It doesn’t matter if you have filed your return and paid your taxes. The tax authorities issue notices for several reasons. The notice could be to verify the details reported in a tax return, to seek further information or to ask a person to file his tax return. The tax authorities can issue a notice under Sections 142(1) and 143(2) of the Income Tax Act. If you get a notice under either of these sections, here are some pointers that could help.
Never ignore the notice
It cannot be overstressed: never ignore a notice received from the tax authorities. In case of repeated failures to reply to a notice, the tax authorities are empowered to determine the sum payable by a person on a best judgement basis. However, before doing so, the authorities are obliged to provide the taxpayer with a reasonable opportunity of being heard.
Typically, a notice under Section 142(1) lists the details required by the tax authorities and the date by which they should be submitted. For instance, the tax authorities might seek details of a major repair expenditure or a stay overseas while on deputation abroad. The notice might require you to appear before the tax authorities either personally or through an authorised representative (such as a tax consultant), to provide clarifications or explanations.
Failure to provide specific clarifications or information sought through the notice can lead to the tax authorities making an adverse assumption based on the limited facts available to them.
Check whether the notice is within the time limits
On receiving the notice, the first thing that you should check is whether it is issued within the time limit permitted by the IT Act. With effect from 1 April 2008, any notice under Section 142(1) or 143(2) should be received by the taxpayer within six months from the end of the financial year in which the return is furnished. In case the notice is furnished after the stipulated time period, the same would be considered invalid.
However, one of the most retrograde amendments has been the insertion of Section 292BB by the Finance Act, 2008, which requires that if a taxpayer has appeared in any proceeding or cooperated in any inquiry relating to an assessment/reassessment, it shall be deemed that the notice from the tax department was duly serviced on him and would not be considered invalid.
The taxpayer cannot object to the invalidity of the notice at a later stage. This results in an awkward situation for the taxpayer who can no longer cooperate with the tax authorities or appear in proceedings without prejudice to his right to claim that the notice was invalid.
Respond early
Typically, a notice requires a person to produce certain documents and information on a particular date. To avoid last-minute rush, start collating the requisite information and documents well in advance. This will also give you enough time to peruse the information/documents to see that they are in line with the details reported in your return of income.
In case you are unable to attend the hearing or furnish the details by the stipulated date, write to the relevant tax officer requesting him to adjourn the date of hearing. This adjournment request should be filed in advance before the date of actual hearing.
Furnish the information
After collation of the necessary information/documents, prepare a cover letter (in duplicate) listing the documents provided. After submission of the details to the relevant tax officer, secure an acknowledgement on the duplicate copy of the cover letter. This should be preserved as it may serve as evidence of the documents submitted and could be helpful in further proceedings with the tax officer.
In case of a simple notice under Section 143(2), wherein the details required are not specified, it would be advisable to collate the basic information such as the summary of bank statements, major expenses, income details, etc.
It is a myth that tax authorities are out to harass taxpayers to extract additional tax from them. If a person promptly complies with the notice issued by the tax authorities, it creates a good impression in the minds of the tax authorities.
However, non-compliance with the notice or failure to produce the required documents could lead to a penalty of Rs 10,000 in addition to tax and penal interest.
So, be compliant and do not panic.
Mayur Desai is a senior tax professional with Ernst & Young.
