Income Tax Notices issued by Tax Department | Reasons for receipt of Tax Notice

Reasons for Getting Notice from Income Tax Department

Income Tax Notices

A taxpayer is likely to get Income Tax Notices from the taxation authorities for many different reasons. These can include reasons such as errors in tax calculations, claiming excessive losses and depreciations, not filing the Income Tax Return (ITR) on time or even reporting the incorrect income in the returns. In this article we have discussed 10 most common reasons for which a taxpayer can receive Income Tax Notices from the department and how to file reply to Income Tax Notices. These reasons are as follows-

  1. Delay in filing the ITR: When a taxpayer has not filed their returns by the given deadline, they are likely to receive Income Tax Notices. Such notices are sent by the department before the end date of the assessment year for which the taxpayer has not filed the returns yet.
  2. For non-disclosure of income: The information about assesses income can be obtained by the taxation department from various sources. These sources can be banks, tenants, employers, mutual exchange of information between countries, companies etc. if the taxpayer has not disclosed the actual amount of income incurred by them in the ITR, they can receive a notice issued under Section 139(9) or Section 143(1).
  3. In case of transactions of high-value: A taxpayer is likely to get Income Tax Notices in case they have done transactions of higher values. The Income Tax Department usually identifies the taxpayers that have not filed returns even after transacting high-values. They usually ask the source of such incomes and funds which have been transacted in the returns.
  4. Misreporting Long-Term Capital Gains (LTCG) from equity: A taxpayer is required to report their LTCGs that they have realized on the listed equities or the mutual funds related to equities while filing the Income Tax Return.
  5. Setting off refunds against the remaining payable tax: If a taxpayer has made an application for tax refunds even when some previous taxes are still pending on them, then they can receive a notice from the Assessing Officer. The AO has to provide a written intimation to the taxpayer in this case.
  6. Non-declaration of investments made in the name of spouse: Sometimes, the taxpayers are likely to make investments on the name of their spouse, which they do not show in their returns. But the case is that any income, obtained from these investments, are liable to taxes. Therefore, it becomes utterly important for the taxpayers to show such income in the ITR, in order to avoid Income Tax Notices from the department.
  7. Filing a defective return: A taxpayer receives a defective return notice from the department in scenarios where they have filed the returns in the wrong form. Such Income Tax Notices for defective returns are issued under Section 139(9) of the Income Tax Act, 1961.
  8. Evasion of tax in previous years: The Income Tax Department has been given power to assess and reassess the ITRs filed for previous financial years by the Income Tax Act, 1961. As per the Section 147, the department can issue Income Tax Notices to the taxpayers.
  9. When a person’s return is picked for scrutiny: A person can be assessed by the taxation authority anytime for further verifications, assessment and litigation. The department randomly selects cases for scrutiny in order to enforce the tax related compliances. In such cases Income Tax Notices under Section 143(2) are issued by the Assessing Officer for Scrutiny Assessment.
  10. When TDS claimed is not matching with Form 26AS: The taxpayer must file the Tax Deducted at Sources in the ITR similar to the details they have filed in Form 26AS and Form 16/ 16A. Any mismatch in both of them can lead to receipt of Income Tax Notices issued under Section 143(1).

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.