Reply to Income Tax Notice

The most common communication received by individuals is the intimation under Section 143(1), which is an automated processing statement issued after the return is processed by the Centralised Processing Centre in Bengaluru. It shows the income declared, the adjustments made by the Department such as disallowance of incorrect deductions or correction of arithmetical errors, and the resulting refund or demand. While most intimations accept the return as filed, those with a demand or adjustment require a response or rectification under Section 154 within four years.

Every genuine income tax notice issued by the Department contains a Document Identification Number, which can be verified on the income tax e-filing portal at incometax.gov.in under the 'Verify Your Notice' feature. The notice will also reference your PAN and the relevant assessment year. Official notices are sent to the registered email address and to the portal inbox. Any notice received only by physical post or WhatsApp without a verifiable DIN should be treated with suspicion and verified before responding. The Department has stated that notices without DIN are invalid.

A notice under Section 142(1) is a preliminary enquiry notice issued by the Assessing Officer before commencing a scrutiny assessment. The notice specifies the information, documents, and accounts required and gives a deadline for compliance, which is typically fifteen to thirty days from the date of the notice. The Assessing Officer has the discretion to grant extensions if a written request is made before the deadline. Failure to comply without reasonable cause can attract penalty under Section 272A of up to Rs 10,000 for each failure and can lead to best judgment assessment under Section 144.

Under the amended provisions of Section 148 effective from 1 April 2021, the Department can issue a notice for reopening a completed assessment only within three years from the end of the relevant assessment year in normal cases. Where the escaped income is likely to be fifty lakh rupees or more and is based on evidence of a serious nature such as a survey, search, or information from foreign jurisdictions, the limit is extended to ten years. A notice issued beyond these limits is legally invalid and can be challenged. Upon receiving a notice under Section 148, you have the right to demand a copy of the reasons recorded for reopening.

A notice under Section 245 is issued by the Department when it proposes to adjust a pending refund due to the taxpayer against an outstanding demand in an earlier year. Before effecting the adjustment, the Department must issue this notice and give the taxpayer an opportunity to respond. The taxpayer must verify whether the outstanding demand is correct, whether it has already been paid, and whether any appeal is pending against it. If the demand is disputed, the taxpayer should respond on the portal stating the grounds of dispute and requesting the demand to be put on hold pending appellate proceedings.

Yes. The Income Tax Department receives data from banks, registrars, mutual funds, brokers, and foreign tax authorities through Statement of Financial Transactions and automatic exchange of information agreements. If a high-value transaction is reported to the Department by a third party but is not reflected in your return or Annual Information Statement response, the Department can issue a notice under Section 142(1) or initiate proceedings under Section 147 for escaped income. The taxpayer must explain the source of funds for the transaction with documentary evidence such as sale proceeds, gifts, loans, or prior savings.

If the Assessing Officer finds the response to a notice unsatisfactory, they may issue a further notice seeking additional information or calling for a personal hearing. If still not satisfied, in scrutiny cases the officer may pass a draft assessment order proposing additions, against which the taxpayer can file objections before the Dispute Resolution Panel or respond to the show-cause notice before the assessment is finalised. In non-scrutiny notice cases, if the response is rejected, the matter may escalate to assessment. In all cases, appellate remedies before the Commissioner of Income Tax (Appeals) are available after the order is passed.

Under the Faceless Compliance Scheme, most notices are responded to electronically through the income tax e-filing portal and physical appearance is not required. However, notices issued in cases selected for CASS scrutiny that are outside the faceless scheme, survey cases under Section 133A, and cases before the Income Tax Settlement Commission may require physical appearance or hearings. The notice itself will specify whether personal attendance is required. In all faceless cases, an authorised representative such as a Chartered Accountant or advocate can submit responses on your behalf through the portal using a Power of Attorney.