Check ITR for discrepancies before responding to notice from tax dept

Respond on time, with expert help if required, to prevent further punitive measures

An income-tax (I-T) notice, which is essentially a written communication sent by the I-T Department to a taxpayer alerting him about an issue with his tax account, usually causes panic. Taxpayers should calmly examine the notice and send a timely response to it, with expert help if required.

Notice versus intimation

A notice is different from an intimation. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “An intimation may not always require action on the assessee’s part. He may just be required to take note of the matter.”

A notice, on the other hand, requires the assessee to either comply or challenge the matter in the proper forum.

What a notice under these sections means

Section 139(9): A notice under this section is sent when the assessing officer (AO) finds the return to be defective because incorrect information was provided in the income-tax return (ITR). The assessee must provide clarification or rectify the error within 15 days of issuance of the notice.

Section 143(1): An intimation under this section is issued if there is a pending tax liability, or additional refund is determined. Pratyush Miglani, managing partner, Miglani Verma & Co says, “If there is a pending tax liability, it must be paid within 30 days.”

Section 143(2), 143(3): A notice under Section 143(2) is meant to inform the taxpayer that his return has been selected for verification or assessment. The taxpayer needs to submit documents in support of his tax return, which the tax department assesses.  

Ankit Jain, partner, Ved Jain & Associates says, “After all the documents and facts have been examined, the final assessment order is issued under Section 143(3).”

Deepak Jain, chief executive, TaxManager.in says, “The taxpayer must respond to an intimation under sections 143(1), 143 (2) and 143(3) within 30 days of issuance of such a notice. If a taxpayer fails to do so, then the adjustments made will be carried forward.”

Section 245: Intimation under this section is issued to intimate that the tax authorities are adjusting the previous year’s outstanding tax demand with the current year’s tax refund. Maneet Pal Singh, partner, I.P. Pasricha & Co says Manjeet, “Taxpayers are required to respond within 30 days on the I-T portal, where the following options are available: they can agree, not agree, or partially disagree with the outstanding demand.”

Why was the notice issued

First, the assessee must understand why the notice was issued. Naveen Wadhwa, deputy general manager Taxmann, says, “A notice can be issued for various reasons: the assessee may not have filed ITR, the income declared may be less than actual, there may be a mismatch with the Annual Information Statement (AIS), etc.”
 

Other reasons for notices being issued are claiming of excess deduction, and exclusion of information required to claim a benefit. Some notices are aimed at preventing tax evasion.

Another common reason is investments made on behalf of the spouse. Amay Jain, senior associate, Victoriam Legalis-Advocates & Solicitors, says, “Any income from such investments has to be declared at the time of filing return and is taxable.”

Suresh Surana, founder RSM India adds, “Sometimes a notice is sent because the gross receipts shown in the AIS, taxpayer information summary (TIS), or Form 26AS, on which credit for TDS has been claimed, are higher than the total of the receipts shown under all heads of income in the ITR.”

How you should respond  

On receiving an I-T notice, verify your name, PAN and other details to ensure the notice is meant for you. Surana says, “After going through the notice, the assessee must evaluate the discrepancies, if any, in his tax return filed and respond to the notice accordingly. If the assessee lacks the expertise to respond, he should take expert help to avoid potential litigation.”

Your response must be timely. Wadhwa says, “If you fail to respond, the tax authorities can impose interest or penalty. In some cases, it can lead to best-judgment assessment.” This means that the AO makes an assessment on his own in the absence of a response from the assessee.

Key reasons for receiving tax notice

• For delay in filing IT return: This notice is sent to you at the end of the assessment year for which the return is due
• Misreporting long term capital gains (LTCG) from equity: The taxpayer needs to report any realized long term capital gains on listed equity and equity related mutual funds at the time of filing ITR
• Non-disclosure of income: Revenue authorities get information about income of assessees from different sources like banks, tenants, etc. If you have not shown some income in your ITR then you will get a notice for not reporting
• Filing defective returns: If income tax returns are not filed in the correct manner, a defective return notice will be issued

Source: Victoriam Legalis – Advocates & Solicitors