Taxpayers Receive Incorrect Income Tax Notice On Claiming Deductions Under Section 80P: Report

An income tax notice is typically issued to a taxpayer for a variety of reasons, including failure to file their tax return on time, submitting it erroneously, claiming an inaccurate tax refund, and many more. However, a recent occurrence claims that many taxpayers were sent notice for claiming deductions they weren't even eligible to claim. A Moneycontrol report claims that tax notices given to taxpayers in Gujarat and Maharashtra under Section 143 (1) have inquired as to the legitimacy of their Section 80 P deduction claims.

In accordance with Section 80 P, cooperative societies are eligible for deductions of Rs 15,000-20,000 when determining their total income if they get income from banking or credit facilities, agricultural activities and products, or a cottage industry.

"Incorrect notices regarding proposed adjustments under Section 143 (1) (a) are being sent for claiming Section 80 P deductions. But we haven't claimed these deductions for our clients as they aren't eligible to claim them. These are sent not for returns filed by cooperative societies, but individual income tax returns," informed Ahmedabad-based chartered accountant Raju Shah to Moneycontrol.

In the income tax notices, it was indicated that deductions under Section 80 P could not be granted or approved for the assessment year 2023-2024 and that individuals had 15 days to respond to the emailed notices.

"It is an additional burden for both individuals and tax professionals as we do not claim any fee from the client for what seems to be purely a system-driven error but needs attention," Shah informed to Moneycontrol.

Paras Savla, a partner at KPB & Associates, told to Moneycontrol that, "If you do not respond to the notice of adjustment under Section 143 (1), then there could be suo moto adjustment of the said deductions against any refund due to you. Apart from reduction in refund, you could also be asked to bear taxes along with interest and penalty even though it is an error in the system."

"There are so many notices that need to be addressed even as audits for other taxpayers are under way. Clients are unhappy with us as despite doing a thorough job of filing timely, accurate returns, they have received a notice. We would approach the income tax department by Saturday, September 2, 2023," said a member of the Karnataka State Tax Practitioners Association to Moneycontrol.

"Many high net worth individuals have received scrutiny notices for assessment year 2022-23. These are linked to individuals who have claimed several deductions, which are alerted by the artificial intelligence software. The system detects if certain deductions are prima facie not possible," told Savla to Moneycontrol.