Procedure for Handling of Notice Under Section 245 of Income-Tax Act, 1961

If a person has filed his returns and declared everything as per the provisions of the act and still received the notice from the income tax department, the first thing that a taxpayer thinks on receiving an income tax (I-T) notice is whether he or she has unknowingly got on the wrong side of the law.

It has been noticed in most of the cases, where the department sent the notice to the assessee for the demand outstanding but the assessee did not take it seriously and after some time in any other financial year, the assessee filed the return and claims the refund, In such case, the assessing officer may send the notice under section 245 of the income tax act, 1961.

This is the intimation under which the assessing officer informs the taxpayer to deposit the outstanding demand within the time as specified in the intimation otherwise his claimed refund shall be adjusted with his pending demand.

For Example: Take Ms. Sanya, who received a letter from the department. It stated that her assessment for the financial year 2018-19 has been completed. But it had a note that her refund is adjusted against pending tax liability that she had five years back.

But she recalled that once the I-T department had intimated her about the outstanding demand by notice for the same year but she had already filed an application for rectification for the specific financial year.

If sanya did not take any action immediately then it would lead to a high amount of loss In case you have received a similar letter, don’t worry. A few checks can help you as to how to tide over it in a simple manner.

Intimation under Section 245

The notice under section 245 under the income tax Act, 1961 can be issued by the I-T department when there’s an outstanding demand from earlier years is pending and you have also claimed a refund in some other assessment year. The Section 245 of the Income Tax Act empowers the assessing officer that he can adjust such refund (or a part of refund) against any of the outstanding tax demand which is pending from the taxable person.

When a person files his tax returns years after year, he creates a string of records to the department. If there is some tax that has to be paid for any specific year in the past, then the department of income tax can set it off against refunds.

Although, there are some conditions also specified for assessing officers that need to fulfill when making such adjustments. He has to intimate the taxpayer of the adjustment and allow them an opportunity of being heard to put forward their views, in case they believe it’s not correct. But the person shall have to take the necessary action in time.

First step: verify the demand

As and when the person receives intimation, he should first check the past records of transactions and verify whether the demand is correctly ascertained or not.

Then, collect all the information about the financial year for which the I-T department claims that you have an outstanding demand.

Calculate the actual amount of tax payable and paid. 

Check if you have any disputed amount of outstanding demand in that financial year and if yes then whether you have taken any action against it.

There is also a possibility that a person may have filed for rectification due to a mistake apparent from records and it was not processed. 

A person also needs to determine whether the outstanding demand shown in the intimation, is correct according to their calculations.

Second step: Answer online

Nowadays, the department has made most of the I-T processes as online mode like filing of returns. Likewise, the taxpayer also has the option to reply to the notice online by logging online onto their online tax filing account. For this, he has to first log on to his account at website www.incometaxindiaefiling.gov.in. Go to the tab “e-File” and then click on ‘Response to Outstanding Tax Demand’.

Here you shall view the 3 options in which you have to submit your response. These 3 options state that whether you believe that ‘demand is correct’ or ‘demand is partially incorrect’ or if you ‘disagree with the demand’. If in case, the taxpayer doesn’t see the ‘submit’ option; then it means that the demand has already been finalized by his Assessing Officer. In simple words, it means that the assessing officer has already offset with the demand due and refund claimed.

But if you see the options, to reply to the notice of section 245, it means that the final adjustment has yet to be made. Generally, the taxpayer can respond to the notice within one month from receiving notice it, and therefore the person should not delay taking actions in respect of such notices.

In case, If you agree with the demand, Go to the option ‘demand is correct’. The I-T department will adjust the amount. But if you partially agree with the demand then the taxpayer needs to give details as to why he/she thinks that it’s only partially correct. You have to specify the reasons for it.

The third situation is where a taxable person’s‘ disagree with the demand’. It generally happens when the department has not considered the tax deduction at source (TDS) or the figures taken by the assessing officer are wrong. So, you should say that you don’t agree with the demand and specify the reasons for it. Although, Such a situation where the TDS is not considered is not uncommon.

Wait for the decision

The taxpayer has to wait for the decision taken by the I-T department. Normally, the department examines the reply and communicates his findings to the office CPC, Bengaluru and then process such refund and adjust with the demand, if any. Irrespective of the outcome. It is suggested that the person needs to point out any discrepancy in the tax notices under section 245 that he received.

And in case you have confusion regarding this then it is advisable that to take the help of a chartered accountant before submitting a reply.

Action plan

• I-T department has the power to adjust past outstanding against refund
• An intimation is mandatorily required to be sent to the assessee.
• The assessee should retrieve the past record and verify the amount
• After verifying, Log on to www.incometaxindiaefiling.gov.in to reply
• Now, Taxpayers get three options — ‘demand is correct’, ‘demand is partially incorrect’ and ‘disagree with the demand’
• Just took the suitable action within the stipulated period
• However, the most important thing that every assessee should note that he should not leave any intimation unanswered