Notices Issued Under the Income Tax Act

Notices Issued Under the Income Tax Act

You may be surprised to receive an intimation/notice from the income tax department even if you have filed your income tax returns within the due date. You would not be sure about what it is and how to respond to it. Don’t worry; we will break it down to help you understand your notices in detail.

First and foremost, it is essential that you understand the difference between an intimation and a notice. There is a thin line of difference between the two. The intimation is to highlight the outcome of your return processing or the assessment conclusion, 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 act on it. The Central Board of Direct Taxes (CBDT) has recently notified a new scheme known as Centralized Communication Scheme (CCS). The system states that, gradually, all communications will happen in an electronic mode.

Let us now understand various notices/intimations issued by the income tax department.

Intimation Under Section 143(1)

After having filed your returns, it is electronically processed by the Central Processing Centre(CPC). The income is computed after making the following adjustments to the total revenue in return:

  • Any arithmetical error in the return;
  • An incorrect claim (provided the wrong claim is apparent from the information filed);
  • Disallowance of incorrectly claimed loss or expenditure;
  • Any income which has not been included in the return.

Upon successful processing of the return, an intimation under section 143(1) is issued by the CPC under any of the three instances:

  • There is tax liability to be paid;
  • A refund has been determined;
  • There is no refund or demand, but there is an increase or reduction in loss.
If there is a tax demand, then the intimation must be issued within one year from the end of the year in which the return has been filed. For example, if you have filed your returns for Assessment Year (AY) 2020-21 on 27 July 2020, an intimation can be issued anytime on or before 31 March 2022. Processing of returns under this section has been made mandatory from AY 2017-18 even if a scrutiny notice is issued.

Notice Under Section 143(2)

The purpose of this notice is to notify the assessee that the return filed has been picked for scrutiny. It is pertinent to note that the section under which will be scrutinized is different from the one in which the notice has been issued. Via detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:

  • Understated your income;
  • Claimed excessive loss; or
  • Paid lesser taxes

Through this notice, the taxpayer is required to respond to the questionnaire issued along with the documents needed for the income tax department. The assessing officer is supposed to service this notice within six months after completing the assessment year to which it pertains.

For instance, Rohit filed his return on 20 May 2020 for the AY 2020-21. Here notice under section 143(2) can be issued to Rohit within six months after completing the AY to which it pertains, i.e. 30 September 2021.

Are you not sure about what to do with such an income tax notice? Use our Notice Upload Facility to allow us to help you out. Alternatively, you can even seek the help of a Tax Expert.

Notice Under Section 148

An assessing officer may have a reason to believe that you have not disclosed your income correctly and, therefore, you have paid lower taxes. Alternatively, you may not have filed your 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 is entitled to assess or reassess your income, according to the case. Before making such an assessment or reassessment, the assessing officer should notify the assessee, asking him to furnish his return of income. The notice issued for this purpose is given under the provisions of Section 148.

Previously the timelines to be adhered to for the issuance of notice under Section 148 were as below:

As per amendment in the Finance Act 2021, with effect from 1 April 2021, the time limit up to which the assessing officer can re-open the assessment of the taxpayer is as follows;

  1. Up to three years from the end of the relevant assessment year in standard cases and 
  2. Beyond three years but not more than ten years from the end of the relevant assessment year, if the assessing officer has material evidence that income of Rs. Fifty lakhs or more for a financial year has escaped assessment.
Up to 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 give information under Section 148 on the direction of the Joint Commissioner after recording the reasons to do so. For AY 2017-18, notice under section 148 can be issued till 31 March 2022.

Beyond four years but up to six years from the end of the relevant AY

The Chief Commissioner can only issue notice, or Commissioner is satisfied that income has escaped assessment. The amount of income that has escaped assessment should be more than Rs. 1,00,000. For AY 2017-18, notice under section 148 can be issued till 31 March 2024.

Beyond four years but up to sixteen years from the end of the relevant AY

Notice under section 148 can be issued if income about any asset (including financial interest in any entity) located outside India is chargeable to tax in India but has escaped assessment. For AY 2017-18, notice under section 148 can be issued till 31 March 2034.

The Effect of Amendment in the Finance Act, 2021

As per the current provisions, the notice under section 148 can be issued up to four years, up to six years or up to 16 years, as the case may be. But with effect from 1 April 2021, the new reassessment due dates shall be applicable. 

Let us understand the timelines for previous financial years after the amendment in the Finance Act 2021 came in force:
The financial year for which income escape assessmentTimeline if notice to be issued up to three yearsTimeline if notice to be issued beyond three years by up to ten years 
*Hence the assessing officer cannot issue notice for the AY 2015-16 in typical cases. Also, for the financial year 2016-17, the notice shall be issued before 31 March 2021.

Notice Under Section 245

If the assessing officer has reason to believe that tax has not been paid for the previous years and he wants to set off the current year refund against that demand, a notice under Section 245 can be issued. However, the adjustment of order and reimbursement could be made only if you have been provided accurate information and an opportunity to be heard. The timeline to respond to the notice is 30 days from the day of receipt of the message. If you do not respond within the timeline described above, the assessing officer can consider this consent and proceed with the assessment. Therefore, it is advisable to respond to the notice at the earliest.

Notice Under Section 142(1)

A notice under section 142(1) can be issued under two circumstances:

  • If you have filed your return, but the assessing officer requires additional information and documents; or
  • If you have not filed your return, but the assessing officer wants you to file it.

The information is called for, to enable the officer to make a fair assessment. Being non-responsive to this notice has consequences,

  • A penalty of Rs 10,000 can be levied for each such failure
  • Prosecution may extend up to 1 year
  • Both of the above
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