Income Tax Department Regrets Issuing Wrong Notices to Taxpayers: Know the Details

The Income Tax Department has recalled faulty ITR notices sent to many taxpayers who filed their income tax returns (ITRs) correctly. Experts are surprised that the tax department admitted its own mistake in sending wrong tax notices to taxpayers. While this is a relief for taxpayers, the IRS issuing faulty notices is also a concern. Some taxpayers may have filed a revised ITR against the tax notice sent by the tax department. Indeed, not everyone has the time, resources or desire to engage in a battle against the government.

Read on to find out what happened and how taxpayers got relief from the tax notice.

What the tax service said about an incorrect tax notice

The Income Tax Department issued a tax notice for defective ITR to several taxpayers on November 29, 2024.

On December 5, 2024, the Income Tax Department said: “A defective return notice was wrongly issued on November 29, 2024, stating that income is offered at 44AD, even though the gross receipts are more than Rs 2 crore and that the balance sheet and Profit and loss account has not been filed and the books of accounts are not audited. Please ignore communication in this regard. We regret the above erroneous communication, which was issued, for the declaration filed. AY 2024-25. This declaration is now being processed. Please wait until the information is received to know the treatment results.

Chartered Accountant Ashish Niraj, Partner, ASN & company, says, “Taxpayers whose gross receipts or turnover does not exceed Rs 2 crore can file an RTI under section 44AD by opting for this option . In other words, if the total turnover or gross turnover of If the taxpayer exceeds Rs 2 crore, the scheme under section 44AD cannot be adopted. Under section 44AD, the taxpayer must declare 6% or 8% of the gross receipts or turnover. like their income. The taxpayer also does not need to file his or her balance sheet or income statement if he or she opts for filing of ITR under Section 44AD. This communication from the Internal Revenue Service is a relief and reinforces that the taxpayers were right and filed a report. correct the RTI.”

Not all taxpayers can opt for flat rate taxation under section 44AD.

“A taxpayer can opt for presumptive taxation under section 44AD provided that at least 95% of the business receipts/payments are not made in cash and the gross receipts do not exceed Rs 3 crore. In addition, there is no obligation to carry out a tax audit either. provided that the turnover reaches Rs 10 crore. However, if the cash business transactions exceed 5% of the gross receipts/payments, a taxpayer can opt for section 44AD if the gross receipts do not exceed. Rs 2 crore during the financial year and tax audit is also mandatory,” says Mihir Tanna, managing partner, SK Patodia & Associates LLP. If section 44AD is opted for, tax audit is not mandatory. The audit tax is mandatory if it does not agree with 8% of receipts as taxable profit under section 44AD.

Not all taxpayers benefited from relief for faulty tax notices

Relief came when the tax department voluntarily recalled the erroneous tax notice sent for faulty ITR. However, this also worried some taxpayers who promptly responded to the tax notices by filing a revised ITR.

The tax notice for the defective ITR was sent on November 29, 2024. However, the communication regarding the recall and processing of the original ITR came on December 5, 2024, almost 6 days after it was sent of the tax notice. The chartered accountants told ET Wealth Online that they decided to fight the faulty ITR notice with the tax department as and when their clients received the notice. However, there may be other taxpayers who have filed a revised ITR in response to this defective ITR tax notice.

Tanna from SK Patodia says, “Our multiple clients have received the same faulty notice for ITR. We decided to fight with the ministry and responded accordingly to this notice. Strangely, some of our clients have received this notice even though they have not even requested section 44AD. However, taxpayers who did not fight against this erroneous advice could now lose out. Their revised ITR filed in response to this erroneous notice can now be processed instead of the original ITR.

ASN’s Niraj agrees with Tanna. It states, “As per 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. I therefore thinks that the tax department will process the revised ITR Had the taxpayer done nothing or decided to fight the defective notice, the original ITR would have been processed since the department recalled the defective notice a few days later.

Source: Income Tax Department