Income Tax Notice is one term that yet to is fully defined in India. There is the likelihood that you will be scared when you are served with Notices that you find difficult to understand or may not be aware of its reasons.
Notice prescribed under Section 142(1) is served when certain documents and information are required from a taxpayer and for the assessment of a case.
The details of the taxpayer must first be obtained before an assessment can be made as provided by the Act. This action can best be described as a pre-assessment investigation.
The purpose of this write-up is to provide you with the necessary information on the types of notices that are common in the Income Tax Act of 1961. This will broaden your understanding of the matter.
WHAT DOES THE ASSESSING OFFICER REQUIRE FROM THE ASSESSE BY SERVING THE NOTICE?
When the assessing officer serves you as an assesse with the notice under Section 142(1) of the Income Tax Act, 1961, you will be required to:
- File an income return which will be assessed, and if you failed to file your income return within the stipulated time frame. This can be filed either for yourself or for another especially in the case of a legal advisor or where the original owner is late.
- Make all the documents that will be required by the assessing officer in making his assessment available.
- Make available in writing all the information that shall include your statements. For example, the statements of your assets and liabilities along with the dates.
The possibility that the assessing officer commences with the assessment after you may have complied with the notice as provided in this section depends on the facts you have presented.
Although the Assessing Officer may be satisfied with the documents you have presented, he may be yet to commence with the assessment process.
Complying with the provisions of this section is compulsory for every taxpayer irrespective of his/her opinion on the relevance of the documents required.
WHAT ARE THE PUNISHMENTS FOR NON-COMPLIANCE WITH THIS NOTICE?
If you fail as a taxpayer to comply with the notice of this section:
- You will be faced with Best Judgment Assessment under Section 144 or
- Pay a fine of Rs. 10000 for each time you default under Section 271(1)(b) or
- Face a 1-year imprisonment with a fine under section 276d
WHAT ARE THE TYPES OF INCOME TAX NOTICES?
The different types of Income-tax notices which will assist you in filing a return if needed. These are:
Notice under Section 143(2) – Scrutiny Notice: This notice will be sent to you after sending the notice under section 142(1) has been sent. This implies that the assessing officer may have had some doubts with the documents you had presented or you did not submit any document to the assessing officer. When you receive this notice, it implies that your return has been reserved for further scrutiny.
No assesse will be served any notice under the section if the assesse fails to furnish his income tax return after six months from the close of the year.
In a situation that you fail to furnish your income return, you will not be served with any notice under section 143(2) and the assessment cannot be processed. The only option for the assessing officer is to proceed with Best Judgment Assessment in accordance with Section 144.
The Assessing officer is at the liberty to take the income to be lower than the returned income or the loss may be assessed higher than the loss returned based on Scrutiny Assessment in accordance with Section 143(3).
In addition to this, you may be required to produce documents that support allowances, exemptions, deductions, relief, claims of loss and proof of any other source of income.
The notice under Section 143(2) allows the official to continue with the assessment after obtaining the required information.
WHAT ARE THE PUNISHMENTS FOR NON-COMPLIANCE WITH THIS NOTICE UNDER SECTION 143(2)?
If you fail as a taxpayer to comply with the notice:
- Best Judgment Assessment under Section 144 or
- Fined Rs.10000 for violation of the notice under Section 271(1)(b) or
- 1-year imprisonment and a fine under section 276d
- Notice Under Section 143(1) – Letter of Intimation: There are three types of notices under this section which include:
- Intimation: where the notice will only be considered during the final assessment of your returns after the assessment officer must have approved your return for having matched with his assessment.
- A refund notice: where the assessing officer discovers that you had paid an excess amount.
- Demand notice: where the computing officer discovers that the amount paid is lower than what is expected. In this case, you will be asked to pay the actual amount in 30 days.
Where a year must have passed after the close of the financial year of the return, you will no longer be sent with an intimation notice.
HOW YOU CAN REPLY TO THE NOTICES RECEIVED UNDER SECTION 143(1)
- The notice will be a final assessment if your details are approved by the Income Tax department and neither you nor the department will be expected to act any further. You will only keep a copy of the printout in your income tax file.
- Where you will be receiving a refund, you should expect a cheque or a direct credit of your account.
- If tax is demanded, then the intimation notice will change to Notice of Demand in accordance with Section 156 of the Income Tax Act, 1956. The Notice stipulates that where a demand is made, the intimation could be taken as a notice of demand.
For example, where a taxpayer declares an income of Rs. 600000 and the tax paid was on this amount. After an assessment by the department, his income was found to be Rs. 650000, then Rs. 50000 must be deposited as a tax. The taxpayer will have to pay the exact amount except where he believes there is an error in computing which he must prove.
- Notice under Section 148 – Income escaping assessment: During the process of an assessment, the officer discovers that there is an omission of an income which can be charged to tax, he may conduct a further assessment on such an income.
Before any proceedings can be initiated as provided under section 147, the officer will be required to present the proofs.
In addition to this, notice under section 147 will not be sent for income that involves matters which has the likelihood to be appealed or revised.
This will provide the assessing officer with the clue that there is an income with the potentials of an assessment. Regarding the Supreme court’s ruling, the Assessment officer should prove beyond all reasonable doubt that such income was consciously omitted by the tax payer.
In a situation that the contention of the assessing officer is invalidated in the case, and his beliefs had been reasonable, then the notice of the assessment shall remain legal.
- Notice under Section 156 – Notice of Demand: in a situation that a tax, penalty, interest, fine or some other amount is paid because of an order passed, the assessing officer shall serve the payer with a notice of demand which will specify the amount that will be paid.
The notice of demand is served in situations where the tax payer has already been assessed. This notice is not usually served upon every tax payer who is making the regular payments. This tax is paid by the assesse with self-assessment.
The tax will be paid within 30 days after the notice had been served and could be reduced by the assessing officer as approved by the JCIT.
Where there is a delay in the payment of taxes, the tax payer shall be found guilty and shall be demanded to pay a simple interest in accordance with Section 220(2). The interest shall be 1% for each month beginning at the end of the allowable period under section 156. In addition to this, a penalty may be imposed under section 221(1).
- Notice under Section 139(9) – Defective Return: The term ‘defective return’ is an income return that is filed without the required documents as provided in the Act. These documents include annexures, proofs of tax, statements and much more.
In case the assessing officer discovers a defect in the return filed by the taxpayer, the assessee may be intimated so he can clear up the defect within 15 days of having received the notice or in a period as may be extended by the official.
If the assessee fails to correct the defect within the acceptable period, the return filed shall be invalidated and the taxpayer shall be presumed to fail in filing any return.
However, where the assessee can rectify the defect within the specified period but before the assessment is complete, the assessing officer may disregard the delay and then approve the return.
- Notice under Section 245 – Set off of refunds against tax that remains payable: Where the assessing officer, Principal Chief Commissioner or as the case may be discovers that an amount should be refunded to a certain taxpayer, the amount will be set out and an intimation shall be offered to such a taxpayer on all the actions that would be taken in accordance with this section.
The notice under Section 245 has more letter of intimation and a limited number of demand notice.
As provided in this section, the assessing officer notifies the assesse of the effects of the changes that will be made with respect to the refund amount. The adjusted amount will be indicated and may be an intimation or demand notice of a small amount that would be paid after the adjustment.
- Section 131 (1A): You will be served with this notice if the assessing officer suspects that there is a possibility of concealing an income or an income has indeed been concealed. The assessing officer is meant to inquire or conduct investigations on the matter. However, the time limit for this notice to be served is not available.