Whether you are a salaried person or a business person or a professional, there always are the chances that you may get the Income Tax Notice. There are so many reasons for which an assessee may get the notice. Such reasons may include non-filing of return or delay in filing of return or wrongly calculation of tax demand or claiming an excessive refund or claim excessive losses.
The senior partners of many big firms have explained many conditions under which the assessee may have to face the notice from the income tax department. Normally the Assessing officer issued the notice of income tax under the following section:
|139(9)||Notice for filing of Defective Return|
|143(1)||Intimation of Income-tax return filed under section 139|
|144||Assessment Notice and Order under Best Judgement|
|147||Assessment order for Concealment of Income|
|148||Notice of Assessment under Concealment of Income|
|245||Intimation Notice for adjusting the demand with a refund due|
Following are the common reasons for which the person may have to face the notice of income tax:
1) Filing of return after the due date : Where the taxpayer has required to get the tax audit, the due date for filing of ITR is 30th September of the assessment year, otherwise it would be 31st July of the assessment year. If the return has not been furnished under section 139(1), then the Assessing Officer may issue a notice requiring him to file his ITR within the time specified in the notice as per section 142(1)(i). The due date for filing of return is the last date of the assessment year i.e. 31st march of the assessment year. For Example: for the FY 2018-19, the assessee can file the return up to 31st March 2020.
However, the notice under this section can be issued even after the end of the assessment year required him to file his ITR.
Note: So if any person has failed to file his ITR up to the end of the assessment year then he may request to his AO to issue the notice under this section so that he may file his ITR after the last date.
When the taxable person is not required to file his ITR as per section 139, then also, this notice may be issued to him.
Interest and Late Fees: If the Assessee has not filed his ITR within the due date he shall be liable for the late fees under section 234F of Rs.5,000 which would be extended to Rs.10,000 if the return has not filed till 31st December of Assessment Year.
Also, he shall be liable for the interest under section 234A @ 1% per month or part of the month from the due date of filing of the return to the date of the actual filing of return.
2) Underreporting or Misreporting of Income: The Person may face the income tax notice when he has not reported all of his taxable income in this income tax return or misreported the income.
Now let’s first see about the amount of penalty levied on this point, then I will explain it in easy language.
As per section 270A, in case of underreported income, the assessee shall be liable for the penalty of 50% of the tax payable on such underreporting income.
Where such under-reporting income is due to misreporting i.e. malafide in nature, then the penalty shall be increased to 200% of the amount of tax payable on such underreporting of Income.
Section 270A(9) has specified the cases which shall be considered as misreporting of income :
- Misrepresentation or suppression of facts. For Example:
- Short term capital gain shown as long term capital gain to claim a lower rate of tax
- Capital gain claimed as exempt although they are not exempt
- Deduction claimed in the return under section 43b has not paid within the due date of filing of return.
- Failure to record the investments in the books. For Example:
- Assessing officer has discovered unexplained investments like fixed deposits or jewelry which are not disclosed in the books.
- Expenditure claimed for which the person does not have any supporting bills. For Example:
- Taking bogus bills or claiming of expenditure without bills.
- Recording of any bogus entry in the books. For Example:
- Income received recorded as advance.
Note : The exemption under section 10(38) on long term capital gains tax on the sale of listed equity shares or unit of equity oriented fund or unit of business trust has been withdrawn from AY 2019-20 and as per section 112A, Tax @ 10 shall be applicable on such long term capital gain.
In simple words, from 01st April 2019, Any taxpayer has sold any long term capital asset being Listed equity shares or unit of equity oriented fund or unit of business trust on which STT has been paid, shall be liable to pay capital gain tax @ 10% exceeding Rs. 1,00,000/- of long term capital gain amount. Although there are some other conditions also there for considering it as long term capital gain.
So, it is advisable that you that if you have traded in listed shares or mutual funds, then take the professional advice from any chartered accountant for calculation of tax because it might be possible that this year you may liable for the payment of capital gain tax.
- TDS claimed in your income tax return which is not matched with form 26AS: In case, where the assessee has claimed the TDS in the income tax return, not matched with the details mentioned in form 16/16A or 26AS, then such person shall have to face the notice under section 143(1). Although the said condition has been removed in the finance act, 2018. So, if the person has filed the ITR for the AY 19-20 and his TDS claimed in the ITR not matched with the form 26AS due to any bonafide reason, then no notice under section 143(1) shall be issued to him on this condition.
- Non-Disclosure of Income in return: If you have not disclosed any income in ITR and thinking that department may not be able to know about your non disclosed income then you are wrong. It is because the income tax department may collect the information of their taxable person from many modes like from bank, electricity department or water bill, etc.
For Example, Assessee has shown the total income of Rs.10 Lakhs and paid tax on such income. However, the department has collected the information from the electricity department that during the year you have paid Rs.5 lakhs electricity bill. Now although, the department does not know about your escaped income with the information available with the department makes it sufficient to issue the notice to the assessee.
- Not clubbing the income of the persons specified in section 64 of Income-tax Act, 1961: Section 64 of Income Tax Act, 1961 has defined certain situations in which the income of the assessee shall include the income of any other person. Let me explain the 2 subsections of section 64 which are widely used at the time of clubbing of income.
Section 64 (1)(ii): Income of the taxable person to include the income of the spouse from the concern in which the assessee has the substantial interest: Where the spouse of the person is working in the concern in which such person has the substantial interest then the income of the spouse shall be included in the income of the taxpayer. (Here substantial interest means 20% voting power or shares in the profit of the concern)
Section 64 (1)(iv): Income of the assessee to include the income of spouse from assets transferred to the spouse without adequate consideration: Where the person has transferred the assets to his spouse without adequate consideration then such income shall be included in the income of the person. For clubbing relationship but exist at the time of transfer of assets.
6) Filing of Defective Return: A return shall be considered as a defective return unless it contains the following documents:
- The return should be filed in its prescribed form
- There should be the proof of tax claimed to be TDS/TCS, advance tax or self-assessment tax.
- Tax Audit Report under section 44AB
- Copies of Audited financial statements and auditors report.
The Assessing Officer may condone the delay and consider the return as a valid return where the taxpayer has rectified the defect within 15 days or extended time but before the completion of the assessment.
7) When you have engaged in High-value Transactions: In case you had claimed a high-value expenditure or received a very high amount then to verify the correctness of the transactions, the Assessing Officer may be issued a notice to the person. Where the assessee has made significant investments or high-value transaction then the AO may issue the notice under section 143(2).
As a Precaution: If the person has engaged in high-value transactions during the year then it is advisable that he should maintain all the relevant records of such transactions including the source of such transaction.
8) Notice received for scrutiny assessment under section 143(2): For making the assessment of the person who has filed his return under section 139, the Assessing Officer may issue the notice under section 143(2). If you have received such notice, then the first thing that you have to check is the time limit. The notice of the scrutiny is required to be served within 6 months from the end of the financial year in which the return has been filed.
The Said notice may be issued by the assessing officer to ensure that the taxable person has not
- Understated The Income
- Claimed excessive loss or
- Underpaid the taxes
9) Adjusting the demand with any refunds due to him of earlier year: Where any demand notice has been issued and the taxpayer has not paid the demand amount within the prescribed time limit and he was also eligible for the refund pending from the department side, then the department may send an intimation under section 245 for adjusting the refund with the demand payable. Hence it is advisable that you check the status of your return on time to time at the income tax website.
10) Evasion of Tax relating to earlier years: Where the assessing officer has a reason to believe that the assessee has escaped the income of earlier years then for the purpose of assessment or reassessment under section 147, may issue a notice under section 148 within the time as prescribed under section 153A. The Assessing officer may also assess or reassess any other income which has come to his notice after issuing the notice, during the course of the proceeding.
In this article, we have understood some of the reasons when the person may have to face the notice under income tax. I hope this article brings you the confidence of filing of return on your own with some precautions. Although if you have any doubt then it is always advisable to take the advice of a professional Chartered Accountant.