Tag: Reasons for Income Tax Department Notices

High value transactions Income tax SMS

The Income Tax Department of India sends SMS messages to taxpayers to inform them about high-value transactions that have been reported to the department by various sources like banks, mutual funds, and companies. These SMS messages are part of the department’s e-campaign, which aims to promote voluntary compliance and reduce the need for notices and scrutiny.

Why you might receive this SMS:

  • Mismatch with your tax return: The information reported to the tax department about your high-value transactions may not match the information you provided in your income tax return. This could be due to various reasons, such as an oversight on your part or an error in the reporting by the third party.
  • Non-filing of tax return: You may have failed to file your income tax return for the relevant assessment year, even though you had high-value transactions.

What to do if you receive this SMS:

  1. Don’t panic: These messages are usually just informative and not necessarily an accusation of wrongdoing.
  2. Check your records: Verify the information in the SMS against your bank statements, investment statements, and other relevant documents.
  3. Respond to the SMS: You can reply to the SMS through the Income Tax Department’s e-filing portal.
  4. Revise your return (if needed): If you find any discrepancies, you can file a revised income tax return to correct the information.
  5. Seek professional help: If you are unsure about how to proceed, you can consult a tax advisor or chartered accountant.

How to respond to the SMS:

  1. Log in to the e-filing portal: Go to the Income Tax Department’s e-filing website and log in using your PAN and password.
  2. Go to the Compliance Portal: On the home page, go to ‘Pending Actions’ > Compliance Portal.
  3. Select the e-Campaign: Click on ‘e-Campaign’ and select the relevant campaign.
  4. Choose the information category and transaction: Select the appropriate category and the specific transaction mentioned in the SMS.
  5. Submit your response: Provide the necessary information and submit your response.

Examples of high-value transactions:

Remember: It’s important to respond to the SMS and take necessary action to avoid any further notices or penalties from the Income Tax Department.

Latest Update:

The Central Board of Direct Taxes (CBDT) has instructed self-reporting organizations (SROs), including banks, post offices, co-operatives, fintechs, and mutual fund houses, to provide detailed information about high-value transactions carried out during the financial year by 31 May of the immediate next financial year.

Here is a list of transactions that may trigger a notice from the Income Tax Department, as this data is collected from the respective reporting authorities:

Sr. No.TransactionThreshold (Rs)Which authority should report?
1Cash payment for purchasing bank draft, pay order, banker’s cheque or prepaid RBI instruments 10,00,000Banks or co-operative society need to disclose a transaction if the amount deposited exceeds the threshold to the Director of Income Tax by filing Form 61A
2Cash deposits in a savings bank account10,00,000– Banks
– Co-operative society 
– Post master general
3Cash deposit or withdrawal from a current account50,00,000Banks or co-operative society
4Sale or purchase of an immovable property30,00,000The Property Registrar/Sub-registrar must report a transaction exceeding the threshold via Form 61A.
5Investments in shares, mutual funds, debentures and bonds in cash

(If amount is transferred from one scheme to another, then reporting is not required)		10,00,000– Company issuing Shares, Debentures, Bonds
– Mutual Fund Trustee
6Payment of credit card bill in cash1,00,000Banks or co-operative society
7Payment of credit card bill other than through cash10,00,000Banks or co-operative society
8– Sale of foreign currency
– Crediting FOREX card
– Spending in foreign currency through a debit or a credit card or through traveler’s cheque or any other instrument		10,00,000Authorised Person under Foreign Exchange Management Act, 1999
9Cash deposits in the fixed deposit or recurring deposit account10,00,000– Bank 
– Co-operative society
– Nidhi Company
– NBFC

Steps taken by the IT Department to Trace High-Value Transactions

Below are some of the measures taken by the department to trace high-value transactions:

  1. Upgraded Form 26AS:
    The Department has upgraded Form 26AS to reflect Specified Financial Transactions (SFT). Moreover, it has introduced ‘Annual Information Statement (AIS)’ where you can view all the financial information. The specified institutions, such as registrars, banks, post offices, stock exchanges, etc., must report transactions exceeding the specified threshold to the income tax department. These transactions are then reflected in the AIS portal so that the taxpayer can voluntarily disclose all the information based on the AIS information.
  2. Applicability of TDS on cash withdrawal: 
    To trace high-value transactions, the government has proposed that the banks must deduct TDS at 2% on cash withdrawals more than Rs 1 crore during the financial year. If the person does not file ITR for the last three financial years, then TDS at 2% shall be deducted for cash withdrawals exceeding Rs 20 lakh, and for cash withdrawals exceeding Rs 1 crore, TDS will be deducted at 5%.
  3. Mandatory filing of returns: 
    An individual is required to file ITR if income exceeds Rs 2,50,000. But, from 1st April 2019, ITR filing is mandatory if the individual has entered into certain specified high-value transactions, even if the income is less than Rs 2,50,000. For example, deposits in one or more current a/c maintained with a bank/co-operative bank are more than Rs 1 crore, foreign travel expenditure is in excess of Rs 2 lakh, or electricity bill expenditure is in excess of Rs.1 lakh during the year.

Action to be taken if Form 26AS Reflects SFT Transactions

Firstly a taxpayer must verify that the SFT transactions reported in the Form 26AS are correct. Subsequently, a taxpayer must ensure to report the said high-value transaction while filing the ITR, and that the tax liability on the same has been accurately calculated. Any error or mismatch in reporting such transactions may trigger an income tax notice.

Launch of E-campaign 

The income tax department has launched an e-campaign for the voluntary compliance of income tax for the convenience of taxpayers. 

The campaign focuses on the assessees/taxpayers who are either:- 

  1. Non-filers of the income tax return
  2. Have discrepancies/deficiencies in their returns

Who receives Email/SMS of E-campaign from Income Tax Department?

Under e-campaign, the income tax department sends emails/SMS to identified taxpayers to verify their financial transactions related to information received by the IT department from various sources such as SFT, TDS, TCS, etc. The department can collect information related to GST, imports/exports, and transactions in securities, derivatives, commodities and mutual funds through various third parties. 
You may receive an email/SMS from the e-campaign when:

  • You have not filed Income Tax Return: Even if the income tax return was filed correctly, you must provide feedback upon receiving such notice.
  • There are discrepancies/deficiencies in your Income Tax Returns: Discrepancies do not always indicate that information has been hidden. Instead, it could be due to the errors in AIS. You must report such errors to the IT department by ‘Providing feedback on AIS’.

How to Comply with E-campaign Notice Online and How to Submit Response?

If you have received an email or SMS for high-value transactions or non-filing of returns, you can respond to the income tax department by following the below steps:

Step 1: Log in to your income tax e-filing account.

Step 2: In the home page, go to ‘Pending Actions’> Compliance Portal > ‘e-Campaign (AY 2021-22 Onwards)’.

For example, in the case of high-value transactions or non-filing of income tax returns, it will show the below information under the ‘e-Campaign’ list.

Step 4: Select the information category
‘e’ would be marked against the information category for which you have received the communication.

Step 5: Select the Transaction
The information on which feedback is required would be marked as ‘Expected’.

Step 6: Submit Response
From the options, select the most appropriate response:
 – Information is correct
 – Information is not fully correct
 – Income is not taxable
 – Information relates to other PAN/year
 – Information is duplicate/included in other displayed information
 – Information is denied

Following are the categories where the response is expected from the taxpayer under e-campaign: 

  • Preliminary Response
  • Feedback on Information on AIS

Preliminary Response

Under the ‘Preliminary Response’ section, the taxpayer is expected to respond to relevant questions. The queries under the Preliminary Response section are based on campaign type (non-filing of return/certain high-value transactions done by the taxpayer).

For example, for campaign type – ‘Non-Filing of income tax Return’, the taxpayer is expected to submit a response whether an income tax return has been filed or not.

Step 1: Click on the ‘Provide Response’ button provided against the ‘Preliminary Response’ section.
Step 2: On the next page, respond by selecting the relevant drop-down.
Step 3: Provide additional details as required by the income tax department. For example, For the question ‘Whether Income Tax Return (ITR) has been filed?’ the following additional details are required: 

  1. If ITR has been filed:
  2. If ITR has not been filed

Step 4: After filling in all the relevant information, submit the response. You can download the preliminary response submitted from the ‘Activity History’ screen.

If you don’t have active e-campaigns or e-verifications, you will get the message – No Compliance Record has been generated for you.

Steps to Take After Receiving an Income tax department notice

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:

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:

Types of Income Tax Notice

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

Type of NoticeDescription
Notice u/s 143(1) – IntimationThis 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) – InquiryThis 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 ReturnIf 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) – ScrutinyAn 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 NoticeThis 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 245If 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 148The 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.

How To Authenticate Notice/Order Issued By ITD?

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

Income Tax Notice on Property Purchase

An income tax notice on property purchase is a tax levied by the government of India on purchasing a property. This tax applies to residential and commercial properties and must be paid by the buyer. The amount of the tax varies from state to state and also depends on the type of property purchased. The tax is based on the property’s value and is calculated as a percentage of the total value.

The income tax notice on property purchases is applicable for both Indian citizens and foreign nationals. For Indian citizens, the tax is applicable for properties purchased both within India and abroad. For foreign nationals, the tax only applies to properties purchased within India. The tax is applicable for new and existing properties and must be paid within the stipulated period.

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Reasons for Receiving an Income Tax Notice on Property Purchase

  1. Purchase of property: The most common reason for receiving an income tax notice on property purchase is the purchase of a property. This tax is applicable for residential and commercial properties and must be paid by the buyer. The amount of the tax varies from state to state and also depends on the type of property purchased.
  2. Transfer of property: Another reason for receiving an income tax notice on property purchase is the transfer of a property. This tax applies when a property is transferred from one person to another through a sale or gift. The buyer or recipient of the property must pay this tax.
  3. Inheritance of property: An income tax notice on property purchase is also applicable when a property is inherited. The inheritor of the property must pay this tax. The amount of the tax depends on the property’s value and the state’s applicable laws.
  4. Lease of property: An income tax notice on property purchase is also applicable when a property is leased. The lessee of the property must pay this tax. The amount of the tax depends on the property’s value and the state’s applicable laws.
  5. Development of property: An income tax notice on property purchase is also applicable when a property is developed. The developer of the property must pay this tax. The amount of the tax depends on the property’s value and the state’s applicable laws.
  6. Conversion of property: An income tax notice on property purchase is also applicable when a property is converted from one use to another. This tax must be paid by the person who is converting the property. The amount of the tax depends on the property’s value and the state’s applicable laws.
  7. Sale of property: An income tax notice on property purchase is also applicable when a property is sold. The seller of the property must pay this tax. The amount of the tax depends on the property’s value and the state’s applicable laws.
  8. Gift of property: An income tax notice on property purchase is also applicable when a property is gifted. The recipient of the property must pay this tax. The amount of the tax depends on the property’s value and the state’s applicable laws.
  9. Exchange of property: An income tax notice on property purchase is also applicable when a property is exchanged for another. This tax must be paid by the person exchanging the property. The amount of the tax depends on the property’s value and the state’s applicable laws.
  10. Demolition of property: An income tax notice on property purchase is also applicable when demolishing a property. This tax must be paid by the person demolishing the property. The amount of the tax depends on the property’s value and the state’s applicable laws.

Read more at: Important Cash Transactions Limits as per Income tax Act, 1961

How to Respond to an Income Tax Notice on a Property Purchase

When an income tax notice on a property purchase is received, it is important to respond immediately and accurately. Failing to do so can result in fines or legal action. The following steps ensure a timely and accurate response to an income tax notice:

  1. Gather all the necessary documents related to the property purchase: This includes the purchase agreement, title deed, mortgage documentation, Income tax returns, bank statements, and other documents that prove ownership.
  2. Analyze the notice: Carefully review the notice and determine the purpose. Most Income Tax notices will provide a specific reason for the notice, such as a discrepancy in the information provided on the return or a request for additional information.
  3. Respond promptly: A response should be sent to the Income Tax department within the specified time frame.
  4. Seek professional help: If you cannot understand the notice or resolve the issue, it is best to seek professional help. A tax consultant or lawyer can guide and advise on how to proceed.
  5. Appeal: If the notice is incorrect or there are extenuating circumstances, you can appeal to the assessing officer.
  6. Pay the outstanding amount: If the notice is correct and there is no way to appeal, then payment of the outstanding amount should be made as soon as possible.
  7. File a revised return: If there is a discrepancy in the information provided on your return, you should file a revised return to correct any errors.

Read more at: Pay 20% TDS On Property Purchase

Send Intimation Notices under Section 143(1) of the Income Tax Act

When a person receives a notice from the income tax department, there appears an immense sense of nervousness that goes along with it. Mere looking at such envelopes may bring thoughts of impending fines, adding stress to daily life. However, not all notices contain bad news. While some of them bear good news, such as tax refunds and others are more of an announcement or statement of facts with no positive or negative implications. One such notice is the intimation under Section 143 (1) of the Income Tax Act, 1961 (“the Act”).

What is assessment

Every taxpayer is required to furnish the details about their income to the income tax department. These details are to be furnished by providing the details about his income in the form of a tax return. Further, the income tax department processes the income tax return filed by the taxpayer and examines the correctness of the income return. The process of examining the return of income by the income tax department is called assessment. This preliminary assessment is also known as a summary assessment. The process of the preliminary assessment, which is fully automated and computerized, is delegated to the Central Processing Centre (CPC).

Centralised processing centre

Due to the rapid increase in the number of income tax returns and the jurisdiction-based processing model used for all of the returns filed, the tax department faced many issues which caused the delay in processing the income tax returns. Therefore, the Central Board of Direct Taxes (CBDT) was empowered by the Finance Act, 2008, to create a scheme for the centralised processing of returns with the aim of determining the tax due from or the refund owed to the taxpayers. The department, based on the recommendations of the technical advisory group, decided to use a centralised processing centre in Bangalore to process paper and electronic returns without interacting with taxpayers and in a jurisdiction-free manner. 

The returns of the assessee are then processed by the centralised processing centre in Bangalore without any involvement of the taxpayer or the jurisdictional officer. Once the processing is complete, the department then sends an intimation to the taxpayer. This intimation provides the taxpayer with an opportunity to respond to the department. The response will be against the adjustment made by the centralised processing centre in the intimation. The taxpayer has to respond to the adjustment within 30 days from the date of the communication. If the taxpayer fails to respond to the department within that period, then the department proceeds with the adjustments.

Scope of Section 143(1) of Income Tax Act
The process of filing an income tax return (ITR) is not finalized at the verification stage once the information has been confirmed by the income tax department. As soon as a person verifies their tax returns, the income tax department starts processing the ITR. Following the processing of the ITR, the income tax department issues an intimation notice. This intimation notice is sent in accordance with Section 143(1) of the Act, 1961 to draw attention to any discrepancy that may have resulted from paying less tax than what was intended to be paid. In case less tax is paid, the taxpayer is obligated to pay the balance amount and resolve the issue. And in cases where the excess amount is paid, the department will transfer the tax refund to the bank account of the assessee, which is linked specifically for this purpose. The notice for the same will be delivered by the tax department to the taxpayer’s email ID. Further, an SMS will also be sent to the taxpayer’s registered phone number informing them that the notification has been sent to their email ID.

Generally, this kind of notification will be a computer-generated message which states any errors made or any interest found to be payable or refundable. These notifications are frequently sent through email within one year of the fiscal year in which the return was filed and there is no human intervention in the creation of this message.

The Madras High Court while determining the case filed by the co-operative societies questioning the validity of the orders of assessment passed by the assessing officer in Veerappampalayam Primary Agricultural Cooperative Credit Society Limited v. DCIT observed that “the scope of an intimation under Section 143(1)(a) of the Act extends to the making of adjustments based upon the errors which are apparent from the return of the income on record”. Further, it was observed by the court that an apparent incorrect claim can be disallowed while processing a return under section 143(1)(a) of the Act.

Contents of the intimation notice

The intimation notice under Section 143(1) could consist either of the following:

  1. When the income details, deductions claimed and tax calculations match with the assessment and calculations made by the tax department: This type of intimation notice will show that there is no additional tax payable by the taxpayer. Further, both tax payable and refundable will be shown as zero in the notice.
  2. Additional tax demand: There may be certain situations where a taxpayer has to pay an additional amount if he fails to report a particular income on his income tax return, or has wrongly claimed deductions, or calculated his taxes incorrectly in such situations, the taxpayer has to pay an additional amount. In such cases, the tax department sends him an assessment and demands the additional tax amount along with interest.
  3. Income tax refund: After the assessment of the income tax department, if the taxpayer has paid the additional tax as compared to his actual liability, then in such situations income tax refund will be shown as due in the intimation notice.

Adjustments under Section 143 (1) of the Income Tax Act

When the taxpayer files a return under Section 139, an intimation will be sent to the assessee if any unpaid interest or tax is found due. The same is also applicable if the assessee is entitled to any refunds. This usually happens when the tax that has already been paid by the taxpayer is in excess of the amount which was required to be paid. The total income of an assessee is calculated under Section 143(1) of the Income Tax Act after making the following adjustments:

  1. Any arithmetical error in the filed return.
  2. If any information in the return is an incorrect claim.
  3. Disallowances of the loss claimed if a return from the previous year for which a set-off is sought was filed after the deadline.
  4. Disallowances of expenses are mentioned in the audit report but not in the income tax return. 
  5. Disallowance of the deductions if the return has been filed after the specified date under Section 139(1) which are claimed under Sections 10AA, 80IA to 80-IE.
  6. Further, while computing the total income in the return the addition of income appearing in Form 26AS, Form 16A, or Form 16 is not included.

The assessee will be given an opportunity to respond to the changes proposed by the department before making any such adjustments.

An incorrect claim under this Section means a claim on the basis of an entry in the return,

  1. Which includes an item that is inconsistent with another entry of the same or some other item in the return.
  2. Where the information which is necessary to be provided under this Act to substantiate such entry has not been provided.
  3. With respect to a deduction that exceeds the specified statutory limit that may have been expressed as the monetary amount or percentage or ratio.

Assessment procedure under Section 143(1) of Income Tax Act

  • After the correction of any arithmetical errors or incorrect claims, as mentioned above, the tax, interest and fee (if any) shall be computed based on the adjusted income.
  • The taxpayer has to be informed of any amount due or refund that is owed to him. The amount determined to be payable to the taxpayer or the amount of a refund due to the taxpayer must be specified in an intimation that is prepared or generated and sent to the taxpayer. The taxpayer must also receive notification if the loss reported in his income tax return is changed but no additional tax, interest, or refund is owed to him.
  • If there is no amount due from the assessee or no refund is due or no adjustment is made to the returned income, the acknowledgement of the return of income is regarded as the intimation. 
  • Section 234F of the Income Tax Act, 1961 provides that a fee will be levied if the income tax return is not furnished within the specified period as prescribed under Section 139(1). A fee of Rs. 5,000 will be charged if the income tax return is submitted after the deadline prescribed in section 139 (1). If the total income of the assessee is less than Rs. 5 lakhs then the amount is Rs. 1,000.

Kinds of intimations under Section 143(1) of Income Tax Act

The possible kinds of intimation under Section 143(1) of the Income Tax Act, 1961 are as follows

Intimation with no demand or no refund 

This kind of intimation is generally issued when the department has accepted the income tax return without carrying out any adjustments to it.

Intimation determining demand 

This kind of intimation is issued when the department finds any discrepancy and tax liability with regard to the tax return in case any adjustments are made under Section 143(1) of the Income Tax Act, 1961.

Intimation determining refund 

This intimation is issued when the department determines that there is tax to be refunded. Where no discrepancy in the return is found, a refund check may be issued either without adjustments as described in Section 143(1) or after adjustments and after providing credit for taxes and interest paid by the taxpayer.

When does one receive intimation under Section 143(1) of the Income Tax Act

An intimation under Section 143(1) of the Income Tax Act may be generated for a number of reasons, which include the following:

  1. The amount of tax that was paid by the taxpayer is more than what they were actually liable to pay in accordance with the provisions of the Income Tax Act, 1961. The intimation notice will mention the amount of the tax refund. If the total amount of the refund is more than Rs. 100, then the taxpayer will get the refund, whereas if the refund amount is less than Rs 100 then there will be no refund.
  2. The taxpayer has paid taxes which are short-paid based on his actual liability. In such a situation, the intimation notice will include the balance to be paid by the taxpayer. This will include both the actual liability and the interest component.
  3. A simple notice states that the tax returns concur with the calculation of the assessment officer. In this case, an intimation notice is not necessary to inform the assessee.

What can a taxpayer do if they receive a notice under Section 143(1) of the Income Tax Act

The taxpayer can take the following actions after receiving notice under Section 143(1):

  1. The taxpayer has to determine the reason for sending a notice.
  2. The taxpayer has to check the particulars mentioned (such as name and PAN number) whether it is for him or to the other person with a similar name.
  3. The taxpayer has to record the time and receipt of the notice and must respond to it within the specified time in order to avoid fines and legal action.

Can You Revise Your Income Tax Return After Receiving a Tax Notice?

Filing income tax returns can sometimes be complex and prone to errors, leading to a tax notice from the income tax department, which is often perceived negatively. However, it is essential to remember that it doesn’t always signify trouble; sometimes, it might just be an indication for you to correct a mistake on your tax return. One frequently asked question is whether taxpayers can revise their income tax return after receiving a tax notice. The answer is yes.

Under Section 139(5), the Income Tax (IT) Act entitles taxpayers to revise their IT returns. taxpayers can use this provision to correct the discrepancies in their IT returns, should there be any unintentional errors or omissions, even after receiving a tax notice. You can revise it prior to the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year, whichever is earlier.

Suresh Surana, Founder, RSM India, said, “Revised return u/s 139(5) of the Income Tax Act, 1961 (hereinafter referred to as ‘IT Act’) can be filed by taxpayers who discovers any error, omission or any wrong statement furnished either in their original return u/s 139(1) or belated return u/s 139(4) of the IT Act. It is pertinent to note that such revised return can be furnished at any time three months before the end of the relevant assessment year (For instance, 31 December 2023 in respect of Assessment Year 2023-24, i.e. for Financial Year 2022-23) or before the completion of the assessment, whichever is earlier.”

Echoing similar views, Divakar Vijayasarathy, Founder and CEO of DVS Advisors, said, “Section 139(5) provides that a return may be revised at any time before three months before the end of the relevant Assessment Year or before the completion of the assessment, whichever is earlier. The word assessment refers to assessment under sections 143(3) and 144. Assessment is said to be completed only on the date of service of order. Mere issue of notice shall not be considered as completion of the assessment, and hence revised return shall be filed, provided the time limit of filing, i.e., December 31 of the AY, has not elapsed.”

As a taxpayer, you must pay meticulous attention to the tax notice. Depending upon the severity of the error or omission in your original return, the tax authority may issue different notices under different sections of the Income Tax Act. For instance, a notice under Section 143(1) could be for trivial discrepancies. In contrast, a notice under Section 143(2) might indicate the need for scrutiny assessment, implying that your tax return requires comprehensive review.

Surana said, “Receipt of intimation u/s 143(1) of the IT Act does not refer to the completion of the assessment, and as such, a taxpayer would be eligible to file their revised return after receipt of such intimation. However, in the case where the taxpayer received scrutiny assessment order u/s 143(3) of the IT Act or Best judgment assessment order u/s 144 of the IT Act, the same would constitute completion of the assessment, the taxpayer would not be eligible to furnish a revised return with respect to such year in accordance with Section 139(5) of the IT Act. However, a taxpayer would be able to furnish their revised return in case only a notice u/s 143(2) is received since receipt of such notice does not constitute completion of the assessment.”

In case of a tax notice due to a mismatch of income or improper deduction of taxes, a revision of your ITR might be a good solution to rectify the error. You can revise both online and offline income tax returns, ensuring you keep a revised return receipt for reference. It’s essential to engage a tax expert if you need clarification on any aspect of revising your tax return.

Alok Agrawal, Partner at Deloitte India, said, “An “updated return” as introduced by Finance Act 2022 can be submitted within two years following the end of the relevant assessment year (AY), if there is additional income subject to taxation resulting in an increased tax liability, subject to payment of additional amount (25% or 50% of tax and interest depending upon the timelines). However, it is important to note that the updated return cannot be filed in certain situations including where any proceeding for assessment is pending for the said tax year.

Furthermore, a taxpayer gets a chance to disclose any additional income by filing return in response to a reassessment notice from the income tax officer, where the Revenue authorities believe that income has escaped assessment, added Agrawal.

However, one should understand that receiving a tax notice should not necessarily be a cause for panic or worry. Instead, you must view it as a chance to amend mistakes made in your original income tax return.

Tax Return Scrutiny: Understanding the Process and Reasons for Income Tax Department Notices

Income tax department in India examines the filed tax returns, and if there are any reasons to believe that the information provided by the taxpayer is incorrect or incomplete, the case is selected for scrutiny assessment. The taxpayer is then issued a notice by the department and is required to take necessary actions as communicated by the department in response to the notice. This blog discusses Tax Return Scrutiny in detail.

Understanding About Income Tax Scrutiny

After the assessee has filed their income tax return, whether within the due date or in response to a notice, the tax department has the authority to initiate scrutiny proceedings if there is a reason to believe that income has escaped assessment. This means that the department suspects that the income declared by the assessee is understated or the expenditure is overstated. In such cases, the department issues a notice to the assessee, requesting them to visit the department’s office and provide any additional documents that may be required.

Understanding the Process of Scrutiny

It is important to note that receiving a notice does not imply any wrongdoing or crime on the part of the assessee. It simply signifies that an investigation is being conducted to determine if any income has indeed escaped assessment. The notice indicates a difference of opinion between the Assessing Officer (AO) and the assessee, and the scrutiny proceedings aim to resolve this difference and arrive at a correct assessment of the income.

Manual Scrutiny Cases 

In manual scrutiny cases, the selection for scrutiny is done by the assessing officer based on case-specific reasons. The assessing officer may have identified certain aspects or discrepancies in the taxpayer’s return or financial information that warrant a closer examination. These cases can be avoided or minimized by ensuring accuracy and consistency in the tax filings, maintaining proper documentation, and responding promptly and comprehensively to any queries or notices from the tax authorities. By being diligent and proactive in fulfilling tax obligations, taxpayers can reduce the likelihood of being selected for manual scrutiny.

Tax Return Scrutiny: Reason for Income Tax Scrutiny Notice

The first and foremost requirement for complying with the law is to file your income tax return on time if you have taxable income. Ensure that you fill out the return accurately and that all the details provided match the information available with the tax department.

If your income from all sources exceeds the basic income tax exemption limit, you must file a return even if the tax has already been deducted (TDS) and paid. Neglecting to file returns for previous years due to reasons such as lethargy, laziness, overconfidence, preoccupation, or ignorance of the law will not absolve you from the possibility of getting selected for scrutiny by the income tax department. You are likely to receive a notice in such cases.

Declaring a lower income compared to previous years or reporting higher losses may raise suspicion with the income tax officer, potentially leading to your case being selected for scrutiny. This is particularly relevant for businessmen and traders whose income can vary significantly for various reasons.

  • Mismatch in TDS Credit

Form 26AS, which is your tax credit statement, provides details of the TDS deposited on your behalf. It is important to check if all the TDS payments have been correctly credited to you and rectify any discrepancies. You can view Form 26AS through NSDL, the income tax department’s website, or your bank’s online portal before filing your income tax return.

Reconcile your Form 26AS with the taxes paid to ensure that there is no difference between the claimed TDS amount in your return and the TDS actually updated in Form 26AS. Verify if your employer, vendors, or deductors have paid TDS to the government account and check with your banks to ensure they have paid TDS on your interest. Only after confirming everything is in order should you claim the TDS amount.

  • Failure to Declare Exempted Income

Certain types of income are exempt from income tax, but they must still be mentioned in your income tax return. For example, long-term capital gains tax from equity, dividends received on equity shares of Indian companies, interest from a savings bank account up to Rs. 10,000, or gifts received from parents or relatives. Although these incomes are exempt, they should not be omitted from your return as the income tax department needs to be informed of them.

Non-declaration of exempted income can be a common issue for depositors of fixed deposits and investors. Banks typically deduct 10% TDS on interest from deposits by default, but you may be required to pay additional tax if applicable based on your income tax bracket. Assuming that the TDS deducted by the bank absolves you from paying any tax is a misconception and may lead to scrutiny proceedings.

  • Claiming Higher Refunds

Claiming a higher refund may also attract scrutiny from the income tax department. To minimize the amount of interest payable on delayed refunds, the department may prioritize returns with higher refund claims for assessment. They might scrutinize the data and question the reasons behind the higher refund claim.

If you file Form 15H or 15G to prevent the deduction of TDS on your investments when your income is below the taxable limit, make sure to accurately declare your income in your return. Copies of Form 15H or 15G will be sent by banks to the income tax department, and if there is a mismatch, your case may be selected for scrutiny.

When individuals change jobs during the year, they often forget to inform their new employer about their previous income or fail to ensure that it is included when calculating their tax liability and TDS figure. This can result in the new employer deducting taxes again, including deductions and benefits that were already factored in by the previous employer. It is important to inform the new employer about your previous income to avoid receiving an income tax notice.

  • High-value Transactions

The income tax department receives information about high-value transactions from relevant institutions, increasing the likelihood of scrutiny. Engaging in high-value transactions for investments or spending, such as using a credit card for more than Rs. 2 lakhs per year, investing over Rs. 5 lakhs in fixed deposits, depositing more than Rs. 10 lakhs in your bank account, investing over Rs. 2 lakhs in mutual funds or Rs. 1 lakh in shares, or buying or selling property over Rs. 30 lakhs, may attract scrutiny by the income tax department.

Tax Return Scrutiny: Types of Scrutiny Assessments

There are two types of scrutiny assessments,

  • Manual scrutiny cases
  • Compulsory scrutiny cases

Compulsory Scrutiny Cases

The following types of cases are compulsorily selected for scrutiny, and it may not be possible to prevent them from being selected. However, it is important to understand the reasons for selection and take measures to minimize the likelihood of scrutiny:

  1. Cases involving addition in an earlier assessment year in excess of Rs. 10 lakhs on a substantial and recurring question of law or fact, which is confirmed in appeal or is pending before an appellate authority, may come under compulsory scrutiny.
  2. Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs. 10 crore or more on a substantial and recurring question of law or fact, which is confirmed in appeal or is pending before an appellate authority.
  3. All assessments pertaining to Survey under section 133A of the Act, excluding cases where there are no impounded books of accounts/documents and the returned income (excluding any disclosure made during the Survey) is not less than the returned income of the preceding assessment year. However, if the assessee retracts the disclosure made during the Survey, it will not be covered by this exclusion. Cases where there is information about concealment of income, based on an enquiry report, survey report, or any other source, can also be selected for scrutiny with the approval of higher authorities.
  4. Assessments in search and seizure cases made under specific sections of the Act, along with returns filed for the relevant assessment year. These assessments are made based on the information gathered through search, survey, or enquiry and follow the same process as other scrutiny assessments.
  5. Returns filed in response to a notice under section 148 of the Act, which allows for the reopening of cases where there is reason to believe that income has escaped assessment. Assessments in these cases are framed under section 143(3) after following due procedure.
  6. Cases where registration under section 12AA of the IT Act has not been granted or has been cancelled, but the assessee is still claiming tax exemption under section 11 of the Act. However, if the order denying or withdrawing the approval has been reversed or set aside in appellate proceedings, those cases will not be selected under this clause.
  7. Cases where the approval under section 10(23C) of the Act has been denied or withdrawn by the Competent Authority, but the assessee is still claiming tax exemption under that provision.
  8. Cases in which specific and verifiable information pointing out tax evasion is given by Government Departments/Authorities. The Assessing Officer must record reasons and obtain prior approval from the jurisdictional Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned before selecting such a case for scrutiny.
  9. Computer Aided Scrutiny Selection (CASS): Cases are selected under CASS using broad-based selection filters. The list of such cases is separately intimated by the DGIT(Systems) to the jurisdictional authorities. The selection process is mostly computer-assisted, eliminating subjectivity.

It is important to note that these are the criteria for compulsory scrutiny selection, and the selection process involves adherence to the provisions and guidelines of the Income Tax Act.

Specific Tax Evasion

One of the key parameters for selecting cases for scrutiny is specific information pointing to tax evasion for a relevant Assessment Year (AY). It is important to note that the taxpayer must have filed the tax return for the respective AY.

Notice under Section 148

Cases, where a notice has been issued under Section 148 to the taxpayer, are also subjected to scrutiny, irrespective of whether the tax return has been filed in response to the notice. This provision ensures that potential instances of tax evasion are thoroughly investigated.

Notice under Section 142(1)

Taxpayers who have yet to file a tax return in response to a notice under Section 142(1) will be selected for scrutiny. Section 142(1) notices are issued to seek additional clarification or information about the filed tax return, and non-compliance can trigger a scrutiny process.

Search & Seizure Cases

Cases where search and seizure operations have been conducted by the income tax authorities, either before or after April 1, 2021, fall under the purview of scrutiny. These operations typically target instances of undisclosed income or assets.  Get in touch with our CA and know more about the tax scruitnity.

Survey Cases

The income tax department will select cases for scrutiny where surveys have been conducted under Section 133A based on the filed tax return. However, exclusions apply if the collection of books of accounts or documents did not take place during the survey.

Registration/Approval-related Cases

Cases in which the income tax department has not granted or cancelled registration/approval under specific sections (such as 12A, 12AB, 35(1)(ii)/(iia)/(iii), 1023(C), etc.), but the taxpayer has claimed or claims tax exemption or deduction, will be scrutinised. However, cases, where withdrawal/approval orders have been reversed or set aside in appellate proceedings will be excluded.

Cases with Recurring Issues

Cases involving recurring issues of law or fact (including transfer pricing) will be selected for scrutiny if they meet specific monetary thresholds and have become final or have been upheld by appellate authorities in favour of revenue. Pending further appeals by the assessee will not affect the selection.

Approval from Higher Officials

Before initiating the scrutiny process, approval from higher-income tax officials must be obtained. This ensures a higher level of scrutiny and enhances the credibility of the process.

Utilising Extensive Data Resources

The guidelines emphasise the government’s intention to leverage extensive data resources, including information from the Goods and Services Tax (GST) and other agencies. By cross-referencing this data with tax returns, the income tax department aims to assess the accuracy and adequacy of income reporting. This approach allows the government to identify potential discrepancies and ensure compliance with tax regulations.