CA Brijesh Baranwal

CA Brijesh BaranwalOne of the biggest worries of income tax payers is getting notice from Income Tax Department. The Department issues notices under various provisions of Income Tax Act. The purpose of the same is to ensure greater tax compliance.

In recent times, the Department has access to wide range of financial information of taxpayers and the same is utilized for identifying potential cases of tax evasion. Department also takes help from computer-aided scrutiny system (CASS), which generate cases where there is discrepancy in income tax return data.

A. Reasons For Notice From Income Tax Department

Some common reasons leading to notice from Income Tax Department may include;

1. Escaped Income

If the taxpayer has knowingly or unknowingly left some part of income from the income tax return, he or she may get a notice from the department,

2. Not filing returns if income is above exemption limit

As per income tax provisions, it is mandatory to file income tax return if the income is above the exemption limit for the relevant year.

3. Not declaring income from all sources

Tax payer is required to pay taxes on total taxable income during the year. Therefore it is necessary to include salaries etc. from all employers and other taxable income from all relevant sources in the income tax return. For example, there may be income from interest earned on bonds, fixed deposits, recurring deposits etc. which should be included in the total income.

4. Mismatch in TDS details as per Form 26AS and details filed in income tax return

There may be difference between TDS details as per Form 26AS and details filed in income tax return. Both should be reconciled and differences should be rectified before filing the income tax return.

5. Mismatch in income, expenses and investments

Generally, investments and expenditure of the tax payer should match with his or her income. Otherwise, it may create suspicion of escaped income which may lead to notice from the department.

B. Various Sections Under Which Income Tax Notice Can Be Sent

There are various sections under which Income Tax Department may send notice. These sections include;

1. Notice Under Section 131

Income Tax Department has got power under this section related to discovery of escaped income and production of evidence etc. The department under this section may ask a tax payer to submit further documents to verify income source and investment details.

2. Notice Under Section 139(9)

Under this section, the tax payer receives intimation of probable defect in the income tax return and he or she is given an opportunity to rectify the same within 15days from the date of such intimation or within such extended period as may be allowed. If the defect is not rectified within the aforesaid period, the return may be considered as an invalid return and accordingly the assessee may be deemed to have furnished no return.

3. Notice Under Section 142 (1)

This section provides that the department may make necessary enquiries before completing assessment.

4. Intimation Under Section 143 (1) 

Under this section department may intimate the tax payer to pay excess tax amounts due to reasons such as calculation errors etc.

5. Notice Under Section 143 (2)

This is a service of notice for regular assessment. Detailed scrutiny assessments are done under this section. It can be served only if a return has been filed. All relevant documents related to investments, claim for tax deductions, allowance and source of income in the relevant financial year are generally called for.

It has to be served within the time limit of 6 months from the end of the Financial Year in which return of income is filed.

6. Notice Under Section 148

Under this section notice is issued in those cases where income tax department has reason to believe that some income has escaped assessment.

7. Notice Under Section 156

Where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed, the department may serve upon the assessee a notice of demand under this section, specifying the sum so payable.

C. What To Do When Income Tax Notice Is Received

Taxpayers need not worry if they get notice from the Income Tax Department. Instead, they should try to understand the reason for the notice and act accordingly. The taxpayer should collect all documents related to the assessment proceedings including Form 16 (in case of salaried employees), Form 16A, details of income and expenses, bank statements along with narration of entries therein, credit card statements, details of loans, gifts and investments etc.

On the basis of the above documents and queries asked in the notice, a proper reply should be prepared for submitting to the income tax officer on the hearing date. It should be kept in mind that the case may go for some months before a final decision or order.

Although the assessee himself may pursue the matter, he or she may take the professional help of a Chartered Accountant, as providing less or more information than necessary, may go against him/her.

The Author is a Mumbai based, Practicing Chartered Accountant. In case of queries and suggestions, please contact. Mobile: 9312412020, Email:  [email protected]

Disclaimer- This write up is only for awareness purpose and professional opinion may be required in specific cases depending upon the particular facts.

(Republished With Amendments)

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  1. Mohit says:

    I have been filing returns for the last 3 years as follows, which has been non – taxable:

    – Income from sale of old currency notes
    – Income from giving tuition to schoolchildren
    – Income from interest on fixed deposits (TDS deducted)

    Now, this year the Income Tax authorities have sent me a notice u/s 139(9) and requested me to provide details of Profit & Loss account and Balance Sheet. The error is described “Taxpayer having income under the head “Profits and gains of Business or Profession” but has not filled Balance Sheet and Profit & Loss Account as per requirement u/s 44AA read with section 139(9)(d).”

    The CA who was filing my return did not inform me that I need to maintain the book of accounts. Unfortunately, the CA who was filing my return is not taking my calls or replying to my emails.

    Please tell me how should I proceed with this.

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June 2021