When AIS, SFT, TDS and the ITR Do Not Align: Law, Reasoning, and Correct Closure
In recent assessment cycles, the Income Tax Department’s compliance ecosystem has decisively shifted from scrutiny-based selection to data-driven nudging. Compliance Portal notices—particularly under High Value Transactions and allied e-Campaigns—are neither assessment orders nor show-cause notices. They are system-generated reconciliation alerts, triggered when the Department’s consolidated data (AIS, SFT, Form 26AS, TDS returns and third-party reporting) does not align with the manner in which income is presented in the return of income.
One of the most frequent—and technically misunderstood—triggers is commission income offered under “Income from Other Sources” (IFOS) while the reporting entity or system algorithm perceives the receipts as business-linked.
This note sets out a legally defensible, professionally accepted, and practically effective framework for responding to such notices—across assessment years—without panic, over-correction, or avoidable litigation exposure.
The Nature of a Compliance Portal Notice — First Principles
A Compliance Portal notice is not an allegation.
It is a request for reconciliation.
At this stage, the Department is not examining tax evasion; it is examining data consistency. The obligation on the taxpayer is not to litigate, but to explain or regularise.
Three realities must be kept distinct:
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The portal operates on limited, standardised response options.
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The law operates on substantive classification principles under the Income-tax Act, 1961.
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The professional role is to bridge this gap without conceding an incorrect legal position.
Why These Notices Are Issued — The Real Trigger
Such notices typically arise due to one or more of the following system signals:
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TDS under sections 194H, 194D or 194J, suggesting an agency or commission relationship
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SFT / Form 61A reporting of receipts beyond threshold limits
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Payer-side tagging of payments as “business commission”
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AIS auto-categorisation differing from the head selected in the ITR
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Pattern-based AI flags (frequency, amount, payer consistency)
The system does not decide the correct head of income.
It merely detects inconsistency.
The Legal Axis — How Commission Income Is Classified
The Act does not classify income based on payer perception, TDS section, or system tagging. Classification depends on substance, continuity, organisation, and intent.
Commission income may lawfully fall under:
Profits and Gains of Business or Profession — Section 28
Where the activity reflects regularity, organised effort, continuity, and a profit-oriented business structure.
Income from Other Sources — Section 56
Where the receipt is incidental, occasional, supplementary, or devoid of business organisation.
A compliance notice does not mean the classification is wrong.
It means the system seeks to understand why your classification differs from its inference.
The Compliance Portal Constraint — and the Correct Response
The Compliance Portal offers limited dropdown responses that do not capture nuanced legal classification. This is a design limitation, not a legal one.
In professional practice, the most defensible response in classification mismatch cases is:
“Information is not fully correct”
This option allows explanation without denying the transaction or conceding error.
The remarks should clearly record:
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That the amount is fully disclosed
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That the classification difference is intentional and law-based
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The factual basis for the chosen head of income
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Whether a revised return has been filed, or whether the original return is being relied upon
This approach preserves the legal position while satisfying the reconciliation objective of the portal.
Revised Return — When It Is Mandatory and When It Is Strategic
A revised return under section 139(5) is not compulsory in every mismatch case.
It becomes essential where:
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The original classification is demonstrably incorrect
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The selected ITR form becomes invalid due to reclassification
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Deductions, audit exposure, or computation materially change
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The taxpayer seeks to close the issue conclusively at the return level
Where IFOS classification is legally correct, a reasoned portal response alone may suffice.
Where reclassification is required, a revised return is the strongest statutory cure, far superior to narrative explanation alone.
Multi-Year Perspective — Why Similar Notices Appear Across Years
Similar notices may arise for different years because:
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AIS and SFT data are refreshed retrospectively
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Payers revise TDS returns belatedly
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System risk parameters evolve year-on-year
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Classification inconsistencies compound over time
Each assessment year must be examined independently.
Consistency is desirable—but correctness overrides consistency.
Scenario-Based Professional Action
Commission is truly incidental
Explanation on the portal with documentary support; revised return only if disclosure error exists.
Commission has gradually become regular
Reclassification through revised return is advisable to prevent future escalation.
Payer classification is aggressive but facts are passive
Maintain IFOS position with evidence; do not reclassify merely to match payer tagging.
Reclassification increases compliance burden
Correctness must prevail over convenience. Defensive compliance today prevents adversarial proceedings tomorrow.
Documentation That Actually Matters
At the compliance stage, quality outweighs volume. The most persuasive records are:
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Bank statements showing receipt pattern
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Payer correspondence or agreements
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TDS certificates and AIS extracts
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Prior-year treatment demonstrating continuity—or its absence
What the Department Usually Does Next
In most cases, a reasoned response or revised return results in silent closure.
If the matter progresses, it usually moves to:
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Information request under section 142(1)
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Verification of deductions (if PGBP is accepted)
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Rarely, reassessment—typically where facts contradict explanation
A proactive, well-documented compliance-stage response significantly reduces escalation risk.
The objective is not merely to “clear the notice”, but to align tax records with economic reality in a legally defensible manner.
Overreaction creates compliance risk.
Underreaction invites scrutiny.
Measured correction—supported by law and facts—closes the matter.
Closing Note
Compliance Portal mismatch notices are a structural feature of modern tax administration, not a signal of wrongdoing. When handled with legal clarity, factual discipline, and procedural maturity, they remain exactly what they are intended to be: course-correction prompts, not litigation triggers.
This framework reflects best professional practice and applies equally to commission income mismatches, AIS variances, SFT discrepancies, and similar compliance alerts across assessment years.
