How to manage Income Tax notices?

Sonal Pruthi

15 Jan, 2021

It is a routine inquiry for the Income Tax department to send Income tax notice to its taxpayer or assesses. As a taxpayer, it is nothing to worry, if you receive notice from the department. It is considered as standard processing from the department.

The reasons for getting Income Tax notice are as follows:

1. Error in TDS (Tax Deducted at Source) amount calculation

This means the amount of TDS is mismatching the amount submitted in the Return. Either the amount has not been shown by the deductor/ employer in its Return correctly.
There is a simple answer: ask the employer/ deductor to revise the amount of TDS in its Return.

2. The difference in Returns submitted by you
   If there is an inconsistency in your Return, and then one needs to understand the cause of the discrepancy in the Return of the amount.

The answer is:

a. Forgotten to show incomes like interest on fixed deposits.
b. Claimed some deduction not shown or shown in the wrong section.
c. No complete information.

3. Review of Documentation by IT department

The IT department^[1] wants to check the documents of the assessee in the course of returns submitted by him. These arise as a result of the information in the Return, which is not so clear.

4. No Return of Previous Years filed

The Income Tax notice could be the result of the returns not filed by the assessee in the previous financial years or in the current financial years where the tax has been paid.Return of Income means a statement where the taxpayers show the amount of tax paid by him over the current financial year, with the description of the amount in detail.

The answer is:

If the taxpayer has submitted his Return of Income of that financial year, then the taxpayer has to reply to the department about the statement of Return submitted on that particular date.

5. Income or expenditure in the name of spouses

The taxpayers might have bought the assets or mutual funds in the name of his children, wife, or close family members, in order to evade taxes. While doing this, it is to be clearly mentioned about such investments in the name of spouses, in your Return of income.

6. Capital Gain or losses on the transactions

The assessee cannot evade the capital gain taxes on transactions. Such transactions have to be brought to the notice, and the amount has to be mentioned clearly in the Return. If there is any other lesser amount paid, then also, one can be served with notice.

How many types of Income Tax notice exist?

a. Section 131 (1A)

This Income Tax Notice is issued by the department when the Assessing Officers finds that the taxpayer has concealed some income, or he is likely to hide such income. Then the Income Tax Officer may order in his jurisdiction, the making of any inquiry or investigation against him.

b. Section 139(9)

In a defective return, supporting documents have not been submitted. Such documents will include Bank Statements, annexures and proof of payment of tax.
The wrong form must have been used, TDS has been wrongly paid, advance tax is not considered, TIN Number does not match, etc.

c. Section 143(1)

It is an intimation notice, given by the department to the assessee; it is a processing statement issued by the tax department, mentioning the income, tax details filed by the assessee in line with the records of the department. It is an acknowledgment by the department for your payment.

If there is any mismatch or underpaid amount of discrepancy, the Income Tax department will reject the claims. The department will reduce the tax refund amount as claimed.

There are several types of Scrutiny which can be done by the department like:

• Limited Scrutiny- It is an automated generated scrutiny generated by the computer and chosen by the department.
• Complete Scrutiny- It is Scrutiny done for the supporting documents submitted by you.
• Manual Scrutiny- In few cases which are selected by the Board for rechecking
• Reassessment- The time limit is prescribed where the assessing officer finds that there is incomplete information or assessment is made by the assessee.

d. Section 148

The Income-tax notice can be served by the department for the returns of 6 previous years to the assessee.

e. Section 156

This notice is served on the clearing of dues or outstanding amount or interest for late tax payment or any penalty dues.

Responses to Income Tax notices

1. Section 131 (1A)

The answer to this notice can be given by the assessee in a reply within the stipulated period of time.. The reasonable opportunity of being heard must be requested to the officer. All the supporting documents must be provided in the representation where the notice has been served.

2. Section 139(9)

This is the case of Defective Return.

Where the Taxing Officer finds that the Return is defective, it will give intimation to taxpayer and period of 15 days to rectify the mistake.

The taxpayer has to resolve it within 15 days. Such issues can be resolved online. One can login through the website using the PAN Number and password. The assessee can upload the remaining documents as demanded/ wrongly submitted/mismatched. The papers will be checked by the department on the online portal itself.

3. Section 143

In this no action is to be taken; only notice is to be filed. The notice in this section can be received when the amount has been stated in the wrong source or heading, or didn’t mention tax free incomes, or it doesn’t match the records with the department. The only thing the assessee has to submit online either payment of interest, penalty, or any missing information online. The time is 30 days.

4. Section 148
   The first option is to file your Return of income after income tax notice in India for reassessment has been served. Secondly, you can raise a dispute the concern that the information stated has no discrepancy. File the reasons supporting it.
5. Section 156

This can be resolved by the assessee by doing immediate action after logging the Income-tax website and clearing the dues on it.

Conclusion

Read our article:How to Claim Income Tax Refund Online?