Income Tax Department Recalls Wrong Tax Notices, No need to worry if you filed ITR correctly
In a surprising move, the Income Tax Department has recalled the defective notices sent to many taxpayers who had correctly filed their income tax returns (ITR). The department admitted to its mistake, sending out wrong tax notices to taxpayers. While this has come as a relief for taxpayers, experts are concerned about the potential impact on those who responded to the erroneous notices.
The issue began on November 29, 2024, when the Income Tax Department issued a notice for a defective ITR to multiple taxpayers. The notice mistakenly stated that taxpayers had filed their returns under Section 44AD, a scheme that applies only to those with gross receipts or turnover of up to Rs 2 crore. However, some taxpayers had gross receipts exceeding this limit and were not required to opt for Section 44AD.
On December 5, 2024, the Income Tax Department issued a clarification, acknowledging the error. The 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. 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 explained, “Taxpayers with gross receipts or turnover not exceeding Rs 2 crore can file ITR under Section 44AD. If the turnover exceeds Rs 2 crore, this scheme is not applicable. The recall of this notice is a relief for taxpayers who had filed their returns correctly.”
Mihir Tanna, Associate Director at S.K Patodia & Associates LLP, further clarified, “A taxpayer can opt for presumptive taxation under Section 44AD if 95% of business receipts are non-cash and gross receipts do not exceed Rs 3 crore. If the gross receipts exceed Rs 2 crore, tax audit is mandatory, and Section 44AD cannot be applied.”
The recall of the defective notice has raised concerns for some taxpayers who quickly filed revised ITRs in response to the erroneous communication. Tanna noted, “Some of our clients received this defective notice despite not applying for Section 44AD. Taxpayers who filed a revised ITR in response to the notice may now face complications, as the revised ITR could be processed instead of the original one.”
Niraj added, “According to tax laws, a revised ITR supersedes the original. However, since the defective notice was the basis for the revised ITR, it may lead to confusion. The department is likely to process the revised ITR, even though the original ITR was correct.”
The recall of the defective notice has provided relief to many taxpayers, but it also highlights the potential challenges faced by those who took immediate action to correct the mistake.
