Don't agree with a tax notice? You should respond through I-T portal

Act promptly or else the tax department could confirm the tax due and impose an additional penalty

In a sweeping move, the Income-Tax (I-T) Department has recently issued one lakh notices to individuals it believes have either concealed their income or furnished inaccurate details regarding their income. This campaign zeroes in on taxpayers who are allegedly involved in cases that date back four to six years. Assessment proceedings in these cases will be completed by March 2024. The focus of these notices is primarily on assessees whose income is suspected to be over Rs 50 lakh.

Says Maneet Pal Singh, partner, I.P. Pasricha & Co., “The notices issued by the I-T Department are scrutiny notices annexed with a detailed questionnaire regarding the sources of the taxpayer’s income.”

According to the provisions of the I-T Act, cases older than three years can be opened only if the income not offered to tax is greater than or equal to Rs 50 lakh. Such cases can be opened up to six years for cases up to Assessment Year (AY) 2021-22. Says Ankit Jain, partner, Ved Jain & Associates, “Cases of AY 2016-17 were expiring in March 2023. Notices have been issued mainly for AY 2016-17 to verify tax evasion.”

Myriad information sources

Nowadays, the tax department has a large information-gathering network whereby it can garner a lot of detailed information on taxpayers’ income.

Says Jain, “These notices were issued based primarily on information gathered from various sources like banks, mutual fund houses, stock exchanges, property registrar offices, I-T raids, other reporting agencies, etc. Such information is then verified with the I-T return filed by assessees to check the accuracy of the income declared.”

Why are notices issued

The I-T Department usually issues notices to taxpayers to verify the genuineness of their reported income, and clarify doubts regarding misreporting or underreporting.

Says Sandeep Bajaj, advocate, Supreme Court of India, “Notices could be issued for discrepancies in reported income, non-filing of income-tax return (ITR), high-value transactions, bogus deductions and claims, and mismatch in credit taken and actual Tax Deducted at Source (TDS), to name a few.”

Pallav Pradyumn Narang, partner, CNK, adds that notices could be issued for incomes reported in the ITR that do not reconcile with income according to Form 26AS or the Annual Information Statement (AIS), abnormally large refunds, etc.

Once a tax officer finds discrepancies in the ITR filed by an assessee, she issues a notice to open the scrutiny assessment and verify the correctness of the filing.

How to deal with a notice

Upon receiving a notice from the I-T authorities, first try to understand why it was issued.

A notice can be dealt with in one of two ways. Says Bajaj, “Either one agrees with the notification, pays the taxes owed, and notifies the tax department. Alternatively, if one disagrees with the notice, one must respond to it via the I-T portal.

If a person doesn’t reply to the notice within the stipulated time window, the income tax due is confirmed and an additional penalty is imposed.

Before replying to a tax notice, the taxpayer should gather all the required documentation to support her contention. Says Vipul Jai, partner, PSL Advocates and Solicitors, “The taxpayer should gather all the relevant documents, such as ITR, bank statements, and other financial records, to prepare and submit a comprehensive response to the notice within the stipulated time.”

Adds Jain, “Since assessments are these days carried out in an online, faceless manner, assessees may also explain their case via video conferencing. If an adverse order is passed even after offering an extensive explanation for all the queries and a demand is raised on a taxpayer, then the next option is to file an appeal before the Commissioner Appeals.”

While receiving a tax notice from the tax department can be a daunting experience, one must handle it with prudence. By staying calm, seeking professional guidance from qualified tax experts, and responding promptly and truthfully, individuals can effectively address the concerns raised by the tax authorities.

                                                         Diverse range of I-T notices

Notice under section (u/s) 139(9): Issued by the I-T Department if the Assessing Officer believes some information is missing from the ITR

Section 142(1): A questionnaire demanding details, documents, or specific reasoning pertaining to income under-reported, reported, or mis-reported during a given financial year

Section 147: Issued by the I-T Department to open cases for previous years for assessment or reassessment

Section 156: Sent to intimate regarding any demand raised by the I-T Department for any fee, interest, or penalty

Section 245: Issued by the I-T Department to offset a demand for several years against the refund generated for other years

             Source: I.P. Pasricha & Co