Step by Step procedure to handle notice received u/s 245 of Income Tax

Income tax department started sending reminder notice u/s 245 of Income tax Act 1961. In our other article “Did you receive communication on Arrear Demand Notice u/s 245 from Income Tax Department?” We have explained why CPC has started sending email notice u/s 245″.

In this article I will try to explain step by step procedure to handle notice received u/s 245 of income tax act.

Step 1: Ascertain nature of Outstanding Demand:
The details of the outstanding demand can be known by logging into http://www.incometaxindiaefiling.gov.in with your user id and password -> Go to ‘e-file’ tab-> Response to outstanding demand.

Step 2: Check who uploaded demand:
In the section “Response to outstanding demand” Check who uploaded demand which is appearing under “uploaded by”. Demand amount either uploaded by Central Processing Centre (CPC) or jurisdictional Assessing Officer (AO). First of all you need to understand how department determined your tax liability before you proceed anything further.

Step 3: File rectification application :
If Demand is uploaded by CPC follow below steps
• Search your email box for intimation received u/s 143(1) from CPC subject line looks something like this “Income Tax Return Status for PAN AHUxxxxx1F A.Y. :2009-10
• If you don’t find intimation, you can make request for intimation for the assessment year for which demand exists. For online request Log Into income tax ePortal, go to the section My Account > Request for intimation u/s 143(1)/154.
• The intimation u/s 143(1) will have two column, (a) the tax determined as per the return filed by you (b) the tax determined by the department. Compare two column to ascertain the reason for demand (Read more at : Intimation u/s 143(1) of Income Tax Act)
• If you don’t agree with the tax computation determined by CPC, file online rectification (Read : steps involved in filing online rectification application)
If Demand is uploaded by AO follow below steps
• Contact your Assessing Officer. To know the details of your Jurisdictional AO, please log on to https://incometaxindiaefiling.gov.in and click on “Know Your Jurisdictional AO” under “SERVICES” menu. The AO is a person who is having jurisdiction to process your income tax return.
• If place of your Assessing officer is different from the city where you are presently or permanently residing, you may have to request for PAN transfer.
• Visit concerned officer and find out the reason for demand.
• If you are not agreeing with the demand, file application for rectification u/s 154 of income tax Act along with documentary evidence in support of your claim.

Step 4: Submit Online Response:
After submitting application for rectification to CPC/AO, you need to submit online response. If you fail to respond to the demand within 30 days from the date of receipt of notice u/s 245, department will adjust demand with the refund due to you.
• You can submit your response online for the outstanding demands by logging into http://www.incometaxindiaefiling.gov.in with your user id and password.
• Go to ‘e-file’ tab-> Response to outstanding demand-> Submit response -> select the appropriate category for disagreement.
• After selecting the appropriate category provide the required details and submit. This will be reviewed by the Department.
• To know the further details/ Procedure regarding filing of online response, Read “Check Outstanding tax Demand and submit Online Response”

Step 5 (optional) : File Online Grievances :
If you are not satisfied with processing of Original/rectification return by Central Processing Center (CPC) you have option to file online grievances. The facility is provided to the assessee to submit Grievances relating to the CPC in the e-Filing portal. After Login, select Helpdesk –> Submit Grievance–> CPC then from the drop down select Assessment Year, category and sub category of the grievance. (Read more at: Submit online grievance relating to CPC)

Step 6 (Optional): Income Tax Ombudsman:
if you are not satisfied with the action taken by the CPC/AO, you have another option to file compliant to income tax ombudsman.

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How to deal with notice received for Non-Filing of Income Tax Return ?

If you get a notice for non-filing of income tax return from compliance management cell, first you need to understand why you have received notice. After logging into your account on the e-filing portal at http://incometaxindiaefiling.gov.in, visit compliance menu where you will be able to view the details of the assessment years for which the return has not been filed and for which the third party information has been received by the ITD.

The taxpayer can choose one of the following response options:
i. ITR has been filed
ii. ITR has not been filed

If the taxpayer chooses the option that ITR has been filed then it need to provide the mode of filing the ITR (paper or e-file), date of filing the ITR and the acknowledgement number. In case the ITR is e-filed, the status will be automatically updated.

If the taxpayer chooses the option that it has not filed the ITR then it needs to choose one of the following options:
i. Return under preparation
ii. Business has been closed
iii. No taxable income
iv. Others

In case if the taxpayer chooses the option “others” then he has to mandatorily submit the remarks

If you are not registered with the e-filing portal, use the “registered yourself” link to register your PAN. The response has to be submitted electronically by clicking Compliance link after logging into the e-filing portal.

In case you have already filed your return:
If income tax return already filed update the details such as Mode of Filing (E-Filing or Paper Filing), Date of filing return, Acknowledgment Number and Circle or Ward and City.

Submit your response in compliance module if Income Tax Return has already filed
In case you have not filed return for particular assessment year:
Please update the details such as Return under preparation or Business has been closed or No taxable Income or Others. Submit your response to compliance module if return has not been filed. Further under the tab “Related Information Summary” you are required to chose of the following correct options

i. Self-Investment/ expenditure is out of exempt income: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of income exempt from tax under Income-tax Act, 1961.

ii. Self-Investment/ expenditure is out of accumulated savings: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of accumulated savings.

iii. Self-Investment/ expenditure is out of gifts/ loans from others: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of gifts/loans from others.

iv. Self-Investment/ expenditure is out of foreign income: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of foreign income.

v. Self-Income from transaction is exempt: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the same is exempt under Income-tax Act, 1961.

vi. Self-Income from transaction is below taxable limit: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the taxable income there from is below taxable limit under Income-tax Act, 1961.

vii. Self-Income from transaction relate to different AY: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the same is taxable in a different year as per the provisions of the Income-tax Act, 1961.

viii. Self-Not Known: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and there is any other explanation.

ix. Other PAN: This option is to be selected if the third party information relate to another taxpayer. In this case, the PAN of such other taxpayer is to be mandatorily provided.

x. Not Known: This option is to be selected if the taxpayer has no information about the third party information.

xi. I need more information: This option is to be selected if the taxpayer knows about the third party information but needs more information to submit response
Make sure that you reply correctly, or there are chances of department asking for further information.

Submit compliance form appearing in related information summery
It is advisable to take help of tax professionals or chartered accountant before submitting information as incorrect submission will lead your case selected for scrutiny for further investigation.

It is also advisable to compute tax liability if due, pay tax and file income tax return before submitting your response. If you chose option no taxable income without explaining proper source of income for high-value transaction, department may select your case for scrutiny and send you notice u/s 148 of income Tax act for further investigation.

I don’t have taxable in income in India, but I got a notice for non-Filing of Income Tax Return from compliance Management cell.

If a person makes huge or high-value transactions there are chances of getting a notice for non-Filing of Income Tax Return from compliance Management cell. It doesn’t necessarily mean that income tax department is looking at you as a tax evader. You may be rich agriculturist deposited cash more than 10.00 Lakh into your savings bank account or you may be NRI having invested huge money in Land and end up in getting a notice for non-filing of return.

Don’t worry, if there is no taxable income than either you are liable to pay tax nor file income tax return. You are only requested to furnish your response in the compliance module on the filing portal at http://incometaxindiaefiling.gov.in. If you are not registered with the e-filing portal, use the “registered yourself link to register. The response has to be submitted electronically by clicking Compliance link after logging into e-filing portal.

What happens if no response is electronically submitted within in the time limit?
If you don’t submit a response within the prescribe limit CPC-CM may send information available with them to concerned assessing officer. With the available information, the assessing officer if he has reason to believe that any income chargeable to tax has escaped assessment, then he may take up your case for scrutiny and assess tax liability subject to other provisions of the income tax. In such case, you may end up in paying tax liability along with interest and penalty.

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.

Procedure to handle notice received u/s 245 of Income Tax

Income tax department started sending reminder notice u/s 245 of Income tax Act 1961.
In this article step by step procedure to handle notice received u/s 245 of income tax act is explained

Step 1: Ascertain nature of Outstanding Demand:
The details of the outstanding demand can be known by logging into http://www.incometaxindiaefiling.gov.in with your user id and password -> Go to ‘e-file’ tab-> Response to outstanding demand.

Step 2: Check who uploaded demand:
In the section “Response to outstanding demand” Check who uploaded demand which is appearing under “uploaded by”. Demand amount either uploaded by Central Processing Centre (CPC) or jurisdictional Assessing Officer (AO). First of all you need to understand how department determined your tax liability before you proceed anything further.

Step 3: File rectification application :
If Demand is uploaded by CPC follow below steps
• Search your email box for intimation received u/s 143(1) from CPC subject line looks something like this “Income Tax Return Status for PAN AHUxxxxx1F A.Y. :2009-10
• If you don’t find intimation, you can make request for intimation for the assessment year for which demand exists. For online request Log Into income tax ePortal, go to the section My Account > Request for intimation u/s 143(1)/154.
• The intimation u/s 143(1) will have two column, (a) the tax determined as per the return filed by you (b) the tax determined by the department. Compare two column to ascertain the reason for demand (Read more at : Intimation u/s 143(1) of Income Tax Act)
• If you don’t agree with the tax computation determined by CPC, file online rectification (Read : steps involved in filing online rectification application)
If Demand is uploaded by AO follow below steps
• Contact your Assessing Officer. To know the details of your Jurisdictional AO, please log on to https://incometaxindiaefiling.gov.in and click on “Know Your Jurisdictional AO” under “SERVICES” menu. The AO is a person who is having jurisdiction to process your income tax return.
• If place of your Assessing officer is different from the city where you are presently or permanently residing, you may have to request for PAN transfer.
• Visit concerned officer and find out the reason for demand.
• If you are not agreeing with the demand, file application for rectification u/s 154 of income tax Act along with documentary evidence in support of your claim.

Step 4: Submit Online Response:
After submitting application for rectification to CPC/AO, you need to submit online response. If you fail to respond to the demand within 30 days from the date of receipt of notice u/s 245, department will adjust demand with the refund due to you.
• You can submit your response online for the outstanding demands by logging into http://www.incometaxindiaefiling.gov.in with your user id and password.
• Go to ‘e-file’ tab-> Response to outstanding demand-> Submit response -> select the appropriate category for disagreement.
• After selecting the appropriate category provide the required details and submit. This will be reviewed by the Department.
• To know the further details/ Procedure regarding filing of online response, Read “Check Outstanding tax Demand and submit Online Response”

Step 5
If you are not satisfied with processing of Original/rectification return by Central Processing Center (CPC) you have option to file online grievances. The facility is provided to the assessee to submit Grievances relating to the CPC in the e-Filing portal. After Login, select Helpdesk –> Submit Grievance–> CPC then from the drop down select Assessment Year, category and sub category of the grievance. (Read more at: Submit online grievance relating to CPC)

Step 6 (Optional): Income Tax Ombudsman:
if you are not satisfied with the action taken by the CPC/AO, you have another option to file compliant to income tax ombudsman. (Read more at: Do you know about Income Tax Ombudsman?)

Income Tax Department to issue 7 lakh letters seeking Information in respect of High Value Transactions

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi,
21st July, 2016.

Sub : Income Tax Department to issue 7 lakh letters seeking Information in respect of High Value Transactions Under the Annual Information Returns (AIR),

Various types of high-value transactions were being reported to the Income Tax Department. These include reporting of cash deposits of Rs.10,00,000 or more in a saving bank account, sale/purchase of immovable property valued at Rs. 30,00,000 or more, etc.

Many of these transactions do not have PAN linked to it. The Department has details of about 90 lakh such transactions for the period 2009-10 to 2016-17.

The Income Tax Department has with the help of in-house computer techniques, grouped such non-PAN transactions and identified 7 lakh high-risk clusters having around 14 lakh non-PAN transactions which are being scrutinized by the Income Tax Department closely.

The Department will be issuing letters to the parties of these transactions requesting them to provide their PAN number against these transactions. For the convenience of the parties to whom these letters are addressed, a new functionality on e-filing portal has been developed wherein they can own up transactions and provide structured response electronically.

The parties can log-in to their e-filing website and by quoting a Unique Transaction Sequence Number provided in the letter sent to them, can link their transaction with their PAN easily. They will also be able to give a response to this letter electronically by choosing the option of either owning up the transaction or denying the transaction as their own.

The responses received from such parties online will be examined by the Department. The Department will initiate further necessary action in those cases where no replies are received.

The members of public who receive such letters are requested to kindly cooperate in the matter. They may use the Departmental helpline to ask questions, as far as possible, instead of making direct contact with any officials of the Income Tax Department.

Members of public are advised not to entertain any claims from unscrupulous elements who may offer their help in complying with such communication by falsely representing themselves to be the agents of Income Tax department in the matter.

(Meenakshi J Goswami)
Commissioner of Income Tax
(Media and Technical Policy)
Official Spokesperson, CBDT

Income tax Scrutiny notices

Income tax notice under Section 143 (2) or Scrutiny Notice

When is the notice served:
If you get notice under section 143(2) it means your return has been selected for detailed scrutiny by your Assessing Officer.

Time limit for the notice to be served :
This notice can be served Up to 6 months after completion of relevant assessment year.

How to reply to notice :
The notice might ask you to produce documents in support of deductions, exemptions, allowances, reliefs other claim of loss you have made and provide proof of all sources of income. So collate information like bank statements, major expenses, income and loan details,Section 143(2) enables the Assessing Officer (AO) to make a regular assessment after a detailed inquiry.

Income tax notice under Section 142 (1)

When is the notice served:
This notice is sent when income tax return has not been filed. You may be asked to produce documents in support of returns being filed for the inquiry.
Time limit for the notice to be served: There is No time bar during which the notice needs to be sent.

How to reply to notice :
Typically, a notice under Section 142(1) lists the details required by the tax authorities and the date by which they should be submitted. For instance, the tax authorities might seek details of a major repair expenditure or a stay overseas while on deputation abroad. The notice might require you to appear before the tax authorities either personally or through an authorised representative (such as a tax consultant), to provide clarifications or explanations. File your returns within time specified in the notice. If any tax money is due you are expected to clear it.

Income tax notice under Section 148

When is the notice served:
The notice is issued under section 148 If the Assessing Officer believes some income might have escaped assessment asking you to file returns for the relevant assessment year. Alternately he might ask to file returns for the purpose of reassessment.

Time limit for the notice to be served :
In case income that has escaped assessment is Rs 1 lakh or less notice under section can be sent within 4 years of the end of the relevant assessment year. In case income escaped is more than Rs 1 lakh then such notice can be sent within 6 years.

How to reply to notice :
File returns for the relevant assessment year within time mentioned in the notice and submit documents as may be required. In case it is a reassessment, you might want to take help of a tax expert.

Income tax notice under Section 143(1) – Letter of Intimation

When is the notice served: Three types of notices can be sent under section 143 (1)
Intimation where the notice is to be simply considered as final assessment of your returns since the CPC or assessing officer has found the return filed by you to be matching with his computation under section 143 (1).

A refund notice ,where Income tax refunds you for extra tax paid, then you can look forward to the cheque.

Demand Notice where the officer’s computation shows shortfall in your tax payment. The notice will ask you to pay up the tax due within 30 days.

Time limit for the notice to be served : up to 1 year after completion of relevant assessment year

How to reply to notice :
If details provided by the taxpayer and as verified by the Income Tax department match, then this notice will serve as final assessment of the return with nothing to be done on part of the taxpayer and the department. Just a printout of the same shall be taken and kept along with the income tax file.Take a printout of the same and file it with your income tax papers.

If you are getting Refund, wait for the cheque or transfer into your account.
If there is a tax demand then this intimation becomes Notice of Demand under section 156. The notice says ”In case of Demand, this intimation may be treated as Notice of demand u/s 156 of the Income Tax Act, 1961. Accordingly, you are requested to pay the entire Demand within 30 days of receipt of this intimation“. For example, if Income as disclosed by taxpayer is Rs. 6,00,000 and tax duly deposited on same but the department computes his income as Rs. 6,50,000, then tax on Rs 50,000 needs to be paid. The taxpayer will have to pay such tax or if he thinks that the demand is wrong then he must prove his case and file rectification.