Income Tax Notice

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7 Types of Income Tax Notice – Understand the Reason Before You Reply

Income tax notice is a very loosely defined term in India. The taxpayer gets scared without understanding the type of income tax notice and reason/s for the same. The readers of this blog keep sharing their queries related to Income Tax Notice under my posts on the similar topic. Trust me from quite long i was planning to write a dedicated post on Income Tax Notice but somehow it never made to my calendar. Recently, i myself received Income Tax Notice. Therefore, i thought it’s high time to share a post on Income Tax Notice.

In past also, i received Income Tax Notice but every time i replied myself. The reason being, i know my case best then the income tax consultant. Most of these notices only seek clarification from the taxpayer. I believe that if you are salaried, you don’t need professional help. You can file your Income Tax Return and reply to any income tax notice received by you. Only in the case of business income or complicated cases, professional help is required. It’s a different matter that you are not comfortable in handling the ITR or income tax notice. In this case, you definitely need professional help.

Types of Income Tax Notice – Understand the reason before you reply
Before we proceed, let me clarify that it is important to understand the type of income tax notice. It will help to file your reply (if required). Trust me you cannot depend 100% on Tax Consultant. At the end of the day, you know your case better. Don’t take any suggestions/inputs from tax consultant on face value. It is important to do a proper and thorough research. The tax consultant may have vested interest. The more you tangle in tax matters, the better it is for tax consultant.

1. Section 139(9): Defective Income Tax Return

In this case, Assessing Officer is of the opinion that ITR filed by the assessee is defective. The best part is that a proper error description is shared and the AO also suggest a probable solution to rectify the same. The assessee is given an opportunity to respond within 15 days from the date of intimation or before it is assessed. If you don’t respond within 15 days then your return will be rejected by the AO. The defect u/s 139(9) can be the wrong ITR filed, missing information, incomplete return etc.
You may agree or disagree with the observation of the Assessing Officer. In the majority of the cases, without going into the merits, the assessee accept/agree on the defect. This is one of the common mistakes by the assessee. If you do not agree with the error description then you can reply to the income tax notice and share the reasons for the same. The only catch is you should know all the rules.

2. Section 131(1A): Income is concealed or likely to be concealed

If you AO is of the opinion that you are concealing the income or likely to conceal income then you will receive income tax notice u/s 131(1A). This notice is basically an intimation that AO is initiating an enquiry or investigate into the matter. The assessing officer can impound the books of account or other documents by providing reasons for the same. There is NO specific time limit to serve this notice.

3. Section 142(1): Preliminary Enquiry before an assessment

You will get a notice of preliminary enquiry in case the return is not filed on time. Alternatively, if the AO would like to go through the documentary proof to verify your claim in Income Tax Return then he may ask you to furnish the documents for assessment purpose. The time limit to serve the notice u/s 142(1) is before the end of the relevant assessment year. For example, the income tax return filed for AY 2016-17, you can receive notice u/s 142(1) on or before 31st March 2017. This timeline is not valid in case the return is not filed by the assessee

4. Section 143(2): Follow up to the notice u/s 142(1)

If the AO is not satisfied with the response of  the assessee or assessee fail to provide the documents against income tax notice u/s 142(1) as explained in the previous point then you will receive notice u/s 143(2). In this scenario, the case is called for detailed scrutiny. The AO may ask the assessee to either attend his office in person or produce supporting, particulars and evidence in support of his claim. 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. For example, return for FY 2015-16 was filed in FY 2016-17 on or before 5th Aug 2016. End of FY 2016-17 is 31st Mar 2017. Six months from the end of FY 2016-17 is 30th Sep 2017. Therefore, notice can be served till 30th Sep 2017.

5. Section 148: Income escaped assessment

To err is human and same holds true for Assessing Officer or If your new AO does not agree with the assessment of previous AO then you can expect notice u/s 148. In short, even after assessment, if the AO is of the opinion that some income of the assessee escaped assessment then income tax notice u/s 148 can be issued. As assessee may be asked to file the income tax return for the relevant assessment, reassessment or recomputation.
The notice can be served within 4 years from the end of the relevant assessment year if the income escaped assessment is Rs 1L or less than that. Otherwise, the notice can be served within 6 years from the end of the relevant assessment year. For example, for a return filed in AY 2016-17, an income tax notice can be served on or before 31st March 2021 (for 1L or less than 1L cases). In the case of more than 1L cases, the income tax notice can be served till 31st March 2023.

6. Section 156: Notice of Demand

If any penalty, tax, fine or any other amount is due from the taxpayer to the income tax department then income tax notice u/s 156 is served. 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. There is no time limit to serve this notice. Income tax notice under section 143(1) and 200A are also referred as Notice of Demand.

7. Section 245: Refund adjusted against the tax demand

I received this notice that i was referring to. It is basically an intimation from Income Tax department. This notice is issued when the tax refund (full/partial) for an assessment year is adjusted against the tax demand due from the taxpayer. The assessment year of refund and tax demand can be different. There is no time limit to serve or send income tax notice/intimation u/s 245.
In this post, i tried to explain the types of income tax notice in layman terms and simplified language. Some of these notices are complete subject in itself. The objective of this post to share the reason behind each type of income tax notice in concise and summarize format so that taxpayer should not panic. As i shared, a taxpayer can reply to most of the notices on his/her own. Lastly, in the case of doubt, a taxpayer can obtain an advance ruling to avoid tax issues.