LITIGATION

Direct taxes litigation may happen with tax authorities either due to wrong filing of the return, return selected for scrutiny. The litigation may also occur when the tax return is not submitted, but tax authorities believe that the taxpayer should have filed the return. For this tax authority issued the notice, which needs to reply proactively. Failing reply to the notice may result in a penalty and prosecution proceedings.If you are aggrieved or not agreed with the order issued by tax authorities as an outcome of the reply filed by you in response to the notice, you can file an appeal with the appellate authorities.

Type of Income Tax Notice / Assessment

The income tax department sends different notices to the taxpayers. Nature/type of notice depending on the cause of notice. Following are the main notices issued by the Income-tax department:Notice U/s 139(9): Notice is received if there is any defect in the return filed. A defect can be missing information, attachment, or the use of the wrong ITR form. A defect is highlighted in the notice received, and 15 days is allowed to rectify the defect failing, which return is rejected.Notice U/s 142(1): Notice under this section is received in two cases. First, you have not filed the return, and the assessing office wants you to file the return. Second, Assessing Officer wants additional information on your return. Failing response to the notice will attract a fine of Rs. 10000 or prosecution up to 1 year or both.Notice U/s 148: This notice is sent by AO when he believes the income reported in the income tax return is lower than the actual income or income tax return has not been filed though it is supposed to be filed. Notice under this section is issued for income escaping assessment.Notice U/s 156: Notice U/s 156 is also called a notice of demand and is issued for payment of demand like tax due, penalty or interest. The taxpayer has to pay the demand within 30 days of the receipt of the notice.Intimation U/s 143(1): This is the intimation sent to all taxpayers post initial assessment of tax return filed and normally corrects the mistake apparent from the records.Notice U/s 143(2) for scrutiny assessment U/s 143(3):  notice is issued to the taxpayer within six months from the end of the financial year in which the return is furnished. The notice is issued wherein the tax authorities select the return of the assessee for further scrutiny. The taxpayer has to reply to the questionnaire issued by the income tax department and submit all the additional documents as requested by the department with is time stipulated in the notice.Notice U/s 131: Notice is issued wherein the tax authorities believe there is a concealment of income. Through this notice, Tax authorities can acquire books of accounts of the taxpayer and investigate tax payer’s income.Notice U/s 245: Section 245 notice is issued to inform that the current year tax refund, if any, is adjusted from the previous years’ demand. Notice is to be responded to within 30 days; else, it will be treated as the taxpayer’s consent.

Main Reason of issue of notice

1. Mismatch in the amount of TDS reported
2. If high-value transactions have been done during the financial year and they have not been reported correctly in the income tax return
3. Non-filing of your tax returns
4. When you invest in the name of your spouse and do not mention the same in your income tax returns
5. If the assessing officer does random scrutiny of your income tax return
6. When long term capital gains earned from equity investments are not reported correctly
7. If the taxpayer does not disclose any income
8. Filing of the income tax return in the wrong form.
9. If your refunds can be set off against the tax liability
10. If you have evaded tax in previous financial years

Appeals To CIT & ITAT

The taxpayer usually filed the first appeal with CIT (Appeals) if he is not satisfied with the order of the assessing officer. Any Assessee, any Deductor, or any Collector of tax at source, aggrieved from the order passed by the Assessing Officer, shall first file an appeal to the Commissioner (appeal). Appeal to be filed within 30 days of receipt of order. With the appeal, a request for a stay of demand and postponement of penalty proceedings is also filed with the respective authorities.Suppose the taxpayer or the assessing officer is not satisfied with the order passed by commissioner appeals. In that case, either of them can go to the following appellate authority, ITAT, i.e. Income Tax appellate Tribunal.The next level authorities are the High court and Supreme Court to file an appeal by the aggrieved party.