Income Tax Notice

Income Tax Notice

When a tax payer files a income tax return to the department, then after submitting the return, the department shall process the return and, at that time, the department may issue various types of notice to the tax payer, which may sometimes be in the form of an intimation or it may be in the form of a scrutiny.

A taxpayer might get nervous if he receives an Income tax notice, but there's nothing to worry about as there is always a reason for the notices.

Understanding the notices issued by IT department

1. Notice u/s 143(1): Intimation of the return

When a person files the Income tax return, it is electronically processed by the Income tax department. Therefore, the Income Tax Department sends the intimation to the Assessees in three ways:

  • tax liability payable
  • refund to be determined
  • no refund or demand, but if there is any increase or decrease in the loss

Intimation shall be issued from the department within one year from the end of the year in which the report was filed.

2. Notice u/s 139 (9): Defective Income tax return

When the return is in process, if the department discovers any flaws, mistakes or missing information in the return filed, the department shall issue the notice u/s 139(9) to ratify the mistake. The Department verifies the return from the details that they already have.

The Defective return needs to be filed within 15 days. The return shall be treated as invalid if the response is not filed within 15 days.

3. Notice u/s 142(1) “ Inquiry Notice before Assessment

When a return is filed and during the evaluation period, the assessment officer is of the opinion to demand additional details and documentation. Therefore, the AO can do the same and this makes it compulsory on the part of assessee to furnish it.

4. Notice u/s 143(2): Scrutiny Notice

After receiving the document in pursuant to the notice u/s 142(1), if the Assessment Officer still thinks that there is a requirement to scrutinize, then he may issue the notice u/s 143(2). The AO wants to be satisfied that the assessee has not done any of the following faults:

  • understated the income;
  • claimed excessive loss; or
  • paid lesser taxes

It is noticeable that the section under which it will be scrutinized is different from the section in which the notice has been issued.

Notice of scrutiny may be issued up to 6 months after the relevant assessment year has been completed.

There can be no scrutiny assessment of the assesses that have not paid his tax return. In this case, the AO shall make the Best Judgment and may assess the tax liability under it.

Section 143(2) requires the AO to examine and conduct a regular assessment if the person has not filed the Income returns,

If the assesses do not adhere to the provisions of this section:

It may lead to Best Judgment Assessment u/s 144, or

Penalty of INR 10, 000 for each failure under Sec 271(1) (b) i.e., or

Prosecution that can extend up to 1 year with or without fine under Sec 276D.

Type of scrutiny notice:

Limited Scrutiny These are the situations where the Department of Income Tax has narrowed the scope of the scrutiny to the specific area. For instance, Claim of foreign tax credit, sale of property.

Complete Scrutiny  There is a complete scrutiny of all the relevant documents in complete scrutiny,

Manual Scrutiny Scrutiny is done in detail as per criteria set by Central Board of Direct Taxes.

Section-148 Notice under Income Escaping Assessment

Notice of income escaping assessment shall be given by the income tax department where AO is of the opinion that certain income has escaped the assessment or the income has been assessed but at a lower rate than specified by the authorities or where excessive loss of allowances has been allowed.

Until initiating procedures, it is the responsibility of the assessment officer to rely on substantial evidence.

The AO should carry out his operations in good faith.

Notice under Section156 - Notice of Demand

If any interest, fee, penalty, fine or other sum is to be paid in respect of any order issued, the AO shall serve a notice of demand on the assesses, stating the amount to be paid.

Notice under Section 245 - Set off of refunds against tax remaining payable

When an amount is to be paid by the assessee and a refund is to be claimed by the assessee, then such transactions are called inter-adjusted.

It is type of a notification to the assessee not the notice issued.