A tax enquiry notice can be unnerving for most due to ignorance of laws and understanding the correct way to respond to such notices.
Stories of experiences with the taxman also play their own role with people always asking "Why did I get a notice?"
But receiving a tax enquiry notice is not a pronouncement of any tax offence on your part, so when you receive a tax enquiry notice, do not panic and do not overlook the notice but do respond positively and timely.
Why & when can you get enquiry notice?
A taxman, through his enquiry notice, may require you to furnish certain information in connection with verification of your tax return, or call upon you to file your tax return where the same has not been filed, or may require your personal appearance. Here's a closer look at some of the situations and how the same may be faced.
Tax enquiry notice is most commonly issued for audit of income and expense details disclosed in the return of income, commonly referred to as tax scrutiny proceedings. Under tax scrutiny proceedings, initially an intimation notice is issued under Section 143(2) of Income Tax Act, 1961 (` Act' ) informing the tax payer that he is under an enquiry.
Thereafter, a follow up notice under section 142(1) of the Act is issued where the tax payer is requested to answer certain questions, file documents/ evidences , and additional information related to its return of income.
Normally, scrutiny proceedings cannot be initiated after the expiry of 12 months from the end of month in which the return of income was filed. However, the Act also permits the authorities to initiate audit proceedings for past six financial years for which scrutiny proceedings may or may not have been conducted, subject to satisfaction of certain preconditions .
These proceedings are commonly referred to as reassessment proceedings. For instance: As on July 1, reassessment proceedings can be initiated for financial year 2000-01 and onwards.
In case no return of income has been filed but it is felt that a return should have been filed, a notice may be issued under Section 142(1) of the Act requiring such person to file a return of income within such time as may be stipulated in the notice.
In addition to above notices, summons may also be issued under Section 131 of the Act, requiring a person to furnish certain information/ details or requiring such person's attendance before the taxman's office on a designated date and time.
What to do when you get enquiry notice?
The first and foremost step is to share the enquiry notice with your tax advisor and discuss the way forward. In relatively simple cases, you may attempt to handle the situation on your own but in complex cases , professional representation is most prudent.
While responding to a notice , it is important to verify the validity of notice as regards whether the same has been issued within time limit(s) prescribed under the Act, and whether appropriate procedures have been followed while issuing the notice.
Typically, the Act provides for a limitation period for issuance of all kinds of notices. Further, in certain instances, there are specific procedures required to be followed for issuance of a notice. It is particularly on these details that you need expert advice and help.
Any discrepancy in enquiry notice as regards expiry of time limit or inappropriate procedures in issuance of tax notice ( i.e., improper sanctioning by higher authorities or lack of jurisdiction , etc.), should be brought to the attention of the taxman while responding to such notice.
It is also very important to be mindful of the deadline for responding to a notice or attending a tax hearing since any noncompliance may be viewed as non-cooperation and may adversely influence the outcome of enquiry proceedings.
Is personal attendance must?
Unless the notice or summon specifically requires personal appearance of a person, the details/ information may be furnished via post or through an authorised representative.
So next time you are in receipt of a tax enquiry notice don't panic, ensure compliance and seek professional advice to determine an appropriate way forward.
NOW WHAT?
Do not panic and do not overlook the notice but do respond positively and timely Tax enquiry notice is most commonly issued for audit of income & expense details disclosed in the return of income.
In addition,summons may also be issued under Section 131 of the Act, requiring a person to furnish certain information/ details or requiring such person's attendance. Share the enquiry notice with your tax advisor and discuss the way forward.
While responding to a notice, it is important to verify the validity of notice as regards whether the same has been issued within time limit(s) prescribed under the Act.
Any discrepancy in enquiry notice as regards expiry of time limit or inappropriate procedures in issuance of tax notice should be brought to the attention of the taxman, while responding to such notice.
Ernst & Young's Himanshu Bhatia & Rohit Anand
CAclubindia
