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Income Tax Notices

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The government may send you a tax notice unexpectedly, leaving you confused or worried. These formal letters from the tax office may request more information, suggest amendments to the taxes filed, or demand more taxes. Attention must be paid to tax notices to avoid penalties, interest charges, and other enforcement actions. At Genuine Filings, we have the knowledge and skill to handle Income Tax Notices perfectly.

Common types of tax notices / assessments

After filing of income tax return, the Income tax authorities assess the details / information furnished by the taxpayer. This process of assessing ITR filing is commonly referred to as income tax assessment. However, there are different types of assessment in income tax that you should know about:

Section 143(1): Summary Assessment

Under Section 143(1), assessment is done without human intervention by cross-checking information provided by taxpayer with the details already available with the Income Tax Department gathered from multiple sources such as Bank, Employers / Tax Deductors, Securities Depository, Sub-Registrars etc. Through summary assessment, one can spot clerical errors and inconsistencies in the ITR filed.

Communication of these assessments are generally made through system-generated Intimation u/s 143(1). This intimation is the confirmation of processing of Income Tax Return and is generally issued in two colors viz. Red and Green. As the color suggest, Intimation in red suggests that the return has been processed with some default or discrepancies and there is something not right which requires immediate attention, whereas Intimation in green means that the return has been successfully processed without any default or discrepancies.

Section 143(3): Scrutiny Assessment

In this type of assessment, the Income Tax Department may issue notice for detailed scrutiny / assessment of records / informationor also for limited scrutiny in respect of any specific income / deduction / expense / transaction carried out by the taxpayer. An Assessing Officer (AO) performs the role of conducting an inquiry and ensuring the correctness of income details provided by taxpayers.

For a thorough examination, an AO can demand the books of accounts or certain details / documents withthe aim to verify the authenticity / genuinenessof the information furnished in respect of any income / expense / investment etc. Thus, an AO analyses whether or not the taxpayers have understated their income or overstated the losses / expenses. 

Based on the response furnished, the AO may accept the return filed or may make addition of any income not reported in the Income Tax Return furnished. However, if taxpayers are dissatisfied with the assessment, they can proceed with filing of appeal to higher authorities or apply for rectification under Section 154 of the Income Tax Act. 

Section 144: Best Judgement Assessment

This type of income tax assessment takes place only under circumstances in which a taxpayer fails to cooperate with the IT department. In these cases, an AO has to compute the tax liability of a taxpayer with the best judgement about the income of the taxpayer based on information / details available with him, in a reasonable manner without dishonesty. 

Best judgement assessment may take place in following situations:

  1. When a taxpayerfails to respond to multiple notices issued to him by the Income Tax Department.
  2. When a taxpayer does not file income tax returns for the financial year under reference 
  3. When a taxpayer does not maintain proper books of accounts or where the AO is unsatisfied with the explanation offered and / or documents or information furnished by the taxpayer. 

Section 147: Income Escaping Assessment

Income escaping assessment is considered one of the most critical types of assessment in income tax. When an Assessing Officer believes that a taxpayer’s income has escaped assessment, the AO has the authority to order a reassessment. With sufficient reasons, an AO may reopen a case dating back to 10 years if the Income Tax Department have reasons to believe that concealed income is more than Rs.50 lakh (tax evasion).

The circumstances under which reassessment takes place are as follows:

  1. When the Income was taxable, but ITR not filed 
  2. Wen the ITR was filed but income was understated or losses / deductions / expenses were overstated
  3. When taxpayers do not furnish reports on international transactions 

Assessment in case of Search and Seizure

Section 153A establishes a mechanism for the assessment of income of a searched individual. In this type of assessment in Income Tax, the Assessing Officer has the right to frame the searched individual’s assessment for the six assessment years that immediately precede the ‘search’ year. These are the most complicated types of assessment and requires very special attention.

Protective Assessment

The Income Tax Department may make assessment on protective basis which means that the same income may be assessed in the hands of more than 1 person just to protect the revenue’s interest of the revenue.In cases where it appears to the IT authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant IT authorities to determine the said question by taking appropriate proceedings both against A and B until at a later stage, when it is clear that the samewas taxable in the hands of either A or B.

What to do when you receive a tax notice?

Responding promptly

When you receive a tax notice, it is important to act quickly. You must respond by a specified date, usually within 30 days. If you do not reply, the Income Tax Department may finalize their suggested adjustments, which could lead to extra interest and penalties.

Professional assistance

Understanding the tax notices is complicated, especially if you do not agree with what the Income Tax Department says or if you need a lawyer / chartered accountant to represent you. Genuine Filings has tax experts who are ready to review the details of the notice, gather all the required documents and talk on your behalf with the Income Tax Department.

Our tax professionals will be there to assist you with all kinds of questions related to dealing with Income Tax notices. Let us provide you with the assistance you need to avoid being legally liable for income tax.

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Frequently Asked Questions

You may be eligible for stay of demand or an instalment arrangement or other payment options if you cannot pay the full amount. Our tax experts can guide you through the process.