MUMBAI: Hundreds of taxpayers are believed to have received notices from the income tax (I-T) department whose systems are unable to process the tax returns correctly. This has led to bloated tax liability on capital gains and denial of credit for tax deducted at source (TDS), among other discrepancies.Senior accountants have drawn the attention of Pramod Chandra Mody, chairman of Central Board of Direct Taxes (CBDT), regarding the errors at the department’s Central Processing Zone (CPC) in Bengaluru, sources told ET.After years, Indians will be taxed on their long-term capital gains at 10% if such gains are more than Rs 1 lakh. In grandfathering the tax rule, the government had pegged the price of a stock on February 1, 2018, or the actual purchase price, whichever is higher, as the cost in computing the gain. For instance, if a stock is purchased at Rs 500 in 2016 and sold at Rs 900 in March 2019, while the share closed at Rs 800 on February 1, 2018, the gain is Rs 100, not Rs 400. The department’s software system is failing to compute the long-term capital gains ( LTCG ), particularly gains involving multiple stocks.Another error in LTCG computation relates to shares acquired between February 1, 2018, and March 31, 2018.For such trades, the whole sale consideration is considered by the system as gain. For instance, if shares allotted in an IPO after February 1, 2018 for Rs 2,000 are sold for Rs 4,000 on March 15, 2018, the system is considering the entire Rs 4,000 as LTCG.“The I-T return form and the computer system processing the returns are not compatible with the provisions of the law as well as the legal positions on some of the matters. Not only is this causing hardship, but the objective to minimise litigation may also suffer a setback,” said senior chartered accountant Dilip Lakhani.In July, many tax payers had faced problems while filing their returns as the I-T department tinkered with the software for I-T return forms on the e-filing website. This forced the government to extend the July 31 deadline for filing of returns.According to Ameet Patel, chairman, Taxation Committee, of the Bombay Chartered Accountants' Society, “Returns filed by thousands of tax payers using different versions of the government utility at different points of time are being processed by the CPC and to their shock, they are getting notices from CPC stating that the CPC proposes to make adjustments to the long-term capital gains shown in the return. This is happening in many cases, causing unnecessary hardship.”Many companies which filed their returns in November are grappling with another issue. “They are getting notices stating that the return is defective because tax audit report has not been filed. This is happening despite the fact that tax audit report have been filed in time,” said Patel.The Bombay Chartered Accountants’ Society is pursuing the matter with the apex authority CBDT.Such cases relate to matters on transfer pricing which arises when there are international transactions between the assesse company and its associates.However, the biggest problem, said Patel, revolves around processing I-T return for assessment year 2019-20 where there is longterm capital gains from sale of listed shares and units of equity-oriented mutual funds.