Statutory Notices under Income Tax Act, 1961

Definition of Statutory Notice

A statutory notice is a formal communication delivered by law, typically in written form, requiring action or alerting an individual or entity to a legal process.

Statutory notice is not the same as a legal notice

A statutory notice is not the same as a legal notice. A legal notice is enforceable in court, while a statutory notice is strictly for informational purposes.

Difference between statutory and non statutory notice

The main difference between non-statutory and statutory bodies is that statutory bodies are created by an act of parliament, while non-statutory bodies are not. Statutory bodies have legal powers and can binding, while non-statutory bodies do not have any legal powers and are only advisory.

 

NOTE : Statutory Notice should not be Issued in a Casual and Mechanical Manner

 

Statutory Notices under Income Tax Act, 1961

 

S. No.	Section	Purpose of Notice
1.	131	Summons Notice
2.	133(6)	Notice of calling for information
3.	139(9)	Defective Return
4.	142(1)	Inquiry before assessment
5.	143(1)(a)	Letter of Intimation for adjustments
6.	143(2)	Scrutiny Assessment Notice
7.	148	Issue of Notice where income has escaped assessment
8.	156	Notice of Demand
9.	245	Intimation in writing - Set off of refunds against tax remaining payable and withholding of refunds in certain cases

[1]   Summons Notice under Section 131

Section 131 of the Income Tax Act, 1961, confers power of a court under the Code of Civil Procedure (5 of 1908), while trying a suit in respect of discovery and inspection, issuing of commissions, enforcing the attendance of any person, including any officers of a banking company and examining him on oath and completing the production of books of accounts and documents.

Reasons for Summoning Someone under Section 131 of the Income Tax Act

The following are the reasons as to why someone can be summoned under Section 131 of the Income Tax Act:

§  For issuing commissions

§  Scrutinising any person, including an officer of a banking company under oath, and imposing that they should be present in attendance.

§  Inspecting various people and checking their necessary documents by conducting inquiries

§  Demanding various documents, such as book of accounts and others, forcibly

Personal Appearance

In case of witness personal appearance is required as witness has no right of being represented by an authorised representative. However, a notice other then witness may be represented by his authorised representative in response to notice under section 131.

Difference between Section 131 (1) and 131 (1A)

Section 131 is comprised of two complementary sub-sections relating to two different classes of officers.

§   The Jurisdictional Assessing Officer is empowered under Section 131(1) to issue summons or to force attendance of any person for being examined on oath or to compel production of books of account and other documents if any proceeding is pending.

§   While, Section 131(1A) empowers the officers of the investigation wing such as Principal Director General or Director General or Principal Director or Director or Joint Director or Assistant Director or Deputy Director (Investigation) to issue Summons.

Section 131(1A) of the Income Tax Act empowers the officers to issue notice under following circumstances –

(a) before he takes action under clauses (i) to (v) of Section 132;

(b) has reason to suspect that income has been concealed; and

(c) notwithstanding that no proceedings with respect to such person or class of persons are pending.

Powers conferred under section 131 of the Income Tax Act, 1961 the powers conferred in section 131 as vested in a court under Code of Civil procedure, 1805

The Civil Code of Procedure governs civil proceedings in India. Section 131 is contained in Chapter XIII C of the Income Tax Act, 1961. Section 131 (1) has empowered the Income Tax Officer, Assistant Commissioner, Deputy Commissioner, Assistant Director, Deputy Director, Joint Commissioner, Joint Commissioner (Appeals), Commissioner (Appeals), Commissioners, Principal Commissioner, Chief Commissioner, Principal Chief Commissioner and Dispute Resolution Panel for the purpose of the Income Tax Act, 1961, with same powers which are vested in a court under Code of Civil Procedure, 1805 (5 of 1908) and Section 131(1A) of the Income Tax Act, 1961 has empowered the Principal Director General or Director General or Principal Director or Director or Joint Director or Assistant Director or Deputy Director (Investigation), to exercise powers conferred under section 131 of the Income Tax Act, 1961, the powers conferred in section 131 as vested in a court under code of civil procedure as under –

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;

(c) compelling the production of books of account and other documents; and

(d) issuing commissions.

Section 131(1) Explained

Section 131(1) specifically authorizes the jurisdictional assessing officer to issue summons necessary for implementing the provisions of the Act. Essentially, it allows tax authorities to summon any individual for questioning under oath and demand the production of pertinent documents if proceedings are pending.

What is Section 131 of the Income Tax Act

Section 131 of the Income Tax Act outlines the powers granted to tax authorities for the purpose of conducting investigations, inspections, and inquiries. These powers include:

§  Inquiries and Inspections: Tax authorities can conduct inquiries to discover and inspect individuals and relevant documents.

§  Attendance and Examination: Authorities can require the presence of any person, including officers of banking companies, for examination under oath.

§  Production of Documents: Tax authorities have the power to demand the production of books of accounts and other relevant documents.

§  Commissions: Authorities can issue commissions for the examination of witnesses and the production of documents.

What is Section 131(1A) of the Income Tax Act?

Section 131(1A) of the Income Tax Act grants additional powers to officers of the investigation wing. The powers conferred by Section 131(1A) enable tax authorities to investigate potential tax evasion and take necessary action. This provision allows officers to issue notices even in the absence of pending proceedings. The situations in which Section 131(1A) can be invoked include:

§  Actions under Section 132: Authorities can issue a notice before taking any action under clauses (i) to (v) of Section 132, which pertain to search and seizure operations.

§  Suspected Concealment of Income: Authorities can issue a notice if they have reason to suspect that an individual has concealed income.

§  No Pending Proceedings: Authorities can issue a notice even if there are no pending proceedings against the individual or group of individuals. Notices can be issued irrespective of any current proceedings.

Failure to comply with the summons issued under Section 131(1) has been made punishable with a penalty of Rs 10,000 for each default under Section 272A(1)(c)

Quantum of Penalty under Section 272A(1)(c)

Rs. 10,000/- for each default or failure.

Authority competent to impose penalty

Joint Director or Joint Commissioner

 

Penalty under section 272A(1)(c) can be levied for non-compliance of Section 131(IA)

So far as argument of the ld. counsel for the assessee that provisions of section 131(1) and 131(1A) are different, there is no dispute to the same. However, as per the provisions of section 131(1A) for the purpose of making any enquiry or investigation relating thereto it shall be competent for the officer to exercise the powers conferred under sub-section (1) on the Income Tax Authorities referred to in that sub-section. Therefore, the provisions of section 131(1A) has to be read along with the provisions of section 131(1) of the Income Tax Act. Therefore, the consequences for failure to furnish the requisite details will be the same as prescribed under section 272A(1)(c) of the Income Tax Act, 1961. (Related Related Assessment year : 2011-12) - [Young Indian v. Addl. Director of Income-tax (Inv.) - Appeal Number : ITA No. 5303/ Del/ 2016 - Date of Judgement : 30.08.2018 (ITAT Delhi)]

Nature & purpose of proceedings

The person against whom the summons is issued is not entitled to know the full details of the nature & purpose of the proceedings in respect of which the summon is issued as held in respect of FEMA case 2009 110L: - 645: - H.C: FEMA.

Landmark Judgements of Supreme Court on Section 131(1A)

Where Income-tax Officer had not been authorized to exercise his powers under section 131(1A), reports submitted by him could not have formed valid basis for re-opening assessment; SLP dismissed

Discovery, production of evidence, power regarding (Sub-section (1A)) - High Court by impugned order held that where Income-tax Officer had not been authorized to exercise his powers under section 131(1A), reports submitted by him could not have formed valid basis for re-opening assessment. Special Leave Petition against said impugned order was to be dismissed. [In favour of assessee] (Related Assessment year : 2009-10) - [ITO, Delhi v. Sky View Consultants (P) Ltd. (2018) 257 Taxman 250 : 96 taxmann.com 424 (SC)]

SLP dismissed against High Court’s ruling that provisions of section 131(1A) do not require that a notice is required to be given to assessee before carrying out search proceedings under section 132 - Writ Petition is not maintainable

The assessee was engaged in export of iron ore. A search was carried out in assessee’s premises for relevant years and, thereupon, a notice was issued under section 153A requiring the assessee to furnish return of income for assessment years covered within the block. The assessee filed a writ petition contending that since no notice was issued under section 131(1A), search and seizure conducted by department itself under section 132 was illegal and thus, pursuant thereof notice issued under section 153A also did not have any sanctity. The assessee also submitted that in absence of any reason which led the authority to resort to the provision of section 132, the notice under section 153A was not tenable in the eye of law. Dismissing the petition the Court held that, there is no requirement of issuance of notice under section 131(1A) of the Act before proceeding with the provision of section 132 as the whole purpose of conducting search and seizure will vanish if assessee knows the fact that search is going to be conducted under section 132 making the proceeding a futile exercise. It was further held that, where there is alternate remedy available, the jurisdiction of this Court under Article 226 of the Constitution of India cannot be invoked. The High Court also observed that search and seizure was well within the knowledge of the assessee, but the jurisdiction was not challenged fairly for a period of more than two years and it is only after the notice under section 153A was issued, this Writ Petition has been filed on the basis of above reasons. On the basis of above reasons, the writ petition filed by the assessee was dismissed. Special Leave Petition filed against impugned order was to be dismissed. [In favour of revenue] (Related Assessment Years 2009-10 to 2014-15) - [Liberty Marine Syndicate (P) Ltd. v. PCIT, Cuttack (2017) 245 Taxman 269 : 77 taxmann.com 150 (SC)]

[2]  Notice of calling for information under Section 133(6)

Legislative History

The provisions empowering Income Tax Authorities to collect information from any person, including banks was first introduced by the Finance Act, 1956, with effect from 01.04.1956, in section 38(5) of the Income-tax Act, 1922. The corresponding section 133(6) of Income-tax Act, 1961 (“the Act”) requires any person, including a banking company or any officer thereof, to furnish information and/or statements of account, etc., to the authority concerned, if a demand is made in respect thereof by such authority. But prior to its amendment by the Finance Act, 1995, the power to collect information from any person was available if such information was useful for or relevant to any proceeding under the Act.

Prior to amendment by the Finance Act, 1995, upto 30.06.1995

Prior to amendment by the Finance Act, 1995, the powers conferred by the provisions of section 133(6) of the Act could be exercised only in case of a proceeding pending under the Act.

After amendment by the Finance Act, 1995, with effect from 01.07.1995

But after its amendment, such powers can be exercised by any income-tax authority not below the specified rank for the purpose of a general enquiry, whether or not any proceeding is pending.

Prior approval necessary while seeking for information when no proceeding is pending [Second proviso to section 133(6)]

The Second proviso to section 133(6) of the Act states that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Principal Director or Director or Principal Commissioner or Commissioner, other than the Joint Director or Deputy Director or Assistant Director, without the prior approval of the Principal Director or Director or, as the case may be, the Principal Commissioner or Commissioner.

Who can exercise the power under Section 133(6)?

The power to requisition documents under Section 133(6) can only be exercised by an income tax authority who is not below the rank of an Income Tax Officer giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Joint Commissioner or the Joint Commissioner (Appeals) or the Commissioner (Appeals) will be useful for, or relevant to, any enquiry or proceeding under the Income Tax Act, 1961

 

Penalty for failure to furnish in due time statements or particulars mentioned in section 133

[Section 272A(2)(c)]

Section 272A(2)(c) provides that if any person fails to furnish in due time any of the returns/statements mentioned in sections 133 (information), 206 (TDS Return), 206C (TCS Return) or 285B (Statement by producers of cinematograph films), he shall pay, by way of penalty, a sum of Rs. 500/- for every day during which the failure continues.

 

Authorities empowered to impose penalty

Income-tax authority not lower in rank than a Joint Director or a Joint Commissioner

Quantum of penalty

Rs. 500/- (Rs. 100/- up to 31.03.2022) for every day during which the failure continues. However, the amount of penalty shall not exceed the amount of tax deductible or collectible.

When penalty may not be imposed as per section 273B, if there is reasonable cause

As per section 273B, no penalty shall be imposable on the person or the assessee for any failure referred to in section 272A(2)(c), if he proves that there was reasonable cause for the said failure.

Assessee did not respond to notices under Section 133(6);  Sustains addition involving transaction with commodity traders for non-fulfilment of Section 68 prerequisites

Mumbai ITAT upholds addition made for unexplained cash credits received from three creditors as Assessee failed to discharge the primary onus of prima facie establishing the identity of the creditors, creditworthiness and the genuineness of the transaction; Refers to the Investigation Wing report categorically holding that one of the creditors (A.N. Commodity Broking), is not a genuine entity, but a shell company involved in arrangement of fake profit/loss, opines that, “...pattern of assessee established without any doubt that these transactions were entered into to manipulate the real figure of income earned by the assessee with the help of broking firms”; Refers to Kailash Gupta fraud case, who was arrested for alleged multi-crore fraud for abusing his position to favour family-run companies and observes that whole set up of exchange itself is under clouds and is primarily promoted by group of traders to accommodate each other in terms of getting fictitious profit or loss as desired by the members; Assessee-Company, was subject to reassessment on the basis of information received from the Investigation Wing that the Assessee brought unaccounted money in its books of accounts by undertaking transactions with third party concerns, namely, Ganpati Trading Co., AN Commodity Broking (P) Ltd. and Plasma Delatrade (P) Ltd.; Revenue completed the reassessment proceedings and made addition of Rs. 25.39 Lacs, Rs. 7.23 Cr and Rs. 55 Lacs respectively, on account of transactions with Ganpati Trading Co., AN Commodity Broking and Plasma Delatrade, which was confirmed by the CIT(A); ITAT considers Assessee’s submission that the Assessee received advance of Rs. 25.39 Lacs from Ganpati Trading Co. as a trade advance, however points out that the Assessee nowhere mentioned the name of the commodity and the nature of transaction for which the advance was paid, which was returned after almost 3 years without undertaking any transaction; Opines that the aforementioned facts cannot be seen in isolation vis-à-vis the ground realities of the business, as no prudent businessmen will leave his funds idle for 3 years without any transaction and charging any interest, states that the Assessee simply furnished ledger account of Ganapati Trading Co. in its books, however failed to provide the contra legder copy, which strengthens Revenue’s argument that Ganapati trading co. did not respond to notices under Section 133(6), casting a doubt on the very existence and genuineness of the party; Finds that the Assessee did not submit any financials, bank statements and Income Tax Returns of Ganapati Trading Co. to establish the creditworthiness, identity and genuineness of the transaction, thus, Assessee failed to discharge the primary onus to prima facie establish the identity creditworthiness of the creditors and the genuineness of the transaction; Likewise, with respect to additions on account of transactions with A.N. Commodity Broking and Plasma Delatrade, ITAT observes no margin money was paid by the Assessee to its brokers for carrying the transactions of commodity hedging and Future & Options transactions, which is a standard practice; Opines that since the genuineness of transaction with the aforementioned parties cannot be established, the transactions with all the three aforementioned parties are not genuine. [In favour of revenue] – [Advantage Overseas (P) Ltd. v. DCIT (CC) [TS-342-ITAT-2023 (Mum)] - Date of Judgement : 12.06.2023 (ITAT Mumbai)]

Dismisses co-operative banks’ challenge to Section 133(6) amendment, rejects ‘privacy’ infringement plea

Kerala High Court Division bench upholds Single Judge order dismissing co-operative banks’ (petitioners’) challenge to the constitutional validity of amendment by Finance Act, 1995 to Section 133(6) whereby words ‘inquiry’ were added to expand power to call information even in cases where no proceedings were pending; The co-operative banks (petitioners) had challenged Assessing Officer's notices seeking information under section 133(6) with respect to deposits & interest paid, citing the ground of violation of ‘right to privacy’; Accepting Revenue’s contentions, High Court’s Division Bench holds that right to privacy, would be subject to the reasonable restrictions which could be imposed by the State in exercise of its legislative power; High Court observes that ‘When a legislation, especially one in the fiscal realm is being examined by courts to check whether it infringes the right of individuals to privacy in own affairs, it has to be borne in mind that the larger public and economic interest of nation is to be balanced against such right to privacy’; High Court further holds that ‘All decisions which have  espoused the right  to privacy have been cautious  in  pointing  out  that  such rights  would  not extend  to  militate  against  right  of  the  State  to  gather information under its fiscal administration’; High Court notes Single Judge’s observation that right to privacy cannot be pleaded as a ground to invalidate a provision of the Income Tax Act, especially where the avowed object of the provision was to get details of financial transactions which could be associated with black money; High Court concludes that  there is no ground to interfere with the decision of the learned  Single  Judge  in  exercise  of  appellate  jurisdiction. [In favour of revenue] – [Pattambi Service Co-operative Bank Ltd. v. Union of India (2015) 53 taxmann.com 453 : [TS-348-HC-2016(KER)] (Ker.)]

Penalty under section 272A(2)(c) not leviable where there was reasonable cause for non-compliance of notice under section 133(6)

In Syndicate Bank v. Additional Commissioner of Income Tax, ITO, CIB-4 issued notice under section 133(6) to each of the branch calling for information in respect of specific areas related to time deposits, payment in cash for purchase of bank-drafts, etc. Since information was not furnished, Addl, CIT considered non-submission of information as wilfull default and levied penalty under section 272A(2)(c) in all the cases in February, 2011. Commissioner (Appeals) confirmed all the penalties. It was held that there was no need of levy of penalty because of number of reasons. Notice under section 133 was general notice which was not in domain of ITO, CIB. Details asked in various codes were not prescribed. Instead of giving separate notice for each code, a common notices was issued. There were various notices which were not in knowledge of assessee. Revenue was unable to furnish records to examine whether notices had been properly issued.  The penalty under section 272A(2)(c), was subject to provisions of section 273B which provides an exception to the rigid provisions of section 272A by providing that in the event of assessee having a reasonable cause for the failure, penalty shall not be imposed by the authorities concerned. Assessee, being only a branch office of public sector bank with Head office at Manipal, it took some time to get necessary approvals and further because of year ending business and shortage of staff, there was delay in complying of notice. Tribunal opined that there was reasonable cause for non-compliance to notice. Considering the facts of the case and also the law on the subject, Tribunal opined that on the facts of the case, levy of penalty was not warranted. Accordingly, penalties levied were cancelled. – [Syndicate Bank v. Additional Commissioner of Income Tax (2015) 66 (II) ITCL 237 (ITAT Hyderabad)]

[3]  Notice under Section 139(9) – Defective Return

Section 139(9) provides the list of situations in which the return of income filed by the taxpayer can be treated as defective return. Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of such intimation. Such time may be extended by the Assessing Officer on an application made by the assessee.

If the defect is not rectified within 15 days, or the extended time so allowed, as the case may be, the return filed by the assessee shall be treated as invalid return and the consequences of the same will be as if no return has been filed by the assessee. However, if the assessee rectifies the defect even after 15 days, or the extended time, but before the completion of assessment, the Assessing Officer may condone the delay and treat the return as a valid return.

Who can issue the notice?

Usually, this notice is issued directly by CPC, Bengaluru as this is a system generated list of defects which are identified during processing of returns but in certain cases the notice is also issued by Assessing Officer.

 

[4]  Notice under Section 142(1) – Inquiry before assessment

Section 142(1) of the Income-tax Act, 1961, empowers Income-tax authorities to issue a notice for making an assessment where return has been filed or if return has not been filed then to furnish the required information in the prescribed manner.

Purpose of Notice under section 142(1) of Income Tax Act

Notice under section 142(1) can be issued by the Income Tax Department for the following reasons:

(a)  To ask the assessee to file the Income Tax Return:

If the assessee  has not filed a return within the specified period of time or before the end of the relevant assessment year, then the assessee might receive notice u/s 142(1) asking to file the return.

(b)  Producing specific accounts and documents:

If the assessee has already filed an income tax return, the Assessing Officer may ask the assessee to produce such specific accounts and documents as required by them. For example, the department can ask the assessee to provide evidence of deductions claimed, invoices of expenses claimed under business incomes, etc.

(c)   Any other information, notes, or workings as desired by the Assessing Officer

Assessing Officer may require the assessee to furnish in writing and in the prescribed manner the information, notes, or workings on specific points as required by him which may or may not form part of books of accounts. For example, A statement of assets and liabilities.

Consequences of non-compliance of Notice under section 142(1)

If a taxpayer receives a notice under section 142(1), they must respond to it. Failing to do so can lead to the following consequences:

§  It may result in Best Judgment Assessment under section 144.

§  The warrant for Search under section 132 can be issued

§  He shall pay, by way of penalty under section 272A(1)(d), a sum of Rs. 10,000/- for each such default or failure.

§  Prosecution under Section 276D which may extend upto 1 year and with  fine.

[5]   Letter of Intimation for adjustments under section 143(1)(a)

Section 143(1)(a) notice of proposed adjustments involves the electronic processing of tax returns by the Centralized Processing Centre in Bengaluru. This is not a final assessment but a preliminary communication of the tax calculation based on the provided information. This notice may indicate any discrepancies or adjustments in the filed income tax return, allowing the taxpayer to respond before a final assessment is made.

After having filed your returns, it is electronically processed by the Central Processing Centre (CPC). The income is computed after making the following adjustments to the total income in return :

Such notice is issued for the following reasons:

Section                    Reason

143(1)(a)(i)            Arithmetical Error in ITR

143(1)(a)(ii)           Incorrect Claim in ITR

143(1)(a)(iii)          Disallowance of loss claimed in ITR

143(1)(a)(iv)          Disallowance of expense claimed in ITR

143(1)(a)(v)           Disallowance of deduction claimed in ITR

143(1)(a)(vi)          Addition of income appearing in Form 26AS, Form 16 or Form 16A

Upon successful processing of the return, an intimation under section 143(1) is issued by the CPC under any of the three instances:

§  There is a tax liability to be paid

§  A refund has been determined

§  There is no refund or demand, but there is an increase or reduction in the amount of loss.

In case there is a tax demand, then the intimation must be issued within nine months from the end of the financial year in which the return is made.

For example, if you have filed your returns for Assessment year 2024-25 on 12.07.2024, then an intimation can be issued anytime on or before 31.12.2025. Processing of returns under this section has been made mandatory from Assessment year 2017-18.

[6]   Scrutiny Assessment Notice [Section 143(2)]

Sub-section (2) of Section 143 provides that where a return has been furnished under section 139, or in response to a notice under section 142(1), the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient:

Ø  to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either:

(a)  to attend the office of the Assessing Officer or

(b)  to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:

 

The purpose of this notice is to notify the assessee that the return filed has been picked for scrutiny. It is pertinent to note that the section under which it will be scrutinized is different from the one in which the notice has been issued. Via detailed scrutiny, the assessing officer intends to be assured that you have not done any of the following:

§  Understated your income

§  Claimed excessive loss

§  Paid lesser taxes

How To Respond to Notice under section 143(2)

Log in to your Income tax portal under e-proceeding, provide the response to such notice with the covering letter and also attach the necessary documents as requested.

Time limit for issuance of notice under section 143(2)

The notice under Section 143(2) can be issued after an income-tax return has been filed but within a period of three months from the end of the financial year in which the return was filed.

For example, say, Mr ‘A’ filed his returns on 11.07.2024 for the Assessment year 2024-25. The assessing officer can issue a notice under Section 143(2) only upto 30.06.2025. This is because he can only issue the notice within a period of 3 months from the end of the Assessment year 2024-25, the Assessment year in which Mr ‘A’ filed the returns.

Consequences of not complying with the notice issued under section 143(2)

(i)   If the taxpayer fails to comply with notice issued to him under section 143(2), then as per section 272A(1)(d), he shall pay, by way of penalty, a sum of Rs. 10,000/- for each such default or failure.

(ii)  Assessing Officer will complete the assessment under section 144 (Total income shall be calculated by Assessing Officer to the best of his judgment and determine the tax payable by the assessee on the basis of such judgement.

[7]  Issue of Notice where income has escaped assessment [Section 148]

Section 147 allows the Assessing Officer to assess or reassess or re-compute any income escaping assessment for any assessment year (called relevant assessment year). Before such assessment or reassessment or re-computation, a notice is required to be issued under section 148 of the Act, which can be issued only when there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year. Prior approval of specified authority is also required to be obtained before issuance of such notice by the Assessing Officer.

      Time Limit for issue of Notice under Section 148 [Section 149]

From 01.04.2021, under the provisions of section 149, notice under section 148 shall not be issued :

Clause (a) of Section 149(1)

if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b)

Clause (b) of Section 149(1)

if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of — (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:

Consequences of not complying with the notice issued under section 148

(i) Interest for defaults in furnishing return of income [Section 234A(3)]

Where the return of income for any assessment year, required by a notice under section 148 or after the completion of an assessment under sub-section (3) of section 143 or section 144 or section 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,—

(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

(b) where no return has been furnished, ending on the date of completion of the reassessment or re-computation under section 147 or reassessment under section 153A,

 (ii) Prosecution - Wilfully fails to furnish returns of income [Section 276CC]

If a person wilfully fails to furnish the return of income which he is required to furnish under section 148, he shall be punishable,—

(a) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(b) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine: 

[8]   Notice of Demand [Section 156]

If any demand for tax, interest, penalty, fine or any other sum is raised by the Assessing Officer as per the provision of Income-tax Act, 1961, then he shall serve a notice of such demand to the assessee under section 156 specifying the amount payable.

The tax so demanded is payable, generally within 30 days of the service of notice of demand, which may be reduced by the AO with prior approval of JCIT.

Consequences of not complying with the notice of demand issued under section 156

In case of delay in payment of tax, the assessee shall be deemed to be in default and liable to pay simple interest u/s 220(2) @ 1% for every month or part thereof from the end of the period allowed under section 156, further penalty u/s 221(1) may be imposed.

 

[9]   Intimation in writing - Set off of refunds against tax remaining payable and withholding of refunds in certain cases [Section 245]

Section 245 of the Act, 1961 provides that when a refund is found to be due to any person under any of the provisions of the Act, 1961, the Revenue can set off/adjust the amount to be refunded or any part of that amount, against the sum which remains payable under the Act, 1961 by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.

Notice under Section 245 – Set off of refunds against tax remaining payable and withholding of refunds in certain cases

Section 245 will allow the authorities to set off the refund due to assessee against any sum owed by him instead of paying the refund directly.

Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.

 

Text of Section 245

^[1][245. Set off and withholding of refunds in certain cases.

(1) Where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this sub-section.

(2) Where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, is of the opinion that the grant of refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, as the case may be, withhold the refund up to the date on which such assessment or reassessment is made.]

 

KEY NOTE

1.    Substituted by the Finance Act, 2023, with effect from 01.04.2023. Prior to its substitution, section 245 read as under :

“245. Set off of refunds against tax remaining payable.

Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.”

 

Section 245(1) is applicable for set off refund whereas section 245(2) relates to withholding of refund.

Section 245(1) permits the Revenue to set off refund against an outstanding demand subject to a prior intimation in writing to the Assessee [Section 245(1)]

As per Section 245(1), where a refund is due or is found to be due to any person then Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner may set off the refundable amount, wholly or in part, against the sum payable by such person after giving an intimation in writing to such person of the action proposed to be taken.

Section 245(2) carves out an exception in case where the assessment/reassessment in pending and empowers Revenue to withhold the refund by the reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner [Section 245(2)]

The Finance Act, 2023, with effect from 01.04.2023 has brought an amendment to section 245 with insertion of sub-section (2).  The provision states that if any refund is due, the same can be withheld by the Department, if any assessment or reassessment proceedings are pending in respect of such person and the Assessing Officer is of the view that release of such refund could adversely affect the interests of the revenue.  Such action can be adopted only with previous approval of the Principal Commissioner or the Commissioner.

 

Earlier such action was permissible under section 241A of the Act only in connection with the refund arising based on the return of income determined under section 143(1) of the Act for any specific Assessment year, if such year is selected for scrutiny assessment.Section 245(1) is applicable for set off refund whereas section 245(2) relates to withholding of refund.

 

Silent features of section 245 (1) are as under: -

§  The refund can be due to a person under any provision of the Act, i.e., a refund arising from the payment of excess tax, tax paid under protest, giving effect to an appeal order, etc.

 

§  The refund becomes due or is found to be due to the person, i.e., refund after processing of return, reconciliation of mismatch in TDS, appeal effect, etc.

 

§  The order to set off the refund can be passed only by the AO, CIT, PCIT, CCIT or PCCIT only.

 

§  The authorities can set off the entire refund due to the person or any part of it.

 

§  The refund can be set off only against the sum remaining payable under the Income-tax Act.

 

§  The sum should be payable by the person to whom the refund is due.

 

§  Before such set off, an intimation should be given in writing to such person of the action proposed to be taken.

 

Silent features of section 245 (2) are as under: -

 

§  The provision can apply if a part of the refund is set off under Section 245(1) or no such set off is made.

 

§  Refund should become due to a person.

 

§  Unlike sub-section (1), sub-section (2) does not use the expression “is found to be due”.

 

The expression “found to be due” means that there must, prior to the date set-off is claimed, be an adjudication where under an amount is found due by way of refund to the person claiming set-off.

              (i)        The proceedings for assessment or reassessment are pending in the case of such person.

             (ii)        The AO is of the opinion that the grant of refund is likely to adversely affect the revenue.

           (iii)        The AO shall record the reasons in writing before withholding the refund.

           (iv)        The AO shall take prior approval of the Principal Commissioner or the Commissioner before withholding the refund.

             (v)        Refund can be withheld up to the date on which such assessment or reassessment is made.

Monetary limit for applying the provision of section 245(2) where the refund value is Rs. 10 Lakh or more.

CBDT vide Instruction No. 2/2023 [F. No. 312/82/2022-OT], Dated 10.11.2023 has prescribed monetary limit of Rs. 10 Lakh or more to withhold refund under section 245(2) of the Income Tax Act.

CBDT Instruction No. 2/2023 [F. No. 312/82/2022-OT], Dated 10.11.2023

Subject : Instruction regarding revision of timeline and monetary limits as well as revision of workflow in matter of recording of reasons before withholding of refunds under section 245 of the Income-tax Act, 1961

The monetary limit for applying provisions of section 245(2) of the Income-tax Act, 1961 (‘the Act’) will hereinafter be where the value of refund is Rs. 10 lakhs or more.

2. In any case where section 245(2) of the Act is applicable, the Faceless Assessing Officer (FAO), on receipt of communication from CPC, shall intimate the Jurisdictional Assessing Officer (JAO) with regard to demand likely to be raised in the pending assessment(s). The JAO, based on such information shall record in writing, with proper application of mind and after analyzing the factual matrix of the case (which, inter-alia, includes the financial condition of the assessee, past demands, pendency of appeals et al) and seek approval of the jurisdictional Principal Commissioner of Income-tax. The reasons recorded shall not be cursory. Such reasons should reflect the factual analysis of the case by the JAO. The JAO will communicate the final decision regarding withholding/release of refund to the CPC.

3. To finish the above process, the time limit is hereby revised to 20 days for the Faceless Assessment Unit and to 30 days for Jurisdictional Assessing Officer.

4. The detailed workflow chart as delineated above will be issued by DGIT(Systems).

 

Mentioning Computer Generated Unique Document Identification Number (DIN) in Notice/ Order/Summons/letter/correspondence issued by the Income-tax Department is compulsory [CBDT Circular No. 19 of 2019, dated 14.08.2019]

§  The CBDT vide Circular No. 19 of 2019, dated 14.08.2019 made it compulsory that any Notices, orders. issued by the Income Tax Department on or after 01.10.2019 cannot be issued without mentioning Computer Generated a Unique Document Identification Number(DIN).

§  Only in Exceptional Circumstances which are also given in CLAUSE NO.3 of the aforesaid Circular, Notices/ Orders can be issued without DIN that too after taking necessary approval from the appropriate Authority.

§  Moreover when Notices/orders are issued without DIN, the Exceptional Circumstances including Approval Authority Designation including the Approval Letter No. and Date shall be mentioned.

§  Where Notices, Orders etc. are issued by the Income tax Department Without DIN, such Notices, Documents, etc are Invalid, non-est and cannot be used against the Assessee.

§  Any communication issued by the Income tax Department which is not in conformity with CBDT Circular No. 19 of 2019, dated 14.08.2019, shall be treated as invalid and shall be deemed to have never been issued and cannot be used against the Assessee .

In exceptional circumstances such as,

(i)    When there are technical difficulties in generating/allotting/quoting the DIN and issuance or communication electronically; or

(ii)    When communication regarding enquiry, verification etc. is required to be issued by an income-tax authority, who is outside the office, for discharging his official duties; or

(iii)   When due to delay in PAN migration, PAN is lying with non-jurisdictional Assessing Officer; or

(iv)   When PAN of assessee is not available and where a proceeding under the Act (other than verification under section 131 or section 133 of the Act) is sought to be initiated; or

(v)    When the functionality to issue communication is not available in the system,

the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner / Director General of income-tax.

Authenticate the Notice issued by Income Tax Authorities using ‘Authenticate Notice/Order Issued by ITD’ feature on the e-Filing portal of the Income Tax Department

It is necessary to authenticate the notice/order by Income Tax Authorities.

You can authenticate the order, notice, or letter issued by the income tax department using ‘Authenticate Notice/Order Issued by ITD’ feature on the e-Filing portal of the Income Tax Department

Frequently Asked Question (FAQ)

Q. -  1 : Why do I need to authenticate notice/order issued to me by Income Tax Authorities?

Ans. :   Every communication by Income Tax department issued on or after 1st October, 2019 shall bear an unique Document Identification Number(DIN). In order to satisfy yourself that the notice/order or any communication received by you is genuine and issued by Income Tax Authority, you can authenticate any notice/order or any communication using this service.

Q. -  2 : What if the ITD notice/order does not bear a DIN?

Ans. :   In such case, the notice/order/letter received by you would be treated as invalid and shall be non est in law or deemed to be as if it has never been issued. You do not need to take any action or respond to such communication.

Q. -  3 :  Where can I authenticate the order issued to me by ITD?

Ans. :   You can authenticate the order issued by the Income Tax authorities on the e-Filing portal using Authenticate Notice / Order Issued by ITD service.

Q. -  4 : Do I need to log in to authenticate the notice issued to me by ITD?

Ans. :   No, you do not need to log in to the e-Filing portal to authenticate the notice / order. You can authenticate the notice by clicking on the Authenticate Notice/Order Issued by ITD link available on the e-Filing portal.

Q. -  5 :  Do I need to enter the same mobile number as registered on the e-Filing portal to authenticate my notice?

Ans. :   No, it is not mandatory to enter the mobile number registered on the e-filing portal to authenticate the notice / letter or any communication issued by Income Tax Department. You may choose to receive OTP on any mobile number which is accessible to you by entering it in the mobile number textbox.

Q. -  6 :  What is DIN?

Ans. :   DIN stands for Documentation Identification Number. It is a computer generated unique number which needs to be duly quoted on every communication (letter / notice / order / any other correspondence) issued by any Income Tax Authority to any taxpayer.

How To Authenticate Notice/Order issued by Income Tax Department ?

Before you respond to any communication received in the name of the income tax department, it is important to verify whether the notice/order issued is genuine and issued by the income tax authority.

You can authenticate the notice/order/letter issued by the income tax authority on the e-filing portal. Let us understand to verify the same.

Step 1: Go to income tax e-filing portal. On the home page, go to ‘Authenticate notice/order issued by ITD’ under ‘Quick Links’.

Step 2: You can authenticate using:

§  PAN, document type, assessment year, issue date and mobile number (for notice/order/letter issued for AY 2011-12 and subsequent years only)

§  Document Identification Number and mobile number (for all assessment years)

Step 3: If you want to authenticate by PAN, document type, assessment year, issue date and mobile number, select the option and enter all the details.

Step 4: After filling in all the details, you will receive an OTP. Enter the OTP received.

§  Once the OTP is validated, the DIN of the notice issued, along with the date of issue of the notice, will be displayed.

§  If the notice is not issued by the ITD, it will display a message – No record found for the given criteria.

Step 6: Enter DIN and mobile number and continue. You will receive an OTP. Validate using OTP.

If the notice/order is issued by the income tax authority, it will display a success message, as shown below.

FAQs on Comply to Notice

Question 1: What is the use of “Comply to Notice” functionality?

Resolution :  The “Comply to Notice” is a pre-login functionality given to the assessee, on the income tax portal, to submit response to the notices issued.

Question 2 : Can we submit response to any notice using this functionality?

Resolution : No, this functionality can be used to submit response to only below mentioned notices:

• Any ITBA notice/ document issued which is not linked to any PAN/TAN
• ITBA notices under section 133(6) to be responded by authorized users who may not have access to e-filing account of the entity to which notice is issued

Question 3 : Should I enter the complete DIN or last some digits of the DIN?

Resolution : Yes, the assessee is required to enter the complete DIN as mentioned in the notice/letter pdf.

Question 4 : Which mobile number and email ID should be entered for validation?

Resolution : The mobile number and email ID needs to be in active state as the OTP will be sent on both for validations.

Question 5 : Can I add Authorized Representative to respond to the notice using this functionality?

Resolution: No, you cannot add Authorized Representative to respond to the notice using this functionality.

Question 6: Can I seek adjournment for responding to the notice using this functionality?

Resolution : No, you cannot seek adjournment for responding to the notice using this functionality.

Question 7: What should be the format and size of attachment?

Resolution : The format of the document should be PDF/XLS/XLSX/CSV and the size of each attachment should not exceed 5 MB. The assessee can attach up to 10 files at a time.

Question 8 : Is it mandatory to enter the Aadhar details for verification of response?

Resolution : Yes, the assessee is required to select the capacity in which the person is filing the response and should enter the correct Aadhar details as per the UIDAI.

Question 9 : Can I view my response once I have submitted my response to the notice issued to me?

Resolution : Yes, you can view the response submitted by you by clicking on “View Submitted Response” and then validating the DIN with the same mobile number and mail ID which the assessee used for submitting the response.

Question 10 : Can I edit my response after responding to a notice?

Resolution : No, you cannot edit your response once submitted. You may submit another response for the notice until the proceeding has been blocked or closed by the assessing officer.

Authenticate the Notice issued by Income Tax Department -  FAQ

1.   Why do I need to authenticate notice/order issued to me by Income Tax Authorities?
Ans. : Every communication by Income Tax department issued on or after 1st October, 2019 shall bear an unique Document Identification Number(DIN). In order to satisfy yourself that the notice/order or any communication received by you is genuine and issued by Income Tax Authority, you can authenticate any notice/order or any communication using this service.

2.   What if the ITD notice/order does not bear a DIN?
Ans. : In such case, the notice/order/letter received by you would be treated as invalid and shall be non est in law or deemed to be as if it has never been issued. You do not need to take any action or respond to such communication.

3.   Where can I authenticate the order issued to me by ITD?
Ans. : You can authenticate the order issued by the Income Tax authorities on the e-Filing portal using Authenticate Notice / Order Issued by ITD service.

4.   Do I need to log in to authenticate the notice issued to me by ITD?
Ans. : No, you do not need to log in to the e-Filing portal to authenticate the notice / order. You can authenticate the notice by clicking on the Authenticate Notice/Order Issued by ITD link available on the e-Filing portal.

5.    Do I need to enter the same mobile number as registered on the e-Filing portal to authenticate my notice?
Ans. : No, it is not mandatory to enter the mobile number registered on the e-filing portal to authenticate the notice / letter or any communication issued by Income Tax Department. You may choose to receive OTP on any mobile number which is accessible to you by entering it in the mobile number textbox.

6.   What is DIN?
Ans. : DIN stands for Documentation Identification Number. It is a computer generated unique number which needs to be duly quoted on every communication (letter / notice / order / any other correspondence) issued by any Income Tax Authority to any taxpayer.

 

Notice and principle of natural justice and reasonable opportunity of being heard and valid show cause notice etc.

The principles of natural justice are enshrined in two Latin maxims - nemo judex in causa sua and audi alteram partem. Translated literally, these maxims mean respectively that—

(i)  no one can be a judge in his own cause, and

(ii) let the other side be heard.

In other words, the first is to the effect that no one should have personal interest in a case before him, and the second that no one should be condemned unheard. Thus, not only the assessment order, but also every action taken by the Assessing Officer in the course of assessment should stand the test of appeal on the grounds of impartiality and fairness. Negatively, these two rules may also be called rules against bias and arbitrariness.

 

‘Rules of natural justice are to secure justice and to prevent miscarriage of justice. They supplement the law and do not supplant it.’

Prima facie indications of ‘fairness’ on the part of the Assessing Officer are:

(i)   adequate notice,

(ii)  opportunity of hearing, and

(iii) speaking order.

 

Right to fair hearing includes Right to notice

Derived from the Latin word notitia, which means being known, notice is the starting of any hearing. Unless a person knows the issues of the case in which he is involved, he cannot defend himself. For a notice to be adequate it must contain -

(a) Time, place and nature of hearing

(b) Legal authority under which hearing has to be held

(c) The specific charges, grounds and proposed actions the accused has to meet.

 

Proper service of notice

Proper service of notice within due time is one of the mandatory principles of Natural Justice. For effective compliance by an assessee, notice of hearing must be served on time, providing reasonable opportunity to the assessee.

Hence, before any action is taken, the assessee should be given a show cause notice against any proposed action and seek his explanation towards the same. Therefore, any order passed without giving notice is against the principles of natural justice. Further, the affected party shall be served with specific and unambiguous notice as the very objective of serving notice is to provide a reasonable opportunity for compliance.

The Apex Court in Pannalal Binjraj v. Union of India, (1957) SCR 223 mandating the observance of the rules of natural justice in income-tax proceedings held that the Income-tax authorities should follow the rules of natural justice and, where feasible, give notice of the intended transfer to the assessee concerned in order that he may represent his view of the matter and record the reasons of the transfer, however briefly, to enable the court to judge whether such transfer was mala fide or discriminatory, if and when challenged.

No violation of principles of natural justice if notice was issued at registered and last correspondence address

Assessee assailed show-cause notice issued to it, submitting that it was invalid in law since it was affixed at registered office of company instead of sending notice at correspondence address of company and hence show-cause notice was against principle of natural justice, depriving assessee from filing suitable response to show-cause notice. However, it was found that Assessing Officer issued show-cause notice on company's registered office address, which was mentioned in return of income as well as last correspondence filed by assessee with Assessing Officer’s office. Further, notably this was same address which was mentioned in Permanent Account Number of assessee company. Therefore, there was no violation of principles of natural justice in serving notice at address of assessee company as mentioned in Permanent Account Number. [In favour of revenue] (Related Assessment year : 2012-13) – [Maharaja Corporate Services (P) Ltd. v. ITO (2024) 158 taxmann.com 42 (ITAT Ahmedabad)]

13 hours response time for show cause notice, against natural justice; Revenue to consider matter afresh

Madras High Court sets aside the assessment order passed pursuant to show cause notice issued in violation of natural justice by merely granting 13 hours’ time to file the detailed explanation to the proposed variations; Assessee-Individual was subjected to assessment proceedings wherein the Revenue issued first show cause notice on 06.03.2023 directing the Assessee to file reply till 09.03.2023; Assessee complied with the show cause notice on 09.03.2023 and enclosed bank statements and details of sales of cars, subsequently filed adjournment application on 25.03.2023 seeking time to produce and upload the voluminous records; Revenue rejected Assessee’s adjournment application on the ground that time for completion of assessment is barred on 31.03.2023 and subsequently issued second show cause notice on 27.03.2023 at 7:30 P.M. proposing to assess the variation and directed the Assessee to file the reply by 9:00 PM on 28.03.2023 i.e., merely in 13 hours and consequently, passed the assessment order on 30.03.2023; Before High Court, Assessee contended that no opportunity was provided to enable it to file detailed explanation and granting only 13 hours to file the reply is clear violation of the principle of natural justice since; High Court observes that admittedly the second show cause notice provided only 13 hours to respond which is clear violation of the principles of natural justice; Accordingly, sets aside the assessment order passed on 30.03.2023 and remands the matter back to the Revenue to consider the matter afresh after providing an opportunity to the Assessee and pass the order within four weeks. [In favour of assessee] (Related Assessment year : 2018-19) – [Sundaresan Suresh Kumar v. Assessment Unit and ACIT [TS-226-HC-2023(MAD)] – Date of Judgement : 18.04.2023 (Mad.)]

Section 148A Notice through E-filing Portal giving 7 Days to file Reply is ‘Unreasonably Short’, Prima Facie Violates Natural Justice Principles

The Punjab & Haryana High Court, while considering a writ petition challenging re-assessment proceedings by holding that the notice under section 148A of the Income-tax Act, served through the e-filing portal granting mere 7 days for the assessee to respond is ‘unreasonably short”, violates the principles of natural justice. Justice M.S. Ramachandra Rao and Justice H.S. Madaan was considering a petition by Ms. Puja, the assessee who challenged the order being violation to the principles of natural justice in so far the Petitioner was not afforded an opportunity of personal hearing in terms of Section 148A(b) of the Act, 1961.

The petitioner pleaded that the order is violation to the principles of natural justice insofar the Petitioner was not afforded an opportunity of personal hearing in terms of Section 148A(b) of the Act, 1961. Listing the matter to 20th October, the division bench held that “Prima facie, the impugned order dated 03.04.2022, passed under Section 148 (A)(d) of the Income-tax Act, 1961 appears to have been passed with regard to a transaction which occurred in the financial year 2014-15 by serving a notice allegedly through E-filing portal on 21.03.2022, and giving a mere 07 days time to assessee to furnish a reply thereto. Prima facie, the time granted to the assessee to reply appears to be unreasonably short, and the assessee cannot be blamed for not being able to file the reply within such a short period. Therefore, prima  facie this is a violation of principle of natural justice.” – [Dharam Pal v. Pr. Chief Commissioner of income-tax (2022) TAXSCAN 391 (P&H)]