Income Tax Notice under Section 133(6)

1. What is Section 133(6) of the Income Tax Act?

Section 133(6) of the Income Tax Act, 1961, allow the tax authorities the power to issue notices to individuals or entities, requiring them to furnish certain information or documents in relation to their financial dealings.

These documents may include financial statements, records, or details of transactions that may be relevant to the assessment of tax liabilities or the verification of income, expenditures, and deductions in relation to any particular financial year.

The main objective of this provision is to enable the Income Tax Department to gather information which is not readily available through regular tax filings, ensuring that all taxable entities follow the applicable tax laws and regulations. This is particularly useful for conducting investigations, audits, and inquiries to check possible tax evasion or discrepancies in tax returns filed by the taxpayers.

Important Features of Section 133(6)

1. Information Collecting Tool: Under the provision of section 133(6) of the Act, the tax authorities can collect any information from individuals, companies, firms, or even government agencies to verify the tax liabilities or to assess the tax evasion if any.
2. Wide Scope: The notice can request a taxpayer to provide all the relevant documents such as income statements, balance sheets, transactional data, proof of tax payments, and more.
3. Time bound Nature of Notice: When a notice is issued under this section, the recipient is legally bound to provide the required information within the stipulated time frame. Failure to do so could result in penalty of Rs. 500/ day till the default continues and the non-compliance may also attract legal action, or a suspension of tax benefits.
4. Tax Evasion Monitoring & its prevention: Section 133(6) allows tax authorities to cross-check information submitted by taxpayers in their tax returns. If any discrepancy in income tax returns are found, it can result into audits or investigations for tax evasion or underreporting.
5. Gathering of Important Information: Section 133(6) does not involve physical inspections or search like income tax raids. It simply involves requesting documents or data, making it a non-intrusive method for gathering essential information.
6. Mandatory Compliances: The section also aids taxpayers by allowing tax authorities to request clarifications or additional information to clear doubts regarding income tax returns or payments which is a mandatory compliance if notice u/s 133(6) is issued. 

2. When can a Notice Be Issued Under Section 133(6) of the Act by tax department?

A notice under Section 133(6) may be issued under various circumstances. The most common reasons for issuing such a notice are as follows:

1. Verification of Income and Expenses

Taxpayers are required to disclose accurate and true income and expenses when filing their tax returns. However, discrepancies in reported figures or suspicion of underreporting of income can invite issuance of notice u/s 133(6) by the tax authorities. Section 133(6) helps in verifying the accuracy of these figures by requesting additional documents and information.

2. Investigation into Suspicious Transactions

Large or unusual transactions, particularly those involving significant sums of money or assets, may attract the attention of the tax authorities. If there are concerns that these transactions may be used to evade taxes, an income tax notice under Section 133(6) can be issued to gather relevant information. This could involve scrutinizing the source of funds, the nature of the transaction, or the parties involved.

3. Cross-Checking Third-Party Data

The Income Tax Department often receives third-party information, such as bank statements, reports from financial institutions, or data from external auditors. Section 133(6) allows the department to cross-check this data with the information provided in tax returns, ensuring that there are no discrepancies. If the reported income or transactions do not match the third-party data, further scrutiny may be required u/s 143(3) or 147 of the Income Tax Act.

4. Tax Evasion and Fraud Investigation

Section 133(6) is usually invoked in cases where tax evasion is suspected. This could involve entities underreporting their income, falsifying expense claims, or diverting taxable funds. Notice is used to collect the necessary information so that the authorities can determine if there is sufficient evidence of fraud or evasion.

5. Verification of Deduction Claims

Taxpayers claim various deductions under sections like 80C, 80D, 80G, etc., while filing their tax returns but these claims are often scrutinized by tax authorities to verify their legitimacy. A notice under Section 133(6) can be issued to request supporting documents such as receipts, proofs of payment in relation to donation made or investment made or any related evidence which can substantiate that deductions claimed are accurate. 

3. How to proceed further once a notice u/s 133(6) is Issued?

Once a notice under Section 133(6) is issued, the recipient is required to take the following steps:

1. Acknowledgement of the Notice: The first step upon receiving the notice is acknowledging it. The taxpayer must review the notice carefully and ensure that they understand the information and documents being requested.
2. Gathering the Required Information: The recipient of the notice must collect all the requested documents and information. These may include financial records, invoices, bank statements, tax receipts, or any other relevant data that can help clarify the matter in question.
3. Respond Promptly: The recipient is required to respond within the stipulated time frame majorly within 7-15 days from the date of issue of the notice. Even, if the time frame is not mentioned, it is crucial to comply as soon as possible.
4. Provide Complete Information: While submitting the requested documents, taxpayers must ensure that the information is complete and accurate. In case of providing incomplete or misleading details could lead to severe legal consequences, including penalties, fines, or prosecution.
5. Follow Up if Necessary: In certain cases, the income tax authorities may request additional information or clarification after reviewing the initial response. Taxpayers must be ready to cooperate and provide any further documents if required.
6. Consequences of Non-Compliance: Failure to respond to a notice under Section 133(6) can result in penalties, legal action, or even prosecution under other sections of the Income Tax Act. Furthermore, non-compliance may lead to the rejection of claims, denial of deductions, and the initiation of further investigations. 

4. How to responding to a notice under Section 133(6)? 

Responding to a notice involves a systematic process:

1. Review the Notice: Carefully review the notice to understand what information is being requested. If there is any confusion regarding the notice, please seek professional advice from team taxcellent.
2. Consult an Expert: If you are unsure of the documents or information required, it’s advisable to consult a tax expert like taxcellent who can guide you through the process.
3. Prepare the Documents: Gather all the necessary documents, such as financial statements, tax records, bank statements, and any other requested materials. Ensure that the documents are accurate and up-to-date.
4. Submit Information Promptly: Respond to the notice within the prescribed time limit. It is always best to submit the information as early as possible to avoid any delays or penalties.

Prepared by: Team “Taxcellent”

For any further clarification on how to respond to notice issued u/s 133(6) please make use of our services. Feel free to reach out to us at +91-8882323267. We look forward to assisting you!

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