Income Tax Department Admits Mistake in Issuing Defective ITR Notices

The Income Tax Department had acknowledged an error in sending defective ITR notices to taxpayers who have correctly filed their returns. The acknowledgment has relieved the pressure of many taxpayers who have received such notices but raised a question on whether the notices were reliable in the first place. Some of these taxpayers, in trying to comply with such notices, filed revised ITRs, which now increase their complexities of tax filing.

What Went Wrong With the Notices?

On November 29, 2024, the Income Tax Department issued notices stating there were issues with turnover limits and missing financial documents. The notices claimed that the taxpayers had filed wrong returns. However, a week later, on December 5, 2024, the department explained that the notices were sent by mistake.

The department issued a statement stating that the wrong return notice had been mistakenly sent to taxpayers. Even though their gross receipts stood above Rs 2 crore, issues related to the income offered under Section 44AD were mentioned. Additionally, it was noted that the balance sheet and profit and loss account had not been filed, and books of accounts were not audited. The department directed taxpayers to disregard the mistaken notice and notified them that returns for the Assessment Year 2024-25 shall be processed on the basis of the correct filing. Further, the taxpayers were sought to be kept waiting for further communication as regards the processing results.

Understanding Section 44AD Rules

Section 44AD a tax rule allows small businesses to declare 6% or 8% of their total income as profit without needing a detailed audit. This option is available for businesses with turnover up to Rs 2 crore, as long as cash transactions (however) do not exceed 5%. If turnover exceeds Rs 2 crore, stricter rules apply; the business must obtain a tax audit.

The Income Tax Department’s explanation was appreciated by most experts, who said that taxpayers had filed their returns correctly according to Section 44AD. The notice was a mistake and had caused unnecessary confusion and worry, but the department’s acknowledgment of the error helped reassure taxpayers.

Impact on Revised ITR Filings

Although the department’s recall of the notices gave relief to many, it caused problems for some taxpayers. As a result of the defective notices, some taxpayers filed revised ITRs to rectify any perceived errors. Experts have cautioned that even when the original notices were mistaken, revised ITRs supersede the original filings. This may create problems in the processing of these revised returns.

Taxpayers who filed amended returns following the erroneous notices are likely to be affected, as the amended returns may be processed in a way that is inconsistent with their original filings. This might lead to further confusion and delays for taxpayers who made an effort to resolve this issue promptly.

Income Tax Department admitted this mistake in sending the defective ITR notices. Therefore, that clarification and relief have now reached those taxpayers who actually filed correct returns. On the same hand, however, at the same time, such incidents emphasize the importance of a proper and reliable tax notice. Although the recall of the notices was a positive step, subsequent issues faced by taxpayers while filing revised returns show how complex the process is. Taxpayers should wait for the further communication of the department and also make sure their returns are processed properly.