Income-Tax Notices: A General Guide to Responding

Guide

Establish what has been received

The first task is identification. A notice states the provision of the Income-tax Act under which it is issued, the assessment year it concerns, what is required, and the period within which it must be complied with. Those four facts determine the nature of the proceeding and how serious it is.

A communication proposing an adjustment arising from the return as processed is a different matter from one commencing an assessment, and both are different from one concerning income said to have escaped assessment in an earlier year. Responding to the wrong kind of notice is a common and avoidable error.

Verify that it is genuine and correctly addressed

Notices should be checked against the record available to the taxpayer through the official channel, and the identifying particulars on the notice — the name, the permanent account number, the assessment year and any document identification number it carries — checked against your own.

Communications purporting to be tax notices are a known vector for fraud. A notice that arrives by an unexpected route, that asks for payment to an account, or that demands immediate action outside the official channel should be verified before anything is done in response to it.

Go back to the return and the records

Retrieve the return actually filed for the year, and the computation behind it. A great many notices arise from a difference between what the return declares and what the department has been told from another source — by a bank, an employer, a purchaser, or a reporting entity.

The reply is then built on reconciliation: what the third-party information shows, what the return shows, and why they differ. Where the difference has an innocent explanation, the explanation has to be documented rather than asserted. Where the return was wrong, that is a different conversation, and it is better had deliberately than discovered.

Framing the response

A response should deal with each item raised, in the order raised, and should annex the documents relied on. Where a figure is explained by a document, produce the document. Where a position is a matter of legal characterisation rather than of fact, state the basis on which the position was taken.

The manner of response is specified in the notice, and it should be followed, with whatever acknowledgement the process generates retained. Where the time allowed is genuinely insufficient, an extension should be sought properly and in advance rather than assumed.

What follows, and the appellate route

A response may end the matter, or lead to further queries, a hearing, or an order making an addition or a demand. Where an order is adverse, there are appellate remedies, and they run on their own timelines from the date of the order.

It is worth understanding that route before it is needed. It is also worth understanding what the grounds taken at the assessment stage do to the appeal: an explanation offered for the first time on appeal is in a weaker position than one advanced, with documents, when the question was first raised.

Who does what

This is a firm of advocates. Advice on the legal position, the drafting of replies and appeals, and representation before the authority or appellate forum, where an advocate may act as authorised representative, is our work.

Preparation of returns and computations is carried out with, or coordinated with, a chartered accountant. Audit, and any certificate that only a chartered accountant may sign, is their work. Nothing here is an offer to audit accounts or to issue any such certificate, and no undertaking is given that any particular person will appear in a given matter.