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.
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.
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.
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.
Under section 142(2A) notice is given for special audit of books of accounts.
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.
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:
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.
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 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.
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.
An income tax notice under this section can be received in the following cases:
There are three types of intimations under section 143(1):
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.
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:
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.
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 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.
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.
[ 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.