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Know more about Income Tax Notices

Choose which notice you received

142(1) - Inquiry before assessment

When notice is served under section 142(1)?

  • Where taxpayer has not filed the return of income within allowed time limit
    • The assessing officer may issue notice under section 142(1) for asking him or her to file the return of income.
    • Such return of income may be in his individual capacity or in representative capacity (nominee in case of deceased person).
  • Where the taxpayer has filed the return of income
    • The Assessing Officer may require the taxpayer to produce the documents or records or account which he may feel necessary for the purpose of making assessment of income.
    • The assessing Officer may also require any such information in writing which may be included in any statements attached or submitted along with return of income.

Impact of non-compliance

  • Taxpayer may face best judgement assessment or Ex parte assessment
  • Taxpayer is liable for penalty under section 271(1)(b) for Rs.10000 and also for prosecution which may extend up to 1 year (with or without fine).

How to deal with notice under section 142(1)?

  • Where you have not filed return, the notice may require you to file the same. In such case, you need to file the return within time limit as specified in the notice.
  • Where you have liability of tax payable, you will be required to pay such tax payable.
  • Where you have filed the return, the notice may require any additional details as reported in your return of income or any information with respect to supporting information as submitted along with your return.
  • This notice may ask such information in writing or you may have to attend in person or through any representative before Assessing Officer.

Section 143 (2) –Notice for Scrutiny Assessment

When notice is issued?

  • Where the assessing officer has a reason to believe that the taxpayer has
    • Understated the income or
    • Has computed excessive loss or
    • Has underpaid the tax
  • He is empowered to issue notice for scrutiny assessment under section 143 (3). Such notice shall require the taxpayer to produce the evidence for substantiating his claim as per return of income.

Time period for notice issuance

  • Such notice should be served within 6 months from the end of the financial year in which return of income is filed. However, scrutiny assessment has to be completed within 2 years from the end of relevant assessment year.

How does the department select the cases for scrutiny?

  • Limited scrutiny (selected under Computer Aided Scrutiny Selection) – which is based on information collected from AIR
  • Complete scrutiny
    • Assessments with respect to survey under section 133A
    • Assessments in search and seizure cases
    • Cases selected by Computer Aided Scrutiny Selection (CASS)
    • Any other cases as per criteria set by the department
  • Manual selection which may include
    • Cases where return is not filed
    • Under reporting of income
    • Mismatch of TDS credit claimed in return and in 26AS
    • Non reporting of interest on savings and fixed deposits accounts
    • Huge refund claim
    • High value transactions etc.

How to deal with it?

  • Read the notice and check whether PAN, address, assessing officer and circle/ ward etc. to ascertain that the notice pertains you.
  • Check the assessment and financial year and find out whether the discrepancies as stated in the notice actually exist by matching your return filed with the notice.
  • Also contact financial advisor or CA as soon as possible. For this always note down as to when you received it, so that if any delay can be condoned by the officer.
  • If you have the supporting documents or records which can substantiate your claim of loss or expenses or can support your income returned is true, then you should take a copy and reply to the notice on the basis of such evidence.
  • You can reply to the notice, however it is better if your tax advisor handles the case, if you are not sure.

Section 143 (1) - letter of intimation

As name suggests this is just letter intimating the tax position of the assessee. This letter is auto generated by the system and is sent in any one circumstances as below.

  • Where the computation of tax renders tax payable by the assesse after giving effect to taxes and interest paid/li>
  • Where the computation of tax rendered tax refundable to the assesse after giving effect to taxes and interest paid
  • Where adjustments made as per section 143 (1) have resulted in increasing or decreasing the loss as claimed by the assesse and no tax is payable by or refundable to the assesse.

How to deal with it?

Generally, this notice or intimation will come in the format of tabulated data between two columns – one for data as returned by the taxpayer and another for tax computation by the department (system calculated) under section 143 (1).

  • Find out whether your personal details are correct and the intimation pertains to you. Also assessment year is very important as this is the year for which you need to look for the return of income filed by you.
  • Where you find that all the fields in the intimation are matching with your return of income for the particular year and there is no tax payable or tax refundable, then you can relax. There is no need to do anything. You can just assume this as an acknowledgement from the department.
  • Where the tax computation as under section 143 (1) by the system renders tax payable and you agree with the same, then you need to make payment of tax and revise the return or just submit payment proof.
  • Where the tax computation as by the system under section 143 (1) renders tax payable by disallowing any TDS claim or tax paid challan, then you may disagree with the same. In such a case, you should file rectification request under section 154 (1) by logging online to income tax website.
  • Where the intimation gives out tax refundable, then just be happy to accept it.

Section 148 - income escaping assessment

Income escaping assessment is assessed or reassessed under section 147 and notice for the same is sent under section 148. Where the assessing officer has reason to believe that the income has escaped the assessment or reassessment then he may assess or reassess the income under 147. Following are the situations where the income will be deemed to be have been escaped.

  • Where no return has been filed even if the taxable income is above threshold
  • Where return has been filed, but assessment is not made, but the assessing officer notices that the assesse has underreported income or overstated the loss/ deductions etc.
  • Where the taxpayer has not filed report under section 92E in respect of international transaction
  • Where any person has any financial interest or asset outside India
  • Where the assessment has been made but,
    • Income has been underreported
    • Taxable income charged at lower rates than it should have been
    • Excessive relief has been claimed
    • Excessive loss or deduction or depreciation or any other allowance has been calculated.

How to deal with this notice?

  • Verify whether the notice pertains to you by checking the personal details like PAN, address etc. Also look at assessment year for which you have received the notice.
  • If you have received notice due to non-filing of return, then you have to file the return and submit the proof. If you have already filed the return, then you can submit copy of return filed.
  • If you have already filed the return but have received notice under section 148, then you can ask the assessing officer reasons for reopening your case. Same applies where the assessment or reassessment has already been carried out.
  • The taxpayer can place objections to such reasons recorded for reopening the case for assessment or reassessment. These objections should typically be substantiated by supporting documents or records or accounts etc.
  • The assessing officer may either consider the objections and if satisfied he may set aside the notice under section 148.
  • However, where the assessment officer disposes off the objections so raised by the taxpayer, then the taxpayer has two option
    • Either file a writ petition in high court against assessing officer’s stance or,
    • Taxpayer can participate in the proceedings and continue substantiating his stance.

The option can be afforded only after discussing with your tax advisor.

Section 156 - Notice on demand

Notice of demand under section 156 is served where any tax, interest, penalty, fine or any other sum payable as a result of any order passed under the Act and such notice will specify the sum payable by the taxpayer.

For the purpose of this section 156, intimation as under section 143 (1) (letter of intimation), under section 200A (1) (amount payable by the tax deductor) and under section 206CB(1) (as payable by the tax collector).

How to deal with it?

  • First check whether the notice of demand pertains to you by checking the personal details like PAN, circle/ward, address etc. Also check for the assessment year for which demand is issued.
  • If you agree with the demand so stated, then you are required to pay such dues which may be in nature of tax, interest, penalty, fine or any other sum. Such tax payment has to be done within 30 days of the date of notice or intimation of demand. You will have to log in to income tax website with your user id and click on e file. Select respond to outstanding tax demand. There are 3 options where you would click demand is correct and proceed for payment.
  • If you disagree with demand partially, you click on demand is partially correct. It will allow to record reasons as to why the demand is partially incorrect and will require you to pay correct amount as per you. You will also need to fill in additional details like particulars of demand paid, rectification order details (if any), details of appeal (if any) etc. to support your reasons for disagreement.
  • If you disagree with demand totally, then you will have to furnish reasons for such disagreement. Keep checking the demand position. If there is no response then contact your jurisdictional officer.

Section 139 (9) - Defective Return

An income tax return is considered to be defective return if the taxpayer misses or omits particular details or does not submit supporting documents or accounts. Such circumstances are mentioned as below.

  • Where the taxpayers miss out on filling out some personal details like PAN, address, or challan for tax paid etc.
  • Where the taxpayer claims credit for TDS deducted but does not provide details with respect to TDS like TAN of deductor, name of the deductor, TDS deducted etc.
  • Where the taxpayer does not furnish details of tax paid as self-assessment tax or advance tax.
  • Where the tax along with interest has not been paid before the return is filed by the taxpayer.
  • Where the taxpayer has not paid tax on interest on bank fixed deposits or savings account.
  • In case of a profession or business, the taxpayer does not attach or furnish profits and loss account and the balance sheet along with the return of income.
  • Where the taxpayer fills out wrong ITR etc.

How to deal with it?

  • Verify that the notice or communication for defective return pertains to you by confirming the details like PAN, circle, ward etc.
  • Check the assessment year for which the department considers the return as defective.
  • Respond to the notice by rectifying the defect within 15 days from the date of such intimation. In case you receive the notice late or for any reason, you are unable to rectify and revise the return within such prescribed period, then you can apply for time extension from the assessing officer. You can do this by uploading your Notice above!
  • If you fail to rectify and revise the return of income within stipulated period or such extended period, then such defective return will be considered to be invalid return and you will be deemed to have not furnished the return for the relevant year.
  • However, if you revise the return after due date but before the assessment is done, then the assessing officer is empowered to condone such delay. In this case, your deductions, tax deductions carry forward of loss etc. will be waived off.

245 - Set of Refunds Against Tax Remaining Payable

The assessing officer, Deputy Commissioner (appeals), Commissioner (Appeals), or Commissioner of Chief Commissioner are empowered to adjust that any refundable amount against any tax or interest payable by such person, instead of paying such refund. However, such set off can take place only after intimation in writing is provided to the taxpayer.

How to deal with it?

  • First verify that the intimation pertains to you by confirming your PAN, address etc. Also check the assessment year for which such intimation is sent to you.
  • You have to match and cross reference the return for the year or years as mentioned in the intimation to ascertain whether you are liable to pay tax.
  • You shall also look whether you have disputed any tax demand in past or whether your rectification of return has not been processed, causing you to receive such intimation for tax payable.
  • Log in to income tax website with your user id and click on outstanding tax demand.
  • It will give you 3 options.
  • If you agree with the demand, then It department will just adjust the amount refundable against such amount payable as determined.
  • If you disagree with the demand partially or wholly, then you have to furnish the reasons for such disagreement. Such situations may be where the department has omitted to consider the tax credit of tax deducted and claimed by you in return if income with proper supporting documents.
  • Where the department agrees to your stance on disagreement, it will not proceed to adjust your refund against tax payable.
  • However, if you are not conversant with such procedures or not sure how to reply, it is always better to consult experienced advisor.