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Income Tax Scrutiny Assessment under Income Tax Act Section 143(3)

Income tax assessment is the process of verification of the information a taxpayer has provided in the returns submitted by a taxpayer to the income tax department. The Income Tax department assesses after an assessee FFilinginges an income tax return. The assessment’s purpose is for the Income Tax department to verify the return filed for correctness concerning the amount of taxable income declared and tax paid. There are various types of income tax assessment. In this article, we briefly discuss the concept of a scrutiny assessment under Section 143(3).

Income Tax Assessment

The term “assessment” in the context of income tax refers to the process where the Income-tax Department evaluates a taxpayer’s return of income. This evaluation is done to verify the accuracy and correctness of the information provided by the taxpayer in their Income tax return. The assessment process involves various methods, including:

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notably, the Finance Act of 2018 introduced Section 143(3A), which implemented an e-assessment scheme for regular assessments carried out under Section 143(3). Further expanding this, the Finance Act 2020 included the best judgment assessments under Section 144 within the scope of e-assessment. By leveraging digital platforms, E-assessment aims to make the entire process more efficient and less cumbersome.

Notice under Section 143(2)

When the Income Tax Department selects your Income Tax Return for a detailed check, they issue a Notice under Section 143(2). This is a step towards what is known as a scrutiny assessment or thorough assessment under Section 143(3).

Under Section 143(3), the scrutiny assessment thoroughly reviews your Income Tax Return. The main goal is to verify the accuracy and truthfulness of various claims and deductions you’ve made in your return. Essentially, this process ensures that the income you’ve reported and the tax you’ve paid are correct.

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

So, in summary, to conduct a scrutiny assessment under Section 143(3) of the Income Tax Act, the Income Tax Department issues a notice under Section 143(2). This notice is typically given within three months from the end of the financial year.

What Exactly is a Scrutiny Assessment?

A scrutiny assessment, as defined under section 143(3), involves a detailed examination of the income tax return. During this assessment, the tax authorities meticulously check the authenticity and accuracy of various claims, deductions, and other details you have provided in your return.

Scope of Assessment under Section 143(1):

The assessment under Section 143(1) is essentially a preliminary check of the income tax return filed by the taxpayer. At this stage, the focus is not on detailed return scrutiny. Instead, it involves a basic verification process where certain adjustments may be made to the income or loss reported by the taxpayer. These adjustments include:

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

When an Income Tax officer needs to conduct a scrutiny assessment, they first issue a notice under Section 143(2). This notice asks the taxpayer to show up in person or through an e-assessment. The taxpayer must also provide any documents or information the officer thinks are essential for determining the taxable income and tax owed. This notice must be sent within six months after the end of the financial year the tax return was filed.

For example, if a return is filed on November 2, 2018, the notice can be sent until September 30, 2019. However, if the notice is sent on September 29, 2019, but reaches the taxpayer after September 30, it’s invalid.

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

During this hearing, the tax officer gives the taxpayer plenty of chances to be heard and to show documents or evidence supporting their tax return. If the taxpayer doesn’t provide the needed information or doesn’t cooperate, the officer can do a best judgment assessment under Section 144.

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

In conducting these assessments, the Assessing Officer must adhere to the guidelines and norms set by the Central Board of Direct Taxes (CBDT) and follow the precedents and rules established by the Supreme Court. This adherence ensures the scrutiny process is consistent, fair, and in line with legal standards.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Income Tax Scrutiny Assessment under Income Tax Section 143(3)

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Scrutiny Selection Assessment Order under Section 143(3) of Income Tax Act

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Scrutiny Selection Assessment Order under Section 143(3) of Income Tax Act

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Income Tax Notice – important to verify notice/order issued by the income tax authority

Before you respond to any communication received in the name of the income tax department, it is important to verify whether the notice/order issued is genuine and issued by the income tax authority.

You can authenticate the notice/order/letter issued by the income tax authority on the e-filing portal. Let us understand to verify the same.

Step 1: Go to income tax e-filing portal. On the home page, go to ‘Authenticate notice/order issued by ITD’ under ‘Quick Links’.

Step 2: You can authenticate using:

PAN, document type, assessment year, issue date and mobile number (for notice/order/letter issued for AY 2011-12 and subsequent years only)
Document Identification Number and mobile number (for all assessment years)

Step 3: If you want to authenticate by PAN, document type, assessment year, issue date and mobile number, select the option and enter all the details.

Step 4: After filling in all the details, you will receive an OTP. Enter the OTP received.
Once the OTP is validated, the DIN of the notice issued, along with the date of issue of the notice, will be displayed.

If the notice is not issued by the ITD, it will display a message – No record found for the given criteria.

Step 5: Another alternative is to authenticate using DIN and mobile number.

Step 6: Enter DIN and mobile number and continue. You will receive an OTP. Validate using OTP.

If the notice/order is issued by the income tax authority, it will display a success message, as shown below.

Otherwise, it will show- No record found for the given Document Number

Types Of Notices/Intimations

Notice Under Section 133(6)

The Income Tax Department has enacted the E-Verification Scheme 2021 which involves calling for information from those taxpayers where material difference is observed between the ITR field and data available in form AIS. The reason for such notice can be as follows

ITR was not filed in spite of having income exceeding the basic exemption limit as per AIS.
Taxable Income in the form of Salary, Interest Income, and Capital gain exists in the Annual Information Statement (AIS). However, values are not entered correctly in the ITR Form.
Significant higher expenditure in the form of Purchase of immovable property, Foreign travel, and Purchase of Mutual funds/stocks in comparison to the Income declared in the ITR

Copy of Notice u/s 133(6)

Steps To Respond To Notice u/s 133(6)

Analyse the reason for receiving such notice and identify if there was any actual misstatement from taxpayer side or error from department
Login to the income tax portal >> Pending Action >> Compliance Portal >> E Verification

Provide detailed response along with necessary attachment in the questionnaire provided

If the misstatement is from the taxpayer and additional liability is required to be paid, then such taxpayer can file the Updated return u/s 139(8A) along with the necessary penalty voluntarily and provide a response accordingly
However, if the error is from the department side you can provide the response in the insights portal along with supporting documents.

Notice Under Section 142(1)

A notice under section 142(1) can be issued under two circumstances:

If you have filed your return, but the assessing officer requires additional information and documents; or
If you have not filed your return but the assessing officer wants you to file it.

The information is called for to enable the officer to make a fair assessment. Being non-responsive to this notice has consequences,

A penalty of Rs 10,000 can be levied for each such failure
Prosecution, which may extend up to 1 year
Both of the above.’

Copy of Section 142(1) Notice

Intimation Under Section 143(1)

After having filed your returns, it is electronically processed by the Central Processing Centre (CPC). The income is computed after making the following adjustments to the total income in return :

Any arithmetical error in the return
An incorrect claim (provided the incorrect claim is apparent from the information filed)
Disallowance of incorrectly claimed loss or expenditure
Any income which has not been included in the return

Upon successful processing of the return, an intimation under section 143(1) is issued by the CPC under any of the three instances:

There is a tax liability to be paid
A refund has been determined
There is no refund or demand, but there is an increase or reduction in the amount of loss.

In case there is a tax demand, then the intimation must be issued within nine months from the end of the year in which the return has been filed. For example, if you have filed your returns for Assessment Year (AY) 2024-25 on 27 July 2024, then an intimation can be issued anytime on or before 31st Dec 2025. Processing of returns under this section has been made mandatory from AY 2017-18.

How To Analyse The Above Notice?

The notice provides a comparative analysis of the date provided in the ITR and Computed u/s 143(1).
Identify which line item is causing such additional liability
It can be a mismatch in Income, Deduction or Prepaid taxes
If such demand is due to an error, then Rectification return u/s 154 can be filed within a period 4 years from the end of such assessment year
If demand is accurate, then it can be paid off using the link provided

Notice Under Section 143(2)

The purpose of this notice is to notify the assessee that the return filed has been picked for scrutiny. It is pertinent to note that the section under which it will be scrutinized is different from the one in which the notice has been issued. Via detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:

Understated your income
Claimed excessive loss
Paid lesser taxes

Through this notice, the taxpayer is required to respond to the questionnaire issued along with the documents required by the income tax department. The assessing officer is supposed to service this notice within 3 months after the completion of the assessment year to which it pertains.

For instance, Rohit filed his return on 20th May 2024 for the AY 2024-25. Here notice under section 143(2) can be issued to Rohit within 3 months after completion of the AY to which it pertains, i.e. 31th July 2025.

How To Respond To Notice u/s 143(2)

Carefully go through the notice and identify the reason why such notice has been issued, which will be provided in the Annexure.
Prepare a response under a cover letter, providing a detailed explanation in a legitimate manner and answering truthfully to all the questions provided in detail.
Log in to your Income tax portal under e-proceeding, provide the response to such notice with the cover letter and also attach the necessary documents as requested.

Are you not sure about what to do with such an income tax notice? Use our Notice Upload Facility to allow us to help you out. Alternatively, you can even seek the help of a Tax Expert.

Notice Under Section 148

An assessing officer may have a reason to believe that you have not disclosed your income correctly and, therefore, you have paid lower taxes. Alternatively, you may not have filed your return at all, even if you must have filed it as per law. This is termed an income-escaping assessment. Under these circumstances, the assessing officer is entitled to assess or reassess your income according to the case. Prior to making such an assessment or reassessment, the assessing officer should serve a notice to the assessee asking him to furnish his return of income. The notice issued for this purpose is issued under the provisions of Section 148.

Previously the timelines to be adhered to for the issuance of notice under Section 148 were as below:

As per the amendment in the Finance Act 2021, with effect from 1st April 2021, the time limit up to which the assessing officer can re-open the assessment of the taxpayer is as follows;

Up to three years from the end of the relevant assessment year in normal cases and
Beyond three years but not more than ten years from the end of the relevant assessment year, if the assessing officer has material evidence that income of Rs.50 lakh or more for a financial year has escaped assessment.

Notice Under Section 245

If the assessing officer has reason to believe that tax has not been paid for the previous years and he wants to set off the current year’s refund against that demand, a notice under Section 245 can be issued. However, the adjustment of demand and refund could be done only if you have been provided proper notice and an opportunity to be heard. The timeline to respond to the notice is 30 days from the day of receipt of the notice. If you do not respond within the aforesaid timeline, the assessing officer can consider this as consent and proceed with the assessment. Therefore, it is advisable to respond to the notice at the earliest.

What Should Be Done After Receiving An Income Tax Notice?

When you get a notice under any of the aforementioned sections, you should take the following steps:

1. Carefully read the notice to determine why it was sent.

2. Examine the notice’s basic details to determine that it is intended for you. To ensure that the notice is sent to you, it should include your correct name, PAN number, address, and so on. Check the assessment year given in the notice as well.

3. Determine the mismatch in your income tax return that resulted in a notice being served, if any.

4. To avoid penalties and prosecutions, respond to the notice within the time frame specified.

5. Ensure that your response is backed by adequate information.

6. Also, make sure to check that the notice you received is reflected in your income tax account online.

What Are The Most Common Causes Of Notice?

The most common causes for which you might receive an income tax notice include the following:

1. Inconsistency in the amount of TDS reported
2. An inaccuracy on your tax return
3. Failure to submit all required papers
4. Failure to file your tax returns
5. When you make investments in your spouse’s name but fail to report them on your income tax returns.
6. If high-value transactions occurred during the fiscal year but were not correctly disclosed on the income tax return
7. If the assessing officer randomly examines your income tax return
8. When long-term capital gains from stock investments are not properly disclosed
9. If the taxpayer fails to declare any income
10. If the incorrect income tax return form is used to file the income tax return

Scrutiny Assessment Order under Section 143(3) of Income Tax Act

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Scrutiny Assessment under Section 143(3)

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Income Tax Notice Received to Salaried Employees

income tax notice is an official message from tax officials to taxpayers, whether individuals or organisations, regarding their tax affairs. It is a tool for the tax department to communicate with taxpayers about matters such as tax dues, discrepancies in tax returns, or the need for an audit. The triggers for an income tax notice can range from unreported earnings and incorrect claims for refunds or deductions to mismatches in the provided information.

The purpose of the notice is to alert the taxpayer about a particular issue or discrepancy that the tax authorities have identified. The notice may ask for additional documentation, correction of errors, or clarification of inconsistencies in the tax filings. It is important to address the notice promptly and accurately within the given deadline to maintain tax compliance and avoid potential fines.

Reasons for Income Tax Notices to Salaried Employees

Salaried individuals can receive income tax notices for various reasons, including but not limited to:

Income Discrepancies: If the income you have reported does not match up with what your employer, banks, or other sources have reported to the tax authorities, you may receive a notice requesting clarification.
Unreported Income: Neglecting to declare all income streams, such as rent, interest, or income from side gigs, including online platforms or additional part-time work, could result in a notice for income underreporting.
Incorrect Deductions: Claiming deductions or exemptions without sufficient proof, or for which you are not eligible, might lead to a notice. This includes instances where the tax department identifies fraudulent deduction claims, such as submitting fake rent receipts to claim Housing Rent Allowance (HRA) exemptions.
High-Value Transactions: Engaging in significant financial transactions that stand out, such as substantial cash deposits, property dealings, or large investments, might prompt the tax authorities to issue a notice to verify these transactions.
Form 26AS Mismatch: If the income declared in your tax return does not align with the transactions listed in your Form 26AS, a comprehensive tax statement linked to your PAN, you could receive a notice.
Non-Filing or Late Filing of Returns: Not filing your tax return or submitting it past the deadline can lead to a notice asking why there was a delay.
Random Scrutiny: The tax department occasionally selects tax returns for random detailed examination to ensure they comply with tax laws and are accurate.
Foreign Income and Assets: If you have foreign income or assets and fail to disclose them as mandated by tax laws, you might be flagged for a notice.
Undisclosed Gifts or Loans: Failing to report certain gifts or loans, especially those above a specific value, could attract scrutiny from the tax authorities.
Ignoring Previous Notices: Not responding to or inadequately addressing previous notices can escalate to more serious follow-up notices from the tax department.

If you have received a tax notice for any of these reasons, our tax experts are ready to help you respond accurately and within the required timeframe.

Types of Income Tax Notices to Salaried Employees

Exploring the type of Income Tax Notices for Salaried Employees:

Intimation Under Section 143(1): This is sent after the Income Tax Return (ITR) is processed to inform the taxpayer of the tax computation as determined by the tax department. It indicates whether any tax is due or a refund is owed to the taxpayer.
Notice Under Section 142(1): This notice is issued for two main reasons: first, if you’ve filed your return but the tax officer requires further information or documents; second if you haven’t filed your ITR and are being prompted to do so. Non-compliance with this notice can result in penalties of up to ₹10,000 and/or imprisonment of up to one year.
Notice Under Section 148: This “income escaping assessment” notice is issued if there’s evidence or reason to believe that income has been underreported or taxes have been underpaid.
Notice Under Section 139(9): This notice is known as the defective return notice. It’s issued when discrepancies or errors are found in the filed tax return. The taxpayer has an opportunity to rectify these errors by filing a revised return within 15 days of receiving the notice.
Notice Under Section 143(2): This notice signifies that the taxpayer’s return has been selected for scrutiny or detailed examination to verify the accuracy of income declarations, tax payments, and loss claims.
Notice Under Section 156 (Demand Notice): If there are outstanding amounts like tax dues, penalties, or fines payable by the taxpayer, a demand notice under Section 156 is issued, requiring payment within 30 days.
Notice Under Section 245: When unpaid taxes from previous years are present and the tax department intends to offset them against a refund due in the current year, a notice under Section 245 is sent. The taxpayer has 30 days to respond; failing to do so may be interpreted as consent to the adjustment.

Addressing Income Tax Notices for Salaried Employees

Handling income tax notices with precision involves a structured approach and compliance with the directives provided by the tax authorities. Here’s a guideline on how to tackle income tax notices effectively:

Comprehensive Review of the Notice: Begin by thoroughly examining the notice to grasp the reasons behind its issuance, identify the particular concerns highlighted, and understand the actions you are required to take.
Compilation of Necessary Documentation: Assemble all pertinent documents such as your income tax returns, Form 16, Form 26AS, proofs of investments, bank statements, and any other documents relevant to the notice’s queries.
Adherence to Deadlines: Pay close attention to the response deadline specified in the notice. Replying within this timeline is crucial to prevent further complications or penalties.
Submission of Supporting Evidence: Along with your response, include all necessary supporting documents that corroborate your provided information. Ensure these documents are well-organized to aid the reviewing officer’s verification process.
Consultation with Tax Professionals: If the notice appears intricate or you’re uncertain about how to proceed, it’s advisable to seek advice from tax professionals. IndiaFilings Tax experts can offer valuable insights and guidance.
Monitoring of Response Submission: If you’re responding online, monitor the submission process closely to ensure you receive an acknowledgement or any form of response from the tax department.
Vigilant Follow-up: Stay proactive in checking your email, tax portal, and other communication mediums for any follow-up correspondence or additional notices from the tax department, ensuring you address them promptly.

By following these steps, you can respond to income tax notices with clarity and confidence, ensuring compliance and minimizing potential disputes with the tax authorities.

Enhanced Scrutiny on False Deduction Claims by Salaried Taxpayers

In recent developments, the Income Tax Department has intensified its focus on salaried employees who claim unwarranted deductions and exemptions. A significant surge in the issuance of notices, particularly concerning House Rent Allowance (HRA) and other rent-related deductions, has been observed, with many instances involving the submission of fabricated rent receipts.

Under the conventional tax framework, taxpayers are entitled to various deductions and exemptions, such as those for HRA, Leave Travel Allowance (LTA), and interest deductions on housing loans. Despite these legitimate avenues for tax relief, there is a noticeable trend of individuals attempting to exploit these provisions by providing counterfeit documentation to support their claims.

The government has employed sophisticated Artificial Intelligence (AI) technologies to counteract these deceptive practices. These AI systems are adept at identifying and flagging falsified documents and pinpointing taxpayers who submit fraudulent claims for deductions.

Taxpayers planning to file returns with deductions such as HRA or LTA are advised to ensure the authenticity of their supporting documents. Authentic rent receipts are indispensable for substantiating HRA claims to circumvent the risk of receiving a tax notice. Similarly, legitimate travel documents must back LTA claims.

The AI technology employed by the tax authorities is not limited to scrutinizing HRA and LTA claims but extends to a broader range of documentation. As a result, the Income Tax Department has adopted a more rigorous approach, issuing notices to individuals suspected of utilizing fraudulent documents to claim any deductions or exemptions, including but not limited to HRA, LTA, and charitable donations.

How to Avoid Penalties and IT Notices for Salaried Taxpayers?

To steer clear of potential penalties and unwelcome notices from the tax authorities, salaried employees can adopt the following measures:

Timely and Accurate Filing: Ensure you file your income tax returns within the prescribed deadline. If you miss the deadline, file a belated return as soon as possible to minimize the risk of penalties and notices.
Reconcile with Form 26AS: Make it a practice to cross-check the details in your Income Tax Return (ITR) with the information reflected in Form 26AS. Discrepancies between these documents are common triggers for tax notices.
Organize Financial Documentation: Maintain a systematic record of all your financial transactions, including income, expenditures, and relevant receipts or documents. This organized approach will be invaluable in case of an audit.
Seek Professional Guidance: Navigating the complexities of tax laws can be daunting. If your tax situation is intricate, it’s wise to consult a tax professional or chartered accountant. For a hassle-free ITR filing experience, consider leveraging IndiaFilings ITR services.
Prompt Response to Notices: Should you receive any communication from the tax authorities, you must respond swiftly and adhere to their guidelines. Ignoring such notices can escalate to more severe penalties.
Report All Income Sources: Diligently report earnings from all sources to avoid the implications of underreporting. Overlooking significant income streams is a common mistake that can attract scrutiny.
Document Deductions and Exemptions: Keep thorough records of all deductions and exemptions claimed in your tax filings, along with the necessary documentary evidence. The tax department may request these documents to verify your claims.

😱 Is Your Tax Return Under Scrutiny? Find Out Now!

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Methods for Serving Income Tax Notices?

Income Tax Department sends notices for various reasons, such as not filing the income tax returns, any defect while filing the returns, or other instances where the tax department requires additional documents or information. Nothing is frightening or alarming about the notice that is received. However, the taxpayer first has to understand the notice, the nature of the notice, and the requestor’s order in the notice, and then take steps to comply.

What is an Income tax Notice?

As mentioned above, An income tax department notice is a formal communication issued by the Income Tax Department to a taxpayer. It can relate to various aspects of income tax filing and compliance, such as requests for additional information, clarification of discrepancies in a tax return, audits, tax payment demands, or refund notifications. The income tax department notice specifies the details of what the department requires from the taxpayer, ranging from submitting specific documents to explaining income or deductions claimed.

Reason for Income Tax Notice

There are several reasons why you might receive an income tax notice, including:

Discrepancies in Tax Returns: If there’s a mismatch between the income declared, deductions claimed, and the data available with the Income Tax Department, you might receive an ITR notice asking for clarification.
Non-Filing of Tax Returns: If you haven’t filed your income tax return by the due date, the department may send an ITR notice reminding you to file your return.
High-Value Transactions: If you’ve made high-value transactions that don’t match your reported income, the department might send a notice to explain these transactions
TDS/TCS Mismatch: You might receive a notice if there’s a discrepancy between the tax deducted at source (TDS) or tax collected at source (TCS) as per your Form 26AS and the income declared in your tax return.
Investments/Deposits in Your Name: If you’ve made significant investments or have large deposits in your name that aren’t in line with your reported income, the department may inquire about the source of funds.
Property Transactions: Transactions involving property, especially if the value declared is lower than the guideline value determined by the state, can trigger a notice.
Scrutiny of Returns: The department randomly selects returns for scrutiny to ensure compliance. You’ll receive an ITR notice for detailed documentation and explanations if your return is chosen.
Demand for Tax: If the department calculates that you have unpaid taxes based on your return or any adjustments they’ve made, they’ll issue a notice demanding the due tax.
Refund Claims: If you’ve claimed a refund in your tax return, you might receive a notice for verification before the refund is processed.
Foreign Assets or Income: Having foreign assets or income might lead to a notice if the department needs more information or if there are discrepancies in the reported details.

Types of Income Tax Notice

Let us understand the various types of notices or intimations issued by the Income Tax Department.

Type of Notice	Description
Notice u/s 143(1) – Intimation	This is one of the most commonly received income tax notices. The income tax department sends this notice seeking a response to the errors/ incorrect claims/ inconsistencies in a filed income tax return. If an individual wants to revise the return after receiving this notice, it must be done within 15 days. Otherwise, the tax return will be processed after making the necessary adjustments mentioned in the 143(1) tax notice.
Notice u/s 142(1) – Inquiry	This ITR notice is addressed to the assessee when the return has already been filed, and further details and documents are required to complete the process. It can also be sent to require additional documents and information from a taxpayer.
Notice u/s 139(1) – Defective Return	If the income tax return filed does not contain all necessary information or contains incorrect information, an ITR notice under Section 139 (1) will be issued. If a tax notice under Section 139(1) is issued, you should rectify the defect in the return within 15 days.
Notice u/s 143(2) – Scrutiny	An income tax notice under Section 143(2) is issued if the tax officer is not satisfied with the documents and information submitted by the taxpayer.Taxpayers who receive notice under Section 142(2) have been selected for detailed scrutiny by the Income Tax department and must submit additional information.
Notice u/s 156 – Demand Notice	This type of income tax notice is issued by the Income Tax Department when the taxpayer owes any tax, interest, fine, or any other sum. All demand tax notices will stipulate the sum outstanding and due from the taxpayer.
Notice Under Section 245	If the officer believes that tax has not been paid for the previous years and wants to set off the current year’s refund against that demand, a notice u/s 245 can be issued. However, the adjustment of demand and refund could be made only if the individual has been provided proper notice and an opportunity to be heard. The recipient has to respond to the notice 30 days from the day of receipt of the notice. If the individual does not respond within the specified timeline, the assessing officer can consider this as consent and proceed with the assessment. Therefore, it is advisable to respond to the notice at the earliest.
Notice Under Section 148	The officer may have a reason to believe that you have not disclosed your income correctly and, therefore, have paid lower taxes. Or the individual may not have filed his return at all, even if you must have filed it as per law. This is termed as income-escaping assessment. Under these circumstances, the assessing officer can assess or reassess the income according to the case. Before making such an assessment or reassessment, the assessing officer should serve a notice to the assessee asking him to furnish his return of income. The notice issued for this purpose is issued under the provisions of Section 148.

What Are the Methods for Serving Income Tax Notices?

The Income Tax Act of 1961 outlines the procedure for issuing notice, orders, or other communications, which can be delivered in several approved ways.

Who Receives the Notice: IT Notices are typically sent directly to the individual concerned. If the notice involves a minor, it goes to their guardian. Mistakes in the recipient’s description can often be corrected unless the mistake affects the taxpayer’s identification.
Postal Service: IT Notices can be sent via registered mail, ensuring the letter is properly addressed, prepaid, and posted.
Posting on Property: If the recipient refuses to acknowledge receipt or cannot be found, the notice can be posted visibly at their residence or business location.
Notices to Groups:
- IT Notices can be sent to the manager of Hindu Undivided Families (HUFs) or, if the manager has passed away, to all adult members.
- For partnership firms or associations, it notices can be sent to current or former partners or members.
In the case of Closed Businesses:
- The IT notice is sent to the individual whose income is being assessed.
- For firms or associations, it goes to any member who was part of the entity when it ceased operations.
- For companies, notices are sent to the principal officer or director.

Steps to Take After Receiving an Income tax department notice

When you receive an income tax notice, handling it carefully and systematically is important. Here’s what you should do:

Read the Notice Carefully: Understand why the notice was issued. It will detail the specific concern or requirement the Income Tax Department has.
Verify Your Details: Ensure the notice is indeed for you by checking your name, PAN number, address, and the assessment year mentioned. This confirms the notice’s authenticity and relevance to your tax affairs.
Identify the Issue: Determine what discrepancy or issue in your income tax return prompted the notice. It could be a mismatch in income, high-value transactions, or incomplete disclosures.
File Reply on time: Acknowledge and respond to the notice within the given timeframe to avoid penalties or legal actions. The notice will specify the deadline for your response.
Provide Complete Information: Support your response with all necessary documents and clarifications to fully address the department’s queries.
Check Your Online Account: Confirm that the notice you received is also listed in your account on the Income Tax Department’s e-filing website. This ensures the notice’s legitimacy and helps keep track of your responses and any further communication.
Seek Professional Help: If the notice involves complex tax issues or you’re uncertain how to proceed, consider consulting an IndiaFilings tax expert.

Documents required to reply to an Income Tax Notice

The documents are required to vary according to the type of income tax notice that is served to the taxpayer. The basic documents needed to reply to an income tax notice would be:

The Income Tax Notice copy.
Proof of Income source such as (Part B ) of Form 16, Salary receipts, etc.
TDS certificates, Form 16 (Part A)
Investment Proof if they are applicable.

What is an Income Tax Notice?

An Income Tax Notice is a formal communication from the Income Tax Department to a taxpayer, regarding discrepancies, additional document requests, audits, or other tax-related matters.

Why did I receive an Income Tax Notice?

Notices can be issued for various reasons, including discrepancies in tax returns, non-filing of returns, high-value transactions, TDS/TCS mismatches, and more.

How should I respond to an Income Tax Notice?

Carefully read the notice to understand its specifics, verify your details, identify the issue, file a timely response, and provide all necessary information.

Can I ignore an Income Tax Notice?

Ignoring an Income Tax Notice can lead to penalties, legal actions, and further complications. It’s essential to respond within the stipulated timeframe.

What if I need more time to respond?

If you need more time, you can request an extension by contacting the Income Tax Department, explaining your situation.

What documents do I need to respond to an Income Tax Notice?

Required documents can vary but generally include the Income Tax Notice copy, proof of income, TDS certificates, investment proofs, and any other relevant documents.

High-Risk Cases of TDS Credit Claims Under Investigation

The tax authorities are set to scrutinize high-risk refund cases for the financial year 2023-24 (Assessment Year 2024-25) using statistical analysis. Tax officers were informed of this initiative through an internal advisory issued on October 3, 2024, which is not publicly accessible. As a result, even if you have already received a tax refund for the financial year 2023-24, your case may still be selected for investigation if the tax department suspects any irregularities.

The Income Tax Department has identified “suspicious clusters” of Income Tax Returns (ITRs) linked to common email addresses based on specific criteria. Information regarding these high-risk clusters is being shared with the relevant nodal officer at the Central Registry Unit (CRU) for further verification. This is aimed at examining the suspicion of fraudulent refund claims made in an organized manner or through a single individual.

Implications for Taxpayers

Experts indicate that this internal notification primarily impacts those taxpayers who have filed their income tax returns (ITRs) and claimed refunds that may appear questionable to the tax authorities. However, it’s important to note that not all refund claims will face extensive review; the circular specifies that only cases deemed ‘High Risk Refund (HRR)’ will undergo investigation by the tax officers.

The Income Tax Department is actively identifying instances where individuals have erroneously claimed refunds for AY 2024-25 (FY 2023-24). Taxpayers involved will receive notices via email and registered post, regardless of whether a tax refund has already been processed. If a taxpayer fails to respond or provides an unsatisfactory response, the department retains the right to summon the taxpayer for a personal appearance, during which their statement may be recorded.

This internal directive also applies to taxpayers who may have previously received a tax refund for AY 2024-25. The tax department may still classify these cases as high-risk and initiate investigations.

The circular highlights previous incidents where improper refunds were claimed through various methods, including incorrect TDS credit claims, underreported income, inflated deductions, and bogus expenses. Consequently, certain cases have been flagged based on established criteria.

How will the tax department identify high-risk refund cases to investigate

The Income tax department has said the following in the internal circular:

Kind reference is invited to the subject- High Risk Refund Cases A.Y. 2024-25 disseminated for investigation wing users at Insight-reg
Email based clusters of High Risk refund ITRs for AY 2024-25, identified based upon certain rules are being disseminated to the PDsIT (investigation) for the purpose off verification of suspicion that false claims of refunds have been made in an organised manner or through a single key person.
Upon receiving the cluster, the jurisdictional PDIT (Inv.)-1 may preferably allocate one or more cluster to a particular DDIT (Inv.)/ADIT(Inv.) for integrated and comprehensive inquiries.

How will the tax department’s investigation team identify false refund cases

The tax department, in the internal circular, said, “While investigating, the investigating officer (IO) will take care of the following aspects:

The IO concerned, who has been assigned the case, should first attempt to ascertain the identity of the natural person (Hereinafter referred to as the KEY PERSON) associated with the common email ID identified, by making use of the internal database available with the Department like Insight/ITBA/e-filing portals, etc
If such KEY PERSON could not be identified from the internal database, the IO may call for information under section 131 (1A) or by issuance of letter…requesting to furnish:

1. The details and identity of the KEY PERSON whose e-mail id has been furnished in their respective ITRs (including contact details and address of the person), and
2. Submit supporting documents to substantiate the genuineness of claim made on account of exemption, deduction, expenses, etc.

The information called for under section 131 (1A) or through the letter issued should mandatorily be delivered through registered post along with service of the same on all the registered e-mail ids. These details should initially be called for without requiring personal appearance of the taxpayers in office.
If no compliance is observed and no reply is received, their personal attendance may be ensured, and identity of the KEY PERSON associated with the common e-mail ID may be identified.

How much cash can you legally keep at home

It is not uncommon to encounter reports regarding income tax officials conducting raids on individuals for possessing unauthorized cash and other valuables within their residences or workplaces. In certain instances, such cash and valuables are confiscated, and in others, the individuals involved face arrest. This raises an important question: Is possessing a significant amount of cash considered a crime in India? Additionally, what is the permissible limit of cash that one can retain at home?

Tax and legal experts clarify that the Income Tax Act does not specify any regulations regarding this matter. Individuals are permitted to keep any amount of cash at home, as long as it is derived from legitimate sources and duly reported in their Income Tax Returns (ITR) and accounting records.

Manmeet Kaur, Partner, Karanjawala & Co, says that there is no set legal restriction on the quantity of cash you can retain at home in India. But it’s crucial to make sure the money comes from a reliable source and is reported in your income tax returns (ITR) and, if necessary, your books of accounts.

“Sections 68 to 69B of the Income Tax Act contain provisions addressing unexplained income, which indicates that if you are unable to offer a convincing justification for the source of the funds, they may be subject to taxation as unexplained income,” Kaur says.

Amit Gupta, Partner at Saraf and Partners, also informs that the Income Tax Act is sub-silentio on the maximum quantum of cash holdings. However, cash holdings beyond reasonable limits would definitely invite legitimate suspicions on such cash holdings being unaccounted.

“In case of any investigation, the source for every last rupee of the cash holding would need to be proved to the tax department to be from legitimate sources duly disclosed and accounted for in the books of accounts and tax-filings made by the person. If there is any failure to furnish a satisfactory explanation about the nature and source of such funds, then the said unexplained money would also attract the penal consequences and higher tax outlay under the provisions of the Income Tax Act,” he adds.

It’s, therefore, a good idea to maintain track of where your money comes from and make sure all of your transactions are recorded and accounted for in order to prevent any problems with tax authorities. For example, if you operate a business, it is essential that your records align with the cash book you maintain. Additionally, individuals who are not engaged in business activities must also provide an explanation for the origin of any cash they possess.

A lack of a satisfactory explanation regarding the origin and nature of these funds may result in the classification of the money as taxable unexplained income. In such cases, this unexplained income could be subject to a tax rate of 78%, in addition to a penalty.

The tax notices that a salaried individual can get if errors are detected in their ITR

Here are a few of the tax notices that a salaried individual can get if errors are detected in their ITR:

1. Section 143(1)(a) tax notice

This tax notice is called an intimation notice and it is sent when the tax department has processed the submitted ITR successfully. This intimation notice will inform whether the calculations submitted in the ITR have been accepted by the income tax department. If there is a mismatch between the calculations you submitted and the calculations accepted by the tax department, then the reason for this will also be mentioned in the intimation notice.

Possible reasons behind 143(1) mismatch intimation notice: “Such intimation as stated above may be issued in case of ITRs filed under section 139(1) / 139(5) as well as those ITRs filed in response to notice issued under section 142(1). Inconsistencies between ITR filed by taxpayers and income computed as per section 143(1) can arise due to arithmetical errors, any incorrect claims, disallowance of any set off or disallowance of any expenditure, miscalculation of interest under ..

When can this intimation notice be issued: Surana says that such an intimation notice has to be issued within nine months from the end of the financial year in which the ITR is furnished. Before issuing intimation under section 143(1), the taxpayer is issued an intimation under section 143(1)(a) proposing adjustment to the ITR filed,” says Surana. For an ITR filed for FY 2023-24 (AY 2024-25), this intimation notice will be issued on or before December 31, 2025.

Time limit to respond to such a notice: You need to take action only when there is a mismatch between your ITR calculations and the tax department’s calculations. If the intimation notice is issued due to a refund or there is no mismatch between your ITR calculation and the tax department’s, you need not respond. The taxpayer is expected to file his response within 30 days from the date of issue of intimation under section 143(1)(a) either agreeing / disagreeing with the adjust proposed.

2. Section 139 (9) defective ITR notice

You may get a tax notice under section 139 (9) if your submitted ITR is found to be defective by the income tax department on account of incomplete or inconsistent information. The ITR may be treated as defective due to various reasons. For instance, usage of wrong ITR Form for the purpose of furnishing an ITR,” says Surana.

Possible reasons for receiving a defective ITR notice: Some of the common reasons for receiving a defective ITR notice include: claimed HRA in ITR but breakup of salary does not show any HRA component, TDS on income claimed while filing ITR but the corresponding income is not reported. For example, FD interest not declared in the ITR, but TDS deducted on such an FD is claimed.

By when can such a defective ITR notice be issued: This notice can be issued within nine months from the end of the financial year in which the ITR is filed. For ITR filed for FY 2023-24 (AY 2023-24), a defective ITR notice can be issued on or before December 31, 2025.

Time limit to respond to defective ITR notice: “If your return is found defective, you will get 15 days of time from the date of receiving the notice or as the time duration specified in the notice to rectify the defect in the return filed by you. However, you may seek Adjournment and request for an extension,” said the income tax department on its website as of September 17, 2024.

3. Section 142(1) tax notice

This tax notice is also known as an inquiry before assessment notice. Notice under section 142(1) may be issued to the assessee requiring him to furnish an ITR if no such ITR has been furnished under section 139(1),” says Surana.

Possible reasons behind this notice: The reason behind this notice is that the tax department wants clarification about why you did not file an ITR despite there being evidence you earned an income above the basic exemption limit and AIS, etc shows various sources of income. You need to answer all the queries raised by the income tax department and provide the requisite details and documents to support the claim made in the submitted ITR.

By when can such a notice be issued: There is no time limit on issuing such a notice.
? Time limit to respond: “The taxpayer would be required to respond to the notice within the timeframe specified in the notice which is generally 15 days” says Surana.

4. Section 143 (2)

This notice is known as a scrutiny assessment notice, and it is sent when the tax department wants to do a detailed assessment of the submitted ITR and confirm the genuineness of all the claims (income and deductions) made by you.

Possible reasons behind this notice: “Notice under section 143(2) can be issued to the assessee taxpayer for the purpose of making scrutiny assessment under section 143(3). Scrutiny assessment is a detailed assessment carried out in order to confirm the correctness and genuineness of various claims, deductions, etc. made in ITR furnished by the assessee,” says Surana.

By when can such a notice be issued: “Such notice has to be given within 3 months from the end of the financial year in which such an ITR was filed,” says Surana.

Time limit to respond: Generally, 15 days’ time is given to respond to such a notice, however, the time limit to respond to such a notice would be mentioned in the notice itself. All you need to do is submit your response to the assessing officer by way of uploading the necessary documents,” says Surana.

5. Section 148

This notice is sent when there is income that escaped assessment. This notice is issued when the assessing officer (AO) has any evidence suggesting that your income has escaped assessment in the previous year. Surana says that the tax department will issue a show cause notice under section 148A (b) before issuing notice under section 148 to ask why the case should not be selected for reassessment (show-cause). You will have to file the response either objecting to such reassessment or seek information from the assessing officer.

Post obtaining a response from the taxpayer or in case no response is received from the taxpayer, the income-tax department shall pass its order under section 148A(d) determining whether it is a fit case for reassessment with prior approval of specified authority,” says Surana.

Possible reasons behind this notice: The reason behind this notice is because of the evidence which the AO has suggesting that a certain income of yours escaped assessment.

By when can such a notice be issued: “Notice under section 148 can be issued within 3 years 3 months with effect from September 1, 2024, from end of relevant assessment year in case income that has escaped assessment doesn’t exceed Rs 50 lakh. However, in case the income that has escaped assessment exceeds Rs 50 lakh, the reassessment can be done up to 5 years 3 months with effect from September 1, 2024, from the relevant assessment year,” says Surana.

Time limit to respond: “The taxpayer would be required to respond to the notice within the timeframe specified in the notice which is generally 30 days,” says Surana.

6. Section 245

Under this section, the income tax department can offset the present year’s income tax refund due to any previous years’ outstanding tax demand. This adjustment only happens if there are outstanding income tax dues or tax refund due in the current year.

Possible reasons behind this notice: If you have any outstanding tax due from any previous year that you have not settled or paid, then you are considered an ‘assessee’ in default. In the Interim Budget 2024, the finance minister amended Section 245 and withdrew outstanding tax demands up to Rs 25,000 pertaining to the period up to FY 2009-10 and up to Rs 10,000 for FY 2010-11 to 2014-15.

When can this notice be issued: There is no time limit for sending this notice.

Time limit to respond: “The intimation notice shall also contain a time limit (which is generally 30 days) up to which an assessee may provide the required response, failing which, the adjustment shall be considered as final,” says Surana. If you have any objection to this notice, or you already paid the outstanding tax demand amount then submit a response providing evidence of such a tax payment.

Other notices that taxpayers can get

According to S. Sriram, Partner, Lakshmikumaran & Sridharan attorneys, here are some other notices which you may get:

Section 154: “If the ITR is processed/ accepted by the income-tax authorities by passing an order, and thereafter, any apparent error in the claims made in the return is discovered, the income-tax authorities can also issue a notice under section 154, to rectify the apparent errors. Generally, the order rectifying the error should be passed within 4 years from the end of the year in which the order sought to be rectified is passed.

Section 263: If the Commissioner of Income-tax (CIT) finds that his/ her subordinate officer has passed an order which is erroneous, and prejudicial to the interest of the Government, then, within 12 months from the end of the year in which erroneous order is passed, the CIT can issue a notice under Section 263, to revise the order passed by the subordinate officer.

Section 131 (1A): “Notice under section 131(1A) would be issued if certain specified officers such as principal director general, director general, principal director, director, joint director, assistant director, deputy director etc. has a reason to suspect that there is concealment of income. Such notice can be issued to inquire or investigate about the taxpayer’s books of accounts, examine the financial transactions undertaken by the taxpayer, etc. The specified tax authorities has reason to ..

Income Tax notice of Rs 2 crore to a person earning Rs 10,000

Income Tax Notice: A strange case related to the Income Tax Department has come to light in Bihar. Yes, a person earning Rs 10,000 a month in Gaya district of Bihar has received an income tax notice of Rs 2 crore. After receiving the notice, the laborer and his family are very upset. Rajiv Kumar Verma, a resident of Gaya, supports his family by working as a laborer. But now he is troubled by the mistake of the Income Tax Department.

Forced to make rounds of Income Tax Department

According to the report published in News 18, Rajiv Kumar Verma has been forced to make rounds of Income Tax Department for the last four days. But his problem remains the same. Rajiv says that he cannot earn such a huge amount even by working as a labourer all his life. Rajiv Kumar told that he had made an FD of Rs 2 lakh in Gaya branch of Corporation Bank on 22 January, 2015. But he withdrew it on 16 August, 2016 before the time was over. Despite this, a notice of Rs 2 crore has been sent to his house.

Order to pay a fine of Rs 67 lakh in two days

He told that when he approached the Income Tax Department regarding this matter, he was advised to appeal. He was told that this could be a technical issue. He was also told that if it is a technical issue, it can be rectified through appeal. Rajiv has been asked to pay a fine of Rs 67 lakh within two days. He says that I do not have any kind of information related to income tax. He also said that how can a person earning Rs 10,000 a month file a return?

Reason for receiving notice from Income Tax Department

> Wrong information in data: It is possible that due to some technical error in the database of Income Tax Department, wrong transaction has been shown in the account of Rajiv Kumar Verma. Due to this, you may receive a notice from the Income Tax Department.
> Identification error: It is possible that Income Tax Department has wrongly linked Rajiv Kumar Verma with some other person whose income is very high.
> System error: Due to some error in the system of Income Tax Department, this notice may have been generated wrongly. Apart from this, there can be many other reasons like any fraud or any other technical problem etc.

What is the option

If any such person receives a notice from the Income Tax Department in a wrong manner, then he should appeal to the Income Tax Department. The department should be given information related to his income and bank account. Apart from this, such a person should submit his bank statement, PAN card and other necessary documents.

Various types of Important Notices and the reasons for Such

Notice under Section 142(1) – Inquiry before assessment:

Notice under Section 142(1) is usually served to call upon documents and details from the tax payers.

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 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
- Prosecution under Sec 276D which may extend upto 1 year with or without fine.

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.
This notice can be served upto 6 months after completion of relevant assessment year.
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 Judgment Assessment u/s 144
- Penalised under Sec 271(1)(b) i.e. Rs10,000 for each failure
- Prosecution under Sec 276D which may extend upto 1 year with or without fine.

Notice under Section 143(1) – Letter of Intimation

Three types of notices can be sent under section 143(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).
A refund notice, where the officer’s computation shows amount excessively paid by the assessee.
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 30 days.
Time limit for the notice to be served is up to 1 year after completion of relevant assessment year.

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.

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 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.

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.

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

Where any amount of refund is pending to the assessee and also any sum is payable under the Act, the AO may adjust the amount to be refunded with the sum payable by the assessee. Basically it can be related to the ‘inter adjustment of transactions’.
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.

Income Tax Notice u/s 143(2) for Scrutiny Assessment

Receiving an income tax notice under Section 143(2) can be daunting, but with the right approach, it’s manageable. This guide breaks down the process of responding to a scrutiny assessment notice in a clear, straightforward manner.

What Does a Notice Under Section 143(2) Mean?

A notice under Section 143(2) is issued when the income tax department detects inconsistencies in your tax returns. These discrepancies could be due to under-reporting income, over-reporting losses, or other errors. The purpose of this notice is to ensure that the correct amount of tax has been paid.

Key Points About the Notice

1. Method of Notification:

Sent via email as a PDF to your registered email address.
Also dispatched to your postal address.

2. Preliminary Notice:

If you haven’t filed returns for the financial year, a notice under Section 142(1) is issued first, requesting you to file returns.

3. Required Documents:

Proof of deductions, exemptions, allowances, reliefs, and other claims made in your tax returns.
Proof of all income sources.

4. Detailed Inquiry:

The assessing officer will conduct a detailed inquiry into your Income tax returns.

The Process Unfolds as Follows

1. Filing of Income Tax Return:

Your tax return is initially filed.

2. Issuance of Notice:

The assessing officer issues a notice under Section 143(2).

3. Submission of Documents:

Present your case and submit required documents and declarations to the assessing officer.

4. Final Order:

After reviewing all submissions, a final order is issued regarding tax payable or refund receivable under Section 143(3).

Types of Notices Under Section 143(2)

1. Limited Scrutiny:

Selected through Computer-Assisted Scrutiny Selection (CASS).
Focuses on specific discrepancies like mismatched information or particular claims.

2. Complete Scrutiny:

Thorough examination of the return and all supporting documents.
The scope of scrutiny pertains only to the particular assessment year.

3. Manual Scrutiny:

Selected based on criteria defined by the Central Board of Direct Taxes.
Undergoes comprehensive scrutiny.

Sample scrutiny notice

Time Limit for Issuing the Notice

A notice under Section 143(2) can be issued within three months from the end of the financial year in which the return was filed.
Example: If Mr. Ram filed his returns on July 31, 2023, for the financial year 2022-23, the assessing officer must issue the notice by June 30, 2024.

Consequences of Ignoring the Notice

Ignoring the notice is not advisable. Failure to respond within the stipulated timeframe can result in several consequences:

1. Penalty:

A penalty of Rs. 10,000 under Section 272A for each failure to respond.

2. Best Judgment Assessment:

The assessment officer may finalize the assessment with the information available, applying best judgment under Section 144, potentially leading to higher taxable income and consequently higher tax and penalties.

3. Appeals:

To appeal to higher authorities when disputing a higher tax demand, you must pay a minimum of 20% of the tax due.

4. Legal Prosecution:

There may be legal prosecution, potentially resulting in imprisonment if found guilty.

Time limit to issue the final assessment order

AY	Time limit from the end of the AY
2017-18 or Before	21 Months
2018-19	18 Months
2019-20 Onwards	12 Months

Frequently Asked Questions

What is notice u/s 143(2) of The Income Tax Act?

If the Income Tax Department finds discrepancies or mistakes in the ITR, a notice will be issued under 143(2) before issuing an assessment order under 143(3).

Is notice u/s 143(2) mandatory?

Yes. Notice u/s 143(2) is mandatory before issuing an order of scrutiny assessment u/s 143(3).

What is the time limit to issue notice u/s 143(2)?

The notice u/s 143(2) to be issued within 3 months from the end of the financial year in which the return was filed.

Income Tax Notice Under Section 148 of the Income Tax Act: Assessing Officer’s Authority and Taxpayer’s Rights

Section 148 of the Income Tax Act 1961 gives authority to the Assessing Officer to send notice to a taxpayer whose income has not been properly assessed. This implies that if the Assessing Officer suspects that a taxpayer has not disclosed complete income or has provided an inaccurate representation of it, officers can commence proceedings under this section.

Section 148 Notice is a notice issued by the income tax officer to reassess the taxpayer’s income tax return (ITR) if they disagree with the taxpayer’s assessment and believe that some income has not been properly assessed.

Finance Act 2022 introduced Section 148A, which requires the assessing officer to conduct an inquiry and give the taxpayer an opportunity to explain their case before issuing a notice under Section 148.

The assessing officer must issue a notice to the taxpayer under Section 148A(b), providing information and adverse material suggesting that income has escaped assessment. The taxpayer can respond with their own material and evidence.

In the 2021 budget, the government introduced Section 148A in the Income Tax Act. If the income tax officer has information that the taxpayer has undisclosed income for a specific assessment year, the officer must give the taxpayer a chance to provide an explanation before issuing a notice. The taxpayer has the right to be heard by the officer.

The assessing officer must allow the taxpayer at least seven days but no more than 30 days to provide their explanation.

After considering the taxpayer’s response, the income tax officer will decide whether to issue a notice for reassessment. If the officer decides to reopen the case, they must provide a copy of the order and a notice under Section 148 to the taxpayer.

Normally, a notice cannot be issued if three years have passed since the end of the relevant assessment year. However, if there is evidence of tax evasion of at least Rs 50 lakh, a notice can be issued beyond three years but within 10 years from the end of the relevant assessment year.

Before conducting any inquiries, providing opportunities to the taxpayer, or making any orders, the income tax officer must obtain the approval of the specified authority.

The assessing officer must provide the taxpayer with all the material and information relied upon, along with the notice under Section 148A or the Show Cause Notice.

There must be supporting material to allege that income has escaped assessment. A simple assertion of ‘reason to believe’ is not enough to validate the issuance of a notice under Section 148A.

The assessing officer is required to consider the taxpayer’s reply to the notice referred to in Clause (b) of Section 148A, which is the Show Cause Notice.

If the taxpayer requests a personal hearing, cross-examination of a third party, or a statement from a third party, the assessing officer must provide it with the approval of the specified authority.

Any notice issued under Section 148 after that date without following the procedure under Section 148A (i.e., without giving an opportunity to be heard) would be invalid and against the provisions of the Income Tax Act.

The courts have consistently emphasized that the procedure outlined in Section 148A must be strictly followed in accordance with the legislative intent of introducing the new provisions.

After receiving the order and notice under Section 148, the taxpayer needs to file the income tax return for the relevant assessment year within the prescribed time mentioned in the notice and undergo the reassessment process.

Time Limit to Issue a Notice Under Section 148

No notice under Section 148 will be issued for the relevant assessment year after:
a) Normal time limit: 3 years from the end of the relevant assessment year.
b) Specified time limit: If 3 have passed but not 10 years from the end of the relevant assessment year and the Assessing Officer has evidence of income amounting to Rs 50 lakhs or more that has not been taxed.

The Assessing Officer will issue a notice only if the following conditions are met for the relevant assessment year:
– The taxpayer has filed their returns under Section 139.
– The taxpayer failed to file their returns after receiving a notice under Section 142 or Section 148(1).
– The taxpayer should have provided complete and accurate information required for completing the assessment of that relevant year.

Replying to Notice Under Section 148

The key thing to bear in mind is to not to take the notice lightly. In case you receive the notice under section 148, please follow the below-mentioned pointers:

Firstly, check the notice for reasons to believe which are recorded by the assessing officer for issuing the notice under section 148. If the notice doesn’t include the reasons, then you could request the assessing officer to send a copy of the recorded reasons.
You will need to respond to the notice within the given time frame, which is usually 30 days. You can respond to the notice either by filing a return or by providing a written reply to the Assessing Officer along with all the details and proofs.
In case you’re satisfied with ‘reasons to believe’ which was recorded by the assessing officer, file the return at the earliest. In the case already filed, send the copy to the assessing officer.
In case you’re filing the income tax return in response to notice issued under section 148, ensure that you file it after performing proper due diligence that you declare all your income and expenses carefully. In case you miss reporting any of your income correctly then it could result in unnecessary penalties.
If you believe that the notice served is not valid or reasons provided by the assessing officer for opening assessment under section 147 aren’t valid, then you could challenge the validity of such notice before the assessing officer or higher authorities.
In case you win your case, the Court would halt your assessment proceedings. However, in case the decision doesn’t go in your favour, then the assessing officer could proceed with the reassessment.

What Happens if you Do Not Respond to Section 148?

If you don’t respond to a notice under Section 148, the Assessing Officer has the authority to carry out the assessment using the information at hand. Basically, they can make an estimate of your income and evaluate it to the best of their judgment. In case you disagree with their assessment, you have the option to file an appeal with either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.

Who Can Issue a Notice Under Section 148

Section 151(1) of the Income Tax Act, 1961 contains the provisions for issue of notice:

No notice would be issued by an Assessing Officer under section 148, after expiry of three years from the end of relevant AY (assessment year), unless Principal Chief Commissioner or Principal Commissioner or Chief Commissioner or Commissioner is satisfied, on reasons recorded by the AO, that it’s a fit case for issuing such notice.
In cases other than the one mentioned above, no notice would be issued by an Assessing Officer under section 148, where AO is below the rank of a Joint Commissioner unless Joint Commissioner is satisfied, on reasons recorded by such AO, that it’s a fit case for issuing such notice.
For the purposes of above (1) and (2), Principal Chief Commissioner or the Principal Commissioner or the Chief Commissioner or the Joint Commissioner the Commissioner, depending on the case, being satisfied on reasons recorded by AO about the fitness of the case for issuing notice under section 148 of the Income Tax Act, need not issue the notice by himself.

Duties and Rights Of The Assessee After The Receipt Of Notice Under Section 148

1. The assessee must fulfill the duty of filing tax returns for any income considered as “Income Escaping” for the relevant assessment year.

2. Once the returns are filed, the assessee has the right to request a copy of the notice, which outlines the reasons behind the Assessing Officer’s decision to issue the notice under Section 148.

3. If the assessee finds the reasons provided in the copy unsatisfactory or baseless, they have the right to file an objection challenging the validity of the notice.

4. It is essential for the assessee to provide valid reasons while raising objections and questioning the lawfulness of the notice issued under Section 148.

5. In case the Assessing Officer dismisses the assessee’s claims, the assessee retains the right to request the provision of separate reasons for the dismissal.

6. The assessee also has the option to file a writ petition with the appropriate High Court, challenging the legality and validity of the notice issued under Section 148. This can be done even before the assessment or re-assessment is concluded.

7. Even after the assessment is completed and the matter is under appeal, the assessee still has the right to file a writ petition with the relevant High Court, questioning the legality and validity of the notice under Section 148.

8. The assessee must provide evidence of the following actions:

a. Requesting a copy of the reasons stated by the Assessing Officer for issuing the notice under Section 148.

b. Filing an objection to the reasons presented by the Assessing Officer.

c. Requesting the Assessing

d. Challenging the lawfulness of the notice’s issuance.

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Reopening of Income Tax Assessment Cases

As part of the Union Budget 2021, a decision has been made to reduce the time limit for reopening income tax assessment cases. Previously set at six years, it will now be shortened to three years. However, in situations involving significant tax evasion, assessments may be reopened for a period of up to ten years, but only if the concealed income exceeds Rs. 50 lakh. Officer to provide reasons for rejecting the assessee’s objections.

Things to Consider While Replying to a Notice Under Section 148

When responding to a notice issued under Section 148 of the Income Tax Act, 1961, it is important to consider the following factors:

1. Begin by understanding the reasons that prompted the Assessing Officer (AO) to send the notice. If the reasons are not provided in the notice, individuals have the right to request a copy of the same.

2. If the reasons provided in the notice are found to be justifiable, it is crucial to promptly file tax returns to avoid any potential legal complications. If tax returns have already been filed under Section 148, individuals should ensure to submit a copy of the returns to the AO.

3. Exercise caution and diligence while filing income tax returns. Any omission or incorrect reporting of expenses or income could result in legal penalties. It is important to ensure that all relevant information is accurately reported.

4. Familiarize yourself with the provisions outlined in Section 148 of the Income Tax Act to prevent any legal complexities. However, it is advisable for individuals to get their income assessed each assessment year in order to remain tax compliant and avoid any inconveniences.

By considering these factors, individuals can appropriately respond to a notice issued under Section 148 and effectively navigate the income tax assessment process.

Asked Questions

Is it possible to issue a notice under Section 148 for an assessment year after ten years?

No, a notice under Section 148 can only be issued within three or ten years, depending on the amount of escaped income, from the end of the relevant assessment year.

Can a notice under Section 148 be issued if the taxpayer has already submitted a return?

Yes, a notice under Section 148 can be issued even if the taxpayer has already filed an ITR.

What happens if the Assessing Officer conducts a best judgement assessment?

If the Assessing Officer conducts a best judgment assessment, they will estimate your income and expenses using the available information. In case you disagree with the assessment, you have the option to file an appeal with the Commissioner of Income Tax (Appeals) / the Income Tax Appellate Tribunal. It is always advisable to respond to a notice under Section 148 and provide all the important details of your income and expenses to avoid unnecessary complications.

What is the penalty under Section 148?

Section 148 does not specify a specific penalty, as it relates to the issuance of a notice for reassessment. However, if you fail to respond to a notice issued under Section 148, the Assessing Officer may impose penalties under Section 271(1)(b) for concealing income or Section 271(1)(c) for furnishing inaccurate particulars of income. Therefore, it is crucial to respond to a notice under Section 148 and provide precise information regarding your income and expenses to prevent penalties or legal complications.

What is the time limit to issue a notice under section 148?

A notice under Section 148 can be sent to a taxpayer within 3 years from the end of the relevant assessment year if the undisclosed income amounts to or is likely to amount to less than Rs. 50,00,000. However, if the undisclosed income exceeds Rs. 50,00,000, the notice can be issued within ten years from the conclusion of the relevant assessment year.

Letter of Intimation u/s 143(1)

Intimation Under Section 143(1) of Income Tax Act income tax returns filed by the taxpayers are first processed online at the Centralised Processing Centre (CPC). After processing the return, the income tax department then issues intimation under section 143(1) to the taxpayers informing them about the results.

Letter of Intimation u/s 143(1)

An income tax return can be either filed voluntarily under Section 139 or on demand by the income tax department under Section 142(1). It is necessary to understand what happens after the taxpayer has filed the return of income.

The process of examining the return filed by the taxpayer by the income tax department is termed assessment. The IT department carries out a preliminary assessment of all the returns filed and informs taxpayers of the result of such preliminary assessment. This assessment primarily includes arithmetical errors, internal inconsistencies, tax calculation and verification of tax payment. The preliminary evaluation process is fully computerised (automated), and is delegated to the Central Processing Centre (CPC).

Thereafter, the system generates the intimation under Section 143(1), which generally indicates obvious errors identified by the mainframe system.

When does one receive an Intimation under Section 143(1)

Every assessee shall receive the intimation under section 143(1) upon successful processing of the return.

As mentioned above, it is an automated system-driven process that verifies the arithmetical accuracy, information available with the department, details available in return, and the provision of income tax law, and it generates the comparison report. Such an automated process eliminates the manual job of the income tax officer to a great extent.

If a taxpayer has paid excess tax, then it mentions tax refund. A refund will be issued only if the amount is more than Rs.100.
If the tax paid by the taxpayer has fallen short, it mentions the amount of demand and a challan to make the payment.
It’s a simple acknowledgement that the ITR filed by the taxpayer is consistent as per the Assessing Officer.

Centralized Processing Center

With the rapid increase in the number of income tax returns and a jurisdiction-based processing model for all the returns filed, the tax department faced problems leading to delayed processing of income tax returns.

Therefore, the Finance Act, 2008 empowered the Central Board of Direct Taxes (CBDT) to make a scheme for the centralised processing of returns with a view to expeditiously determine the tax payable by, or the refund due to the taxpayers. Based on the recommendations of the Technical Advisory Group, the department adopted the strategy that CPC at Bangalore would process paper and e-returns without any interface with taxpayers and in a jurisdiction free manner.

CPC project envisaged benefits for the citizens as well as the tax department. For citizens, it led to faster and hassle-free preliminary processing of their returns and also relieved the department from the burden of preliminary assessment that can be computerised, enabling them to concentrate on hardcore activities.

Any communication from the income tax department creates panic for taxpayers. However, Section 143(1) intimation is not something one needs to worry about. In this article, we would be discussing the intimation sent under Section 143(1) in detail to help taxpayers easily deal with such intimation.

Preliminary Assessment under 143(1)

Initial processing of returns by CPC is completely automated and Section 143(1) Intimation is also a computer generated record. CPC validates data provided in each tax return with details available with the income tax department’s own record (such as Form 26AS generated through details provided by collecting banks, TDS returns, etc.) and this notice usually only points out apparent mistakes found out by the mainframe system.

Once the return is filed, total income or loss is recomputed by the computerised system as per the department’s record and provides a comparison with data filed by the taxpayer
The intimation has two columns: ‘As provided by the taxpayer in the Return of Income’ and ‘As computed under Section 143 (1)
Comparison is made for major categories such as
- Income under various heads,
- Gross total income,
- Deductions under Chapter VIA (80C, 80D, etc.), and
- Tax deducted at source, and tax paid by taxpayers in the form of advance tax and self assessment tax
Appropriate adjustments are made to income as computed under Section 143(1) and final tax liability or refund is arrived at
The adjustments are carried out only after giving an intimation to the taxpayer of the proposed adjustments either in writing or electronic mode i.e., to the email id provided in the income tax return filed
Response received from the taxpayer within 30 days from the issuance date of intimation will be considered before making the final adjustment and in case no response is received within such period, adjustments arrived at initially will be incorporated.
After arriving at final tax liability, the same is adjusted against TDS and tax payments and other relief under Section 90/91, if any.
An intimation shall be prepared and sent to the taxpayer.
Kind of intimations possible are discussed below:
- Intimation with no demand or no refund – This generally happens if the department has accepted the return as filed without carrying out any adjustments to it.
- Intimation determining demand – Issued in case of adjustments made under Section 143(1) due to a discrepancy found and tax liability is arrived at.
- Intimation determining refund – Issued where any tax is found to be refundable either where no discrepancy in the return filed or after making adjustments as referred to in Section 143(1) and after giving credit to the taxes and interest paid by the taxpayer.
While demand notice is sent in case of final tax liability, refunds if any shall be granted to the taxpayer.

What is the password for intimation under Section 143(1)?

The intimation received under Section 143(1) is password protected. The ITR intimation password will be your PAN (in lowercase) followed by your date of birth in DDMMYYYY format without giving any space.

For example: Assuming your PAN is ABCDE1234E and the date of birth is 01/01/2000, the password to open the intimation will be “abcde1234e01012000”.

Nature of adjustments under 143(1)

Total income or loss is computed under Section 143(1) after making the following adjustments:

Arithmetical error in the return
Any incorrect claim which is apparent from any information in the return where incorrect claim which may include the following:
- The claim of an item in the return which is inconsistent with another entry of the same or some other item in such return – for example, income from other sources are deducted from business income but not declared under income from other sources.
- Disallowance of set-off of loss in the financial year which is carried forward from previous years in which return was filed beyond the specified due date
- Disallowance of expenditure is indicated in the audit report but not indicated in the return of income.

Time Limit for issue of 143(1)

Section 143(1) intimation has to be sent within nine months from the end of the financial year in which the return is being filed. For eg: if the taxpayer has filed return pertaining to the financial year 2023-24 in July 2024, intimation can be sent any time till 31 December 2025. If a taxpayer does not receive any intimation within such period, it simply means there are no adjustments carried out to the return filed by the taxpayer and no change in tax liability/refund, and the acknowledgement filed itself is deemed to be Section 143(1) intimation.

Action to be taken by the taxpayer after receiving a 143(1)

As a first step, review certain things in Section 143(1) intimation to ensure the document pertains to your return itself and the data provided pertain to the same financial year as mentioned in Section 143(1) intimation.
Check the name, PAN, address, assessment year for which notice has been sent and e-filing acknowledgement number.
In case you are able to identify the mistakes you have made while filing your return from the 143(1) intimation, and they can be rectified by filing a revised return, please do so by logging into the income tax e-filing website. Please refer our article on how you can go about revising your return online.
However, if no mistakes have been made and you do not agree with the adjustments made by CPC/computerised system, you can file an online rectification application under Section 154(1) intimating the correction of mistake appearing in the Section 143(1) intimation. Refer our article on filing rectification application.
Also, submit your response in the e-filing portal where there is a tax demand- whether you agree or disagree with the same.
In case you are not satisfied with the processing of your rectification return by CPC, you can also file online grievances or contact your assessing officer. In case of no satisfactory action from CPC/assessing officer, you can file a complaint to the income tax ombudsman.

However, if taxpayer agrees to the tax demand raised by income tax department after carrying out adjustments as above, taxpayer is required to pay such taxes. Refer our article on OLTAS challan payment on how to pay taxes. However, while paying tax on demand raised under this Section, please choose ‘Tax on regular assessment (400)’ under ‘Type of payment’ field in the challan.
If you wish to pay challan physically, the pre-filled challan is attached with the intimation as below.

Frequently Asked Questions

What if I do not receive my intimation under section 143(1) even after the end of the specified period?

The acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by or refundable to, the taxpayer and where no adjustment has been made.

I received a demand notice under section 143(1) of Rs5000. What should I do?

First of all, verify the reason for tax liability and if you agree with the tax demand, you are required to pay the tax.

Choose the Tax on regular assessment (400) under type of payment in the challan. If you don’t agree with the demand, submit a response for the same.

What is the reason for the difference in TDS as per taxpayer and as computed u/s 143(1)?

The difference in TDS as per taxpayer and as computed u/s 143(1) is because the TDS reflected in 26AS is different from that of the TDS claimed in your tax return. If the TDS claimed in your tax return is correct, then you can file an online rectification application under section 154(1) for mistakes in intimation order under section 143(1).

If I have a disagreement with the refund mentioned in the intimation order, what can be done?

If you disagree with the reduced refund calculated by the CPC in the intimation order, you will either be required to file a revised or rectification return. A revised return can be filed for any mistakes committed in your original return. A rectification return can be filed only if you find any error in the order passed by the Income Tax Department.

How to get the Intimation u/s 143(1) again?

The following are the steps to get intimation u/s 143(1) again, in case you are not being able to receive your intimation on your registered mail ID:

Visit the e-filing portal
Log into the portal by entering your login credentials
Click on the ‘Income Tax Return’ option under ‘e-file’ option
Click on ‘View Field’
A new page will appear showing the filed returns
Click on the ‘Download Intimation Order’

What if I have not received an intimation order even after one year from the relevant Assessment year?

If you have not received an intimation order till the expiry of one year, then it means that there is no tax liability nor there is a refund due to you. In such a case, ITR filed is deemed to be your intimation.

Income Tax Notice to Salaried Employees

Reasons for Income Tax Notices to Salaried Employees

Salaried individuals can receive income tax notices for various reasons, including but not limited to:

Income Discrepancies: If the income you have reported does not match up with what your employer, banks, or other sources have reported to the tax authorities, you may receive a notice requesting clarification.
Unreported Income: Neglecting to declare all income streams, such as rent, interest, or income from side gigs, including online platforms or additional part-time work, could result in a notice for income underreporting.
Incorrect Deductions: Claiming deductions or exemptions without sufficient proof, or for which you are not eligible, might lead to a notice. This includes instances where the tax department identifies fraudulent deduction claims, such as submitting fake rent receipts to claim Housing Rent Allowance (HRA) exemptions.
High-Value Transactions: Engaging in significant financial transactions that stand out, such as substantial cash deposits, property dealings, or large investments, might prompt the tax authorities to issue a notice to verify these transactions.
Form 26AS Mismatch: If the income declared in your tax return does not align with the transactions listed in your Form 26AS, a comprehensive tax statement linked to your PAN, you could receive a notice.
Non-Filing or Late Filing of Returns: Not filing your tax return or submitting it past the deadline can lead to a notice asking why there was a delay.
Random Scrutiny: The tax department occasionally selects tax returns for random detailed examination to ensure they comply with tax laws and are accurate.
Foreign Income and Assets: If you have foreign income or assets and fail to disclose them as mandated by tax laws, you might be flagged for a notice.
Undisclosed Gifts or Loans: Failing to report certain gifts or loans, especially those above a specific value, could attract scrutiny from the tax authorities.
Ignoring Previous Notices: Not responding to or inadequately addressing previous notices can escalate to more serious follow-up notices from the tax department.

If you have received a tax notice for any of these reasons, our tax experts are ready to help you respond accurately and within the required timeframe.

Types of Income Tax Notices to Salaried Employees

Exploring the type of Income Tax Notices for Salaried Employees:

Intimation Under Section 143(1): This is sent after the Income Tax Return (ITR) is processed to inform the taxpayer of the tax computation as determined by the tax department. It indicates whether any tax is due or a refund is owed to the taxpayer.
Notice Under Section 142(1): This notice is issued for two main reasons: first, if you’ve filed your return but the tax officer requires further information or documents; second if you haven’t filed your ITR and are being prompted to do so. Non-compliance with this notice can result in penalties of up to ₹10,000 and/or imprisonment of up to one year.
Notice Under Section 148: This “income escaping assessment” notice is issued if there’s evidence or reason to believe that income has been underreported or taxes have been underpaid.
Notice Under Section 139(9): This notice is known as the defective return notice. It’s issued when discrepancies or errors are found in the filed tax return. The taxpayer has an opportunity to rectify these errors by filing a revised return within 15 days of receiving the notice.
Notice Under Section 143(2): This notice signifies that the taxpayer’s return has been selected for scrutiny or detailed examination to verify the accuracy of income declarations, tax payments, and loss claims.
Notice Under Section 156 (Demand Notice): If there are outstanding amounts like tax dues, penalties, or fines payable by the taxpayer, a demand notice under Section 156 is issued, requiring payment within 30 days.
Notice Under Section 245: When unpaid taxes from previous years are present and the tax department intends to offset them against a refund due in the current year, a notice under Section 245 is sent. The taxpayer has 30 days to respond; failing to do so may be interpreted as consent to the adjustment.

Addressing Income Tax Notices for Salaried Employees

Comprehensive Review of the Notice: Begin by thoroughly examining the notice to grasp the reasons behind its issuance, identify the particular concerns highlighted, and understand the actions you are required to take.
Compilation of Necessary Documentation: Assemble all pertinent documents such as your income tax returns, Form 16, Form 26AS, proofs of investments, bank statements, and any other documents relevant to the notice’s queries.
Adherence to Deadlines: Pay close attention to the response deadline specified in the notice. Replying within this timeline is crucial to prevent further complications or penalties.
Submission of Supporting Evidence: Along with your response, include all necessary supporting documents that corroborate your provided information. Ensure these documents are well-organized to aid the reviewing officer’s verification process.
Consultation with Tax Professionals: If the notice appears intricate or you’re uncertain about how to proceed, it’s advisable to seek advice from tax professionals. IndiaFilings Tax experts can offer valuable insights and guidance.
Monitoring of Response Submission: If you’re responding online, monitor the submission process closely to ensure you receive an acknowledgement or any form of response from the tax department.
Vigilant Follow-up: Stay proactive in checking your email, tax portal, and other communication mediums for any follow-up correspondence or additional notices from the tax department, ensuring you address them promptly.

By following these steps, you can respond to income tax notices with clarity and confidence, ensuring compliance and minimizing potential disputes with the tax authorities.

Enhanced Scrutiny on False Deduction Claims by Salaried Taxpayers

How to Avoid Penalties and IT Notices for Salaried Taxpayers?

To steer clear of potential penalties and unwelcome notices from the tax authorities, salaried employees can adopt the following measures:

Timely and Accurate Filing: Ensure you file your income tax returns within the prescribed deadline. If you miss the deadline, file a belated return as soon as possible to minimize the risk of penalties and notices.
Reconcile with Form 26AS: Make it a practice to cross-check the details in your Income Tax Return (ITR) with the information reflected in Form 26AS. Discrepancies between these documents are common triggers for tax notices.
Organize Financial Documentation: Maintain a systematic record of all your financial transactions, including income, expenditures, and relevant receipts or documents. This organized approach will be invaluable in case of an audit.
Seek Professional Guidance: Navigating the complexities of tax laws can be daunting. If your tax situation is intricate, it’s wise to consult a tax professional or chartered accountant. For a hassle-free ITR filing experience, consider leveraging IndiaFilings ITR services.
Prompt Response to Notices: Should you receive any communication from the tax authorities, you must respond swiftly and adhere to their guidelines. Ignoring such notices can escalate to more severe penalties.
Report All Income Sources: Diligently report earnings from all sources to avoid the implications of underreporting. Overlooking significant income streams is a common mistake that can attract scrutiny.
Document Deductions and Exemptions: Keep thorough records of all deductions and exemptions claimed in your tax filings, along with the necessary documentary evidence. The tax department may request these documents to verify your claims.

ITR Filing 2024: Avoid Income Tax Notice Due to Form 16 and Form 26AS Mismatch

Income tax return (ITR) filing deadline is approaching, with 31st July as the last date. Already in June 3rd week, most salaried taxpayers may have received Form 16 from their employers and those who have not received can expect it before the end of this month.

If you are a salaried taxpayer and have just received Form 16 from your employer, you should first do an important task before embarking on filing income tax return for FY 2023-24 (Assessment Year 2024-25). The very first thing you should do is compare your Form 16 with 26AS.

What do Form 26AS and Form 16 contain?

Form 26AS provides details of all taxes paid by a taxpayer. The document contains TDS deducted by employers, banks, or other deductors. Once Form 16 is received, it’s important to cross-check the income and tax details in Form 26AS. Form 16, a certificate provided by employers to salaried individuals, gives details like salary income, TDS deducted by the employer and various allowances.

Form 26AS, a consolidated Annual Information Statement for a particular Financial Year (FY), has these following details:

Tax Deducted at Source (TDS)
Tax Collected at Source (TCS)
Advance Tax / Self-Assessment Tax / Regular Assessment Tax deposited
Refund received during a financial year (if any)
Details of any Specified Financial Transactions (SFT) (if any)
Details of Tax Deducted on sale of immovable property u/s194IA (in case of seller of such property)
TDS Defaults (if any)
Information relating to demand and refund
Information relating to pending and completed proceedings

On the other hand, Form 16 is a confirmation that the taxes have been deducted from the salary of an employee. Put simply, it is a certificate that tax has not only been deducted but also deposited with the income tax department.

How to download Form 26AS?

Step 1: Visit the income tax department’s e-filing portal

Step 2: Enter User ID (Your PAN). If your ser ID is invalid, you will see an error message. Enter valid user ID details.

Step 3: If you remember the password, enter the password and continue. Else, you can follow certain steps to recover your password.

Step 4: Once the step is completed, go to ‘e-file’.

Step 5: Click ‘Income Tax Returns’ and select ‘View Form 26AS’ from the dropdown list.

What should you do in case of a mismatch in Form 16 and Form 26AS?

For a taxpayer, it is important to rectify any discrepancies between Form 16 and 26AS to ensure correct reporting of income and taxes paid. If you fail to reconcile mismatches between these two forms, you could receive a notice from the income tax department. The mismatch might result in some complications and you facing penalties. Therefore, it is crucial that you should be engaged in review and alignment of Form 26AS and Form 16 for a smooth tax filing process.

Steps to rectify TDS mismatch:

In case of a mismatch in Form 16 and 26AS, you first inform your employer or company who deducted TDS from your income.
If there is a fault of the employer, you need to bring it to their notice so that they can easily correct the mistake.
Once the correction is made by the employer by filing a revised TDS return, you need to ensure that the details are correct in order to avoid another mismatch.
In case of having received a notice from tax authorities about tax credit mismatch, one can respond to it online through the e-filing portal of the income tax department.

Notice under Section 142(1) of the Income-tax Act

After you complete the e-filing process of the income return, the income tax department conducts an assessment. In case the assessing officer (AO) realises that there is more clarification needed regarding a particular detail during the assessment, they are likely to dispatch a notice under Section 142(1) of the ITA.

Purpose of Notice under Section 142(1)

With the issue of notice under Section 142(1), the AO may call upon the assessee to:

File the income tax return where the return is not filed within the time limit. It may include a return in respect of his/her income or income of another person for which he/she is liable to be assessable. For example, in the case of a legal guardian or a deceased person
Produce accounts or documents to make an assessment
Provide such other information or statements as required by the officer. For example, a statement of assets and liabilities of the assessee on a particular date

Compliance under Section 142(1) is Mandatory

Even if a taxpayer thinks that the accounts/documents requested are irrelevant, compliance remains mandatory. In case an assessee does not comply with the provisions of Section 142:

It may result in the best judgement assessment under Section 144, where the income tax officer determines the income and taxes thereon.
A penalty under Section 271(1)(b), which is Rs 10,000 for each failure, or
Prosecution under Section 276D, which may extend up to a year and may attract a fine

If AO is satisfied with the documents or return or supporting evidence, he/she may not start with the assessment process. The return filed by you will be accepted and proceedings will be closed.

E-Assessment Scheme, 2019

The Central Board of Direct Taxes (CBDT) has notified that ‘e-Assessment Scheme, 2019’ will be termed as ‘Faceless Assessment Scheme, 2019’, and all income tax assessments (subject to certain exceptions) shall be conducted in a faceless manner. Further, the CBDT has directed that the National e-Assessment Centre (NeAC) shall pass all the assessment orders through the ‘Faceless Assessment Scheme, 2019’.

Procedure of Conducting Faceless Assessment

The following steps are adopted concerning the Faceless Assessment.

NeAC serves notice to an assessee. He/she (assessee) needs to reply within 15 days of receipt of the notice. The NeAC will assign the case to specific assessment units (AU) in any one regional e-assessment centre (ReAC) through an automated allocation system.
The AU requests the NeAC to obtain information, documents, or evidence from an assessee, conducting inquiry or verification by the verification unit (VU), or seeking technical assistance from the technical unit (TU).
The NeAC issues notice to an assessee and assigns the request to the VU and the TU. After receiving documents from an assessee and relevant reports from the VU and TU, the NeAC transfers the same to AU.
In case an assessee fails to comply with the notice, then the NeAC serves notice under Section 144 as to why an assessment should not be completed to the best of judgement.
An assessee needs to file a reply to the NeAC within a given time frame. If the assessee fails to file a response, then the NeAC examines the draft assessment order as per risk management strategy (RMS) and automation examination tools. Based on this, it may decide to finalise the assessment order, provide an opportunity to an assessee if modification is proposed, or assign draft assessment order to Review Unit (RU) in any one ReAC. This is done through automated allocation system for conducting a review of such an order
The RU conducts the review of the draft assessment order and may decide to concur with it and intimate or suggest modifications and send them to the NeAC.
The NeAC on receiving the concurrence of the review unit finalises the draft assessment order. The NeAC, after receiving suggestions for modifications from the RU, will assign the case to AU, other than the AU who made the draft assessment order through an automated allocation system. The AU, on its part, will consider RU’s suggestions on modifications and send a final draft assessment order to the NeAC.
The NeAC is likely to finalise the assessment order or if modifications are proposed, follow such a procedure accordingly.
In case a show-cause notice (SCN) has been served to an assessee, he/she furnishes a reply within a particular time frame. The NeAC shall in case of no response to the SCN, finalise an assessment as per the draft assessment order. In case a response to an SCN is received, the NeAC will send a response to the AU. The AU then makes a draft assessment order and sends it to the NeAC.
The NeAC receives the revised draft assessment order. If modification is not prejudicial to the interest of an assessee regarding the draft assessment order, it will finalise an assessment order. In case a modification is prejudicial to the interest of an assessee regarding a draft assessment order, NeAC will provide an opportunity of being heard.

The NeAC deals with a response as per a similar procedure, that is the AU will make draft assessment order and so on.

Sample of a Notice under Section 142(1) of the ITA

Process to File a Response

A response to a notice under Section 142(1) has to be furnished electronically only via the ‘e-Proceedings’ utility in the registered ‘e-Filing’ accounts of the assessee. There is no need to visit the income tax office or schedule an in-person meeting with any assessing authority in this regard.

Log in to the income tax portal: www.incometax.gov.in
Go to the ‘Pending Actions’ tab and select ‘E-Proceedings’
Click on ‘View Notices’ and hit ‘Submit Response’
You will be directed to a page that will prompt you to ‘Select Response type for Notice’
You are required to choose between ‘Partial Response’ and ‘Full Response’

Note: The attachments to be submitted can be in PDF/ Excel/Comma-Separated Values (CSV) formats.

Click on ‘Continue’, mark a tick on the ‘Declaration and Submit’
You will receive a response ‘Submitted Successfully’
You can download the response acknowledgement

Fiscal Year 2023-24 Tax Filing: 10 Must-Do Tips to Avoid Income Tax Notice

By Alok Agrawal

The fiscal year 2023-24 ended on 31 March 2024 and individual taxpayers are gearing up to file tax returns by the deadline of 31 July 2024. Over the past few years, the government has sought to improve the taxpayer’s experience by simplifying tax return filings through pre-filed ITR, etc.

With some useful tips listed below, taxpayers can ensure that their returns are filed accurately and they can also avoid potential queries from the income tax department, and other issues.

1) Selection of correct ITR Form: – Using the correct ITR Form is crucial for accurately reporting of income and for claiming deductions and credits. The tax department may issue a notice of “defective return” to the taxpayer in case of such an incorrect selection. So, the appropriate ITR Form must be selected based on income sources, residential status and other criteria.

2) Selection of tax regime: – The Budget 2023 mandated the simplified tax regime as the default tax regime from FY 2023-24 onwards. If a taxpayer wishes to opt for the old regime, then there is an option in the ITR Form – “Do you wish to opt out of new regime?”, wherein “Yes” is to be selected. Tax calculators are available on the income tax portal for comparison and can assist in deciding which regime is beneficial.

3) Reconciliation of income: – It is imperative to reconcile income details appearing in Form 16/16A, Form 26AS (tax credit statement), AIS (Annual Information Statement) etc., available on the income tax portal to ensure all sources of income are disclosed, else this may lead to interest and penalty.

4) Tax Collected at Source (‘TCS’):– TCS is the tax collected from the buyer on various expenses (car purchase, foreign trip, foreign remittances etc,). Details of TCS are available in Forms 26AS and AIS. Taxpayers must ensure that this credit is fully reflected as they are eligible to claim credit of TCS while filling the ITR Form.

5) Tax credit: – While filing ITR, taxpayers should ensure that taxes already deducted/paid are reported in Form ITR and only the balance tax liability is paid. As in the case of TCS, details of TDS, Advance tax and Self-assessment tax paid are also available in Forms 26AS and AIS. In order to get full credit for the relevant amounts, the taxpayer should mention details (i.e. TAN, date of deposit, Challan Sr. No etc) accurately in the relevant sections of the form.

6) Claiming Losses: – Taxpayer should claim all eligible losses incurred during the current and previous years, which can save taxes. Also, the unclaimed past losses which can be carried forward to next year, should be reported in the appropriate schedule of Form ITR.

7) Declaration of Foreign Assets: – Recently, there has been increase in notices issued to taxpayers to verify details of offshore investments. Hence, if you qualify as Resident & Ordinarily Resident (ROR) and have foreign assets, then it is essential to report such assets appropriately in the income tax return.

8) Bank Account details: – In case of tax refund arising in ITR, taxpayer should ensure that active and validated bank account details (i.e. account number, IFSC code, name of the bank etc) are accurately mentioned.

9) Adherence to deadline: – There are many consequences of not filing the return within the specified deadline such as late fees charges, penalty. Also, the simplified tax regime can’t be opted for and also capital losses can’t be carried forward, etc. So, one should always file the income tax return within timelines to avoid such implications.

10) Verification: – The final step after submitting income tax return on the portal is verification of the return within 30 days from filing the return. Verification can be done either through OTP on mobile number registered with Aadhaar or net banking or sending a signed copy of ITR-V to the CPC Bangalore office, etc. Without verification within the stipulated time, an ITR is treated as invalid.

(The author is Partner, Deloitte India)

Source FT

Authenticate Income Tax Notices and Respond Effectively

Before you respond to any communication received in the name of the income tax department, it is important to verify whether the notice/order issued is genuine and issued by the income tax authority.

You can authenticate the notice/order/letter issued by the income tax authority on the e-filing portal. Let us understand to verify the same.

Step 1: Go to income tax e-filing portal. On the home page, go to ‘Authenticate notice/order issued by ITD’ under ‘Quick Links’.

Step 2: You can authenticate using:

PAN, document type, assessment year, issue date and mobile number (for notice/order/letter issued for AY 2011-12 and subsequent years only)
Document Identification Number and mobile number (for all assessment years)

Step 3: If you want to authenticate by PAN, document type, assessment year, issue date and mobile number, select the option and enter all the details.

If the notice is not issued by the ITD, it will display a message – No record found for the given criteria.

Step 5: Another alternative is to authenticate using DIN and mobile number.

Step 6: Enter DIN and mobile number and continue. You will receive an OTP. Validate using OTP.

If the notice/order is issued by the income tax authority, it will display a success message, as shown below.

Otherwise, it will show- No record found for the given Document Number

Types Of Notices/Intimations

Notice Under Section 133(6)

ITR was not filed in spite of having income exceeding the basic exemption limit as per AIS.
Taxable Income in the form of Salary, Interest Income, and Capital gain exists in the Annual Information Statement (AIS). However, values are not entered correctly in the ITR Form.
Significant higher expenditure in the form of Purchase of immovable property, Foreign travel, and Purchase of Mutual funds/stocks in comparison to the Income declared in the ITR

Copy of Notice u/s 133(6)

Steps To Respond To Notice u/s 133(6)

Analyse the reason for receiving such notice and identify if there was any actual misstatement from taxpayer side or error from department
Login to the income tax portal >> Pending Action >> Compliance Portal >> E Verification

Provide detailed response along with necessary attachment in the questionnaire provided

If the misstatement is from the taxpayer and additional liability is required to be paid, then such taxpayer can file the Updated return u/s 139(8A) along with the necessary penalty voluntarily and provide a response accordingly
However, if the error is from the department side you can provide the response in the insights portal along with supporting documents.

Notice Under Section 142(1)

A notice under section 142(1) can be issued under two circumstances:

If you have filed your return, but the assessing officer requires additional information and documents; or
If you have not filed your return but the assessing officer wants you to file it.

The information is called for to enable the officer to make a fair assessment. Being non-responsive to this notice has consequences,

A penalty of Rs 10,000 can be levied for each such failure
Prosecution, which may extend up to 1 year
Both of the above.’

Copy of Section 142(1) Notice

Intimation Under Section 143(1)

After having filed your returns, it is electronically processed by the Central Processing Centre (CPC). The income is computed after making the following adjustments to the total income in return :

Any arithmetical error in the return
An incorrect claim (provided the incorrect claim is apparent from the information filed)
Disallowance of incorrectly claimed loss or expenditure
Any income which has not been included in the return

Upon successful processing of the return, an intimation under section 143(1) is issued by the CPC under any of the three instances:

There is a tax liability to be paid
A refund has been determined
There is no refund or demand, but there is an increase or reduction in the amount of loss.

How To Analyse The Above Notice?

The notice provides a comparative analysis of the date provided in the ITR and Computed u/s 143(1).
Identify which line item is causing such additional liability
It can be a mismatch in Income, Deduction or Prepaid taxes
If such demand is due to an error, then Rectification return u/s 154 can be filed within a period 4 years from the end of such assessment year
If demand is accurate, then it can be paid off using the link provided

Notice Under Section 143(2)

Understated your income
Claimed excessive loss
Paid lesser taxes

How To Respond To Notice u/s 143(2)

Carefully go through the notice and identify the reason why such notice has been issued, which will be provided in the Annexure.
Prepare a response under a cover letter, providing a detailed explanation in a legitimate manner and answering truthfully to all the questions provided in detail.
Log in to your Income tax portal under e-proceeding, provide the response to such notice with the cover letter and also attach the necessary documents as requested.

Are you not sure about what to do with such an income tax notice? Use our Notice Upload Facility to allow us to help you out. Alternatively, you can even seek the help of a Tax Expert.

Notice Under Section 148

Previously the timelines to be adhered to for the issuance of notice under Section 148 were as below:

As per the amendment in the Finance Act 2021, with effect from 1st April 2021, the time limit up to which the assessing officer can re-open the assessment of the taxpayer is as follows;

Up to three years from the end of the relevant assessment year in normal cases and
Beyond three years but not more than ten years from the end of the relevant assessment year, if the assessing officer has material evidence that income of Rs.50 lakh or more for a financial year has escaped assessment.

Notice Under Section 245

What Should Be Done After Receiving An Income Tax Notice?

When you get a notice under any of the aforementioned sections, you should take the following steps:

1. Carefully read the notice to determine why it was sent.

3. Determine the mismatch in your income tax return that resulted in a notice being served, if any.

4. To avoid penalties and prosecutions, respond to the notice within the time frame specified.

5. Ensure that your response is backed by adequate information.

6. Also, make sure to check that the notice you received is reflected in your income tax account online.

What Are The Most Common Causes Of Notice?

The most common causes for which you might receive an income tax notice include the following:

Income Tax notice for cash transaction

Depositing an amount exceeding ₹10 lakh in a single or combined financial year attracts attention from the Income Tax Department (ITD) in India. Any cash deposit surpassing ₹10 lakh in a financial year (April 01 to March 31) across all your savings accounts is duly reported to the ITD. The Central Board of Direct Taxes (CBDT) requires banks to report such transactions. Even if the deposit is divided among multiple accounts, any cumulative amount exceeding ₹10 lakh will still be flagged.

The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.

The department employs advanced data analytics tools to detect disparities between declared income and incurred expenses. It can cross-check information from diverse sources such as bank statements, property records, investment details, and travel records to construct a comprehensive financial profile of individuals. Apart, it also can collect information from external sources such as employers, travel agencies, and stock exchanges to validate income sources and pinpoint possible discrepancies.

This degree of scrutiny proves valuable in suspected cases of tax evasion, enabling the department to initiate scrutiny assessments, issue notices, and conduct inquiries directly to accumulate evidence and recover taxes. Below is a compilation of common transactions that could trigger a tax notice, even when conducted in cash:

Depositing large amounts in cash in savings accounts

Surpassing the ₹10 lakh limit doesn’t inherently suggest tax evasion, but it does prompt scrutiny from the Department. Explaining the source of the deposited funds becomes necessary, particularly if it doesn’t align with your declared income. If the explanation is considered unsatisfactory or if discrepancies arise in your tax returns, you could potentially face additional inquiries or penalties.

The ITD’s evaluation is also influenced by the intended use of the deposited funds. For instance, placing business income into a personal account could lead to concerns. Your comprehensive financial profile, encompassing income sources, expenses, investments, and other significant transactions, is taken into account by the ITD. Ensuring compliance is essential; maintaining accurate records and aligning your tax returns with your income and expenses is crucial to prevent unwarranted scrutiny.

Fixed deposits made with cash

Given the recent uptick in fixed deposit (FD) rates, these have become increasingly appealing choices for investors, especially for those in search of a steady and predictable income. The existing limit for reporting cash deposits to the ITD is ₹10 lakh within a single financial year (April 01 to March 31), irrespective of the purpose, including fixed deposits. It is crucial to take note of multiple deposits across different bank accounts. Even if you divide the cash deposit into smaller amounts across various accounts, any combined sum surpassing ₹10 lakhs will be brought to the attention of authorities.

Surpassing the limit doesn’t inherently indicate tax evasion, but it does attract the ITD’s attention, necessitating an explanation for the source of the funds. This scrutiny applies to any fixed deposit exceeding ₹10 lakhs.

The ₹10 lakh limit applies to the cumulative value of your FD holdings across all accounts and financial institutions, not solely to the individual deposit amount. Similar to cash deposits, surpassing this threshold may trigger inquiries regarding the source of funds, particularly if it doesn’t align with your declared income.

Purchases of shares, mutual funds, and bonds made in cash

Investing in bonds, shares, mutual funds, and debentures with cash transactions could result in an income tax notice if the investment surpasses a threshold of ₹10 lakh. Digital transactions, on the other hand, leave behind an online trail for both investors and the ITD alike.

Surpassing a particular threshold may prompt scrutiny from the ITD, but it does not automatically indicate the issuance of a tax notice or any wrongdoing. The ITD’s emphasis lies in identifying inconsistencies between declared income and expenses rather than discouraging investment through specific thresholds.

Repaying credit card bill in cash

There is no explicit rule mandating automatic scrutiny for cash payments towards credit card bills, irrespective of the amount. However, if you make a cash payment for a monthly credit card bill exceeding ₹1 lakh, the department automatically seeks information about the source of funds.

Surpassing any high-value transaction threshold, which includes cash payments, could initiate general scrutiny by the ITD. This examination is designed to uncover possible disparities between your declared income and expenses and is not specifically focused on credit card bill payments.

Cash payments related to properties

In India, when acquiring a property valued at over ₹30 lakhs, the ITD mandates the buyer to disclose the origin of the funds utilized for the purchase. This measure is implemented to counteract tax evasion and prevent money laundering activities.

The existing threshold for compulsory declaration of the source of funds is ₹50 lakhs for property acquisitions in urban areas and ₹20 lakhs for rural areas. Nevertheless, certain states may enforce more stringent thresholds, hence it is advisable to verify the specific regulations applicable in your region.

You have the option to declare the source of funds by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property purchase value is below the threshold, the Department retains the authority to request the source of funds if there are suspicions of discrepancies in your income or other transactions. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.

To address an ITD notice concerning high-value cash transactions, it is essential to possess sufficient documentation substantiating your assertion about the source of funds. This documentation may include bank statements, investment records, or inheritance papers.

If you are uncertain or have concerns regarding the declaration of the source of funds, it is advisable to seek advice from a qualified tax advisor for personalized guidance. Upholding transparency and adhering to tax regulations is essential for prudent financial management and mitigating potential legal complications.

Scrutiny Assessment under Income Tax Section 143(3)

Income Tax Assessment

Regular assessments examine the details submitted in the taxpayer’s return for accuracy.
Re-assessment might occur in specific situations as specified by the tax laws.
Best judgment assessment under Section 144, where the evaluation is based on the best judgment of the Assessing Officer, is typically used when the taxpayer fails to comply with specific requirements of the tax laws.

Notice under Section 143(2)

The Key Objectives of Scrutiny Assessment:

The scrutiny primarily aims to check three things:
That you haven’t reported less income than you have.
That you haven’t claimed excessive losses.
That you haven’t paid less tax than you should have.

What Exactly is a Scrutiny Assessment?

Scope of Assessment under Section 143(1):

Correction of Arithmetical Errors: Any mathematical mistakes present in the return are rectified.
Identification of Incorrect Claims: If any claims in the return are incorrect, they are adjusted based on the information available in the return. This includes claims inconsistent with other entries in the return, claims lacking required substantiation, or deductions exceeding statutory limits.
Disallowance of Loss Claimed: If the return for the previous year, for which a loss set-off is claimed, was submitted after the due date under Section 139(1), the loss claim can be disallowed.
Disallowance of Expenditure Not Accounted in the Total Income: If certain expenditures are mentioned in the audit report but not considered in the total income calculation in the return, these can be disallowed.
Disallowance of Certain Deductions: Deductions claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID, or 80-IE can be disallowed if the return is filed beyond the due date specified under Section 139(1).
Addition of Income Not Included in the Return: Any income that appears in Form 26AS, Form 16A, or Form 16, which has not been included in the total income stated in the return, may be added.

When Can a Scrutiny Assessment under Section 143(3) be Initiated?

Scrutiny Assessment assessment can be started in the following situations:

When you file an income tax return as per Section 139 or respond to a notice under Section 142.
When the Assessing Officer or Income Tax Authority feels it’s necessary to audit your return to ensure the reported income and paid taxes are accurate.

Types of Scrutiny Assessments

Scrutiny assessments under the Income Tax Act can be categorized into manual and compulsory assessments.

Manual Scrutiny Assessments: These are selected on a case-by-case basis due to specific reasons. Assesses can often avoid manual scrutiny by exercising due diligence and careful compliance with tax laws and filing procedures.
Compulsory Scrutiny Assessments: These are not within the control of the assessee and cannot be avoided. They are usually mandated by specific criteria set by the tax authorities.

Criteria for Selecting Cases for Scrutiny Assessment

A case is typically selected for scrutiny assessment by the Income Tax Department under certain circumstances:

Non-filing of Tax Return: If the assessee does not file the tax return, it can trigger a scrutiny assessment. This is particularly relevant when the assessee has a taxable income but fails to file the required returns.
Incomplete or Erroneous Tax Return: Cases where the tax return is filed but lacks necessary information or contains errors may also be scrutinised. This includes inaccuracies in income reporting or tax calculations.

Common Reasons for Scrutiny Selection

Reason 1: Non-filing of Income Tax Return (ITR)

Individuals with gross income above the exempted limit (e.g., Rs 2,50,000 for individuals below 60 years) must file an ITR.
Residents who own foreign assets or have authority over foreign bank accounts must file an ITR regardless of income level.
Filing is necessary even if the employer has deducted TDS.

Reason 2: Errors Related to TDS

Discrepancies between TDS amounts reported in the ITR and those recorded on the Traces website can trigger scrutiny.

Reason 3: Non-disclosure of Other Incomes

All incomes, including interest from savings accounts and fixed and recurring deposits, must be reported.
Issues arise when TDS is deducted at a lower rate than the assessee’s tax slab.

Reason 4: Unnatural or High-Value Transactions

Transactions significantly higher than the income declared can lead to scrutiny. For example, extensive deposits in bank accounts that don’t correspond with the reported income.
Such transactions are often reported to the tax department by banks and other financial institutions.

Reason 5: Defects in Income Tax Return

Errors in filing, such as using the wrong ITR form or omitting mandatory information, can result in a notice.
The tax department may direct the filing of a revised return under Section 139(9) to correct any inaccuracies.

Procedure for Scrutiny Assessment in Income Tax

Income Tax Notice under Section 143(2) and Scrutiny Assessment Process is explained here:

Starting a Scrutiny Assessment – Income Tax Notice u/s 143(2)

Participating in the Scrutiny Assessment

The taxpayer or their authorized person can meet with the Assessing Officer to discuss and present evidence or arguments about different issues as requested by the officer.

Conducting the Scrutiny Assessment Hearing

If the taxpayer cooperates and provides all the information, the Assessing Officer will review this evidence and decide. Once the officer makes a decision, the taxpayer has a few choices:

Accept the decision and either pay any extra tax, get a refund, or accept the loss determined.
Apply for a correction under Section 154 if there’s a clerical mistake.
File a revision application to the Commissioner of Income Tax under Section 263/264.
Appeal the decision if they disagree with it.

During the scrutiny process, the Assessing Officer (AO) focuses on ensuring:

No Underreporting of Income or Overstating of Losses: The AO verifies that the assessee has not underreported income or overstated losses in their tax return.
Sufficient Tax Payment: The AO checks if the assessee has paid the correct tax due. Any shortfall in tax payment can be a point of examination.

Time Limits for Conducting Scrutiny Assessments as Per Section 153

The duration allowed for completing a scrutiny assessment under Section 143(3) is outlined in Section 153 and varies based on the assessment year:

For the assessment year 2017-18 or earlier: The scrutiny assessment must be concluded within 21 months from the end of the assessment year when the income was first subject to tax.
For the assessment year 2018-19: The scrutiny assessment should be completed within 18 months following the end of the assessment year in which the income was first assessable.
For the assessment years starting from 2019-20 onwards: For the assessment years beginning in 2019-20 onwards, including the current assessment year, the rule is that the scrutiny assessment must be completed within 12 months after the end of the assessment year in which the income was first considered taxable.

Common Income Tax Notice FAQs: Different Types of Assessments and Notices Under Income Tax Law

Income Tax Notice FAQs: Tax payer may get the notices in different ways, for every notice there are different section and different possibility’s, assessing officer Or ITD will issue the notice according the errors and return furnishing perspectives.

1. What is meant by assessment?

Every taxpayer has to furnish the income and investment details to the Income-tax Department. These details are to be furnished by filing return. Once the return is filed by the taxpayer, the next step is the processing of the return by the Income-tax Department. The Income-tax Department examines the return. The process of examining the return of by the Income-tax Department is called “Assessment”. Assessment also includes re-assessment or best judgment assessment.2.

2. What are the different types of notices or assessments under the Income-tax Law?

There are different types of notices or assessments as given below:

Defective Income Tax Return: Section 139(9).
Calling for information u/s 133(6) of the Income Tax Act, 1961,
Income is concealed or likely to be concealed: Section 131(1A).
Preliminary Enquiry before an assessment: Section 142(1).
Notice of demand: Section 156.
Refund adjusted against the tax demand: Section 245.
Follow up to the notice u/s 142(1): Section 143(2).
Summary assessment without calling the taxpayer: Section 143(1).
Scrutiny assessment: Section 143(3).
Best judgment assessment: Section 144.
Income escaped assessment: Section 148 & 147.

3. What is meant by defective return under the section 139(9)?

This notice is sent by Assessing Officer of the opinion that ITR filed by the taxpayer is defective or incorrect.

And the Assessing Officer will provide the

Proper description of the errors
The solution that possible use to rectify those errors

Examples: Incomplete returns, parts of information missing, file a wrong ITR The tax payer has submit the response within 15 days from the notice received date, if the tax payer don’t respond then the return will be rejected by AO. The tax payer can submit the response in 2 ways

Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

For a details on how to address defective returns, refer Defective Notice: How to Prepare, Upload JSON

4. What is section 131(1A), and what are reasons to get notice u/s 131(1A)?

Assessing Officer is of the opinion that tax payer are concealing the income or likely to conceal income then tax payer will receive notice u/s 131(1A). This notice is basically intimation that AO is initiating an enquiry or investigate into the matter. The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year. Tax payer can seek the permission for attend someone behalf of tax payer, extension of time for valid reasons.5.

5. What is meant by Preliminary Enquiry notice u/s 142(1)?

Tax payer will get a notice of preliminary enquiry in case the return is not filed on time, then tax payer will furnish a return of income in respect of which is assessable.

AO would like to go through the documentary proof to verify tax payer claim in Income Tax Return then AO may ask you to furnish the documents for assessment purpose.

The time limit to answer is before the end of the relevant assessment year.

If tax payer not responded to this notice:

It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure.6.

6. What is meaning of section 156 outstanding demands?

This notice will serve the ITD, when the tax payer has any dues like tax, interest, penalty, fine or any other sum is payable. 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. Or if any mistakes in original return then tax payer can do the revised return and submit the revised acknowledgement. There is no time limit to serve this notice. And also refer Income tax notice under section 143(1).7.

7. What is section 245 under income tax act?

This is called intimation

This intimation means offset tax payer refund (full/partial) against the old tax payable or due8.

8. What is section 143(2) notice?

This notice will issue by Assessing Officer, if not satisfied with the response of the taxpayer or tax payer failed to provide the proofs or documents against the notice 142(1). So this notice is a detailed scrutiny.

The AO should expect the attendance of tax payer and books of accounts, statement of all bank accounts, details of all properties acquired during the financial year.

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.

Where the taxpayer has not furnished return, 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.

If tax payer not responded to this notice: It may result in Best Judgement Assessment u/s 144, or

Penalised u/s 271(1)(b) i.e. Rs.10,000 for each failure9.

9. What is notice under section 143(1)?

The notice/intimation under section 143(1) issued by ITD in 2 different ways

1. Intimation:

Return furnished by the taxpayer and as verified by the Income Tax department match.

Then the Intimation will serve as final assessment of the return with nothing to be done on part of the taxpayer and the department. Take a printout of the same and file it with your income tax papers.

If the tax payer has refund, wait for the cheque or transfer into your account.

2. Notice:

Return furnished by the taxpayer and as verified by the Income Tax department does not match, which means in tax payer return there is some arithmetical errors or tax due.

The tax payer can submit the response in 2 ways

Tax payer agreed to observation of assessing officer, then tax payer will submit the revised return with rectifying the errors raised.
Tax payer does not agree with the error description then tax payer can reply to the income tax notice and share the reasons and proofs for the same.

Time limit is depending up on the ITR process10.

10. What is scrutiny assessment u/s 143(3)?

This is a detailed assessment and is referred to as scrutiny assessment. The scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return.

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that the tax payer not understanding the below:

Understated the income
Computed excessive loss
Underpaid tax in any manner

Time limit:

21 months from the end of the AY in which the income was first assessable. [To AY 2017-18 or before]
18 months from the end of the AY in which the income was first assessable. [To AY 2018-19]
12 months from the end of the AY in which the income was first assessable [To AY 2019-20 and onwards]

11. What is mean by Best judgment 144 and when it issues?

The Assessing Officer issues the Best Judgment 144 for the bellow reasons

The taxpayer fails to file the return of income as required within the due date u/s 139(1) or after due date u/s 139(4) (belated) or a revised return u/s 139(5).
The taxpayer fails to fulfil with notice issued under section 142(1). (For 142(1) please refer question number 5)
The taxpayer fails to fulfil directions or notice issued u/s 142(2A).

Note: Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get accounts audited from a chartered accountant

The Assessing Officer is not satisfied by the arguments of the taxpayer and AO has reason to believe that the case demands a best judgment, and then AO will proceed to carry out the assessment as per best of knowledge.

Criteria of best judgment assessment are satisfied, then after taking into account all relevant material which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of judgment and determine the sum payable by the taxpayer on the basis of such assessment.12.

12. What is scrutiny assessment u/s 143(3)?

If the Assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Sec 148 to 153, assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently in the course of proceedings.

Circumstances when income is deemed to have escaped assessment

The following shall be deemed to be the cases where income chargeable to tax has escaped Assessment.

Where the total income of the tax payer during the previous year has exceeded the maximum amount which is chargeable to income tax and no return of income has been furnished by the tax payer.
Where the return of income has been furnished by the tax payer and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return and no assessment has been made.
The assessee has failed to furnish a report in respect of any international transaction u/s 92E.
It is noticed by the AO that the income of the tax payer exceeds the basic exemption limit based on the information or document received u/s 133C(2) and the return of income has not filed.
It is noticed by the AO that the tax payer has understated the income or claimed an excessive loss, deductions; allowance in case of return of income has been filed.
Where the return of income has been furnished by the tax payer and assessment has been made and it is noticed by the AO that the tax payer has understated the income, claimed the excessive loss, deduction, allowance or relief in the return.

5 High-Value Cash Transactions That May Attract Income Tax Notice

Income Tax: 5 high-value cash transactions may attract Income-tax notice. The misconception that cashless transactions are less traceable by the Income Tax Department has arisen due to the increasing prevalence of such transactions. Nevertheless, this belief is incorrect. This is because banks and other financial institutions must notify the Income Tax department of transactions surpassing a specified threshold. This encompasses card payments, UPI transactions, as well as cash deposits, and withdrawals beyond a designated limit.

Depositing large amounts in cash in savings accounts

Fixed deposits made with cash

Purchases of shares, mutual funds, and bonds made in cash

Repaying credit card bill in cash

Cash payments related to properties

Reply to Different Income Tax Notices and How to Respond

Income Tax Department may send notices under different sections of the Income Tax Act. You may receive notifications from the I-T Department via email or postal mail.

These notices may be for scrutiny, failure to file, filing late or with a defective ITR, failure to disclose income, failure to file an ITR with tax credits that match, or failure to pay self-assessment tax.

How to Check and Reply to Notices on the Income Tax Portal

Follow the steps mentioned below to reply to different income tax notices:

Step 1: Visit the income tax e-Filing Portal
Step 2: Log in to your account Using your PAN card and Click on ‘Continue
Step 3: Go to the ‘e-File’ menu and Check for any notices in your account.
Step 4: When you click “Provide,” you can view detailed notices and submit a response.
Step 5: Next, The assessee must choose one of the following options when responding to tax demands: demand is correct, disagree with demand, demand is partially correct, and demand is not correct but agree for adjustment.
Step 6: Submit and periodically check back to see if any brand-new follow-up notifications are asking for additional explanation.

Scenarios Under Which You May Receive Income Tax Notice

The following are the scenarios under which Income Tax Notice may be received by you:

Card used for purchase of service or product worth Rs.10 lakh
Credit card bill paid over an amount of Rs.1 lakh

How are the High-Value Transactions Tracked by Income Tax Department?

The following is the how IT Department track their high-value transactions:

High-value transactions must be reported by the bank’s registrars, post offices, or companies to the Director of the IT Department.
Form 61A called ‘Statement of Financial Transaction’ is mandated to these authorities to intimate about the transactions.
The high value transactions are evaluated by the Investigation Wing of the IT Department
Form No. 26AS has been revised by the IT Department from Jun 01, 2020, to trace high value transactions, made either through Credit Card or any other mode.

Note: Details about high-value transactions are displayed in Part E of Form 26AS.

What Can You Do to Save Yourself from Income Tax Notice?

The following are some of the significant steps that should be taken to save yourself from Income Tax Notice:

Be careful to spend excess using a credit card to avoid Income Tax Notice

Depending on the data filled in the tax return decides whether Income Tax notice will be issued or not
Income Tax Notice can be avoided by filling tax return in time
In the financial year, credit card transaction should not cross Rs.2 lakh
The income details in the ITR should be at par with Form 26AS
Details of high-value transactions should be mentioned during ITR filling.

Major Types of Income Tax Notices

Let’s examine each notice kind in more detail and determine how to respond to each. Since the Income tax notices are of various types the reply to each type should also be different.

Notice for Non-Filing of Income Tax Return

If you have filed ITR for one year and not filed in the following year, or you have performed high-value transactions and not filed an ITR, then you could get a notice from the I-T Department for non-filing of ITR. If you are a salaried individual with tax being deducted by the company, and you have failed to file the ITR, then you could get a notice from the I-T Department.

If you have received a mail from the Income Tax Department by post, then you need to reply to the authority that sent the notice, giving detailed reasons for not filing the ITR.

If you did not file ITR because your income was below the taxable limit, then mention this in the letter. However, as a best practice, it is better to file an ITR even if your income was below the limit, especially if you have filed returns in previous years.
Anyone performing financial transactions above a certain limit has to file an ITR. The I-T Department gets information about such high-value transactions through the Annual Information Return (AIR). The relevant high-value transactions in a fiscal year include:
- Cash deposit of Rs.10 lakh or more in a savings account
- Credit card bill payments of Rs.1 lakh or more (cash) and Rs.10 lakh and above (other than cash)
- Purchase of mutual funds worth Rs.10 lakh or more
- Buying or selling immovable property worth Rs.30 lakh or more
Even if you incurred a loss in these transactions or if any of it was a gift of any kind, an ITR needs to be filed. In your reply to the notice, you must specify the reasons you thought you didn’t need to file an ITR. If you made the wrong assumption, then you may file the ITR if the deadline for the assessment year is not already over – in your reply, you can attach the ITR-V/acknowledgement.
- If there is no time to file a return, then you must attach with your reply a computation of the income and investments and prove that there is no tax due. If tax is due, you may have to pay penalty.
If you are a salaried person and your employer deducts TDS from your salary, then it does not mean that you are exempt from filing return. Tax is deducted from your income when your income exceeds the income tax limits, which means that you are liable to file income tax return irrespective of whether the tax has been deducted from your salary or not. If you are in time for filing the return, then you should file the ITR and attach the ITR-V/acknowledgement with your reply to the authority.
- If the deadline for filing ITR has passed, then you need to attach a calculation of your income and investments to prove that you have not evaded tax payment.

If you received the I-T notice on mail, then you can reply to it online. Log in to the Income Tax e-Filing website and go to the Compliance section and locate the notice. You can respond with one of the following replies available:

Return is filed
Return under preparation
Business has been closed
No taxable income
Others

Once the relevant option is chosen, go to ‘Related Information Summary‘ and fill in the appropriate options.

Notice for Delayed ITR Filing

If you have not filed the Income Tax Return by July 31, you will get a notice on non-filing of ITR. You could get this notice within a year of the end of the assessment year for which return has not been filed. File your ITR as soon as possible and attach the ITR-V, or reply with ‘Return under preparation’.

Notice for Non-Disclosure of Income

You can get a notice from the I-T Department for non-disclosure of income if you have not shown any income in your ITR. If TDS has been deducted and you have no income to show for it, or if the I-T Department has received information about income such as bank interest or income from shares and securities through the AIR, they will suspect you of hiding income sources and send you a notice.

Always remember to compare your ITR with Form 26AS before filing it.
File a revised return in case you accidentally omitted any income source which is mentioned in Form 26AS.
If the return-filing deadline is over, then you need to send the department a fresh calculation of your income and tax dues. If any tax is due to the government then you need to pay it along with the interest and penalty applicable, and a receipt or challan of the tax paid can be attached to your reply.

Notice for Tax Credit Mismatch

If the tax credit in the ITR and Form 26AS do not match, you are likely to receive a notice for tax credit mismatch. In this case, cross-check the tax credit details in your TDS and ITR with that in Form 26AS. Revise your ITR accordingly and file a revised version or a rectification. If there is any error in Form 26AS, you need to rectify it in the form first.

Notice for Non-Payment of Self Assessment Tax

If you have filed a return even when tax is due from you to the government, then the ITR you filed will be considered a defective return. In this case, make the tax payment as required and file a revised return.

Notice for Tax Evasion

Your taxable income will be understated if you made investments in your spouse’s name but failed to take into account the income generated by those investments. The IT department considers this to be possible tax evasion and might issue a notice in accordance with section 143(2).

Notice for Setting Off Refunds Against Tax to Be Paid

Under section 245, the income tax department has the authority to set off any refunds against any tax liabilities owed by the assessee. To inform the assessee, an appropriate notification will be sent out.

Notice of Demand

A notice of demand will be issued under section 156 in the event that an order is made that requires the assessee to pay tax, interest, or penalties. The assessee has to pay the pertinent sum within the time frame given in the notice.

Notice Under Section 142(1)

This warning was given prior to the I-T Department looking into your tax payment. The agency requests information from the taxpayer regarding their income, investments, taxes paid, assets, and liabilities as part of its initial investigation. You can be required to provide tax and income information for both yourself and anyone else for whom you are legally obligated to pay taxes, such as a dependent or a decedent for whom you are the legal heir.

The Assessing Officer may opt not to review your case if he is pleased with the documents and information you have provided. Even if you believe the information sought has no bearing on you, Section 142(1) requires you answer to the notification; otherwise, you risk fines and maybe legal action.

Notice Under Section 143(2)

This is a scrutiny notice that is often delivered following the delivery of a notice under to Section 142(1). This notice could reach you up to six months after the evaluation year’s end. Once you receive this notice, your case has been selected for a thorough examination, and you must provide all pertinent financial documentation, including records of your income, investments, deductions and exemptions that you have taken advantage of, losses, etc.

You must respond to this letter as quickly as you can in order to prevent fines and prosecution. Before responding to this notice, it might be wiser to seek the advice of a tax specialist.

Notice Under Section 245

If you have requested a refund of the tax, you have already paid but there are outstanding debts in your name, Section 245 serves you with a notice. The department informs you of your requested reimbursement and any outstanding demands from prior years through this communication. The dues and refunds will be offset against one another if you don’t reply to this message.

You might need to file a rectification or revision of return if there is any problem. If you have any corrections to make to the prior demands, you must respond with the measures you took to fix the inaccuracies in the prior ITRs and the justification for the return you are requesting.

Notice Under Section 139(9)

If there is an error in the ITR filed by you or any relevant income/investment proof has not been attached, the department will send you a notice under Section 139(9). You need to reply to this notice within 15 days or the return will be considered as not filed. If any rectification needs to be done, file a rectification request for the return or a revised return within the deadline. If the rectification or revision is done within the stipulated period, then the return will be considered as filed, but if you have missed the deadline for filing ITR for the given year then the return will be considered as not filed.

The first thing to remember when you get a notice from the Income Tax Department is to not panic. If you are not clear on how to respond, seek the help of a tax consultant. Be truthful in your replies and attach as many documental proofs as you can. If any ITR revisions need to be done, do it as soon as possible. It’ll be easier to deal with Income Tax Notices if your original ITR is filed online, so move to online ITR filing as soon as you can.

What to Do if You Receive a Communication from the Income Tax Department

The income tax department is in the process of sending communications to the taxpayers for any mismatch in details provided in ITR AY 2021-22 (FY 2020-21). It also said that in cases where the ITRs have not been filed and, the department is in possession of information of “specified high-value financial transactions”.

“In some cases of Income Tax Returns (ITRs) filed for A.Y. 2021-22 (F.Y. 2020-21), a ‘mismatch’ has been identified, between the information filed in the ITR vis-à-vis information of specified financial transactions, as available with the Department. In cases where ITRs for AY 2021-22 have not been filed and, the Department is in possession of information of specified high-value financial transactions, the same also needs to be examined,” the income tax department said in a press release dated March 4.

As part of the e-Verification Scheme-2021, the department is in the process of sending communication(s) to the taxpayers for the mismatch in information pertaining to AY 2021-22 (FY 2020-21). This information is being communicated to the taxpayers through their e-mail accounts as registered with the income tax department, it said.

What To Do Now?

The income tax department said taxpayers need to view their Annual Information Statement (AIS) through the e-filing portal and file updated ITRs (ITR-U), wherever found necessary.

“Eligible non-filers can also submit updated returns (ITR-U) u/s 139(8A) of the Income-tax Act, 1961,” it said in the release.

What is Last Date for Filing Updated ITR?

Last date for filing of updated returns (ITR-U) for AY 2021-22 (i.e. for FY 2020-21) is March 31, 2024.

Income Tax Slab In 2020-21

In the financial year 2020-21, the government had given taxpayers the option to choose a new tax regime under Section 115 BAC of the I-T Act. The new I-T slabs was for individuals not availing or foregoing certain specified deductions or exemptions while computing total income for tax purpose.

Under this, annual income up to Rs 2.5 lakh was exempt from tax. Those individuals earning between Rs 2.5 lakh and Rs 5 lakh needed to pay 5 per cent tax. Income between Rs 5 and 7.5 lakh was taxed at 10 per cent, while those between Rs 7.5 and 10 lakh at 15 per cent.

Those earning between Rs 10 and 12.5 lakh paid tax at the rate of 20 per cent, while those between Rs 12.5 and Rs 15 lakh paid at the rate of 25 per cent. Income above Rs 15 lakh was taxed at 30 per cent.

Interest and Dividend Income Mismatch in Income Tax Returns

Weekends usually bring a little respite from the otherwise hectic working schedules. But when one’s mobile and email inbox starts pinging messages and email alerts from the income tax (I-T) department, in such otherwise relaxing weekend, then it definitely becomes a bit of a concern and a spoiler.

Several taxpayers have received messages and emails from the I-T department, intimating them about some artificial intelligence (AI) identified mismatches in their interest and dividend incomes declared in their I-T returns for financial years 2021-22 and 2022-23, vis-à-vis, those reported in annual information system (AIS) by the banks and companies.

In order to reconcile the mismatch, an on-screen functionality has been made available in the Compliance portal of the I-T department’s e-filing website for taxpayers to provide their response. It has been clarified that such messages and emails are not notices.

But at the same time, the taxpayers who are unable to explain the mismatch have also been prompted to consider the option of furnishing an updated income tax return if eligible, to make good any under reporting of income. In order to declare any skipped interest or dividend income, an updated return can be filed within two years from the end of the relevant year by paying additional taxes of 25%/50%.

Last week, the I-T department has provided a much-needed respite by clarifying that in case the taxpayer has disclosed the interest income in the I-T return under the line item ‘Others’ in the Schedule OS, it need not respond to the mismatch pertaining to the interest income. The said mismatch shall be resolved on its own and will be reflected in the portal as ‘Completed’.

But apart from this reason, the alleged mismatch in the interest income may also arise from other similar practical reasons, wherein there is no under reporting of interest income as such, and there is a genuine and lawful explanation for such mismatch.

Many taxpayers engaged in business, make fixed deposits, which are intrinsic to such business. For instance, a fixed deposit may need to be made as performance guarantee, in order to obtain a business tender.

Similarly, the fixed deposit may need to be made for obtaining a letter of credit for procuring goods. The incidental interest income on such fixed deposits is usually accounted for as business income and is adjusted against the business expenses, and is not shown under the head ‘income from other sources’.

There are many favourable judicial rulings allowing for such treatment. However, the I-T department usually challenges such treatment in the notice for regular assessment. In such full-fledged assessment proceedings, the taxpayer gets an adequate opportunity to furnish its lawful explanation to treat the interest income as business income, based on the documentary evidences and binding legal precedents.

But in the present e-verification window, there is no scope for the taxpayers to furnish such detailed explanation and uploading any supporting evidences. The limited possible word count explanation given by the taxpayer, is most likely to be ignored by the AI tool of the department.

Another practical reason for such mismatch is the method of accounting being followed by the taxpayers. The non-corporate taxpayers can opt for the cash basis of accounting and reporting their interest and dividend income. As such the interest and dividend income will be shown by such taxpayers in their I-T returns, only in the year of actual receipt and not in the year of their accrual.

However, the respective banks and companies usually deduct TDS and report such interest and dividend pay-outs on accrual basis only. So, this different methodologies of cash and accrual basis of accounting and reporting, also is, one of the commonly recurring reasons for the AI generated red-flag, but with no possible lawful redressal in the e-verification window.

So, in such cases, in spite of there being no lawful reason to construe the interest or dividend income as under-reported income, the mismatch will continue to persist, and which may in future become the basis for reopening the entire case of such taxpayer by the assessing authority.

Thus, there is an urgent need for the I-T department to recognize and address the above practical reasons for the interest and dividend income mismatch also, just like their clarification on 26 February. Then only this redressal initiative of the I-T department will become a full tasty pie and not just remain a half-baked cookie.

Mayank Mohanka is the founder of TaxAaram India and a partner at S.M. Mohanka & Associates.

Income Tax Department Issues Notices for Mismatched Income Disclosures

INCOME TAX DEPARTMENT ISSUES MASS NOTICES FOR ITR MISMATCH FOR FY 2022-23 AND FY 2021-22

The issue concerns bulk compliance communication from the Income Tax Department regarding income mismatches. In most cases, the taxpayer has already disclosed their income, which doesn’t match with the AIS/TIS. An example is provided, where the disclosed interest in the ITR differs from the interest as per AIS/TIS, leading to a communication of mismatch. It’s emphasized that the system’s method of checking the interest from unsecured loans/non-bank parties is incorrect. The correct disclosure method is highlighted, along with relevant images depicting the issue.

BULK COMPLIANCES COMMUNICATION FROM INCOME TAX DEPT FOR MISMATCH OF INCOME!!

In majority of such cases, assessee has duly disclosed his income and there is no mismatch if compared with AIS/TIS.

Sharing one example and requesting @IncomeTaxIndia @FinMinIndia to look into the matter before it turns into unnecessary headache of honest taxpayers & professionals

Interest as per AIS/TIS – Pic 1 
From Bank – 448227
From Other Party – 503250
(TDS Deducted)

Total Interest – 951477

Disclosure in ITR – Pic-2
Interest on Deposits (Bank/Post Office)- 448227
Interest-OTHERS – 511793

Total Int. disclosed in Other Sources – 960020
(higher than appearing in AIS/TIS)

Now in above case, Mismatch of Rs. 503250 has been communicated i.e. Interest of Party (other than bank) on which TDS has been deducted has been considered as Mismatch – PIC 4

System is checking Interest from Unsecured loan/Non Bank parties etc. in column Int. on Deposits (Bank/post office/Cooperative Society)-[eligible for 80TTB dedcution] , WHICH IS TOTALLY INCORRECT.
This SHALL BE disclosed in Interest-Others in Other Sources head and has been disclosed the same way!!