Many of my family members & friends are receiving notices from Income tax
department; usually any communication from the Income Tax department, especially
receiving a notice from them, can send shivers down anyone's spine. A majority of the
notices is sent in the normal course of processing returns& might be for routine enquiry
or a request for simple clarification, so don’t be panic.
What to do when you receive an Income Tax notice?
1. Don’t Ignore: Handle the situation carefully and sincerely, or you may end up
paying a penalty of up to Rs 10,000 along with the tax payment.
2. Back to basics: Check the whether the notice is really meant for you by checking
basic things like PAN, Name, Assessment year it related to issuing officer,
signature, address with details of ward and circle number. Verify these details to
avoid being cheated. To see details go to E filling website see know your AO
3. Preserve the envelope:- If the notice comes by snail mail, preserve the envelope.
It serves as proof of the dates on which it was posted and received.
4. DIN: If the notice is delivered online, then check the Document Identification
Number.
5. Identify the reason behind the notice: By normal reading one can easily
indemnifies the reason behind notice. Reasons could be a simple mismatch in TDS
or inconsistency in your returns, or some serious concerns like income
concealment. It can also be a survey or scrutiny of accounts.
6.
Validity: Check the validity of the notice and the timely issuance. Also check the
section under which the notice has been issued. For example: A notice under
Section 143(3) for scrutiny assessment has to be served within six months of the
end of the financial year in which the return was filed. If served later than this
period, it will be considered invalid.
7.
Gather the documents: Start collecting the documents that the department has
requested via the notice. Documents needed can vary depending on the gravity
of the notice, usually scrutiny notice may ask for several documents, including
bank statements, pay-slips, rent receipts and brokerage statements. While it may
not be possible to put all this together in the short time.
Article by Naveen & Akhila
8. Letter: Prepare a covering letter along with the set of documents.
9. Acknowledgement: Prepare two set of all the documents required, along with a copy of
the covering letter. Get your copy stamped to maintain personal records, and as a proof
of submission of the documents thereby complying with the notice.
10. Reply on time: Always respond to the notice on time even if you are unable to collect the
required documents. You can even ask for some time to gather all the documents.
Timely response will help establish that you are honest, and cooperating with the law.
11. CA help :- If the notice is simply about a factual matter, such as an arithmetical
error, TDS mismatch or deduction amount, a taxpayer should respond on his
own, Only when it is a serious issue, such as a notice for scrutiny or reassessment
under Section 148, should one get a professional to respond. But A chartered
accountant will be better equipped to deal with the situation and provide apt
responses.
Interpreting notices under different sections of income tax for individuals
Sec 131(1A):- Assessing officer has reason to suspect that income has been concealed.
- Enforcing the attendance of any person, including any officers of a
banking company and examining him on oath and completing the
production of books of accounts and documents.
- Failure to comply with the summons issued under Section 131(1)
has been made punishable with a penalty of Rs 10,000 for each
default under Section 272A.
Sec133(A):- For survey or scrutiny of accounts
Sec 139(9):- for filing defective return
Sec142:- For not filing the income tax return or for the scrutiny of a documents &
accounts in support of the return filed by the tax payer
Sec143(1):- For adjustment or additional tax demand if an error or incorrect information
is detected in the return filed by the tax payer.
Article by Naveen & Akhila
Sec143(2):-For scrutiny assesement after detailed inquiry by assessing officer
Sec 148:- For reassessment if the officer believes some income has escaped
assessment.
Sec156:- For dues(tax, interest,penalty,fine or any other sum) payable by the assessee)
Sec 245 :-for adjustment of refund with any demand due
Reasons behind getting Notice :-
Return not filed or delayed: Employer deducted tax from you salary. However,
Employee did not file the return. In such a case, the tax department will send a notice
asking employee to file the return. The notice has to be responded to within the given
time. Otherwise, employee may be penalized. Such a notice can be sent for any of the
previous six assessment years. In case of delayed filing, the department can levy a
penalty of Rs 5,000 a year. However, the penalty is not mandatory, and depends upon
the discretion of the assessing officer. However, if any tax is due, the department
charges 1% interest per month from the due date.
Mismatch in tax credit: Tax deducted at source, or TDS, figure in your Form 16 may be
different from the actual tax credit mentioned in Form 26 AS, a document issued by the
income tax department that has all your tax-related information such as tax deducted,
refund, etc, against your permanent account number (PAN). In case there is mismatch
between the two, the department goes by the figure in Form 26 AS.
The mismatch could be because either the employer has not deposited the tax deducted
from your salary with the department or has credited it in someone else's account. In
such a case, you have to file a rectified return.
If the employer has not paid the TDS to the tax department, point this out to him. In
case the tax has being credited to someone else's account, furnish the TDS certificate to
the assessing officer for making the necessary changes.
Investments in the name of spouse
Many individuals resort to purchasing assets in the name of their spouse, children or
other close family members in the hope of evading taxes. Assets in this case refer to any
Article by Naveen & Akhila
kind of investment like land, buildings, fixed deposits, mutual funds, shares,
debentures etc.
Let’s say x bought mutual funds in your wife’s name. As per section 64 of the Income
Tax Act, any income x generate out of these mutual funds is still considered x income
and x will be taxed for it.
You need to ensure that you declare such income at the time of filing your return, else
you will attract attention from the taxman and receive a notice for the same.
High Value Transactions
High value transactions need to be updated to the Income Tax department by the entity
with which you carry out such a transaction. This is in order to ensure taxes are levied
as required on each of these transactions in a timely manner. Failure to do so is an
invitation for a tax notice.
What qualifies as a high value transaction?
- Cash deposits in a bank worth Rs 10 lakh or more in a year
- Credit card purchases of Rs 2 lakh or more
- Mutual fund investments for Rs 2 lakh or more
- Purchase of bonds and debentures worth Rs 5 lakh or more in a year
- Sale or purchase of property worth Rs 30 lakh or more
Non-disclosure of assets for wealth tax
If you own assets whose net value is over Rs.30 Lakhs, you are liable to pay wealth tax
at the rate of 1% of the amount that is above the Rs.30 Lakhs limit. If you do disclose
such assets that you own or do not pay taxes on them, there is a good chance that you
might receive an IT notice.
Assets can include anything from land, second homes, cars, yachts, gold jewellery,
antiques, art etc. If you are unsure about the exact value of the assets you own, you can
approach government approved valuers for this purpose.
Random Scrutiny
To enforce tax compliance, the IT department has started randomly scrutinizing returns
under section 143 (3). If you receive such a scrutiny notice, don’t panic. Just follow these
simple steps:
1. Check the validity of the notice as well as the duration within which you have to
respond to the Assessing Officer. Usually, a scrutiny notice is served to the
assessee within a period of 6 months from the end of the financial year. Very
rarely, notices related to older cases are also sent under section 148, if the
Assessing Officer finds genuine reason to do so.
Article by Naveen & Akhila
2. Make multiple copies of the notice received
3. Submit documents requested along with a cover letter listing all the documents
to the Assessing Officer
4. Request for an acknowledged copy of the cover letter from the Assessing Officer
for your own records
5. If the notice is regarding your old dues, they can be adjusted against any
pending refund claims made by you for a current year.
What Should One do in a Scrutiny Proceeding ?
When you receive notice from Income tax department , Do this things
Ensure that all related documents to the assessment proceeding with
you.Ex Form 16, 26AS, Previous year ITRs, Proofs for deductions, Wealth
tax file, bank accounts, etc… details regarding all monetary transaction
For salaried person, keep your Form 16 issued by your employer.
All your bank statements .
Reasons for high amount transactions.
Documents, details asked in notice.
If you have received any loan or gift, get a certificate from such person
with his complete address on the loan certificate.
On hearing date ,you must appear either yourself or through any
Chartered Accountant or tax practitioner before the Assessing Officer on
the date of hearing.
Keep calm & argue politely with A.O. by quoting relevant sections
Take acknowledgment for copies submitted
Write down relevant points.
Source: - Income tax act & Article ship exposure.
About Authors:-
Article by Naveen & Akhila
Both pursuing CA Couse from ICAI
You can reach us on :[email protected], +91-8884974344
Article by Naveen & Akhila
