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How to Respond to Income Tax Notices?

Last Update Date : October 05, 2018

how to respond to income tax notices

Surprises are always exciting. But certain surprises leave you stunned. Tax notice is one such gift box which invites anxiety and tension. Don’t worry! Don’t Panic! And stay calm. Not every tax notice will be upsetting. Find out how a tax notice shall be responded well within the time. Read what to do on receipt of different tax notices under this comprehensive guide.

What to do When you Receive an Income Tax notice?

An encounter with the Income Tax Department is usually dealt with stress because most of the people are unable to understand what it actually entails. It is always advisable to keep calm and read the communication with due diligence. It is important to respond to an Income Tax notice as is done with any legal notice.

Following are the points to be kept in mind in case of receipt of an Income Tax notice.

  • Don’t panic, don’t be carefree: In case an assessee encounters a notice, he/she should not panic and calmly try to understand what it entails and what is it asking for. Also, it is equally important to not be carefree and ignorant as it may lead to heavy fines and penalties.

 

  • Check the basics: It is important to verify the essentials mentioned on the notice as sometimes it may not be in your name and you may not be the right person to receive it. The basics to be checked are:
    • Is it really in your name?
    • Is the PAN number correctly mentioned?
    • Which assessment year is it meant for?
    • Details of the AO (Assessing Officer)
    • Document Identification Number
    • Date of issue of the notice
    • Date of receipt of notice

 

  • Figure out the discrepancy: It is important to patiently read and understand the problem and figure out the reason for issuance of such notice. It may be sometimes difficult to understand a notice. In that case, the individual is required to consult an expert.

 

  • Verify the validity: In order to make sure that the notice issued stands valid, it is necessary to examine the validity of the notice, time of its issuance, relevant assessment year and the section under which it is issued. Any notice which is issued after the time limit specified for assessment stands invalid, but it should be noted that any case can be re-investigated u/s 147 up to 4-6 years after the relevant assessment year has ended.

 

  • Preparing for reply: The assessee shall gather all the documents asked to be furnished by the tax department and other relevant things required by the Assessing Officer. He shall start to prepare the cover letter with a set of all the documents, maybe with the help of a tax expert. He should make two sets of documents and get the second one stamped by the tax department in order to maintain the records and proof for submission.

 

  • Responding well in time: An assessee should always reply on time for any given notice even if he is unable to collect all the relevant evidences required. He can also ask for extension in order to gather the remaining evidences. This will prove the assessee is honest and genuinely trying to comply with the Income Tax laws

 

  • Preserving all the documents: Even after responding to the notice, it is important to preserve it along with the set of documents for future references and as an identity for proof.

 

  • Consulting an expert: Last but the foremost, it is very much necessary to consult an expert in order to draft a strong response to the Income Tax Notice. Also, at times it gets difficult to understand, and under stress, the assessee sends the wrong reply. Hence, reaching out experts becomes integral.

Notice under Section 142(1)

Notice u/s 142(1) is usually served to call upon the documents and the 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 any time during the course of the assessment of his tax return under the act.

How to Respond?

Under section 142(1), if the assessee has not filed the tax return for the relevant tax year the notice can ask him to file the return in the given time or if the return is filed it may require to submit certain documents which an assessee is required to gather and produce before the assessing officer for verification and scrutiny. The Assessing Officer verifies the documents with the return filed and assesses the income so declared by the assessee. If the Assessing Officer is satisfied with the documents so produced before him, he might on his discretion decide not to scrutinise the case further. But at times where the Assessing Officer is not satisfied, he may call upon further scrutiny. The assessee can be levied penalties and fines at subsequent stages if found guilty for any mis-reporting or under-reporting of income.

Notice under Section 142(2A)

Under section 142(2A) notice is given for special audit of books of accounts.

How to Respond?

The assessee, at the discretion of the Assessing officer, might be required to get his books audited by a Chartered Accountant nominated by the Chief Commissioner of Income Tax. The assessee is required to furnish this report in the prescribed form duly signed and verified by the accountant to the Assessing Officer with all the other particulars as may be prescribed by AO. The Assessing Officer shall not direct the assessee to get his books audited unless he has been given a fair chance of being heard.

Notice under Section 131 and Section 131(1A)

Section 131 of the Income Tax Act empowers the income tax authorities to conduct enquiries.
When any proceeding is pending, the Assessing Officer (A.O.) is empowered to:

  • Discovery and inspection;
  • Enforce the attendance of any person, including any officer of a banking company and examine him on oath;
  • Compel the production of books of accounts and other documents; or
  • Issue commissions.

This type of notice is issued in a 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.

How to Respond?

Do not ignore such type of notice. The assessee is supposed to gather the required documents and offer timely submissions. The Assessing Officer may enforce the presence of any person before him which may include any officers of a banking company. They are examined under oath.
The assessee is asked to produce the books of accounts and other related documents. If the I-T department is of the opinion that the assessee holds any black money, it is anyways going to proceed with the investigation.

Notice under Section 133(6)

Notice under the Section 133(6) is given to the taxpayers or related parties to seek 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.

How to Respond?

The assessee is required to draft a suitable reply with the help of an expert and submit all the documents desired by the income tax officer.
Also, if there is a need, the assessee shall accompany an expert and visit the Income Tax office for a better understanding of the case.

Notice under Section 139(9)

An income tax notice under this section can be received in the following cases:

  • If the Income Tax return is filed using the wrong ITR form
  • If the tax due is not entirely paid
  • If the refund has been claimed for the deducted tax, but the relevant income has not been mentioned
  • If there is a mismatch in the name on the form and the PAN card
  • If the taxes are being paid, but the income is not listed.
  • 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.

How to Respond?

  • Upon the receipt of such notice, an assessee should go to the Income Tax e-filing website, and in case the assessee has used wrong ITR form, he should download the right ITR form under the given assessment year.
  • After this, the option “In response to a notice under section 139(9) where the original return filed was a defective return” shall be selected.
  • The reference number and the acknowledgement number needs to be entered, and the form should be filled with required corrections.
  • After entering all the required information, under the tab “e-file” select “e-file in response to notice u/s 139(9)” and upload the form using the credentials given in the notice.

Notice under Section 143(1)

There are three types of intimations under section 143(1):

  • The notice can simply be considered as a preliminary assessment of a return since the Assessing Officer finds it to be matching with his computation.
  • It can be a refund notice where Assessing Officer finds under his calculations that the assessee has paid excessive tax.
  • It can be a payable notice where Assessing Officer finds under his calculations that the assessee has a shortfall in the tax paid. The notice demands the payment of shortfall in tax within 30 days of such intimation.
  • Time limit for the notice to be served is up to 1 year after completion of relevant financial Year in which the return is filed.

How to Respond?

  • If there is no discrepancy found in the returns, the assessee is required to do nothing.
  • If a refund is due, it will be transferred to a primary bank account, the details of which were mentioned at the time of filing the returns. Just recheck the amount of refund as determined in intimation with the amount claimed in return. In case of any discrepancy, you can consider filing a rectification u/s 154.
  • If the intimation shows a payable situation, the assessee is required to pay within 30 days of such intimation. In case of any discrepancy, if the assessee feels that the demand is incorrect, he can consider filing a rectification u/s 154.

Notice under Section 143(2)

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.

How to Respond?

If an individual receives notice under the said section, he shall try to get expert advice. He is required to produce all the income and expense-related documents and other relevant documents which may be supportive in defending the assessee. It is strongly recommended that the assessee should not miss the hearing, the failure to which may result in:

  • ‘Best Judgement Assessment’, which means that the officer will confirm the assessment and determine the tax liability as he sees fit.
  • Penalty under section 271(1)(b), i.e., ₹ 10,000 for each failure.
  • Prosecution under section 276D, which may result in jail extending up to a maximum of one year which may or may not be accompanied with penalty.

Notice under Section 143(1)(a)

The Income Tax Department sends this notice 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 of 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 30 days from the date of intimation.

How to Respond?

If an assessee receives such notice by the tax department to seek certain clarifications, he, after logging in to the tax filing portal, under the “e-Proceeding” section will have to explain the discrepancies between the return and various forms. He will have to upload various required documents in order to prove such discrepancy. Following is the step by step process:

Step 1: Login to www.incometaxindiaefiling.gov.in
Step 2: Go to “e-Proceeding” menu and choose “e-Assessment/Proceedings”.
Step 3: Click on “Prima Facie Adjustment u/s 143(1)(a)”
Step 4: Click on “Reference ID”, a pop-up will appear.
Step 5: Select “Agree” or “Disagree”.
Step 6: If you agree to the modification, you will have to make the relevant adjustments in the return and revise it. You may be required to pay the additional tax if any.
Step 7: If you disagree, a drop-down list will appear. You are required to select a reason for disagreement and also attach the supporting documents for the same.
Step 8: You can also add your remarks in the justification box to support your arguments relating to the income and deductions.
Step 9: Click on “Submit”, the screen will display the acknowledgement number. You are required to keep a note of it.

Notice under Section 148

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.

How to Respond?

  • The return for assessment or re-assessment should be furnished within 30 days of the notice or the time specified in the intimation.
  • If you are filing the return in response to the notice issued u/s 148, make sure you file it after due diligently declaring all your incomes and expenses carefully.
  • If you miss reporting the income correctly, then it can result in huge penalties.
  • Return for the relevant assessment year shall be filed as directed by the Assessing Officer.
  • After filing the return, the AO can start the assessment proceedings to which you have to respond properly. It is advisable to consult a good tax expert who can help you in responding to this notice in the most appropriate way. Remember that any mistake in your response can lead to huge taxes and penalties for you.

Notice under Section 245

Under this section, the Assessing Officer has sufficient causes to believe that there is an outstanding demand from the previous assessment year/years, and the Assessing Officer proposes to adjust it 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 is made. This gives the taxpayer a chance to explain why such an adjustment is not justified.

How to Respond?

  • An assessee needs to submit the proofs in the reply to explain why such adjustment is not justified.
  • These proofs are needed to be submitted online if the assessee has any outstanding demand except in special cases of rare manual scrutiny.
  • It is important to reply according to the notice served well within the time to avoid further penalties.
  • However, understanding how the outstanding demand was raised can be confusing.

[ Read: Consequences of not Responding to an Income Tax Notice ]

It is acceptable that sometimes the best of the experts face troubles in understanding the ins and outs of a tax notice. If you are still unsure of what needs to be done after receiving a notice, feel free to connect our experts for easy and in-time handling of any notice at H&R Block India.

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