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Service of Income Tax Notice


Service of Income Tax Notice

The Income Tax Act, 1961 lays down the law for the service of a notice, summon, order or any other communication by delivering or transmitting a copy to the concerned person in any of the methods sanctioned under the Act. The newly introduced Centralised Communication Scheme is set to overhaul the method of communication of tax notice to taxpayers and introduce the concept of e-assessments. In this article, we look at the various methods permitted under the Income Tax Act for the service of income-tax notices.

Recipient of the Notice

Income tax notices can be directly addressed to an individual, whereas notices meant for a minor must be addressed to the guardian. Incorrect description of the assessee is usually rectifiable, but in scenarios where the status of the assessee is entangled with the assessee’s identity, the name mentioned on the face of the return may become material.

Service by Post

Service of income tax notice can be processed through a registered post. Section 27 of the General Clauses Act, 1897, specifies that a service shall be initiated “By properly addressing, pre-paying and posting by registered post a letter containing the document”. The delivery can be made to the addressee, an employee, agent or any other authorized person. If the post was addressed to an unauthorized person, and the particular person delayed the communication of notice, the service would be deemed to have been effected only on the date of such communication.

Service by Affixture

Given a scenario where a defendant (receiver of notice) refuses the signing of acknowledgement, or where the serving officer is unable to find the defendant, combined with the fact that there is no agent to accept service, the officer shall affix a copy of the summons/notice/requisition/order on the outer door or any other noticeable part of the residence where the defendant usually resides or pursues business activities. The officer will then return the original copy to the court, along with a report stating the particulars of the assessee’s business activities.

HUFs and Partnership Firms

If the Assessing Officer discovers the total partition of any HUF, it may be recorded by the Assessing Officer, and notices can be served on the person, who was the last manager of the HUF. If the concerned person is deceased, notice will be served on all adults who were a part of the HUF until partition. On the other hand, on the dissolving of a partnership firm or other AOPs, notices in respect of the income of the firm or association may be served on any personnel who were either former partners (other than a minor) or members of the association which is assessed to taxation.

Closed Business

In case of a closed business, the Assessing Officer may serve a notice on the person whose income is subject to assessment. In the case of a firm/association of persons, a notice will be served on any member who was a part of the firm during discontinuation. With reference to a company, the notice will be served on the principal officer or Director.

Types of Income Tax Notice

Income Tax Notices are classified into various categories based on the circumstances relating to which they are issued. The classification is explained below:

Notice Served due to Defective Income Tax Return

The Assessing Officer may be of the opinion that the ITR filed by the assessee is defective, incomplete or incorrect. In such cases, a notice may be forwarded to the taxpayer. The assessing officer (AO) should furnish a proper error description in the notice. The AO should also suggest a probable solution to rectify the mistake. The assessee is given an opportunity to respond within fifteen days from the date of intimation or before it is assessed. If there is no reply communicated within fifteen days then the return will be rejected by the AO. The taxpayer has the liberty to agree or disagree with the observation of the Assessing Officer. If the assessee does not agree with the error description, in such cases it is possible to reply to the income tax notice, mentioning the reason why the rejection of the return would be insubstantiable in law.

Notice Served due to Concealment of Income

If the AO is of the opinion that the taxpayer is concealing the income or likely to conceal income then income tax notice under Section 131(1A) will be applicable. This notice serves as an intimation that the AO is initiating an enquiry or investigating into the matter. The assessing officer can impound the books of account or other documents by providing appropriate reasons. There is no specific time limit to serve this notice.

Notice Served due to Preliminary Enquiry

A notice of preliminary enquiry will apply in case the return is not filed on time. Alternatively, if the AO would like to go through the documentary proof to verify the taxpayer’s claim in the Income Tax Return then the Income Tax Department may require the taxpayer to furnish the documents for the purpose of scrutiny. The time limit to serve the notice under Section 142(1) is before the end of the relevant assessment year.

Notice Served as Follow-up

If the AO is not satisfied with the response of the assessee or if the assessee fails to provide the documents required under an income tax notice served under Section 142(1) as explained in the previous point then notice under Section 143(2) will apply. In this scenario, the AO calls for detailed scrutiny. The AO may ask the assessee to either attend a hearing in person or produce supporting particulars and evidence in support of the claim made in the return. The timeline to serve notice under Section 143(2) is before the expiry of six months from the end of FY in which the return is furnished.

Notice Served for Income Escaping Assessment

Even after assessment, if the AO is of the opinion that any of the income of the assessee escaped assessment then income tax notice under Section 148 can be issued. As assessee may be asked to file an additional income tax return for the relevant assessment, reassessment or recomputation. The notice can be served within four years from the end of the relevant assessment year if the income which escaped assessment is less than one lakh rupees. Otherwise, the notice can be served within 6 years from the end of the relevant assessment year.

Notice of Demand

If any penalty, tax, fine or any other amount is due from the taxpayer to the income tax department then income tax notice under Section 156 is served. Normally this notice is served after the assessment of an ITR. The taxpayer can deposit the amount payable within thirty days from the date of the income tax notice. There is no time limit to serve this notice.

Notice Served for Refund Adjusted against a Tax Demand

This notice is an intimation from the Income Tax department. This notice is issued when the full or partial tax refund for an assessment year is adjusted against the tax demand due to the taxpayer. The assessment year of refund and tax demand can be different. There is no time limit to serve or send this income tax notice/intimation.