1. Show Cause Notice
Principles of natural justice require issue of show cause notice before levy of tax/penalty. All taxation Acts mandate issue of show cause notice provide an opportunity of personal hearing before orders are passed. Orders not preceded by show cause notices are bound to struck down by the courts.
2. Intimation Under Section 143(1)
It is electronically processed by the Central Processing Centre (CPC). The income is computed after making the following adjustments to the total income in the return:
• Any arithmetical error in the return;
• An incorrect claim (provided the incorrect claim is apparent from the information filed);
• Disallowance of incorrectly claimed loss or expenditure;
• Any income which has not been included in the return
Other things to be complied/consider
In case there is a tax demand, then the intimation must be issued within 9 months from the end of the year in which the return has been filed. For example, if you have filed your returns for Assessment Year (AY) 2020-21 on 27 July, 2020, then an intimation can be issued anytime on or before 31 December 2021. Processing of return under this section has been made mandatory from AY 2017-18 even if a scrutiny notice is issued.
Notices may also result in
Upon successful processing of the return an intimation under section 143(1) is issued by the CPC under any of the three instances:
• There is tax liability to be paid;
• A refund has been determined;
• There is no refund or demand, but there is an increase or reduction in the amount of loss.
3. Notice Under Section 142(1)
A notice under section 142(1) can be issued under two circumstances:
• If you have filed your return, but the assessing officer requires additional information and documents; or
• If you have not filed your return, but the assessing officer wants you to file it
The information is called for, to enable the officer to make a fair assessment. Being non-responsive to this notice has consequences,
• A penalty of Rs 10,000 can be levied for each such failure
• Prosecution which may extend up to 1 year
• Both of the above
4. Notice Under Section 143(2)
It is pertinent to note that the section under which it will be scrutinized is different from the one in which the notice has been issued. Via detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:
• Understated your income;
• Claimed excessive loss; or
• Paid lesser taxes
Here notice under section 143(2) can be issued to assessee within 6 months after completion of the AY. Thetaxpayer is required to respond to the questionnaire issued along with the documents required by the income tax department.
5. Notice Under Section 148
An assessing officer may have a reason to believe that you have not disclosed your income correctly and therefore, you have paid lower taxes. Alternatively, you may not have filed your return at all, even if you must have filed it as per law. This is termed as income escaping assessment.
As per amendment in the Finance Act 2021, with effect from 1st April 2021, the time limit up to which the assessing officer can re-open the assessment of the taxpayer is as follows;
• Up to three years from the end of the relevant assessment year in normal cases and
• Beyond three years but not more than ten years from the end of the relevant assessment year, if the assessing officer has material evidence that income of Rs. 50 lakhs or more for a financial year has escaped assessment.
Assessing officer should serve a notice to the assesses asking him to furnish his return of income.
6. Notice Under Section 245
If the assessing officer has reason to believe that tax has not been paid for the previous years and he wants to set off the current year refund against that demand, a notice under Section 245 can be issued. However, the adjustment of demand and refund could be done only if you have been provided proper notice and an opportunity to be heard. The timeline to respond to the notice is 30 days from the day of receipt of the notice.If you do not respond within the aforesaid timeline, the assessing officer can consider this as consent and proceed with the assessment.
7. Order u/s 156
Income tax liability is determined by the Assessing Officer first. A tax payer aggrieved by various actions of Assessing If any demand is raised by the Assessing Officer in the assessment, what’s the next step for Assessee.
Aggrieved tax payer can file appeal before the Commissioner (Appeals) having, jurisdiction over the tax payer. Designation of the Commissioner (Appeals), with whom appeal is to be filed is also mentioned in the notice of demand issued by the Assessing Officer under section 156 of Income Tax Act.
• Appeal to Commissioner of Income-tax (Appeals)
• Appeal to Income-tax Appellate Tribunal
• Appeal to High Court
• Appeal to Supreme Court
Tax payer can file appeal before the Income Tax Appellate Tribunal against the following orders
• Order by Commissioner (Appeals) u/s 250/154/271/ 271A/272A;
• Order by Assessing Officer u/s 158BC(c) in respect of search action initiated during 30.6.1995 to 1.1.1997;
• Order by Assessing Officer u/ s 115 VZC excluding the tax payer from tonnage tax scheme;
• Order by Commissioner u/s 12AA on registration application by a charitable or religious trust;
• Order by the Commissioner u/s 80G(5)(vi) regarding approval of a charitable trust for donations made after 31.3.92;
• Order by Commissioner u/s 263 revising Assessing Officer’s order considered prejudicial to the interest of revenue;
• Order by Commissioner u/s 154 to rectify an order u/s 263;
• Penalty order passed by Commissioner’s u/s 271 or section 272A;
• Penalty order passed by Chief Commissioner/ Director General/Director u/s 272A;
• Order passed by Assessing Officer u/s 143(3)/147 in pursuance of direction of Dispute
After the hearing is concluded, Commissioner (Appeals) passes order in writing, disposing of the appeal and stating the decision on each ground of appeal with reasons. In case of assessment and penalty, Commissioner (Appeals) may confirm, reduce or enhance it. Before enhancing any assessment or penalty, Commissioner of Income-tax (Appeals) has to provide reasonable opportunity to the tax payer for showing cause against such enhancement. While disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which order appealed against was passed, even if such matter was not raised by the tax payer.