How to handle notice received for Non-Filing of Income Tax Return – Asst Year 2013-14

Income tax department has started sending notices to non-filers for the assessment year 2014-15.

The income tax department has been capturing information on financial transactions /activities relating to you through Non-filers Monitoring System (NMS). This year NMS has identified 58.95 lakhs non-filers (Cycle 4 -2015) with potential tax liabilities for AY 2014-15.

The number of non-filers with potential tax liabilities identified in various NMS cycles is as under:
i) NMS cycle 1 (2013): 12.19 lakh
ii) NMS Cycle 2 (2014): 22.09 lakh
iii) NMS Cycle 3 (2015): 44.07 lakh
iv) NMS Cycle 4 (2015): 58.95 lakh

As a result of 1st and 2nd cycle, 30.68 Lakh returns have been filed and self-assessment tax of Rs. 4,733 crore has been paid by the identified target segment upto 31.03.2015.

Before going through how to handle notice received for non-filing of income tax return, let us understand what is all about “compliance management cell” and how “non-filing monitoring system” works.

Centralised Processing Cell-Compliance Management (CPC-CM)
To identify tax evaders, the Income Tax Department has set up a major data centre Centralised Processing Cell- Compliance Management (CPC-CM) which is in line with existing two such centres Central Processing Centre (CPC), Bangalore and TDS Centralised Processing Cell (CPC-TDS) which will have dedicated workforce, drawn from the department.

The CPC-CM is an ambitious project of the Central Board of Direct Taxes (CBDT) aimed at enabling the I-T department to use technical data to check cases of non-compliance and non- filers of taxes.

The CPC-CM will have the entire database of the Permanent Account Number (PAN), reports generated by financial snoop agencies and the full assortment of letters and notices issued to non-compliant taxpayers, their replies and the final action in the new centre.

Tax officials have issued polite letters to erring taxpayers as and when they obtain information in this regard and hence to streamline this process the CPC will act as an important tool

The department had initiated the business intelligence project in February 2013 to identify PAN holders who have not filed their returns and about whom specific information was available in its databases like the Annual Information Return (AIR), Central Information Branch (CIB) data or TDS/TCS returns.

Below are some of the information’s collected by compliance management cell through AIR, CIB and TDS return for which notice is being served to non-filer.

1. Annual Information Return(AIR)
• AIR-001: Cash deposits aggregating to Rs. 10,00,000/- or more in a year in
any savings account
• AIR-002: Paid Rs. 2,00,000/- or more against credit card bills
• AIR-003: Investment of Rs. 2,00,000 or more in Mutual Fund
• AIR-004: Investment of Rs. 5,00,000/- or more in Bonds or Debenture
• AIR-005: Investment of Rs. 1,00,000/- or more for acquiring shares
• AIR-006: Purchase of Immovable Property valued at Rs. 30,00,000/- or more
• AIR-007: Investment in RBI Bond of Rs. 5,00,000/- or more

2. Central Information Branch (CIB)
• CIB- 94: Sale of Motor Vehicle
• CIB-151: Transfer of immovable property
• CIB-154: Transfer of capital assets where value declared for the purpose of
stamp duty is more than sale value
• CIB-157: Purchase of Immovable property valued at Rs. 5 lakhs or more
• CIB-183: Time deposit of Rs 1,00,000/-
• CIB-185: Purchase of Bank Draft of more than Rs. 50,000/- in cash
• CIB 321: Share Transactions more than Rs. 20,000/-
• CIB-403: Investment in Fixed Deposit/Time Deposit exceeding Rs. 2,00,000/-
• CIB-406: Payment made against Credit Card more than Rs 2,00,000/-
• CIB-410: Cash deposit aggregating of Rs 200000 on a day
• CIB-502: Contract of Rs. 10,00,000/-or more in the Commodities Exchange
• CIB-514: Interest paid by co operative credit Society
• CIB: Payment in connection with foreign travel amount exceeding Rs.
1,00,000/- at one time
• CIB: Payment to Hotel and Restaurants exceeding Rs. 1,00,000/- at one time

3. TDS return
• TDS-94A : TDS Return – Interest other than interest on security (section 194A)
• TDS-92B : TDS Return – Salary to Employees (section 192)
• TDS-195 : TDS Return – Payment to Non-residents (Section 195)
• TDS-196A : TDS Return – Income in repspect of Units of Non-residents (Sectio 196A)
Note : Details o transactions in TDS/TCS can be views in income tax website under menu “view Credit Statement (Form 26AS) in “My Account”

4. Service Tax Return
• EXC-002: Turnover from services reported in Service Tax Return

5. Stock Broker
• STT-01: Purchase of equity share in a recognised stock exchange
• STT-02: Sale of equity Share (settled by actual delivery or transfer) in a
recognised stock exchange
• STT-03: Sale of equity Share (settled by otherwise than by the actual
delivery or transfer) in a recognised stock exchange
• STT-04: Sale of option in securities (derivative) in a recognised stock
exchange
• STT-05: Sale of Futures (derivative) in a recognised stock exchange

Non-filers Monitoring System (NMS):
The Non-filers Monitoring System (NMS) under Compliance Management Cell, New Delhi, was implemented as a pilot project to prioritize action on non-filers with potential tax liabilities. Data analysis was being carried out to identify non-filers about whom specific information was available in AIR, CIB data and TDS/TCS Returns

How are non-fliers Monitoring System Works?
The Non-filers Monitoring System (NMS) was implemented to identify non-filers with potential tax liabilities.

Salient features of this initiative are:
• Data analysis was conducted to identify PAN holders who had not filed Income tax returns despite conducting high-value transaction as reported in AIR, CIB data and TDS/TCS Returns.
• Bulk Data matching exercise was carried out with the Financial Intelligence Unit (FIU) to include non-filers who had conducted high-value cash transactions.
• Rule based algorithms were applied to classify the cases as P1, P2, P3, P4 and P5 priority ratings (P1 being the highest priority) for graded monitoring.
• Compliance Management Cell (CMC) sends letters to PAN holders communicating the information summary and seeking to know the submission details of Income tax return.
• Compliance module on the e-filing portal and information related to non-filers is made available to the specific PAN holder and capturing responses from the non-filers. SMS and email are also being sent to the target segment asking them to access e-filing portal. The PAN holder is able to provide details electronically and keep a printout of the submitted response for record purposes.
• Online monitoring system will ensure further follow-up action and track return filing and tax payment of the target segment.
• An online monitoring system will also ensure that information related to non-filers is effectively used by the field formation.

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