Have you been served an income tax notice? Do not panic

Most of the taxpayers have little knowledge about a tax; as such they panic upon receiving a tax notice.  But instead of panicking, one should take the proper action to understand the purpose of serving the notice and should act properly.

Purposes of sending notice:

The Income Tax department is recently sending tax notices to tax payers for a number of reasons which were not so common in the earlier times. Notices which are sent generally relate to issues regarding the filing of income tax returns. Notices are also sent for scrutiny proceedings or for re-opening of earlier assessments.

Kinds of notices:

Notices are served for different reasons to assessees.

1.       Notice sent as per section 142(1) – This kind of notice is served to ask for documents and details from the assessees to take a case which is yet to be assessed.  By serving such notice the assessing officer may ask the assessee to furnish his income tax return or that of any other person for whom he is assessable, in case he has not filed his return of income within the due time. The assessee may be asked to furnish accounts or documents which are required for making an assessment under the Act. He may be required to furnish in writing any information including his statement of accounts. One has to comply with a under section 142(1) even if he thinks that the accounts or documents sought for are irrelevant.

2.       Notice sent as per section 143(1) –This intimation-cum-notice is sent for processing income tax returns. This intimation is sent through email from the centralized processing centre of the Income Tax Department.

3.       Notice sent as per section 143(2) –This is a notice sent for regular assessment. It is compulsory in case of conducting scrutiny assessment. It is served when a return has been filed. It is required to be served within a period of six months from the end of the Financial Year in which such return has been filed. The assessee or his representative has to appear before the AO on the date and time which are mentioned in the notice.

4.       Notice sent as per section 156 – This is a notice sent for demand in cases where any sum is payable as per any order passed.  The AO serves upon the assessee a notice of demand stating the sum payable by him. The sum so demanded has to be paid within 30days of serving the notice and the time period may be reduced by the AO upon getting approval of the CIT.

5.       Scrutiny notice sent as per section 143 (3) – If your tax return is picked for random scrutiny, you shall receive a notice from the Department for earlier dues. Sending scrutiny notice under section 143 (3) has become very common to make people serious regarding payment of right amount of taxes.

6.       Notices served in connection with rectification application – Notices are also served upon demand of an assesee after filing a rectification application during filing of return under section 154 in case of mismatch in TDS or amount of income.

Things to do upon receiving a notice:

Do not panic after receiving an income tax notice. One should not ignore a notice as it may lead to a fine which may extend up to Rs. 10,000/- in addition to the penalty and interest. Ignoring the notice might cost you time, money and mental tranquility. It could also lead to imprisonment.

Upon getting a notice one should meet the AO along with all the relevant documents. First of all one has to understand the object of serving the notice. One should also check the details of notice such as the name, address, PAN, etc. The PAN number helps the IT department to identify an assessee.  Hence one should check whether the correct PAN is quoted in the notice. The notice also contains the signature and office address of the sending authority. One should retain it to protect oneself from being cheated.

One should also check the validity of the notice and its duration within which he has to reply to the AO. It may be possible that a notice is sent after a long time as the case has been reopened by the AO due to valid reasons.

One should retain the envelope of the notice. It contains the number as well as the date of posting and serving of the notice upon the assessee. It might be helpful if the notice is already sent late beyond the valid period.

One should gather the necessary documents and draft a letter containing all the annexed documents with their details. A photocopy of that file should be preserved for future reference.

In connection with a notice under section 143(2), one should collect the basic documents relating to expenditures, income, bank statements, etc. The file should be submitted and one can ask for the acknowledgement on a copy of the letter and keep it with himself. It will be an evidence of submission of the documents along with their details.

Ask for professional help when required:

If your case appears to be complicated, you can seek the help of a professional such as a CA or a lawyer to make you understand about the notice and the documents which are needed.

A professional will also help you to prepare a reply while appearing before the AO to resolve the case.