Income tax authorities issue notices to taxpayers for various reasons, including discrepancies in tax filings, failure to report income, or reassessment of tax returns. Understanding the nature and implications of these notices is crucial to avoid penalties and legal consequences.

Understanding Income Tax Notices

Income tax notices are official communications from the tax department, indicating issues or actions required regarding tax filings. These notices can range from simple clarifications to serious legal actions. Prompt response and compliance are essential to avoid further complications.

Common Reasons for Receiving Income Tax Notices

• Mismatched Income and Tax Returns – Discrepancies between reported income and tax department records.
• Failure to File Returns – Non-filing of tax returns despite being eligible.
• Excessive Deductions or Claims – Claiming deductions beyond permissible limits.
• Scrutiny or Random Checks – Selection of tax returns for detailed assessment.
• Reassessment of Past Tax Filings – Re-examination of previously filed returns due to errors or omitted income.

Types of Income Tax Notices and Their Implications

Notice Under Section 142(1) – Inquiry Before Assessment

This notice is issued when the Income Tax Department requires additional information or documents before assessing the tax return.

Implications:

• The taxpayer must provide the requested details within the specified time.
• Non-compliance may result in penalties or best judgment assessment by the tax authorities.

Notice Under Section 143(1) – Intimation Notice

This is an intimation, not a legal notice, sent after preliminary tax return assessment. It informs the taxpayer about discrepancies, refunds, or additional tax payable.

Implications:

• If no discrepancy is found, no action is required.
• If additional tax is payable, it must be paid within the due date.
• Failure to pay may result in penalties and interest charges.

Notice Under Section 143(2) – Scrutiny Notice

Issued when the tax department wants to conduct a detailed review of the filed tax return. This notice is usually sent within six months of filing the return.

Implications:

• The taxpayer must provide supporting documents to justify their income, deductions, and exemptions.
• If discrepancies are found, additional tax liability may be imposed.

Notice Under Section 148 – Income Escapement Notice

Issued when the tax authorities believe that the taxpayer has not fully disclosed their income, resulting in underpayment of taxes.

Implications:

• The taxpayer must respond with necessary explanations and documents.
• If undeclared income is found, additional tax, interest, and penalties may apply.

Notice Under Section 245 – Adjustment of Refund Against Tax Due

Issued when the tax department adjusts a tax refund against outstanding dues from previous assessments.

Implications:

• The taxpayer must verify and respond to the notice if the adjustment is incorrect.
• If the outstanding tax is valid, no further action is needed apart from compliance.

Notice Under Section 271B – Penalty for Not Auditing Accounts

Issued when businesses or professionals fail to get their accounts audited despite exceeding turnover limits specified under tax laws.

Implications:

• A penalty of 0.5% of total sales, turnover, or gross receipts, subject to a maximum of ₹1,50,000, may be imposed.
• Businesses must respond with justifications or comply by auditing accounts immediately.

Notice Under Section 156 – Demand Notice

This notice demands immediate tax payment due to unpaid tax, interest, or penalties.

Implications:

• The taxpayer must pay the demanded amount within 30 days of receiving the notice.
• Failure to pay may lead to legal action or property attachment.

Notice Under Section 139(9) – Defective Return Notice

Issued when tax returns are found incomplete or incorrect.

Implications:

• The taxpayer must correct and refile the return within 15 days of receiving the notice.
• If ignored, the tax return may be treated as invalid, resulting in penalties.

How ASK ASSOCIATES Helps

ASK ASSOCIATES simplifies the process of handling income tax notices by offering:

✔ Expert Notice Review and Consultation – Our tax professionals analyze the notice, determine its impact, and suggest the best course of action.
✔ Timely Responses and Documentation Support – We assist in drafting replies and gathering required documents to ensure compliance.
✔ Legal Representation for Scrutiny and Appeals – Our experts represent businesses in front of tax authorities, minimizing the risk of penalties.
✔ Preventive Tax Planning – We help businesses file accurate returns to avoid future tax notices and legal hassles.

With ASK ASSOCIATES, businesses can confidently manage tax notices, ensuring compliance and peace of mind.