Have you been served an I-T notice?

Notice can be served between 6 months and 6 years. For concealment of income, it can be longer

For how long after you file tax returns should you be prepared for any kind of scrutiny or assessment notice from the Income Tax Department? For how long should you keep records of your tax returns? 

Ideally, for six years, if it is a normal scrutiny or assessment, but can be up to 16 years if it is income from foreign income or concealed income, say experts. 

Recently, a tax-payer was served a notice under Section 144 for the Assessment Year (AY) 2008-09, with an order to pay Rs 16 odd lakh income tax, including interest. His income was estimated to be Rs 40 lakh in that particular AY. Can a notice be served after so many years? What are the various sections under which you can be served a notice? 

A scrutiny notice for the AY under question is served under Section 143. The time period is six months from the end of the AY. This means, for the current AY, that is 2016-17, you could be served a scrutiny notice up to September 2017. 

A normal assessment notice is served under Section 148 and this can be served within a period of four years from the end of the relevant assessment year. That means, assuming the current AY, up to March 2021. 

“If the escaped income is Rs 1 lakh or more and certain other conditions are satisfied, then notice can be issued up to six years from the end of the relevant assessment year,” says Amit Maheshwari, Managing Partner, Ashok Maheshwary & Associates. 

Notice after four years can be issued only if the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.

“If a notice is served after six years, then it is usually a case of re-assessment,” says ‎Arvind Rao, Founder of Arvind Rao & Associates, Chartered Accountants. 

A notice has to be properly served, says Sanjeev Gokhale, a Mumbai-based Chartered Accountant. “It has to be hand delivered, or sent by speed-post with an acknowledgement or pasted on the door of the assessee’s house,’’ he explains.

Once the notice is served validly, then the assessee must respond to it by either attending the hearing or sending a representative. If not, the I-T department could issue a notice under Section 144. Under Section 144 the demand for tax is raised based on best judgement or discretion of the AO. 

“Under Section 144, the AO will calculate the tax amount as per estimates and serve a notice. For instance, in case of business income, they could assume that the traveling expenses look too high and hence the deduction is wrong. Or they could say that the car was used for personal reasons and hence exemption should not allowed. The other presumption could be that the officer would assume a certain percentage of the revenue as profit and proceed accordingly,’’ says Maheshwari. 

If it is a notice or order under Section 144, then you can appeal against it. But you need to show proof of why you did not receive the notices issued earlier. 

For instance, you have to prove that you shifted from that residence and hence did not receive the notice, etc. While responding to a notice the assessee has to justify why the income raised in the notice is wrong, why it is not related to the case and why the demand should not be raised. 

“If the AO is satisfied he will close the assessment. If not, he will raise a demand order. If the assessee is convinced that there should be no demand he can file an appeal against the demand,’’ Maheshwari adds.