Notices Issued Under the Income Tax Act

After an Assessee files his/her Income tax return, it is processed by the Income tax Department. If there is any mistake / error / discrepancy noticed in the return filed, then the same is intimated to the Assessee by the means of an income tax notice.

You are not sure about what it is and how to respond to it. Don’t panic when you receive a notice from income tax department.

First and foremost, it is important that you understand the difference between an intimation and a notice. Intimation is to highlight the outcome of the processing of your return or conclusion of assessment, and you may not be required to act upon it (although there are a few exceptions to it). However, when you receive a notice, it requires you to give your response to the IT department.

Recently, the CBDT has notified a new scheme known as Centralized Communication Scheme (CCS) whereby, gradually all communications will happen in an electronic mode.
There are various types of Income tax notices, issued by the Income Tax Department, which you can read in the question below.

What are the types of Income tax notices?

The Income tax department issues notices for various purposes under Income Tax Act, 1961. These are listed below:

  1. Income Tax Intimation/ Notice under section 143
  2. Notice under section 139(9)
  3. Notice under section 148
  4. Notice under section 245
  5. Notice under section 142

Let us know the above types of notice in detail:

  1. Income Tax Intimation/ Notice under section 143:
    • Income Tax Intimation under section 143(1):  
      It is an intimation sent by the Income tax department after the return is filed by the taxpayer and processed by CPC.  
      The income is computed after making the necessary following adjustments to the total income in the return:
      1. any arithmetical error in the return;
      2. an incorrect claim (provided the incorrect claim is apparent from the information filed);
      3. disallowance of incorrectly claimed loss or expenditure;
      4. any income which has not been included in the return
      5. disallowance of deduction u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or 80-IE, if return is filed beyond due date u/s 139(1).
        However, before making any such adjustments, in the interest of natural justice, intimation has to be given to the assessee requiring him to respond to such adjustments. Such intimation may be in writing or through electronic mode. The response received, if any, has to be duly considered before effecting any adjustment. However, if no response is received within 30 days of issue of such intimation, the processing shall be carried out incorporating the adjustments.
    • Income Tax Notice under section 143(2)/(3):
      Notice u/s 143(2) is issued to assessee by the Income Tax Department when Income Tax Return of assessee is selected for scrutiny assessment or detailed assessment u/s 143(3). In simple words, Scrutiny assessment or detailed assessment u/s 143(3) means a scrutiny carried out to confirm the correctness and genuineness of various claims, deductions, etc. made by assessee in Income Tax Return. The basic purpose of this scrutiny assessment is to ensure that assessee has filed the return with the correct income and paid the tax accordingly.

      The objective of this scrutiny is to check that:
      • Assessee has not understated his income
      • Assessee has not computed excessive loss
      • Assessee has not under-paid the tax in any manner
        So, to carry out scrutiny u/s 143(3) of the Income Tax Act, notice u/s 143(2) is issued by the Income Tax Department.

        Time limit for issuance of notice u/s 143(2):
        A notice u/s 143(2) for scrutiny assessment can only be issued upto a period of six months from the end of the financial year in which the return was furnished by assessee.
        For example, Ms Sharma filed her return on 25.07.2016 for the financial year 2015-16. In such a case, the notice u/s 143(2) can be issued to Ms Sharma only upto 30.09.2017 being end of six months’ period from the FY 2016-17 in which the said return was filed.
  2. Income Tax Notice under section 139(9):
    This Income Tax Notice is issued if the Income tax return filed is defective. Common cases when the notice for defective return is sent:
    • When you have filled up details of taxes paid, but have not provided income details, the Income Tax Department deems it defective.
    • A notice for defective return is sent when tax deducted has been claimed as a refund, but no income details are provided in the return.
    • The Department sends you a notice for defective return under Section 139(9) when you haven’t paid your taxes in full.
    • When you are required to maintain a balance sheet and profit and loss statement but haven’t given the details of the same with your income tax return, the tax return is declared defective.
    • When audit report u/s 44AB is applicable but the same has not been furnished online along with the return of income.
      An Assessee must revise his/her return addressing the defects to the Income Tax Department within 15 days from the receipt of intimation order under section 139(9).
      To know how to response please click here
  3. Notice under Section 148:
    If the assessing officer has reasons to believe that assessee has not disclosed his income correctly and therefore, assessee has paid lower taxes or where assessee has not filed his tax return at all in a case where he should have ideally filed it as per law, this is termed as income escaping assessment. Under these circumstances the assessing officer is entitled to assess or reassess the income, as the case maybe.

    Prior to making such 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. The various timelines to be adhered to for issuance of notice under section 148 is as follows:
    • Upto four years from the end of the relevant AY:
      Notice cannot be issued by any officer below the rank of Assistant Commissioner or Deputy Commissioner. An assessing officer can only issue a notice under section 148 on the direction of the Joint Commissioner after recording the reasons to do so.
      For AY 2018 -19 notice under section 148 can be issued till 31st March 2023.a.     
    • Beyond four years but upto six years from the end of the relevant AY:
      Notice can only be issued by the Chief Commissioner or Commissioner is satisfied that income has escaped assessment. The amount of income which has escaped assessment should be more than Rs. 1,00,000.
      For AY 2018 -19 notices under section 148 can be issued till 31st March 2025.
    • Beyond four years but upto sixteen years from the end of the relevant AY:
      Notice under section 148 can be issued if income in relation to any asset (including financial interest in any entity) located outside India, is chargeable to tax in India but has escaped assessment.
      For AY ending 2018 -19 notices under section 148 can be issued till 31st March 2035.
  4. Notice under Section 245:
    If the assessing officer has reasons to believe, that there is tax demand which has not been paid for the previous years by the assessee and he wants to set off the current year refund against that demand, notice under section 245 is issued. However, the assessing officer can proceed with adjustment of demand and refund only after assessee has been provided with a proper notice and an opportunity for being heard.
    The timeline to respond to the notice is within 30 days from the day of receipt of the notice. If assessee does not respond within the aforesaid timeline, the assessing officer can consider the non-response as consent and proceed with the adjustment.
    For example: If Mr. A has an outstanding tax demand of Rs.25,000/- pertaining to A.Y.2015-16 and in A.Y.2017-18 he has a tax refund of Rs.31,000/- , So assessing officer can adjust the tax refund of Rs.31,000 against the demand of Rs.25,000 after the timeline allowed under Sec.245 has expired and Mr. A will be paid a net refund of Rs.6,000/- only.

  5. Notice Under 142(1) – Inquiry before assessment:
    Notice under Section 142(1) is usually served to call upon documents and details from the assessee, and to take a particular case under assessment.
    The basic purpose is to inquire the details of the assessee before making assessment under the Act. It can be related to ‘Preliminary Investigation’ before starting the assessment.
    By serving a notice u/s 142(1) the assessing officer, may call upon the assessee:-
    • To furnish a return of income in respect of which he is assessable, where he has not filed his return of income within the normal time allowed.
    • It may include return in respect of his own income or income of another person for which he is liable to be assessed. Example- In case of legal guardian/ deceased person.
    • To produce accounts or documents which the AO may require for the purpose of making an assessment.
    • To furnish in writing any information on matters including statement of the assessee. For Example- statement of assets and liabilities of the assessee on a particular date.
      The AO may or may not start assessment after compliance with this notice, dependent upon the facts of assessee. If AO is satisfied with the produced documents or return, he may not start with the assessment process.
      Compliance with this notice u/s 142(1) is mandatory even if the tax payer is of the opinion that the accounts/documents requested are irrelevant.
      If assessee does 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. Rs 10,000 for each failure, or
      • Prosecution under Sec 276D which may extend upto 1 year and with fine.

Guide to Tax Saving

There are many modes of tax saving investment options for the tax payer. One has to plan diligently before investing so that he can ensure optimum tax savings along with maximum returns from the investments made.

1. Make investment of Rs 1.5 lakh under Sec 80C to reduce your taxable income.

2. 80C deductions are PPF, NPS, EPF, Life insurance premium, tax-saving mutual funds (ELSS), children’s tuition fees and housing loan principal repaid among others.

3. Buy Medical Insurance & claim a deduction up to Rs. 25,000 or 30,000/- (based on seniority) for medical insurance premium under Section 80D.

4. Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE for a loan amount not exceeding Rs. 35 lakhs (loan to be sanctioned between 1st April 2016 and 31st March 2017)

5. 80E – Deduction in respect of interest on loan taken for higher education only an individual can claim thisdeduction, it is not available to HUF or any other kind of taxpayers.Higher education loan taken for self, spouse or children’s or for a student for whom the individual is a legal guardian& the taxpayer can take 8 years period of deduction.

6. 80 CCD- Any assessee deposits amount in a pension scheme notified by the Central Government upto a maximum limit of 10 % of his salary or 20 % of his gross total income as the case may be. In addition to that a further sum of Rs. 50,000/- can also be claimed as deduction if he has invested in excess of the above said limits. 7. 80 GG – Any assessee who is not in receipt of HRA, any expenditure of rent in excess of 10% of his total income subject to lower of Rs 5000 p.m or 25% of his total income for the year.