Defective Income Tax Return and its reasons

Defective Income Tax Return:
Filing of Income Tax Return every year is the compliance every person must undertake if he falls within the specified category of Income Tax. In India, every person who is liable to file Income Tax Return faces the challenge of correctly filing the return and not getting any notices or scrutiny form Income Tax Department. A Defective return is a one which has errors, omissions, or inconsistencies that prevent income tax department from completing the processing of return. Mistakes, omission of information or instances like entering data into incorrect ITR Forms will make a return defective. As per section 139(9) of the Income Tax Act, 1961, when a return is found defective, the A.O. gives you a period of 15 days to correct the mistake.

Why does a return become defective?
Assessing Officer while processing a return will consider following matters to decide whether a return is defective:

  • Incomplete Income Tax Return :

If all the details which are required to be reported or entered in the return are omitted or if mandatory annexures, statements or schedules are not entered then the return becomes defective.

  • Tax Information mismatch:

If all the taxes are paid like TDS, Self assessment or Advance tax but their details are not mentioned in the ITR then, the return becomes defective.

  • TDS Information mismatch:

When either TDS is deducted or any other type of tax is paid but corresponding income is not offered for tax in ITR.

  • Books of accounts not maintained:

When mandatory books of accounts are not maintained as per the act.

  • Mandatory information not entered:

All the mandatory provisions required to be fulfilled are omitted or incomplete compliance is done.

For e.g. Taxpayer having income under the head “Profits and gains of Business or Profession” but has not filled Balance Sheet and Profit and Loss Account.

  • Tax Audit report filling not done:

In case of audit provisions, if the concerned audit report is not submitted within time or an incomplete audit report is submitted then return may become defective.

  • Cost-Audit Compliance:

The assessee is required to conduct a cost audit as per mandatory provisions, but fails to provide detailed information of the same.

  • Name and other information mismatch:

When the name mentioned in the ITR does not match with the records in the PAN databse.

  • Presumptive Taxation related issues:

In ITR 4, the profit percentage as mentioned in the provisions are to be maintained. This means if the profit percentage is shown at less than 6 % or 8 % as required, then the return becomes defective.

How to Respond to Defective Return Notice u/s 139(9)?
Upon receipt of a defective tax return notice, assessee must respond within 15 days to A.O. In following ways he must respond to the notice:

  • By rectifying or revising the income tax return
  • By applying for extension to revise or rectify the income tax return.

Failure to do so will result in levying of interest, penalty, disallowance of exemptions or deductions etc. This will ultimately result in becoming the return invalid.

Receiving a notice for defective income tax return is not a worrying factor as one gets enough time and opportunity to correct the mistakes however, correct reporting while filing ITR is a more appropriate approach. In taxbase, we have adequate tools implemented to guide the users where chances of getting a defective return are minimized if all the information entered is correct and in appropriate manner. Before submitting the ITR if any errors are pertaining  in it, then taxbase will notify the user of probable outcome of defective return. Also, in case of any receipt of defective return, it shows the guide to correctly respond to it.

About Author:

CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

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