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Home > Income Tax > Help Center > Handling IT Notices Last Updated: Feb 26th 2023

How to Handle Income Tax (IT) Department Notices?

Avoiding Income Tax Notices is easier than dealing with them. Learn more on how to handle the Notices such as Scrutiny, Discrepancy, Mistakes, Non-disclosure.

We generally see substantial raise in #IT #Tax #Notice related inquiries during the 1st two weeks in Sep, Nov and last 2 weeks of Mar months, hence this post to advise Tax Payers in handling the IT Notices.

The most crucial thing to remember when receiving an IT notice is to not disregard it. These days, almost everything is connected to Aadhaar, PAN, bank accounts, digital wallets, and mobile numbers. The income tax division is developing daily intelligence in the direction of a complex, interconnected tax system.

1. Possible Common Reasons for getting an IT Notice

  1. Reminder to file tax returns
  2. Scrutiny at random
  3. Discrepancy in your income tax returns
  4. Errors in TDS Amount Deducted
  5. Ignoring income received from the previous employer
  6. Demanding a proof of documentation
  7. High Value Transactions not matching with Income declared
  8. Transferring the asset in the name of spouse or children
  9. High number of Gift Transactions
  10. Not depositing the full amount of tax assessed before the due date
  11. Income Tax Return not filed or filed after the due date
  12. Non-disclosure of assets
  13. Non-disclosure of Foreign Income
  14. Investments in the name of family members
how to handle Income Tax Department Notices |

2. Various types of Important Notices and the reasons for Such

2.1. Notice under Section 142(1) – Inquiry before assessment:

Notice under Section 142(1) is usually served to call upon documents and details from the tax payers.

  1. This notice is basically sent after notice u/s 142(1) has already been sent. It means AO was not satisfied with the produced documents or may be AO has not received any documents
  2. If assessee do not comply with the provisions of this section
    • It may result in Best Judgement Assessment u/s 144, or
    • Penalised under Sec 271(1)(b) i.e. Rs10,000 for each failure
    • Prosecution under Sec 276D which may extend upto 1 year with or without fine.
2.2. Notice under Section 143(2) – Scrutiny Notice
  1. This notice is basically sent after notice u/s 142(1) has already been sent. It means AO was not satisfied with the produced documents or may be AO has not received any documents.
  2. This notice can be served upto 6 months after completion of relevant assessment year.
  3. The AO can reduce the income below the returned income and can assess the loss higher than the returned loss under Scrutiny Assessment as per Sec 143(3).
  4. The notice might ask you to produce documents in support of deductions, exemptions, allowances, reliefs other claim of loss you have made and provide proof of all sources of income.
  5. Section 143(2) enables the Assessing Officer to make a regular assessment after a detailed inquiry.
  6. If assessee do not comply with the provisions of this section:
    • It may result in Best Judgment Assessment u/s 144
    • Penalised under Sec 271(1)(b) i.e. Rs10,000 for each failure
    • Prosecution under Sec 276D which may extend upto 1 year with or without fine.
2.3. Notice under Section 143(1) – Letter of Intimation

Three types of notices can be sent under section 143(1)

  1. Intimation where the notice is to be simply considered as final assessment of your returns since the AO has found the return filed by you to be matching with his computation under section 143(1).
  2. A refund notice, where the officer’s computation shows amount excessively paid by the assessee.
  3. Demand Notice where the officer’s computation shows shortfall in your tax payment. The notice will ask you to pay up the tax due within 30 days.
  4. Time limit for the notice to be served is up to 1 year after completion of relevant assessment year.
2.4. Notice under Section 148 – Income escaping assessment
  1. If AO has reasons to believe that any income chargeable to tax has escaped assessments, he may assess or reassess such income, which is chargeable to tax and has escaped assessment.
  2. To initiate proceedings under Sec 147, the AO is required to have a reason necessarily.
  3. The onus of stating the reasons is on AO.
2.5. Notice under Section 156 – Notice of Demand
  1. Where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed, the AO shall serve upon the assessee a notice of demand, specifying the sum do payable.
  2. The tax so demanded is payable, generally within 30 days of the service of notice of demand, which may be reduced by the AO with prior approval of JCIT.
  3. In case of delay in payment of tax, the assessee shall be deemed to be in default and liable to pay simple interest u/s 220(2) @ 1% for every month or part thereof from the end of the period allowed u/s 156, further penalty u/s 221(1) may be imposed.
2.6.Notice under Section 139(9) – Defective Return
  1. What is a Defective Return? – A return shall be considered as a defective return unless it is accompanied by the required documents under the Act. e.g. Annexures, statements, proofs of tax, reports etc.
  2. If the AO considers that the return filed by the assessee is defective, he may intimate the defect to the assessee and gave him an opportunity to rectify the defect within 15 days from the date of such intimation or within such extended period as may be allowed by the AO.
  3. If the defect is not rectified within the aforesaid period, the return shall be considered as an invalid return and accordingly the assessee will be deemed to have furnished no return.

For a comprehensive information on how to handle defective return, refer Defective Notice u/s 139(9): How to Prepare, Upload Return

2.7. Notice under Section 245 – Set off of refunds against tax remaining payable
  1. Where any amount of refund is pending to the assessee and also any sum is payable under the Act, the AO may adjust the amount to be refunded with the sum payable by the assessee. Basically it can be related to the ‘inter adjustment of transactions’.
  2. Notice under Section 245 is more of intimation letter and less of demand notice.
  3. Under this notice, the AO intimates the effect of the adjustments made with the amount due to assessee. It indicates the adjusted amount which can be either merely intimation or demand notice of lesser amount still payable after the adjustment.

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3. Documents needed in case of a defective Notice?

Most corrective actions against a defective notice require to revisit the IT return completely. Hence, the tax preparer needs all the documents that are used in the original IT Return preparation to prepare a corrective IT Return. To make sure that the response to the defective notice is accepted, one must pay attention to the revision / correction carefully.

Refer  Income Tax Notice Handling Service Plan & Pricing to know the Service, Process, and Pricing

4. How to respond to a Defective Notice u/s 139(9)?

Follow the below steps to submit a response to the defective notice issued u/s 139(9)

  1. Login to ITD e-Filing Portal
  2. Goto e-File menu, and Click on 'Response to Notice u/s 139(9)'
  3. Enter the details like ITR, AY, e-Filing Acknowledgement Number, CPC Reference Number, Notice Date, Status, and the Response. Click the 'Submit' button
  4. All the identified defects from the filed ITR is displayed to the taxpayers. Choose YES/NO from the ‘Do you agree with defect?’ column.
  5. If you Choose 'YES', Upload the new corrected XML, and Click 'Submit' button to submit.
  6. If you Choose 'NO', Enter the response under the Assessee Remarks column and Submit.

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