income tax notice l notice of demand

Table of Contents

Introduction-

Once the taxpayer files Income Tax Return (ITR), Income Tax Department scrutinizes taxpayer’s return. The department issues Intimations or Notices under the applicable section, accordingly. In this blog we will discuss in brief that when income tax department issues intimation under section 143(1) of the Income tax Act, 1961 and when it issues various Income Tax Notices.

Section 143(1) of the Income Tax Act, 1961– Intimation Letter

We all are aware of the fact that Income tax return can be filed electronically only. Whenever an assessee files Income tax Return, the same is automatically sent to Centralized Processing Centre (CPC), Bengaluru.

After being verified, Income tax return is taken up for its initial checking defects at CPC. There are certain criteria of checking of defect in returns. If return is defect free then it is further sent for processing. However, if any defect is found in return, it will be declared as ‘Defective Return’ and notice under section 139(9) of the IT Act will be sent to assessee for correction of such defect. Best information of Income Tax Notice India.

Other returns in which no defect was found & which were send for processing, in such return below mentioned points shall be checked.

Whether Tax has been Paid
TDS Claimed in ITR is according with TDS deposited in name of assessee.
Tax Payment
Income is declared accordingly with other available details.
Losses has been claimed correctly
There are no Arithmetically errors in Return.

After checking all this, the ITR is processed and an intimation letter is generated.

Such Intimation under section 143(1) of the IT Act is sent to Assessee electronically.

Intimation under section 143(1) of the IT Act may be of the following types:

Tax liability is to be paid
Refund is determined
No demand or shortfall of tax liability, but an increase or decrease in the amount of loss.

Note-

If there is a Tax demand, then the letter of intimation shall be issued within 1 year from the end of the relevant financial year in which the return has been filed.
The tax so demanded shall be payable within 30 days of notice of demand.

If the payment of tax is delayed, an Assessee shall be deemed to be liable to pay simple interest under Section 220(2) i.e. 1% for every month, further penalty under Section 221(1) may be imposed.

Notice under Section 142(1) of Income Tax Act – Inquiry before assessment’

As the name suggests, notice under Section 142(1) of Income Tax Act, is generally issued for asking an assessee to furnish required documents and details and to take a particular case under assessment.

It is a ‘Preliminary Investigation’ before starting the assessment.

Income tax notice can be issued when assessee has not filed return under section 139 of the IT Act, within allowed time. In such case, the Assessing officer may ask the assessee to file such return of income.

Assessing officer may ask the assessee to furnish information & documents as he may require.

Consequences for not complying with the provision of Section 142(1).

Notice under Section 143(2) of the IT Act – Scrutiny Notice

Notice under Section 143(2) of the Income Tax Act, 1961 is issued for initiation of assessment proceedings under section 143(3) of the Act.

As per the provisions of Section 221(1 of the IT Act, where a return has been furnished under IT Act, the Assessing Officer if, considers it necessary to ensure that

The assessee has not understated the income or
Has not computed excessive loss or
Has not under-paid the tax

In such case, assessing officer shall serve on the assessee a notice under section 143(2) of the IT Act. Which means that the return of the assessee is selected for the scrutiny assessment.

In case where assessee has not filed return of income, in such case he can complete assessment as per the provisions of section 144 of the IT Act.

Consequences for not complying with the provision of Section 143(2).

Notice under Section 148 of the IT Act – Income Escaping Assessment

The assessing officer is entitled to assess or reassess the income of the taxpayer even after time of scrutiny assessment under section 143(3) of the IT Act has elapsed. The assessing officer can do so by issuing notice under section 148 of the IT Act. However, for issuing notice under section 148. The AO shall have reason to believe that the taxpayer has not disclosed income correctly or has paid less tax.

Notice under section 148 of the IT Act is issued for asking the assessee to file return under this section. Even after that, if assessing officer is not satisfied he can initiate assessment proceedings under section 147 of the IT Act.

Notice section 156 of the IT Act – Notice of Demand

On completion of any assessment proceedings under IT Act, notice of demand under section 156 of the IT Act is issued along with assessment order. Such notice of demand indicates the amount of tax, interest, penalty, fine. It is payable by assessee on completion of assessment. In case when there is no demand payable on completion of assessment value prescribed in notice of demand is ‘NIL’.

The amount mentioned in notice of demand which may include Tax, Penalty, Fine, Interest, or any other sum so demanded is payable, generally within 30 days from the date of issue of such notice.

If the payment of tax is delayed, the Assessee shall be deemed to be liable to pay simple interest under Section 220(2) i.e. 1% for every month. Further penalty under Section 221(1) may be imposed.

Notice under Section 245 of the IT Act – Set off of refunds against tax remaining payable

In Income tax, if there is any refund due of an assessee for a year and simultaneously there is outstanding demand in name of such assessee for same year or for any other year. In such case assessing officer etc. may set off the amount to be refunded against outstanding demand. However, before such adjustment, intimation is sent to assessee under section 254 of the IT Act, informing him about such proposed action of adjustment of his refund.

Vide notice under section 254 of the IT Act; the Assessing Officer discloses the effect of adjustments made with the amount due to taxpayer.

The refund shall adjust against outstanding demand, only if proper notice and opportunity to be heard is given to Assessee.