An individual might get a notice under section 139(9) of the Income Tax Act, 1961 in case his/her income tax
return (ITR) is declared as ‘defective’ by the Assessing Officer (AO). For instance, say you had filed your ITR but the spelling of your name in your PAN card does not match with the name in the ITR form. This will cause your ITR to be classified as defective. Once the ITR has been termed defective, the income tax department will send you notice for the same.
Although any notice from the income tax department might give one a shock, this notice can be easily
rectified. Here is how you can fix the issue related to defective ITR.
What is a defective ITR?
According to Dr Suresh Surana, Founder, RSM India, a tax and audit company, “Notice under section 139(9) may be issued to an individual in case his/her income tax return has been declared as defective by the assessing officer on account of incomplete or inconsistent information.
There could be many reasons why an ITR filed can be tagged as defective by the income tax department. For
Wrong information in AIS: It may so happen that you mistakenly entered the wrong challan number while filing your ITR or you paid your advance tax for the wrong assessment year or maybe your employer filed a wrong TDS return and as a result your Form 26 AS, AIS, TIS auto populated the wrong information and, thus the error. Sometimes it could also happen that the bank deducted the TDS amount had put in a wrong entry in their TDS returns.
Like this, there could be numerous ways you could mistakenly input wrong tax information in your filed ITR. Hence, the best practice would be to always check the challans properly and reconcile your bank statements with the TDS information in your AIS (Annual Information Statement). If you still think that the information in one’s AIS is incorrect, then you may request the tax department to correct it. Otherwise, if the AIS is wrong and you said nothing, it will be assumed that every information in the AIS is correct.
TDS deducted but income not declared: “Mismatch in income and TDS reported in return with details reflected in Form 26AS of the taxpayer is a common reason for treating a return as defective,” said Vijay Bharech from Deloitte Haskin & Sells LLP, a tax, audit and business consulting firm.
He added, “Do keep in mind that TDS being deducted from income but income not being declared would not be considered as concealment of income. Section 143 provides that the taxpayer should be intimated before an adjustment is made on account of income appearing in Form 26AS. However, in practice, following are few instances where tax authorities are treating a filed tax return as defective:
For example, crypto exchanges in India deduct TDS on every sell transaction. But if for any reason someone neither declared this Virtual Digital Assets (VDA) crypto income nor did they file ‘schedule VDA’ while filing their ITR, then the ITR will be termed as defective.
Another example is in case of equity shares. Companies will deduct TDS on dividend payments if they exceed Rs 5,000 in a financial year provided form 15G/H is not submitted. Additionally, all dividends are taxable in the hands of shareholders. So however small the dividend amount may be, one must declare these incomes in their filed ITR.
Tax audit was required but not done: Those who have a business income, must file their income tax audit report by September 30, 2023 for FY 2022-23 (AY 2023-24). “Despite having to do an audit by a qualified CA, if someone does not do it, then the ITR will be tagged as defective. Further, a penalty under Section 271B may be imposed if he fails to get his accounts audited or fails to furnish a report of audit under Section 44AB in Form 3CA and Form 3CB or Form 3CD, as the case may be, by the due date,” said Naveen Wadhwa, deputy general manager (DGM) of Taxmann, a Delhi-based book publishing company..
Partial payment of tax: If the taxpayer has made a partial payment of tax against the net tax liability or the tax payment amount differs from what is shown as tax payable in the tax return, then this could lead to the ITR being termed as defective.
The above list is not exhaustive and there could be other issues too which could lead to an ITR being defective.
How to correct defective ITR?
The individual can either file the income tax return as a fresh or revised return in case the time provided for filing the ITR in a particular assessment year has not lapsed,” said Bharech.
If there is no change in gross total income or deduction claimed (such as section 8OC, 8OD etc) ITR filed (uploaded and verified) as a response to defective notice would be considered as a fresh ITR and would replace the defective return filed earlier. This would mean that original ITR has been replaced in response to defective notice. However, in case an individual wishes to change the gross total income or deduction claimed, one will be required to file a revised ITR. Here an individual will be required to quote the Original ITR number in the revised ITR form,” Bharech added.
Do note, that the time limit for filing a revised return is December 31, 2023 for FY 2022-23 (AY 2023-24). If this time limit has passed, then the taxpayer won’t be able to file a fresh or revised return. The only option remaining at that time would be to respond to the notice. Do note that the income tax laws allow an individual to file updated ITR in certain circumstances.
The Assessing Officer may provide the individual with an opportunity to rectify the defect within 15 days from the date of receiving the notice. However, the Assessing Officer is empowered to extend the time limit if the individua; makes an application for an extension of time,” said Wadhwa.
Now if a taxpayer is unable to respond to the notice, the ITR will be treated as invalid. This would mean that an individual has not filed ITR for that assessment year.
Submitting an ITR in response to a defective ITR notice does not invite any penalties. However, if the individual fails to file a revised return rectifying the defects, the return will be deemed invalid. In such a scenario, penalties may be imposed on the individual for the non-filing of the ITR,” said Wadhwa.
Further, it must be noted that if any additional tax liability is coming due to the rectification of a mistake in the defective ITR, then interest may be levied on the outstanding amount.
For example: say Mr. A had a tax liability of Rs 1 lakh according to his filed income tax returns, but the tax
department thinks he has not disclosed an income for which his tax liability should be Rs 1.2 lakh. If Mr. A accepts this mistake and agrees with his tax liability being Rs 1.2 lakh and not Rs 1 lakh, then he will be needing to file a revised ITR. Now this will result in an additional tax of Rs 20,000 and for this penal interest due to late payment of tax may be levied by the tax department.