Audit for AOP (TRUST)
This query is : Resolved
17 June 2016
A few of my clients having Pvt trust not registered under Section 12A and not availing the benefit u/s 11 are receiving defective return notices for not getting the books audited as Income Exceeded Max amount not chargeable to tax. As they are pvt trust these provisions are not applicable to them. Please help with the possible solution.
17 June 2016
Actually I wanted to know the possible causes of such defect.
15 July 2024
The issue your clients are facing with receiving defective return notices despite being private trusts not registered under Section 12A and not availing benefits under Section 11 seems to stem from a misunderstanding or misapplication of tax provisions by the income tax department. Here are some possible causes of such defects:
1. **Incorrect Assumption of Applicability**: The income tax department may be mistakenly applying provisions that are meant for charitable or religious trusts (which typically benefit from exemptions under Section 11 and need audit under Section 44AB if income exceeds specified limits). Private trusts, especially those not registered under Section 12A, do not fall under these provisions and are taxed differently.
2. **Automated Scrutiny Process**: Often, defective return notices are generated automatically by the income tax department's systems based on certain criteria or thresholds. If the criteria include thresholds related to charitable trusts (such as income exceeding maximum amount not chargeable to tax for charitable trusts), private trusts might erroneously receive such notices.
3. **Misinterpretation of Income**: There could be a misunderstanding regarding the nature of income earned by the private trusts. Income from private trusts is typically taxed under normal provisions applicable to individuals or entities, depending on the nature of income (business income, capital gains, etc.), and not under the provisions applicable to charitable trusts.
### Possible Solutions:
To resolve this issue, here are steps you can consider:
- **Review Notice**: Carefully review the defective return notice and identify the specific grounds cited for the defect.
- **Prepare Response**: Prepare a response clarifying that the trust is a private trust and not registered under Section 12A, hence provisions related to charitable trusts (such as audit requirements under Section 44AB for income exceeding exemption limits) do not apply.
- **Documentation**: Gather necessary documentation to support the private trust status and details of income declared and taxes paid.
- **Rectification Request**: If the notice was issued due to an automated system error or misinterpretation, you can file a rectification request explaining the correct legal position and providing supporting documents.
- **Consultation**: Consider consulting with a tax professional or a chartered accountant who has experience dealing with private trusts and income tax matters to ensure a proper response and resolution.
By addressing the issue with clarity and providing necessary explanations supported by documentation, you should be able to rectify the defective return notice and clarify the tax treatment applicable to your clients' private trusts.
1. **Incorrect Assumption of Applicability**: The income tax department may be mistakenly applying provisions that are meant for charitable or religious trusts (which typically benefit from exemptions under Section 11 and need audit under Section 44AB if income exceeds specified limits). Private trusts, especially those not registered under Section 12A, do not fall under these provisions and are taxed differently.
2. **Automated Scrutiny Process**: Often, defective return notices are generated automatically by the income tax department's systems based on certain criteria or thresholds. If the criteria include thresholds related to charitable trusts (such as income exceeding maximum amount not chargeable to tax for charitable trusts), private trusts might erroneously receive such notices.
3. **Misinterpretation of Income**: There could be a misunderstanding regarding the nature of income earned by the private trusts. Income from private trusts is typically taxed under normal provisions applicable to individuals or entities, depending on the nature of income (business income, capital gains, etc.), and not under the provisions applicable to charitable trusts.
### Possible Solutions:
To resolve this issue, here are steps you can consider:
- **Review Notice**: Carefully review the defective return notice and identify the specific grounds cited for the defect.
- **Prepare Response**: Prepare a response clarifying that the trust is a private trust and not registered under Section 12A, hence provisions related to charitable trusts (such as audit requirements under Section 44AB for income exceeding exemption limits) do not apply.
- **Documentation**: Gather necessary documentation to support the private trust status and details of income declared and taxes paid.
- **Rectification Request**: If the notice was issued due to an automated system error or misinterpretation, you can file a rectification request explaining the correct legal position and providing supporting documents.
- **Consultation**: Consider consulting with a tax professional or a chartered accountant who has experience dealing with private trusts and income tax matters to ensure a proper response and resolution.
By addressing the issue with clarity and providing necessary explanations supported by documentation, you should be able to rectify the defective return notice and clarify the tax treatment applicable to your clients' private trusts.
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