Income Tax Notice FAQs

Every taxpayer has to furnish the income and investment details to the Income-tax Department. These details are to be furnished by filing return. Once the return is filed by the taxpayer, the next step is the processing of the return by the Income-tax Department. The Income-tax Department examines the return. The process of examining the return of by the Income-tax Department is called “Assessment”. Assessment also includes re-assessment or best judgment assessment.

There are different types of notices or assessments as given below:

1. Defective Income Tax Return: Section 139(9).
2. Calling for information u/s 133(6) of the Income Tax Act, 1961,
3. Income is concealed or likely to be concealed: Section 131(1A).
4. Preliminary Enquiry before an assessment: Section 142(1).
5. Notice of demand: Section 156.
6. Refund adjusted against the tax demand: Section 245.
7. Follow up to the notice u/s 142(1): Section 143(2).
8. Summary assessment without calling the taxpayer: Section 143(1).
9. Scrutiny assessment: Section 143(3).
10. Best judgment assessment: Section 144.
11. Income escaped assessment: Section 148 & 147.

This notice is sent by Assessing Officer of the opinion that ITR filed by the taxpayer is defective or incorrect.

And the Assessing Officer will provide the

1. Proper description of the errors
2. The solution that possible use to rectify those errors

Examples: Incomplete returns, parts of information missing, file a wrong ITR The tax payer has submit the response within 15 days from the notice received date, if the tax payer don’t respond then the return will be rejected by AO. The tax payer can submit the response in 2 ways

1. Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
2. Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

For a details on how to address defective returns, refer Defective Notice: How to Prepare, Upload JSON

Assessing Officer is of the opinion that tax payer are concealing the income or likely to conceal income then tax payer will receive notice u/s 131(1A). This notice is basically intimation that AO is initiating an enquiry or investigate into the matter. The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year. Tax payer can seek the permission for attend someone behalf of tax payer, extension of time for valid reasons.

Tax payer will get a notice of preliminary enquiry in case the return is not filed on time, then tax payer will furnish a return of income in respect of which is assessable.

OR

AO would like to go through the documentary proof to verify tax payer claim in Income Tax Return then AO may ask you to furnish the documents for assessment purpose.

The time limit to answer is before the end of the relevant assessment year.

If tax payer not responded to this notice:

It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure.

This notice will serve the ITD, when the tax payer has any dues like tax, interest, penalty, fine or any other sum is payable. Normally this notice is served after the assessment of ITR. The taxpayer can deposit the amount payable within 30 days from the date of the income tax notice. Or if any mistakes in original return then tax payer can do the revised return and submit the revised acknowledgement. There is no time limit to serve this notice. And also refer Income tax notice under section 143(1).

This is called intimation

This intimation means offset tax payer refund (full/partial) against the old tax payable or due

This notice will issue by Assessing Officer, if not satisfied with the response of the taxpayer or tax payer failed to provide the proofs or documents against the notice 142(1). So this notice is a detailed scrutiny.

The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year.

The timeline to serve notice u/s 143(2) is before the expiry of six months from the end of FY in which the return is furnished.

Where the taxpayer has not furnished return, then notice under Section 143(2) cannot be issued to him and also scrutiny assessment cannot be done. In such case, direct Best Judgement Assessment under Section 144 is done by the AO.

If tax payer not responded to this notice: It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure

The notice/intimation under section 143(1) issued by ITD in 2 different ways

1. Intimation:

Return furnished by the taxpayer and as verified by the Income Tax department match.

Then the Intimation will serve as final assessment of the return with nothing to be done on part of the taxpayer and the department. Take a printout of the same and file it with your income tax papers.

If the tax payer has refund, wait for the cheque or transfer into your account.

2. Notice:

Return furnished by the taxpayer and as verified by the Income Tax department does not match, which means in tax payer return there is some arithmetical errors or tax due.

The tax payer can submit the response in 2 ways

1. Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
2. Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

Time limit is depending up on the ITR process

This is a detailed assessment and is referred to as scrutiny assessment. The scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return.

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that the tax payer not understanding the below:

• Understated the income
• Computed excessive loss
• Underpaid tax in any manner

Time limit:

• 21 months from the end of the AY in which the income was first assessable. [To AY 2017-18 or before]
• 18 months from the end of the AY in which the income was first assessable. [To AY 2018-19]
• 12 months from the end of the AY in which the income was first assessable [To AY 2019-20 and onwards]

The Assessing Officer issues the Best Judgment 144 for the bellow reasons

1. The taxpayer fails to file the return of income as required within the due date u/s 139(1) or after due date u/s 139(4) (belated) or a revised return u/s 139(5).
2. The taxpayer fails to fulfil with notice issued under section 142(1). (For 142(1) please refer question number 5)
3. The taxpayer fails to fulfil directions or notice issued u/s 142(2A).

Note: Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get accounts audited from a chartered accountant

The Assessing Officer is not satisfied by the arguments of the taxpayer and AO has reason to believe that the case demands a best judgment, and then AO will proceed to carry out the assessment as per best of knowledge.

Criteria of best judgment assessment are satisfied, then after taking into account all relevant material which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of judgment and determine the sum payable by the taxpayer on the basis of such assessment.

If the Assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Sec 148 to 153, assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently in the course of proceedings.

Circumstances when income is deemed to have escaped assessment

The following shall be deemed to be the cases where income chargeable to tax has escaped Assessment.

• Where the total income of the tax payer during the previous year has exceeded the maximum amount which is chargeable to income tax and no return of income has been furnished by the tax payer.
• Where the return of income has been furnished by the tax payer and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return and no assessment has been made.
• The assessee has failed to furnish a report in respect of any international transaction u/s 92E.
• It is noticed by the AO that the income of the tax payer exceeds the basic exemption limit based on the information or document received u/s 133C(2) and the return of income has not filed.
• It is noticed by the AO that the tax payer has understated the income or claimed an excessive loss, deductions; allowance in case of return of income has been filed.
• Where the return of income has been furnished by the tax payer and assessment has been made and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return.