Types of Notices under Income Tax Act, 1961

The basic purpose is to inquire the details of the assessee before making assessment under the Act. It can be related to ‘Preliminary Investigation’ before starting the assessment.

By serving a notice u/s 142(1) the assessing officer, may call upon the assessee:-

1. To furnish a return of income in respect of which he is assessable, where he has not filed his return of income within the normal time allowed.

– It may include return in respect of his own income or income of other person for which he is liable to be assessable. Example- In case of legal guardian/ deceased person.

2. To produce accounts or documents which the AO may require for the purpose of making an assessment.

3. To furnish in writing any information on matters including statement of the assessee. For Example- statement of assets and liabilities of the assessee on a particular date.

The AO may or may not start assessment after compliance with this notice, dependent upon the facts of assessee. If AO is satisfied with the produced documents or return, he may not start with the assessment process.

Compliance with this notice u/s 142(1) is mandatory even if the tax payer is of the opinion that the accounts/documents requested are irrelevant.

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. Rs 10,000 for each failure, or

– Prosecution under Sec 276D which may extend upto 1 year and with  fine.

2. Notice under Section 143(2) – Scrutiny Notice

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.

If you get Notice under Section 143(2) it means your return has been selected for detailed scrutiny by your Assessing Officer.

No notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.

Where the assessee has not furnished his return of income, 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.

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).

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.

Section 143(2) enables the Assessing Officer to make a regular assessment after a detailed inquiry.

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, or

– Prosecution under Sec 276D which may extend upto 1 year and with  fine.

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 30days.

No intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made

How to reply to notice received under section 143(1):

1. If details provided by the taxpayer and as verified by the Income Tax department match. Then the notice will serve as final assessment of the return with nothing to be done on part of the taxpayer and the department. Just a printout of the same shall be taken and kept along with the income tax file. Take a printout of the same and file it with your income tax papers.

2. If you are getting Refund, wait for the cheque or transfer into your account.

3. If there is a tax demand then this intimation becomes Notice of Demand under section 156. The notice says “In case of Demand, this intimation may be treated as Notice of demand u/s 156 of the Income Tax Act, 1956. Accordingly, you are requested to pay the entire Demand within 30 days of receipt of this intimation”.

For example, if Income as disclosed by taxpayer is Rs 6,00,000 and tax duly deposited on same but the department computes his income as Rs 6,50,000, then tax on Rs 50,000 needs to be paid. The taxpayer will have to pay such tax or of he thinks that the demand is wrong then he must prove his case and file rectification.

4. Notice under Section 148 – Income escaping assessment

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.

To initiate proceedings under Sec 147, the AO is required to have a reason necessarily.

The onus of stating the reasons is on AO.

Also,

Notice under Sec 147 cannot be sent in regard to the income involving matters which are the subject matter of any appeal, reference or revision.

This tangible reason should give him a belief that there is income which has expected assessment. The Supreme Court has clarified that the act nowhere states that the beliefs or reasons of AO should ultimately proved to be escaped income in order to be valid reason.

Even though if the contention of the AO shall stand invalid in any case but the beliefs were reasonable on his part, the Notice and such assessment shall stand valid.

5. Notice under Section 156- Notice of Demand

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.

The notice of demand is received in the cases where assessment has been made in respect to assessee. Generally, notice of demand is not received to every assessee for regular payment of taxes. Assessee on his own pays the taxes with self assessment.

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.

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.

6. Notice under Section 139(9) – Defective Return

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.

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.

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.

Provided in the case where assessee rectifies the defect after the aforesaid period but before the completion of assessment, the AO may condone the delay and treat the return as a valid return.

7. Notice under Section 245 – Set off of refunds against tax remaining payable

Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.

Notice under Section 245 is more of intimation letter and less of demand notice.

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.

Example:

X filed his return of income for A.Y.2017-18 and the tax payable is Rs.5000. Mr.X is unaware of this outstanding demand. Mr.X has filed his income tax return for A.Y. 2018-19 and the refund is due to him Rs.10,000.

Now while processing the income tax refund of Rs.10,000 to Mr.X the income tax department deducts the tax payable which is outstanding for A.Y.2017-18 and will pay the remaining Rs.5,000 to the assessee. But the department can do so, only after intimate the same to the assessee by giving intimation u/s 245.