Income tax is the hardest thing to understand and it gets more difficult to understand for an individual when he gets a notice. He gets into the scariest of his nightmares. And when you are unable to respond to it well in time, in can be threatening. Failure in responding to this notice, will give your worst fears a place in reality. It becomes utmost important to know the consequences of not responding relating to such notices in order to avoid heavy fines and penalties and to comply with IT department’s demands
Notice u/s 142(1) is usually served to call upon documents and details from the taxpayers and to take a particular case under assessment when a case is being selected for scrutiny. This notice can be sent to an assessee before or after assessment of his tax return.
Under section 142(2A) notice is given for special audit of books of accounts.
Section 131 of the Income Tax Act empowers the income tax authorities to conduct enquiries. When any preceding is pending, the Assessing Officer (A.O.) is empowered to:
This type of notice is issued in the case where the Assessing Officer is of the opinion that the assessee has not disclosed his/her income accurately or is hiding his/her true income. The notices are issued for the purpose of making any enquiry or investigation in order to determine the true income of the assessee.
In case the assessee fails to respond or is unable to produce the documents required, a penalty of up to ₹ 10,000 can be levied under section 272(1)(c).
Notice under this section is given to the taxpayers or related parties for the purpose of seeking certain details of transaction undertaken during the year under consideration. However, even if there are no transactions undertaken, the person who receives such notice from the income tax department is required to give reply stating his factual position. The person cannot ignore such notices as it may lead to fines and penalties and further actions by the issuer of the notice.
If the above mentioned notice seeking transaction details is not complied with or not responded well within the specified time, it can lead to a penalty of ₹ 10,000 under section 272A of the Income Tax Act.
An income tax notice under this section can be received in the following cases:
Such notices shall be responded within a time limit of 15 days of the date of intimation, the non-compliance of which may lead to the following consequences.
If the assessee fails to respond and rectify the return within 15 days of such intimation, then the return shall be deemed as invalid and the income tax department treats it as the tax return not been filed at all.
There are three types of intimations under section 143(1):
If the notice is not responded well in time, it may delay the tax refund or tax department may send you a notice of demand under section 156 and may also initiate recovery proceeding after 30 days if any additional taxes is payable by the assessee.
A notice issued under section 143(2) of Income Tax Act is the second chance from the Tax Department, who upon receiving the tax return finds minor or major discrepancies in either under-reporting of income or over-reporting of losses. Recipients of this notice may find themselves having to appear for a hearing to defend themselves with supporting proof. Failure to take this notice seriously will result in hefty penalties and in severe instances imprisonment as stated.
The income Tax department sends this notice in order to seek a response to the errors/ incorrect claims/ inconsistencies which attract adjustment(s) under Section 143(1)(a) of the Income Tax Act. It tends to seek the clarification to the mismatch between the income and deduction when compared to Form 16, Form 16A or Form 26AS. The assessee receiving such kind of notices are required to respond within a period of 30 days from the date of intimation.
If the assessee fails to respond within the specified time, the return is processed after making necessary adjustment(s) under section 143(1)(a) without providing any further opportunities in this matter.
Notice under this section serves as an intimation to initiate proceedings under Section 147. The Assessing Officer believes that some of the incomes of the assessee had escaped assessment. Reassessment can be asked under this notice.
Not responding to a notice under section 148 can lead to the following consequences:
Under this section the Assessing Officer has sufficient causes to believe that there is an outstanding demand from the previous assessment year, and the Assessing Officer proposes to adjust against the current year’s tax refund due. As per section 245, if the income tax department wishes to adjust any refund due to a taxpayer against any past outstanding demand in his/her name, then the taxpayer must be notified before the adjustment between the demand and the refund due, so that he/she has the chance to explain why such an adjustment is not justified and that why the demand needs to be rectified if any error has taken place in raising the demand.
If an assessee fails to respond or pay the amount demanded under section 245, in such case he shall be liable to interest, penalties and may be prosecution according to chapter XVII-D of the Income Tax Act. The interest levied shall be 1% per month for default in payment under section 220(2).
Receiving a scrutiny notice is never a pleasant experience and failure to respond to it correctly can result in further proceedings or penalties. To ensure any notices you receive are handled with care and attention to detail, consult your personal tax experts at H&R Block India to get instant tax notice assistance.