The more awareness, the lesser the confusion, and the better the situation.
As per a study, there has been a significant reduction in the quantity of ITR notices. While the specific number of such cases is not mentioned, experts believe that enhanced data collection and thorough investigation are the two main factors contributing significantly to this positive development.
The government’s ability to gather appropriate data from multiple sources, including tax deducted at source on cash transactions and establishing a memorandum of understanding with other government departments to exchange information, may have contributed to this achievement.
Additionally, it has been reported that the Tax department has focused on enhancing its data mining process, specifically monitoring a greater number of transactions, particularly those involving cash and high-value amounts.
While the decrease in ITR notices may seem promising, it also raises the likelihood of receiving a security notice. This is an integral aspect of the data mining process, as these notices are issued when the department requires further information regarding specific transactions.
For example, taxpayers who have reported capital gains are receiving scrutiny notices from the tax department, requesting additional information about their transactions. Apart from this, there are many more provisions that may lead the department to issue ITR notices. Therefore, before discussing strategies for handling such notices, it is essential to understand about the different types of scrutiny notices.
Also Read: What Are The Types Of Income Tax Notices?
What Do You Mean By Income Tax Scrutiny Notice?
The ITR notices are used by the department to request specific details about certain transactions. The issuance of such notices can be a result of a random check or an intentional effort to cross-verify transaction information.
They are issued under a specific section or clause, clearly indicating the reason for the scrutiny. This provides an opportunity for the taxpayer to verify the accuracy of the declared income, as well as the losses, expenses, deductions, and exemptions stated in the ITR for that particular financial year.
What Are The Types Of ITR Notices?
The selection of Income Tax Returns (ITRs) for scrutiny is carried out through a computer-based system. Upon selection, the taxpayer will receive a notice under Section 143(2) of the Income-tax Act, 1961.
The issuance of a scrutiny notice serves the purpose of initiating a revenue audit process on the taxpayer’s filed tax return. Its objective is to verify and ensure that the taxpayer has not underpaid their taxes in any manner.
What Is Limited Scrutiny?
Computer-Assisted Scrutiny Selection (CASS) is the method employed for this type of scrutiny. It involves a set of predetermined parameters that are used to automatically select the Income Tax Return (ITR) for scrutiny by the computer and subsequently by the department. The notices issued will specify the specific area in which supporting documents are required.
What Is Complete Scrutiny?
A comprehensive examination will be conducted on the filed tax return and all accompanying documents as part of the scrutiny process. The cases will be flagged, based on the Computer-Assisted Scrutiny Selection (CASS). Assessing officer can verify various tax return aspects, including supporting documentation, due to unrestricted scrutiny scope.
What Is Manual Scrutiny?
Central Board of Direct Taxes selects limited cases for comprehensive scrutiny based on pre-established guidelines. It should be noted that these criteria are subject to variation on each occasion.
What Is Re-Assessment?
Such notices are issued when the Assessing Officer (AO) perceives that one of the incomes has not been properly examined, assessed, or verified by the department, warranting the need to reopen the assessment.
When Can You Receive Income Tax Scrutiny Notice?
The tax department can scrutinize ITRs up to 6 months after the end of the relevant financial year.
What If You Receive A Notice?
A notice is a matter that should not be taken lightly, therefore it is crucial to respond to it promptly. Non-compliance allows the assessing officer to initiate best judgment assessment under Section 144 of the Act.
This allows the assessing officer to determine the taxpayer’s income based on their judgment. Furthermore, a penalty of Rs. 10,000 under Section 272A is also applicable in such cases. In such instances, the assessing officer may assess a higher taxable income compared to the income reported in the tax return, leading to the requirement of paying additional tax and interest.
How To Respond To An Income Tax Scrutiny Notice?
For limited scrutiny, taxpayers must provide asset details like purchase date, cost, source of funds, etc. The notice will also specify the deadline by which all the requested details must be submitted.
Above all, it is important not to panic when receiving a notice. Take the time to carefully review the notice and ensure that you respond within the specified deadline. To facilitate the process for taxpayers, the government has introduced an e-proceeding facility, allowing you to submit your responses online. Alternatively, you can seek the assistance of a chartered accountant to help you respond to the notice.
Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
