Blog

Scrutiny of Taxpayer by Income Tax Department

Income Tax Scrutiny means calling taxpayers to inquire into Income Tax returns filed during the year if the concerned tax authorities have reason to believe that the expenses and income declared in the returns are dishonest and falsified. The object of scrutiny is to provide an opportunity to hear the correctness of the return through documentary evidence.

Reasons for Issuance of Income Tax Notice

Income Tax Scrutiny Notices are issued to taxpayers when the relevant tax authorities have reason to believe that the expenses and income declared in the return are incorrect and fraudulent. Some of the most common reasons for issuing an Income Tax Notice are listed below:

1. Non-Filing of Tax Returns: The main reason for initiation of notice is if you fail to file ITR for the current financial year or for multiple years or if you fail to declare or willfully conceal any source of income. A particular financial year.

2. Abnormal increase or decrease in income: Any sharp decrease or increase in tax liability within a very short period of time may attract the attention of the Income Tax Department. They can also check the income and expenditure incurred during the year and the amount of income tax return filed.

3. Mismatch between Form 16 and Form 26AS: If there is any mismatch between Form 16 and Form 26AS (TDS Claim) with respect to Income Tax Department details, declaration of lower income or higher loss compared to the given declaration for the previous year may result in Income Tax scrutiny. For a general salaried person, the situation arises when the TDS claimed is more than the TDS actually paid.

4. Mismatch in AIS or TIS with Form 26AS: With the introduction of AIS on 1 November 2021, it is mandatory to consider the information contained in AIS or TIS. AIS contains all the details related to the savings bank's interest, dividends, capital gains and share transactions made during the year.

5. Non-declaration of exempted income: Income from long term capital gains, interest income from bank account or FD up to Rs 10,000 or any gifts from others which fall under exempted category should be clearly mentioned while filing. IT comes back to avoid any future complications.

Types of Income Tax  scrutinies

Notices issued under the Income Tax Act are classified into 4 types:

1. Summary assessment without calling assessments under section 143(1).

• This is a preliminary assessment to check the return of income. At this stage, returns of income are not scrutinized in detail. At this stage, the assessor need not be present in person.

• This notice is given for any of the following reasons

• Any arithmetical error is a wrong claim in the return; If such claim is evident from any information mentioned in the return.

• Loss is claimed if the previous year's return is beyond the due date as specified under section 139(1) of the Income Tax Act,

• disallowance of expenses present in the audit report but not taken into account in calculating the gross income in the return; Or

• Total of any other sources of income appearing in Form 26AS or Form 16A or Form 16 but not included while filing the return.

2. Scrutiny assessment under section 143(3).

• It is a detailed assessment of the return of income which is done to confirm the correctness and genuineness of various claims, deductions, exemptions, etc. made by the taxpayer in the return of income.

• The objective of this assessment is to confirm that the taxpayer has not concealed any income or underpaid tax in any way while preparing the return.

3. Best judgment assessment under section 144

• This is done as per the best judgment of the Assessing Officer based on all the relevant documents collected. This assessment is made in cases where the taxpayer has not complied with the following reasons

• If the taxpayer fails to file, a belated return under section 139(1) or section 139(4) or an amended return under section 139(5) is required within the prescribed date.

• If the taxpayer fails to comply with a notice issued under section 142(1) of the Act or fails to comply with a direction issued under section 142(2A).

• If the taxpayer fails to prepare and submit in writing such accounts or documents as may be required and verified in the prescribed manner as he may require.

4. Assessment of Escape of income under section 147

• If any assessee defaults on any of his income for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income and proceed with any proceedings or recalculate the loss or depreciation. allowance or any other allowance for such assessment year

Procedure for facing Income Tax Scrutiny

(i)If the Assessing Officer deems it necessary to ensure that the taxpayer has not understated the income or underpaid the tax in any manner, he shall issue a notice to the taxpayer requiring the taxpayer to appear in his office for any reasonable evidence. may be relied upon in support of the return.

(ii)The notice should be issued within a period of six months from the end of the financial year in which the return is filed.

 (iii) the taxpayer or his representative (as the case may be) shall appear before the Assessing Officer and produce all relevant evidence, documents etc. as may be required by the Assessing Officer. will present.

(iv) After hearing/verifying such evidence and considering the particulars submitted by the taxpayer and all other evidence collected by him, the Assessing Officer shall, by order in writing, assess and determine the total income or loss of the taxpayer. amount due from him or any refund based on such assessment with interest to him.

Consequences of Non-Compliance with Income Tax Notice

 Failure to comply with the Income Tax Notice in due time may attract a penalty of Rs. 10,000, besides additional taxes. The assessment may also be ordered on the basis of 'best judgement', whereby the assessment may be confirmed and finalized as the Assessing Officer thinks fit. Taxpayers who are habitual defaulters may be targeted for more stringent assessment in the form of surveys or search and seizure.

Regards

Santosh Patil

9769201316

#alliancetaxexperts #incometax #scrutiny #tax #gst #audit #taxconsultant #taxprofessionals #incometaxdepartment #notice