What to do when you get a scrutiny notice

Usually, the income tax department electronically processes the returns based on information in the return filed and that available with them through other sources such as the Form 26AS. In case there is an apparent mistake, the department points this out through the issue of intimation under Section 143(1) of the Income-tax Act. The individual may verify the error/defect and either pay the additional taxes or file for a rectification if the individual does not agree to the same.

But sometimes, the return may be picked up for detailed scrutiny or a limited scrutiny. The cases for scrutiny are selected through a Computer Aided Scrutiny Selection system based on the guidelines issued by the Central Board of Direct Taxes. There could be various reasons for issue of scrutiny notices. Some of them include revision of original return, large refund claimed in the return, large foreign tax credit claimed or substantial foreign income and foreign assets, claims under the Double Tax Avoidance Agreement, high-value transactions (with or without quoting of PAN); or simply having substantial income.

In such a situation, the income tax authorities issue a notice under section 143(2) of the Act to the assessee asking the individual to report at the tax office at the date and time specified, along with the various documents in support of the tax return filed. Recently, the department has also introduced e-assessment facility to eliminate the need to visit the tax office.

If you receive such a scrutiny notice, you need to check the validity of the notice first, that is, if it is received within the prescribed time-frame. The notice under 143(2) of the Act is to be served within six months from the end of the financial year (FY) in which the return is filed. For example, for return filed for FY 2015-16 on July 31, 2016, the notice under this Section should be served on or before September 30, 2017. In case the notice is not served within the above time-frame, the taxpayer may file an objection against the notice with the tax department.

Collate the details asked in the notice. Typically, copies of return, computation of income, Form 16/16A, Form 26AS, bank statements and credit card statements are some of the documents required. If all the documents are not available, submit the documents readily available and seek additional time for submitting balance documents. Before submitting the documents, ensure that they are in line with the return filed with the income tax authority.

If you want to seek professional help to represent your case before the department, you need to issue a letter of authority to the professional to represent your case. One should represent the case and attend the hearing on the scheduled date and time mentioned in the notice. In case of no representation by the individual, the officer may pass an ex-parte order based on the information available with him. He may also levy penalty for non-appearance.

At the end of the assessment, the tax officer will pass an assessment order. If the officer is satisfied with the explanations provided and documents submitted, he will pass an order accepting the returned income. If any additions are made, he would pass an order raising a demand/reducing the demand. The officer may also, at his discretion, initiate penalty proceedings for any unreported income. Once an assessment order is received, an individual should check it with the return of income filed. In case he agrees to additions made, he can proceed to make payment of the tax due. In case he does not agree, he may file an appeal at the higher level or file a rectification with the department for any mistake apparent from record.

The writer is Partner, Deloitte Haskins & Sells LLP. With inputs from Niji Arora, Senior Manager and Vivek Mistry, Manager

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