IT Notice - 10AA and 115BAC

I have recieved following notice from the IT department for AY 2025-26

Certain allowances claimed under Section 10 do not align with the salary bifurcation reported in the ITR. Accordingly, these allowances are been disallowed and added back to the gross salary. Further, since the return of income was not filed within the prescribed due date, the option to opt out of the new tax regime under Section 115BAC(6) could not be exercised. As a result, only those deductions and allowances specifically permitted under Section 115BAC have been considered.

I have following questions -

1. I resigned in Feb'24 and my last day at work was in Apr'24 and I recieved leave encashment in F&F and Form-16 also mentions it. I filed ITR3 and clearly mentioned the exempt leave encashment amount in the Sec 10AA exemption (but not in the salary bifurcation). How should I respond to this notice. I'm not working since then. 
2. I wanted to opt for the new regime and I filed Form 10IEA to enter the new regime. I filed my return on 25th Aug, 2025. I did not understand the latter part of the notice, will they consider me in the older regime or will they by default consider me in the newer regime? 
3. If i respond to the notice and they still come up with the demand - will i need to file the revised return, I have refund due - so ideally any demand should get deducted from that refund?
4. Is there a chance that I disagree with the notice and they will accept and just process it as normal?
5. What is the procedural difference between filing rectification and filing the revised return. When will the need arise of filing a rectification?

This is the first time I got income tax notice and I'll be very grateful if someone can help me on this.