Most of us believe that once we complete our income tax return, we have complied with all of our obligations; thus, we are often taken aback when we receive any correspondence from the Income Tax Department. So, to verify that we conform with the Income-tax Act, we must understand other factors we must monitor.
We first need to comprehend the various communication channels used by the Income Tax Department, their justifications, and how to reply to or ignore them.
If you recently bought a home, are investing in a mutual fund or a savings account, etc., but haven't yet submitted your return of income, the Department has sent you this notification.
The Department wants to know where we obtained the funds against which we made this investment, which is why we received this notification. To prevent receiving a notice for non-compliance, we must determine annually if our total income exceeds the basic exemption ceiling.
If we receive such a message, we can reply by logging into the income tax website and selecting E-Campaign from the Pending Actions menu.
The distinction between an intimation and a notice must next be understood. Although there are a few exceptions, the intimation is only the result of the processing of the return, and we may not be obligated to take any further action. However, you must take action when the Department sends you a notice.
The Department processes our return after we file it and gives an intimation under section 143(1) reflecting one of three circumstances:
- The amount of taxes owed has increased (need to be paid within 30 days of receiving the demand).
- The amount of any additional refund is decided.
- No action is necessary because the return submitted agrees with the AO's assessment.
The following considerations must be made to prevent receiving an Intimation of increased tax liability:
- An arithmetic error.
- A false claim.
- Disallowing incorrect losses or costs.
- Any income not reported on the return.
One year from the conclusion of the financial year in which the return is made is the deadline.
There is a chance that we will get a warning about a defective return after filing a tax return for the reasons listed below:
- Incorrect ITR Form submitted
- Absence of Information
- Incomplete Return
The chance to correct the problem must be taken within 15 days after the date of the AO's notification if the AO deems the return defective.
The return will be deemed void if the error is not fixed within the allotted time, and it will be assumed that no return has been filed.
Notice - Inquiry before Assessment u/s 142(1)
The following circumstances allow for the issuance of a notification under this section:
- When the return has been submitted, the assessing officer needs more details and supporting documentation before determining an assessment.
- The Assessing Officer wants the return to be filed if it hasn't already.
Before making the assessment, the primary goal is to obtain information about the assessee. It serves the purpose of considering that case and requesting the papers and information from the assessee.
Depending on the assessee's documents, the AO may or may not begin the assessment after compliance with this notification. The AO is not required to begin the evaluation procedure if he is pleased with the documents or returns.
Even if the assessee feels that the requested accounts or documents are irrelevant, compliance with this notification is required.
Consequences of non-adherence to the Notice include:
- It might lead to Best Judgment under Section 144.
- A fine of Rs. 10,000 for such failing under Section 271(1)(b).
- A fine and a year of prosecution under Section 276D are possible.
You'll get a Notice under Section 143. (2) indicates that your return has been chosen for the Assessing officer's detailed examination if the Assessing Officer is dissatisfied with the submitted documents or the assessee's reply to the income tax notice issued pursuant to section 142(1).
The AO may request that the assessee provide more documentation and justifications for his claim.
The Assessing Officer wants to make sure the assessee hasn't engaged in any of the following behavior during the close examination:
- Cut the revenue.
- Claimed a significant loss.
- Reduced taxes paid.
- Less taxes paid.
- Reduced taxes paid.
The assessee must respond to the questionnaire included with this notification and provide all the paperwork requested by the income-tax Department.
Time frame: Within six months of the end of the financial year (FY) in which the return is furnished.
Notice u/s 148: Income Escaping Assessment.
In all situations, it is referred to as an income evading assessment if the AO has grounds to assume that the assessee has not stated the income accurately, has paid the lesser taxes, or has not filed the return. In these circumstances, AO evaluates or re-evaluates the revenue, as applicable.
The AO must issue a notice u/s 148 to begin the proceedings u/s 147.
However, before sending a notice under Section 148, the AO gives the assessee a chance to be heard by sending a Show Cause Notice under Section 148A. If the assessee successfully provides the required documentation and justification, the AO will hold off on issuing the Notice required by Section 148.
If the income that escapes assessment is Rs. 1 lakh or less, Notice may be served within 4 years of the conclusion of the relevant AY. Any officer with a lower level than Assistant Commissioner or Deputy Commissioner is not permitted to provide a Notice.
If the income that escapes assessment is higher than Rs. 1 lakh, a Notice may be given up to 6 years after the end of the relevant AY, which is longer than 4 years. Only the Chief Commissioner or Commissioner may provide a Notice.
Suppose income related to any asset outside India is payable to tax in India but has eluded assessment. In that case, Notice may be served up to 16 years after the end of the relevant AY but not more than 4 years beyond.
Demand Notice u/s 156 of the Notice Act
When any tax, interest, penalty, fine, or other amount is due in relation to a decision made, the AO notifies the assessee in accordance with Section 156, detailing the amount due. Within 30 days following the date of the income-tax Notice, the assessee may deposit the amount due.
This Notice may be served at any time.
When paying taxes late, the assessee is assumed to default and must pay simple interest under Section 220(2) at 1% for each month or part thereof. Additionally, Section 221(1) may impose a penalty.
Notice u/s 245 - Set Off Refunds Against Tax Still Obliged to pay
When the tax refund for an AY is subtracted from the tax demand owed by the assessee, notice u/s 245 is sent. This Notice may be served at any time.
You should comprehend the purpose of receiving an income tax notice if you receive one. There are several reasons why notices could be sent. For instance, notices may be sent regarding the information and documents the Income Tax Department needs. In this situation, you must submit the necessary information. In addition, notices may be sent to correct errors in the ITR if there are any. Therefore, you must make any necessary corrections to your return and respond to the Notice before the deadline established by the income tax department if you want to avoid paying any fines in this case. Depending on the type of Notice you receive regarding your income taxes, there may be different types of consequences if you don't respond or reply within the specified time limit. These penalties can include imprisonment for up to a year and fines of up to Rs. 10,000. Therefore, a notice from the IT department should never be overlooked.