Tax notice is different from tax intimation
At the outset, an Income Tax Notice is different from an Income Tax Intimation. Typically, tax intimation is just meant to intimate you about the outcome of the processing of your return or conclusion of assessment. For example, you may get a routine intimation from the IT department saying that your tax return has been accepted and the refund processed. This is just by way of information and no action is needed.
An Income Tax notice requires action to be taken. Under the new system effective from 2019, all income tax notices will only be issued electronically by the CCS, Bengaluru. To understand the Income Tax Intimations and Income Tax Notices, let us look at the break-up and how to respond to the same.
a) Intimation U/S 143(1) – Review of IT Returns
Once returns are filed and authenticated, it’s electronically processed at CPC, Bengaluru. The CPC will highlight if their calculation of tax payable does not match with your calculations. This could be due to disallowance of expenditure, incomes excluded, technical errors in filing etc. In such cases, intimation under section 143(1) is issued by CPC if there is difference in refund, tax liability or any loss allowance.
If you agree with the calculation, you can just file modified returns after making the requisite changes. This process can be done electronically through the Income Tax website. You need to complete the response to this Intimation before the end of the next fiscal year.
b) Notice U/S 143(2) for detailed scrutiny
This notice informs the assessee that his IT returns have been picked up for detailed scrutiny. This is normally necessitated if the assessing officer believes that he needs to understand your income sources better or if he feels that you claimed excessive losses and therefore paid lower taxes.
This notice is accompanied with a questionnaire asking for specific details and also a list of documents sought by the Income Tax department. There are two things to remember. Firstly, meet the deadlines mentioned in the notice and furnish the requisite information. Draft your response to the questionnaire very carefully and if required seek legal help from an expert. Timely response and furnishing of proper data is the key.
c) Notice U/S 148 – Income Escaping Assessment
This notice is issued if the assessing officer has reasons to believe you have not disclosed your income correctly. How does the assessing officer come to this conclusion? Your asset purchases and financial transactions are tracked through your PAN. The department has an elaborate record of your financial transactions during the year. Assessing officer may feel that your financial transactions like purchase of gold, property, spending is beyond your disclosed sources of income.He can call for a special Income Escaping Assessment so as to reassess your income and tax liability.
This notice can be issued within 4 years of the relevant fiscal year. It can only be issued by an officer of the rank of Assistant Commissioner and above if escaped income is at least Rs.1 lakh. In this case, you must furnish all the income details and an explanation for sources of income for other purchases. A personal hearing may also be called for in such cases.
d) Notice U/S 245 – Setting off refund against past dues
This notice is issued if the assessing officer suspects that prior year’s taxes are not paid and wants to adjust that demand against current year’s refund. IT department cannot adjust refunds without giving you appropriate notice and an opportunity to be heard.
The time limit is 30 days so you must respond well before that. If you do not respond in 30 days, the AO treats it as consent and adjusts the refund against past demand.
e) Notice U/S 142(1) – Non-filing of returns
This notice is issued when you have not filed returns for a year and the assessing officer wants you to file it. You must be careful that in this case, being non-responsive will entail penalty of Rs10,000 per notice and could result in prosecution.
Here again, the focus must be to provide all the information and also file the return for that particular year with requisite details. Ensure adequate documentation to support your stand. When you get an Income Tax intimation or notice, the speed and documented response can go a long way in avoiding tax worries.