Dear friends, Income Tax return Filing season is almost complete now. Most of the Income Tax returns has been filed and processed by Income Tax Department also. Now, the ball moves in the court of Income Tax department. Now, they start analyzing income tax returns filed by us with information already available with them. And after analyzing the data with the use of advanced technology and use of artificial intelligence, department will start notices U/s 133 (6) of Income Tax Act, 1961. After analyzing the response received against these notices, some cases will be selected for scrutiny also. Even, if you do not file you Income tax return then also you may be served notice U/s 133 (6) and Section 148 of Income Tax Act, 1961
Now, they are using power given to them by Section 133 and Section 148 of Income Tax Act, 1961 very effectively to catch the tax evaders and also getting success to a great extent. The same can be revealed by Direct Tax Collections made by Income Tax Department which is increasing drastically. They are sending Income tax notices U/s 133 (6) and Section 148 of Income Tax Act, 1961 in cases where income tax return has not been filed. In the past few months, notices has been sent to many NRI’s person and person you have not filed their Income Tax return but has done high value transactions, under above sections, who are generating income from India in the form of Bank Interest, Rental Income, Capital Gain transactions but has not filed any income tax return and not paid any taxes here. For detailed analysis of what to do if notice received U/s 133 (6) of Income Tax Act, 1961, you can refer below link:
https://taxguru.in/income-tax/notice-received-u-s-section-133-6-income-tax-act-1961.html
Today, we will discuss a real eye opening case study of Mr. A, which depict how a small mistake or greed can becomes a problem in future. Mr. A is a salaried class employee and earning Rs.17500/- per month salary in F.Y-2020-21. During the year, he had applied for Credit card from Bank and he got the same. Now, he tries to generate some income with the help of this Credit card by getting reward points on spending through this credit card. He starts transferring funds from his credit card to his Paytm wallet and other wallets to get cash back from these wallets also. When due date to make credit card approach, then he transfers this Paytm wallet balance to his bank account and make credit card payment and this circular transaction was done throughout the year.
In this way, he done transaction of approx Rs.52,50,000/-during the year and earned approx Rs.60000/- as Cash back/ reward points etc. Due to ignorance of law, he does not file his Income Tax Return even of such kind of high value transaction through credit card. As we all know, credit card transactions are covered under SFT Reporting by banks they report all credit card transaction with PAN Number of Mr. A to income tax department. Now, Mr. A received notice U/s 133 (6) of Income Tax Act, 1961 from Department explaining the reason of non filing of Income Tax return even they have done high value transaction and explain the source of Income from which this credit card payment is done.
Now, Mr. A is confused, how to explain this circular transaction to Income Tax department because in case of faceless communication with income tax department, it is very difficult to explain such circular transaction to income tax department. It required excellent drafting skills, so that you can convey your message to Income tax officer properly. In case, you fails to explain the case properly, department will start scrutiny proceedings against you, which will be very harsh.
Lessons to learn from this case study:
> Avoid un-necessary transactions against your PAN Number
> Be-aware about transactions that are specifically covered under SFT Reporting
> File your Income Tax Returns regularly and disclose all transactions properly. Do not try to escape tax liability, if any, arise. If you are not aware about Income Tax law and filings then must approach an experienced Chartered Accountant/ Advocate/ Tax professional.
> Must response to all notices received from Income Tax department. In case, you fails to submit your reply against notices issued under Section 133(6) of Income Tax Act, 1961, the officer has the power to levy penalty on you @ Rs.500/- per day
> In case department, does not receive any response from assessee then case will be closed after making Best Judgement Assessment.
Be aware about, recent changes made by Government from time to time to save yourself from undue transaction that may attract notices at later stage.
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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA. Shiv Kumar Sharma” can be reached at mail –shivsharma786@gmail.com and Mobile/WhatsApp–9911303737
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very useful