Income tax return for FY 2019-20 has been filed by everyone and now Income tax department is processing all the returns and issuing various notices to everyone.
One such notice is defective notice u/s 139(9) of the Income tax act. Let’s understand what does notice u/s 139(9) mean:
“Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return:
Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.
For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :—
(a) the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in;
(b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return;
(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report;
(c) the return is accompanied by proof of—
(i) the tax, if any, claimed to have been deducted or collected at source and the advance tax and tax on self-assessment, if any, claimed to have been paid :
Provided that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted or collected at source, the return of income shall not be regarded as defective if—
(a) a certificate for tax deducted or collected was not furnished under section 203 or section 206C to the person furnishing his return of income;
(b) such certificate is produced within a period of two years specified under sub-section (14) of section 155;
(ii) the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974);
(d) where regular books of account are maintained by the assessee, the return is accompanied by copies of—
(i) manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance sheet;
(ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals;
(e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor’s report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section;
(f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.”
Now the salaried employee’s are receiving defective return notice for the below mentioned reason:
The gross receipts/income, on which tax has been deducted, are to be entered in the schedules under the respective heads of income, as they are assessable in the year in which the credit for the TDS is being claimed.
If the receipts as per Form 26AS is not offered in the year in which the TDS credit is claimed, then the claim of TDS will be restricted on the basis of proportion of the receipts offered in the return of income to the receipts in Form 26AS, as per Rule 37BA of the IT Rules. The correction of this defect is to be made by filing the corrected return by offering all the receipts as per form 26AS or by claiming the TDS proportionately as above.
Please note that if the defect is not addressed with-in the time allowed, return will be processed by restricting the credit for TDS proportionately.”
There are two issues in the above defective notice:
1. The reason mentioned in the above notice is not covered under the reasons provided under 139(9) and hence such notice should not have been issued as assessee is claiming TDS only for the amount which is available in Form 26AS.
2. The second most important reason for which the notice being issued is incorrect even if we assume that the issue is covered in above section is that, any company while filing it’s Form 24Q quarterly mentions the amount of salary credited or paid i.e. salary before any exemption or standard deduction.
Whereas, the employee shows gross salary in his return of income and then he claims exemption u/s 10 i.e. HRA etc and standard deduction and reaches to taxable salary.
Now the system set up by CPC compares the salary paid or credit i.e. salary income before exemption and standard deduction with net taxable salary i.e. salary after exemption and deduction.
Hence, the checkpoints or method incorporated by CPC (central processing centre) for processing the Income tax return is incorrect and this could lead to many litigations and harassment to normal salaried employees.
In such case CPC should change it’s checkpoint and compare salary paid or credited as per Form 26AS with gross salary i.e. salary before standard deduction and exemption as filled by the assessee in Income tax return.
Now, what an employee who receives such notice should do?
The employee should reply to the notice within 15 days by disagreeing to the defect first and sighting the reason as mentioned above or if you are unsure about the reason for defect you can book a consultation with our expert and discuss the issue with expert over phone call.