A major part of our obligation to the taxman can be considered completed when we file our returns and pay all taxes due at that point in time. However, even after that, one could receive notices/ intimations from the I-T department during the year, which may have to be acted upon. Here we take a look at key notices/ intimations and what they mean for taxpayers.

Accuracy check

Once you submit your Income Tax returns (ITRs), the I-T department conducts a preliminary computer-based assessment during which your ITR will be checked for accuracy and a final tax liability will be arrived at, after adjusting for errors/ fraudulent claims. The intimation under section 143(1) is basically the department communicating the outcome of this assessment. It is mandatory for the department to serve this intimation within December 31 of the financial year (FY) following the FY in which the ITR was filed. The outcome of this assessment can be of three kinds.

One, your ITR is accurate and matches with the taxman’s assessment. Refund claimed, if any, will be acknowledged in the intimation and will be credited to your account in a few days. Two, your ITR is not accurate, and the adjustments made by the taxman result in a tax refund. Like above, the tax refund will be credited to your account. Three, the adjustments made to your ITR by the taxman in his assessment, results in additional tax liability. The adjustments may be with respect to arithmetical errors, inconsistent entries in the ITR, deductions exceeding permissible limits, absence of evidence that needs to be furnished to back the return, disallowance of expenses which are reported as disallowed in the tax audit report but not reported so in the ITR and disallowance of certain deductions and previous years’ losses which are claimed in a return that is filed after the prescribed time limit (the applicable due date for filing ITR).

While you need not respond to the intimation in the first two cases, you’ll need to in the third case, within 30 days. If you agree with the taxman’s assessment, you’ll need to pay the additional tax demanded. If you don’t, you can file an appeal. However, if you don’t respond, the tax liability as per the taxman’s assessment would be treated as the final tax liability and this will be used for calculating penal interest.

Scrutiny assessment

If you receive a notice under section 143(2), it means that the department wants to scrutinise your returns and is in need of additional information from you to make an assessment. The notice can either direct you to appear before your assessing officer (AO) or to submit relevant documents online. The deadline to carry this out will be mentioned in the notice itself.

At the end of the proceedings, the AO will communicate his/her assessment, after considering the information provided by you. There may be a demand for additional taxes if as per their assessment, you have underreported income. There may not be such a demand if you provide satisfactory evidence to back your return.

Failure to act as directed can invite penalties and lead to AO making an assessment with whatever evidence they have on your income (called best judgment assessment). The department has time until the end of three months from the end of the FY in which the return in question was filed.

Section 148

If the department serves a notice under section 148, it means that it has evidence that suggests that certain income of the assessee in relation to a particular assessment year (AY) has escaped assessment and that it wants to conduct an assessment of the same. However, the AO cannot directly serve a notice under this section unless he/she serves a show-cause notice (under section 148A), which directs the assessee to answer why a notice under section 148 should not be issued. The assessee must reply with relevant documents within the deadline mentioned therein. If the reply is not to the satisfaction of the AO, then the AO will proceed to serve the notice under section 148.

The notice under section 148 will direct the assessee to furnish a fresh return for the AY in question within the time specified. Subsequently, the assessment proceedings will take place until the AO passes an order determining the tax payable.

In case of income escaping assessment greater than or equal to ₹50 lakh, the taxman has time until the end of five years and three months from the end of the relevant AY to serve a notice under section 148. For the rest of the cases, it is until the end of three years and three months from the end of the relevant AY.

Demand notice

If any order is passed and there is an outstanding tax liability, then a notice under section 156 is issued to the taxpayer, demanding payment of the same. For tax liabilities determined in an intimation under section 143(1), the intimation itself serves as a notice under this section.

General tips

First, there is absolutely no reason to panic if at all you receive a notice from the taxman. In many cases, it would just be the case of an intimation that your return is all right and there is no additional tax payable. Even in the case of notice under section 143(2), it is just the case of the AO trying to get on the same page as you – as to the basis on which you filed your ITR.

It is always better to seek expert advice and that will make things easy in case you disagree with your AO’s assessment and want to appeal against it. Today, there are also online tax services to facilitate this.

Maintenance of relevant records is paramount, as it can mitigate complications. The income-tax law mandates maintenance of records of any AY until the end of six years from that AY.

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