The Income Tax Department has recalled the defective ITR notices sent to many taxpayers who have correctly filed their income tax returns (ITR). Experts are surprised the tax department has accepted its own mistake in sending the wrong tax notices to the taxpayers. While it’s a relief for taxpayers, the tax department sending defective notices is also concerning. There might be some taxpayers who filed a revised ITR against the tax notice sent by the tax department. This is because not everyone has the time, resources or desire to take up a battle with the government.
Read on to find out what happened and how taxpayers got relief from the tax notice.
What Income Tax Department says about wrong tax notice
The Income Tax Department, on November 29, 2024, sent a tax notice for a defective ITR to multiple taxpayers.
The income tax department on December 5, 2024, said, “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.”
Chartered Accountant Ashish Niraj, Partner of A S N & company, says, “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.”
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Not every taxpayer can opt for the presumptive taxation under Section 44AD.
“A taxpayer can opt for presumptive taxation under section 44AD provided at least 95% of business receipts/payments are not conducted through cash and gross receipts do not exceed Rs 3 crore. Further, he/she is also not required to conduct a tax audit provided the turnover is up to Rs 10 crore. However, if the business transactions in cash exceed 5% of the gross receipts/payments, a taxpayer can opt for Section 44AD if gross receipts do not exceed Rs 2 crore in the financial year and tax audit is also mandatory”, says Mihir Tanna, Associate Director of S.K Patodia & Associates LLP. If section 44AD is opted for then tax audit is not mandatory. Tax audit is mandatory if he/she doesnot agree with 8% of receipts as taxable profit under section 44AD.
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Not all taxpayers got relief from defective tax notice
The relief came when the tax department, on its own, recalled the erroneous tax notice sent for defective ITR. However, this has also worried certain taxpayers who quickly responded to tax notices by filing a revised ITR.
The tax notice for the defective ITR was sent on November 29, 2024. However, the communication about its recall and processing of the original ITR came on December 5, 2024. This was almost 6 days after the tax notice was sent. Chartered Accountants told ET Wealth Online that they have decided to fight the defective ITR notice with the tax department as and when their clients got this notice. However, there can be some other taxpayers who filed a revised ITR in response to this tax notice for defective ITR.
Tanna from SK Patodia says: “Our multiple clients got this same defective notice for ITR. We decided to fight with the department and accordingly replied to this notice. Strangely some of our clients got this notice even though they did not even apply for section 44AD taxation. However, those taxpayers who did not fight against this erroneous notice may lose out now. Their revised ITR filed in response to this erroneous notice may now be taken for processing instead of the original ITR.”
Niraj from A S N agrees with Tanna. He says, “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.”
Source: Income Tax Department
