Introduction
When an assessee or the taxpayer files their income tax statement or return, it is assessed and processed by the Income Tax Department. If there is any error/mistake/discrepancy in the statement, then the same is intimated to the assessee through the means of Income Tax Notice. There are various types of income tax notices and the reasons for them may also be varied. Taxpayers are usually given income tax notices under Sections 139(9), 143(1), 143(2), 143(3), 148, 154, 156 and 245 of the Income Tax Act, 1961 on non-filing of ITRs, concealment of taxable income, actual tax refunds, computation of undue tax losses, long-term capital gains (LTCGs), surveillance, etc. There are different types of notifications that you may receive; some might just be an information alert, others might need you to act.
Types of Income Tax Notices
The department issues these notices under the Income Tax Act, 1961 for various purposes-
Under Section 139(9), it is issued when the file is defective. Under section 143(1), it is intimated when the file is processed by the CPC. Under section 143(1)(a), it is issued if there are certain errors/inconsistencies in the Income-tax return filed. Under section 143(2), it is issued when the Income-tax return has been selected for scrutiny by the Assessing Officer. Under section 148, it is issued when the Assessing Officer has a valid reason to believe that the income of the taxpayer has escaped assessment. Under section 154, it is issued when there is some mistake, such as TDS credit is not given, then rectification is filed in the given section. Under section 156, it is issued when payment of demand after Income-tax assessment is completed and order is passed. Under section 245, it is issued to communicate the adjustment of Income-tax refund against Income-tax demand.
The reasons for the income tax notice
The most common reasons for the Income Tax notice are for the delay in filing in the Income Tax return, misreporting LTCG from equity, for TDS claim not matching with form 26AS, for non-disclosure of income, for not declaring the investments made in the name of the spouse, for filing detective return, if there are any high-value transactions, if the return is picked by the scrutiny, for the setting of returns against remaining tax payable, for tax evasions in the early years, etc. These should be assessed properly like If the notice concerns an assessment or reassessment, it indicates that the case of the taxpayer has been selected for detailed scrutiny. In general, it will be accompanied by a questionnaire seeking information. When the notice applies to minimal scrutiny, you must include descriptions of the specific issues referred to in the notice.
How to deal with these notices
In some cases, tax officials can require you to be present in-person to review your returns. You can either represent your case yourself or authorize a tax expert to do so. The latter choice is better because a specialist can fully understand and react appropriately to each and every clarification sought. If there is no uncertainty in your appeal, attend the hearing yourself with all evidence of income/investment. Hire a tax specialist. Anyone who contacts a tax specialist online/offline is less likely to receive a warning because the criteria for compliance are being handled by a professional. Not responding to these notices can cost time, peace of mind and money. If there is major confliction, it may even lead to imprisonment.
For example, if there is an error under Section 139(9), then the person can go to the site of income tax filing returns and then fill the form of rectification under the e-file section. In all the errors and discrepancies, there is a solution to fill the form and then rectify the situation. One should be present in all the hearings and should have all the income and expense-related documents. If there is an escape of some income, then there is a time frame under which the person has to file the income tax for the relevant assessment year.
Check the validity of the notice as well as the length of the reply to the Assessing Officer. Usually, the examination notice shall be sent to the assessee within a period of 6 months from the end of the financial year. Notices relating to older cases are often very rarely sent under section 148 if the Assessing Officer sees a valid reason to do so. Make multiple copies of the notification received. Submit the requested documents along with the cover letter listing all the documents to the Assessing Officer. Request for a certified copy of the cover letter from the Assessment Officer for your own records, if the notice involves your old payments, they could be balanced against any unpaid refund requests made by you for the current year.
Conclusion
In the present times, where only a meager population of India pays tax, the Income Tax Department keeps close scrutiny on the taxpayers. With the calculation of the income tax return, people are bound to commit some errors and mistakes which may further lead to a notice from the Income Tax Department. Under these times, it is better for the person not to panic and cross-check all the documents and provide the departments for what they have asked for. It is better to consult a professional as the guidance can be beneficial and will save time and money. It is advised not to ignore a notice as the consequences may be harmful for the assessee. If you receive an email from the tax department, don’t be nervous about it but don’t ignore it either. Read through it and take corrective measures if needed. If you find the matter difficult to resolve, take expert advice.
References
[1] Editorial, “When the taxman comes calling” Money Today, December 2013.
[2] Editorial, “Income tax notice, how to respond to it” Times of India, 22 April, 2020.
[3] Ashwini Kumar Sharma, “What to do for an Income Tax statement” Live Mint, 9 September 2016.
[4] Income Tax Act, 1961.
[5] myITreturn, “Income Tax return discrepancies”
This article has been written by Jaishri Sharma, BA.LLB(HONS.) student at Institute of law, Nirma University.
Also Read – What Are The Procedures And Duration For Claiming Tax Refund?
