INCOME TAX NOTICE ASSISTANCE: HOW TO RESPOND TO INCOME TAX NOTICE

If you have filed your income tax return with in due date, even then you can receive notice/intimation from income tax department. SURPRISING ISN’T IT? You would not to be sure how to handle or response to it. Don’t worry, we will explain in details to help you understand your notices in detail.  An income tax notice is a written document sent to a taxpayer by the Department of Income Tax, for intimating the taxpayer on an issue with his/her tax account. This is for various purposes, such as filing/non-filing of his/her income tax return, making the assessment or asking for other information, etc. When the income tax department sends a note, the taxpayer must act on the notice within a stipulated time.

Firstly, it is important to understand the difference between Notice and Intimation. Intimation is to highlight the outcome of the processing of your return or conclusion of assessment and you may be not be required to act upon it (although there are a few exceptions to it).
However, if you receive a notice, you are required to act on it. Recently, the Central Board of Direct Taxes (CBDT) has notified a new scheme known as Centralized Communication Scheme (CCS). Under this scheme, all the communications will happen in an electronic mode.

Now let us understand various types of notices/intimations issued by the income tax department.

 

Intimation under Section 143(1)

It is an intimation sent by the Income-tax department after the return is filed by the taxpayer and electronically processed by Central Processing Centre (CPC), Bangalore.

The income is computed after making the following adjustments to the total income in the return:

  • Any arithmetical error in the return;
  • An incorrect claim (provided the incorrect claim is apparent (hat seems to be real or true but may not be) from the information filed);
  • Disallowance of incorrectly claimed loss or expenditure;
  • Any income, which has not been included in the return.

After successful processing of the return, an intimation under section 143(1) is issued by the CPC under these 3 circumstances:

  • If there is a tax liability to be paid;
  • If a refund has been determined;
  • There is no refund or demand, but there is an increase or decrease in the amount of loss.

If there is a tax demand, then the intimation have to be issued, within one year from the end of the year in which the return has been filed. For example, if you have filed your returns for Assessment Year (AY) 2020-21 on 21st July, 2020, then an intimation can be issued anytime on or before 31 March, 2022. Processing of return under this section has been made mandatory from AY 2017-18, even if a scrutiny notice is issued.

 

Notice under Section 143(1)(a)

If there is any mismatch between the income and deduction as compared to Form 16, 16A, 26AS, then Central Processing Centre (CPC) issues an intimation under section 143(1)(a) seeking for the clarification of the mismatch.

30 days time period is given to the recipient of the notice after receiving the intimation, to respond on it. If the recipient fails to respond, then the return is processed after making necessary changes, without any further notice or opportunities in this matter.

Communication is sent for an adjustment to be made under Section 143(1)(a) to those taxpayers where there is any mismatch between income or deductions or exemptions mentioned in the Income Tax Return and those income or deductions or exemptions mentioned in Form 16. 

This type of mismatches usually occur when employee claims deductions or exemptions under Income tax return, without informing employer about these deductions or exemptions. The Income Tax Department will definitely ask for certain proofs for claiming these deductions and sends communication for making adjustments under Section 143(1) (a). 

Notice for defective return u/s 139(9)

Sometimes while filing ITR, we do some mistakes or deliberately make mistakes. Because of these mistakes, ITR becomes defective and assesse gets a notice of defective return under section 139(9). The Assessing officer would also highlight the defect in the income tax return and recommend the solution. Assesse gets a period of 15 days to respond to the notice. If the Assesse do not respond, your ITR would be rejected.

Notice under Section 148

An assessing officer may have a reason to believe that you have not disclosed your income correctly and therefore, you have paid lower taxes. Alternatively, you may not have filed your return at all, even if you must have filed it as per law. This is called Income escaping assessment. Under these circumstances, the assessing officer is entitled to assess or reassess your income, according to the case. Prior to making such an assessment or reassessment, a notice is served by assessing officer under section 148 to the assessee asking him to furnish his return of income.

Rectification under section 154

Once the Income-tax return is filed, the department processes the return and issues an intimation. The intimation contains the details of the return submitted by the Assesse and that computed by the Income-tax department. Sometimes it may so happen that the taxpayer wrongly takes the credit for taxes, deductions, etc. or the department may not provide a credit of taxes, etc. Rectification can be made for a mistake, which is apparent from the record. Some of the errors for which rectification can be filed are as follows:

  1. Mismatch in tax credit (TDS)
  2. Advance tax mismatch
  3. Deduction under Chapter VI A not allowed 

 

No order of rectification can be passed after the expiry of 4 years from the end of the financial year in which order sought to be rectified was passed. The period of 4 years is from the date of order sought to be rectified and not 4 years from original order. Hence, if an order is revised, set aside, etc., then the period of 4 years will be counted from the date of such fresh order and not from the date of original order.

 

Notice under Section 143(2)

This notice is issued to the assesse, just to notify them that their return has been picked for scrutiny. It is important to understand that the section under which it will be scrutinized is different from the one in which the notice has been issued. The Income Tax officer, do the detailed scrutiny to get assured that you have not done any of the following:

  • You have understated your income (You have shown less income, then actual)
  • You have claimed excessive loss (For saving tax you have shown and claimed excessive loss, then actual)
  • You have paid lesser taxes (You have not paid the actual income tax, which has to be paid as per the Income Tax rules)

 

Under this notice, the taxpayer is required to respond to the questionnaire issued by the income tax department along with the documents required by income tax department. The Assessing officer issues with the Notice in the 6 months, after the completion of assessment year in which it pertains/apply.

Let us understand it with an example: Mohit filed his return on 1st June 2020 for A.Y. 2020-21. Notice under section 143(2) can be issued to Mohit, within 6 months of the completion of A.Y in which it apply i.e. 30th September 2021.

 

Notice under Section 245

Notice under section 245 is issued by the assessing officer if he believes that  tax has not been paid for the previous years and he wants to set off the current year refund against that demand. The adjustment of demand and refund could be done only if assesse have been provided proper notice and an opportunity to be heard. Within 30 days, assesse has to respond from the date of receipt of notice. If assesse does not respond within the aforesaid timeline, the assessing officer can consider this as their consent and proceed with the assessment. Therefore, it is advisable to respond to the notice at the earliest.

 

Notice under Section 142(1)

A notice under section 142(1) can be issued by assessing officer under two circumstances:

  • If you have filed your return, but the assessing officer requires additional information and documents; or
  • If you have not filed your return, but the assessing officer wants you to file it.

The information is called for, to enable the officer to make a fair assessment. If there is no response, then there can be these consequences:

  • A penalty of Rs 10,000 can be levied for each such failure
  • Prosecution which may extend up to 1 year
  • Both of the above

 

Notice under Section 156

Notice under Section 156 is issued by the Income Tax Department when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed. Notice under 156 tax notice of demand will specify the sum which is payable. This demand notice is generally accompanied by an intimation notice under section 143(1) or along with the assessment order which is issued on completion of the scrutiny proceedings. Notice of Demand u/s 156 is issued in respect of every assessment order for addition to income.

The amount, which is specified in the Section 156 demand notice, has to be paid by the assesse within a period of 30 days, after the date of receipt of the notice.

 

WHY IS INCOME TAX NOTICE ISSUED?

An Income-tax notice can be issued because of the following reasons:

  1. Income-tax returns not filed.
  2. Mistakes / Discrepancies in the Income-tax return filed by you.
  3. Mismatch in TDS figures in the Income-tax return filed by you and in Form 26AS records of the Income-tax department.
  4. Any financial transaction done by assesse, which is in records of Income tax department but it, is missing in income tax refund.
  5. Assessing officer wants certain documents and details from the taxpayer, for this purpose he issues can Issue an Income tax notice asking for such documents and details.
  6. To carry out scrutiny under section 143(1) of the Income-tax Act.
  7. For any other purpose which the Assessing Officer thinks fit.

HOW TO CHECK IF THERE IS ANY INCOME TAX NOTICE ISSUED TO YOU? OR WHAT IS THE STATUS OF NOTICE ISSUED?

Here is a stepwise method to find out if you have received an Income-tax notice or intimation:

  1. Login / Signup on https://portal.incometaxindiaefiling.gov.in
  2. Go to "My Account" from the top menu and select "View e-Filed Returns/Forms" from the drop-down.
  3. Click on "Ack. No." for the concerned Assessment Year.

If you have any of the following messages, your return is subject to correction.

A. Pending for response to the proposal of adjustment U/S 143(1)(a)

B. ITR filed is defective/Incomplete

       C. ITR Processing completed and demand determined

WHAT SHOULD BE DONE AFTER RECEIVING AN INCOME TAX NOTICE?

When you receive a notice under any of the afore-said mentioned sections, the following steps should be taken –

  • Read the notice thoroughly to find out why it has been sent
  • Check the basic details on the notice to ensure that the notice is meant for you. The notice should contain your correct name, PAN Card number, mobile number, email ID, etc. to authenticate that it is sent to you.
  • Find out the discrepancy in your income tax return which caused a notice to be served, if any.
  • Respond to the notice within the stipulated time period to avoid penalties and prosecutions.
  • Take expert help.

CAN YOU RECEIVE MORE THAN 1 INCOME TAX NOTICE FOR AN ASSESSMENT YEAR?

Yes, you can receive more than one Income-tax notice for the same Assessment year. For example, you had received Income-tax intimation 143(1) having demand and you had filed rectification for the same. However, if this is rejected, you get a second Income-tax Notice/order u/s 154 for which further clarification needs to be submitted to the Income-tax department.

NORMALLY IN HOW MUCH TIME THE INCOME TAX NOTICE IS RESOLVED?

There is no such specific timeline defined by the Income-tax department for resolution of any Income-tax Notice issued. This entirely depends on various factors such as processing time of the Income-tax department, response time by the assesse, etc.

IF YOU ARE OUTSIDE INDIA, THEN HOW CAN YOU APPROACH INCOME TAX DEPARTMENT?

Now everything is done online like filing rectification of an Income tax return, submitting a response to an Income tax notice, filing a return and you can do this anywhere in the world. If under any circumstances, you are required to present physically in Income tax department then you can appoint a nominee on your behalf who can present before the assessing officer along with all the required documents.

WHAT IS THE INCOME-TAX 'NOTICE ASSISTANCE SERVICE’?

Income tax 'Notice Assistance Service' is a premium service offered by TaxUpp, where our Tax Experts go through your Income-tax Notice and related documents to resolve the queries in the Notice. Our tax experts will resolve queries in the notices by clearing the defects in the Income-tax return, the rectification of your return or any other issue as mentioned in the Income-tax notice. You just need to provide certain information and documents asked by the tax experts and they will resolve the issue on your behalf.

 

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