Most of us feel that once we have filed our Income Tax Return then we have complied with all our provisions and become surprised when we get any notice from the Income Tax Department. So we will have to understand what other aspects we need to keep track of to ensure that we are in compliance with the Income-tax Act
The first thing which we need to understand is the different types of communications that are received from the Income Tax Department, its reasoning, and how to avoid it or how it is to be responded to.
This communication is received from the Department in case you have entered into a transaction wherein you have purchased a house property/invested in MF/FD, etc., and have not filed your Return of Income.
The main reason for receipt of such communication is that the Department wants to understand from where we have received the funds against which we have done this investment. We need to analyze on a yearly basis if our total income exceeds the basic exemption limit to avoid any notice for non-compliance.
In case such communication is received we will be able to respond to the same by logging in to the income tax website—Pending Actions—Compliance Portal—E-Campaign.
Intimation under Section 143(1)
Next, we need to understand the difference between an intimation and a notice. The intimation is just the outcome of the processing of return and we may not be required to act upon it although there are few exceptions to it. However, when notice is received from the department, you have to mandatory act on it.
After we file our return the Department processes it and issues an intimation under sec. 143(1) reflecting any of the three situations:
- There is more tax liability to be paid ( need to be paid within 30 days of receiving the demand)
- Any additional refund is determined.
- The return filed matches with the assessment of AO and no action is required.
Points which we need to keep in mind to avoid an Intimation with additional tax liability is as follows:
- An arithmetical error.
- An incorrect claim.
- Disallowance of incorrect loss or expenses.
- Any income not included in Return.
Time limit: Within one year from the end of the financial year in which the return is made.
Notice under Section 139(9)– Defective Return
After filing a return of income there is a possibility that we will receive a defective return notice due to the following reasons:
- Wrong ITR Form filed.
- Missing Information.
- Incomplete Return
If the AO considers the return as a defective return, then he will intimate the same and give an opportunity to rectify the defect within 15 days from the date of such intimation.
If the defect is not rectified within the given period, then the return will be considered an invalid return and it will be deemed that no return has been filed.
Notice under Section 142(1) – Inquiry before assessment
A notice under this section can be issued under these situations: –
- If the return has been filed, but the Assessing officer requires additional information and documents for the purpose of making an assessment.
- If the return has not been filed, the Assessing officer wants the return to be filed.
The basic purpose is to ask for the details of the assessee before making the assessment. It is served to ask for the documents and details from the assessee and to take that case under assessment.
AO may or may not start the assessment after compliance with this notice, it depends upon the documents served by the assessee. If the AO is satisfied with the documents or returns, he may not start the assessment process.
To comply with this notice is mandatory even if the assessee thinks that the accounts or the documents required are irrelevant.
Consequences of non-compliance of notice: –
- It may result in Best Judgement u/s 144.
- Penalty u/s 271(1)(b) i.e. Rs. 10000 for such failure.
- Prosecution u/s 276D may extend to 1 year with a fine.
Notice under Section 143(2) – Scrutiny Notice
If the Assessing Officer is not satisfied with the produced documents or with the responses of the assessee against income tax notice u/s 142(1) then you will get the Notice u/s 143(2) which means that your return has been selected for the detailed scrutiny by AO.
AO may ask the assessee to submit additional documentary evidence and explanations in support of his claim.
Through the detailed scrutiny, the Assessing Officer wants to ensure that the assessee has not done any of the following: –
- Understate the income.
- Claimed excessive loss.
- Paid less taxes.
In this notice, the assessee is required to reply to the questionnaire issued along with all the documents required by the Income-tax department.
Time limit: Before the expiry of six months from the end of the FY in which the return is furnished.
Notice under Section 148 – Income escaping assessment
If the AO has reason to believe that the assessee has not disclosed the income correctly or has paid the lower taxes or has not filed the return then in all cases it is termed as Income escaping assessment. Under these situations, AO assesses or reassesses the income, as the case may be.
To initiate the proceedings u/s 147, AO should serve a notice u/s 148.
However, before issuing a notice u/s 148 the AO provides an opportunity to be heard by the assessee by issuing a Show Cause Notice u/s 148A. If the assessee succeeds in producing the necessary documentary evidence and explanation then the AO will not proceed further to issue notice u/s 148.
Timelines for issuance of notice u/s 148 are as follows: –
- Notice can be served within 4 years from the end of relevant AY if the income escaped assessment is Rs. 1lakh or less than that. Notice cannot be issued by any officer below the rank of Assistant Commissioner or Deputy Commissioner.
- Notice can be served beyond 4 years but up to 6 years from the end of relevant AY if the income escaped assessment is more than Rs. 1 lakh. Notice can only be issued by the Chief Commissioner or Commissioner.
- Notice can be served beyond 4 years but up to 16 years from the end of relevant AY if income in relation to any asset located outside India is chargeable to tax in India but has escaped assessment.
Notice under Section 156 – Notice of Demand
Where any tax, interest, penalty, fine, or any other sum is payable in respect of any order passed, then the AO serves the notice u/s 156 to the assessee specifying the sum so payable. The assessee can deposit the amount payable within 30 days from the date of the Income-tax notice.
There is no time limit to serve this notice.
In case of delay in payment of tax, the assessee shall be deemed to be in default and liable to pay simple interest u/s 220(2) @1% for every month or part thereof, and further penalty u/s 221(1) may be imposed.
Notice under Section 245 – Set off Refunds against tax remaining payable
Notice u/s 245 is issued when the tax refund for an AY is adjusted against the tax demand due from the assessee. There is no time limit to serve this notice.
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