How to reply to different income tax notices

These days people are getting different types of notices/intimations from the Income Tax department by different modes such as delivery by post or by an e-mail.

This article aims to highlight the different situations in which income tax notices can be received and how to respond to those notices if anyone receives the same.

I) Notice for scrutiny assessments u/s 143(2) r/w section 142(1)

• These notices are generally received if you undertake a high value transaction or show some point in the return of income which is unusual from the previous year.
• Generally, these notices are made out on the basis of a Computer aided scrutiny selection system where the assesse meets the criteria as defined for issuing notice of assessment.
• The assessee should immediately consult his CA/Tax consultant when he receives such a notice in order to draft a proper reply to the same.

II) Notice for non-filing of income tax return

• This type of notice is generally received when a person fails to file the income tax return for a particular year(s) when he had filed the same for the previous years.
• This notice is also given to people who enter into high value transactions but have failed to file the return.
• Also in case of salaried individuals, many employees do not file returns in a belief that entire tax is deducted from their salary hence they do not have file the return. This leads to service of a notice from the ITD.

Ques: What to do if you receive a notice for non-filing of Income Tax Return?

Ans: If you have received the notice manually i.e by post or by hand etc., then you have to draft a suitable reply to the income tax authority issuing the notice, detailing the exact reasons why you did not file the return of income.

1) If you were filing the returns previously but have not filed it for the current year due to income being below the taxable limit, then you should clearly mention in the reply that the income was below the taxable limit and that there was no need to file the return of income.

My suggestion would be to always file the income tax return even if your income is below the taxable limit for particular year especially if you were filing the income tax return previously. Discontinuation in filing the return often leads to notice for non-filing of return.

2) Also often people enter into high value transactions but do not file the return in that respect. Example when a person sells or buys a property above Rs. 30 lacs, the information is given to the Income Tax Deptt. in the form of AIR and if the assessee has not filed the return, a notice is given to the assessee for filing such return.

Similarly such notice can be given if the person enters into any transaction listed in the Annual Information Return (AIR).

Some of the common transactions to be taken care of are:

a) Cash deposit of 10 lakhs or more during the FY in savings account with any Bank.

b) Payment made against bills of credit card of 10 lakhs or more during the year

c) Purchase of Mutual funds worth Rs. 10 lakhs or more during the year.

d) Purchase or sale by any person of immoveable property valued at thirty lakh rupees or more.

Therefore, if any person enters into any of these transactions then he/she must ensure that the return is filed in respect of income/losses from such transactions otherwise receipt of notice is inevitable.

3) Also people often do not file return of income when whole of their tds is deducted on salary income. This often leads to notice for non-filing of return by the income tax department.

It is mandatory to file the return if the total income exceeds the maximum amount not chargeable to tax whether or not the whole of tds is deducted unless any specific exemption is given for not filing the return. The return of income is to be filed to intimate the income tax deptt. that there is no tax payable for the year.

If you have received such a notice for non-filing of return where whole of tds is deducted and there is no tax payable then you could have two alternatives as follows:

• If the time for filing the return has not passed, then you could file the return and can attach copy of the acknowledgement alongwith a suitable reply to the notice stating that the whole of tds was deducted and there was no tax payable and there was no tax evasion.
• If the time for filing the return is already over, then prepare a computation of income showing that there was no tax payable and attach alongwith a suitable reply stating therein that the whole of the tds was deducted and there was no tax payable and hence there was no tax evasion.

4) If you have received notice of non-filing by mail i.e compliance notice then you should do the following:

• Login to your Income Tax Department website account.
• Go to the “For Your Action” tab under “Worklist” section and select whether the return is filed or not.
• If the return is filed, then simply click the option that ‘the return is filed’.
• If the return is not filed then click the option that the ‘return is not filed’ When you click on this option, there will be 4 options appearing from which you have to choose the most appropriate option applicable to you. These are as follows:
  • Return under preparation
  • Business has been closed
  • No taxable income
  • Others

After choosing the most appropriate option, go to the ‘Related Information Summary’ tab where some information may be listed in respect of which you may have received this compliance filing notice. Here in the ‘Information relates to’ Tab, it asks for whether such information belongs to the person who has received this compliance notice or to any other person. You could choose the appropriate option depending on the person to which this information relates to.

Mostly the information will relate only to the person who has got the compliance notice. The information relates to some other person only when there is a transaction, income relating to which is clubbed in the income of the assesse or the return of some other person is filed with the PAN of the assessee such as is done in the case of a legal heir.

III) Notice for non-disclosure of income:

If you have not shown any income in the ITR such as Bank Interest, Income from shares or Mutual funds then you will get a notice from the IT Deptt. for that.

This generally arises due to income not being shown on which tds is deducted or Income for which information is supplied to the ITD in AIR.

Therefore always match the return of income with the form 26AS relating to tax credits and ensure that all incomes are shown as in form 26AS.

If the incomes are not shown as in form 26AS, then file a revise return for the same if the time for filing the revised return is not yet over. (Time limit for filing revise return is one year from the end of the relevant assessment year to which the original return relates).

If the time limit for filing the revise return has already expired then file a revised computation alongwith a suitable reply to the notice. Taxes if any that remain to be paid due to the revised computation should be paid alongwith applicable interest and a copy of the challan should also be attached with the reply.

IV) Notice for belated filing of return

If you have not filed the IT Return by the due date, then you could receive a notice for filing the same. The ITD selects a date upto which it analysis as to who has filed the return and who has not done so and sends a notice to the non-filers.

If you have also received then do not panic. Then Prepare a return of income and file as soon as possible.

If you cannot file the return very soon then a simple reply that the return is under preparation and would be filed soon before the due date will be sufficient.

V) Notice for Tax Credit Mismatch in the ITR

This intimation is generally given by the Income Tax Deptt. when there is mismatch in the TDS claimed in the ITR & Tds actually showing in the Form 26AS.

You need to identify the exact reason for mismatch in TDS and file a rectification/ revise return accordingly. You may need to get the tds corrected in the form 26AS first before filing any rectification/revision.

VI) Notice u/s 245 for adjustment of refund with any demand due

Whenever you claim a refund in the ITR, the Income Tax Deptt. can adjust this refund against any demand pending for the earlier assessment years. Before adjusting the refund, the ITD gives an intimation of the amount of refund & demands determined and provides a period of 30 days to reply to the said intimation failing which the refund will be adjusted with pending demands.

Whenever you receive such a notice, the first thing to do is to examine the demands for the earlier years.

Once the reasons for the demands are identified, then take steps to rectify such demands by filing rectifications/revisions/payment of demand etc.

Once the above steps are taken, then suitably reply to the ITD that you have taken steps for corrections of the demands and that the demands are incorrect and so the refund amount should not be adjusted against such incorrect demands. Make sure to reply within 30 days of the receipt of the notice.

VII) Notice u/s 139(9) for filing defective return

This notice is generally received when there is a mistake or a defect in the return filed. The assessee has 15 days to reply to such notice. If the assessee does not reply within 15 days the return will be deemed as not filed.

Whenever you get such a notice, first check what is the issue. Once you know the problem/mistake then correct such mistake and file the response to notice under section 139(9) by generating the xml file again and uploading in e-file tab in the income tax login under the heading e-file in response to notice u/s 139(9).

Here the filer has to select the assessment year and the form number.

Following are also to be given for filing the response on the e-filing website:

• Acknowledgement number of the original return
• Communication reference number of notice u/s 139(9)
• Communication date as given in the notice
• Date of receipt of notice by the taxpayer
• Verification PIN/Password as written in the notice

If the time period of 15 days has already lapsed and you have not filed the response then you could file the return again which will be deemed as original return and if the time of original return has expired then it will be deemed as the return is not filed in time.

VIII) Notice for non-payment of Self Assessment Tax:

Currently, the return with tax payable is not allowed and will be deemed as a defective return. Therefore do not file a return with tax payable. However, if you happen to do so then you will receive a notice for defective return.

When you receive such a notice then immediately pay the tax payable and file the return again in response to notice under section 139(9).

Important Tip: Pay due taxes even if you cannot file return of previous financial years.