section 44AB of Income Tax Act, 1961
Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon.
Also, www.babatax.com and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.
For Advertising with us-
- Mail us at [email protected]
- Whatsapp us at +91-7024984925
