How to handle Income tax Notice
Added: (Tue Mar 22 2022)
Pressbox (Press Release) -
Introduction -
My name is CA Arun Tiwari and in this article, I will tell you how to handle Income tax demand. If you receive any demand notice from the income tax department, the first thing I will say to God is that you are going to see any such nonsense thing, but you cannot be sure so of course If you are an income taxpayer. Mainly today, tomorrow face this situation where one day you wake up, you check your income tax portal and you see there is some demand pending. You open up and you find there is a bomb and if something comes like that. Then don't be nervous. Just. What I'm explaining to you in this article is that everything is working out, smooth like that.
So let's begin the first thing before I tell you about it. That is how to handle income taxes. Let's understand what income tax demands. So what is the word difference? Is there between the income tax notice and income tax demand? So, income tax demand is concluded. That means it starts with the income tax notice. So when you receive an income tax notice, it's kind of a summon where they will ask you to give documents information. And if you have not filed the return and after that whatever document or information you provide, they complete this whole investigation and after the investigation, they will file a charge sheet and the charge sheet is called income tax demand, so in that demand when generally two things can happen. Either you are nice and clean, so nothing will come. There will be just an assessable order. But suppose, they find out that you have some hidden income or you know something, then with the income tax assessment order, there will be another document coming to you which is a demand in which they will simply ask me to pay this much amount along with interest and penalty. So, this is a difference between income tax notice and income tax demand.
High Pitched Demand -
Once you get income tax demand that means there is no chance of replying and getting it rectified. Charging sheet submitted to port. So once the Department makes the investigation then you have 2 options, you pay the income tax demand or go for appeal. Now let me tell you how to handle the income tax demand and how to get out without paying unnecessary taxes, unnecessary penalties because in many cases we have seen, especially in the case of middle-class tax players like you and me there is high pitch demand. Now, what is high pitch demand that will be explained later in this article but before that, I'll tell you how you can check that there is an income tax notice or demand is pending in the income tax portal. So, if want to know how you can check that then click on below link
https://aktassociates.com/business-compliance/tax-compliance/tax-notice-reply
How to handle notice and demand -
Log in there and then you can check whether there is a penalty. If income tax notices are pending, then take immediate action, approach some good chartered accountant, you can approach us also and then discuss with them and reply with all information. This will avoid doing ex parte assessment. Now, what is this thing? So ex parte is really like that. If they have issued the notice and you are not providing any document, you are not replying, you just forget about that then in that case the income department can do your assessment as they wish.
They can Issue demand and as per the error and whatever the Information is available and in that case, it will be very, very, very high pitched demand that means even if you don't have to pay one thing, one lakh or two lakh rupees of tax they can issue 10 lakh of demand. So just avoid that situation because once you get into demand mode, then of course you have to go to appeal. There is no option. So, first part if you got a notice which is pending and staring at you, then find somebody and handle that notice properly.
Provide all the information and that way first is you will do the prevention because prevention is better than cure to getting to the unnecessary demand phase. So, simply just handle the notice properly and the notice will conclude without any demand. Let's say sir that something doesn't happen, you have not checked it or your CA has not checked it or your tax consultant has not checked it and there is a demand pending and staring at you and you know what you have to do about that. But let me just tell you, one word which I have used earlier is high pitch demand. So what is high pitch demand? It's very important to understand this before I tell you how to handle notice demand. So, high-pitched demand is done by the income tax department to collect more taxes so it can happen.
I don't have to pay anything, but because I'm not handling my notice and they have done the expert assessment themselves, they decided that I have to pay that particular amount and they'll put the file in my income tax portal. So, this happens a lot, so before I explain to you why this happened. Let's understand, Why the income tax department has high demand. So now we understand one thing, The income tax is a collection department for the Government of India that is like a bank. So you can say another word: It's vasuli department. They have to collect money from us, which goes to the Government of India for the purposes. So they have assigned a target, collection target. Every income tax officer has some collection target and like when March appears, they have to meet that target. Based on the collection and their promotions, everything is decided.
So, it is their performance criteria. Now, what happened is that it's very easier to put on a middle-class taxpayer unnecessary tax than two put up tax demand on reliance industry or Ambani's ordines. So, understand one thing in India only middle-class people pay taxes. Not very poor pay taxes and not very rich. So, what happens in the case of the middle class? Why do they do such a thing because the middle class will not come to know? That there is a high pitch assessment because in most of the cases the middle class will not go to appeal, they will simply accept a payout. So, it's very easy to send notices to say one Lac middle-class taxpayer, then send a big amount notice to big. You can say a corporation which will employ a battery of even, say lawyers and they will fight for two years and finally they will not pay anything. So, it's very easy to list, say 2. lakhs of extra tax on another one leg or two.
So, because we don't go to appeal, they make this high pitched. Two reasons. First, to meet their targets. It is very easy to meet the middle-class taxpayer and second because we will not go to appeal so they will be safe. Now, how do you know whether the demand sent to you is a high pitch or not? That means they're asking for more money than you actually should pay, or whether you should pay or not. In most of the cases, we have seen, the demand is not proper. When we investigated the case. The standoff department was completely wrong. They are treating the money withdrawn cash, which I will withdraw from my bank account as an unexplained source of income. And on that, they are putting 30% tax plus penalty and they come up with in lakhs of rupees So, we have to review.
You have to get it renewed and we provide such service where we reveal the demand. So, it's a demand in the service in which you have to send us the demand whatever demand you receive and we will ask for some documents and do the computation and we'll tell you whether it's high demand or not. And if it's high pitched, then how much extra tax there is, asking whether the first thing you have to pay new taxes or not. And second, if you have to pay taxes then what should be the reason you can say, right calculation right text amount which you have to be in mind. There will be nominal charges of 2500 plus GST for that, but that will save you a lot of money unless you can say you can go to an appeal and you can save your unnecessary Taxes which is asking you to pay through this high pitched demand. So finally we are at a question of how to handle the specialized pitch demand.
If there is a demand which is proper like I had to pay some taxes and our department is asking it's better to pay than getting into litigation because if they are right they will not allow me to go away without paying taxes, but if I find out that this is unnecessary, they are putting me in this trouble just to meet their collection targets. So in that case I have to go to appeal directly. Now here some people will ask if you ask some other chartered accountant so other people will say OK you have the option to go to the income tax commissioner also and you can file a rectification. So let me tell you 99% that rectification is rejected by the Commissioner.
Why is it done? I understand the first thing, the income Tax Commissioner is a senior of income tax officers and whatever collection target is given to the income tax officer indirectly is the collection target of the Commissioner. So, unless there is a very genuine case of misunderstanding like on the face you can say that I have not made any income. First thing, I am an 18 years old person and I don't have any income and they're sending email notifications on-demand on the laptop so it's a mistake.
Only in that case where they feel that he can be caught. They can be embarrassed, they will do some kind of rectification. Anywhere where the chances are that the case can go any way, either in my favor or in income tax favor, they will not do the rectification. They will simply say rejected. We will not be allowed to pay taxes. So, it's a waste of time, and understand that for an appeal also you have to file within 30 days of receiving demand and they have to file for in case of delay you have to explain why the delays happen and if the court feels that your reason is you can say nice and fear. Then they will allow you to file your delay. you can say appeal. But if you get into this unnecessary nonsense, your timeline will get over, and once the court will also feel that if you're going to the income tax Commissioner for rectification, then why are you coming to me.
I'm like nobody you are not taking seriously. So maybe there are chances that they will not allow you to file a late appeal, so the best option is to appeal and why. Let me tell you this. Almost 70 to 75% of the appeal goes in favor of the assessee, and this fact very few people know. Now let me again tell you this appeal is not like a normal court, like where you have to go and they will give you date after date. It's a very specialized court which is only for income tax purposes and there is a Commissioner appeal now so don't confuse it with Commissioner and Commissioner appeal, Commissioner is separate and Commissioner appeal is a completely independent body that is a part of the judicial system. It is a part of the court system. He is not forced. He doesn't have a collection target and if you are right at the first place of contact you will get justice in 75% of cases. We have felt we have to get the experience that if this is a high pitch assessment, they generally cancel it right away and you will get the relief opening.
A new thing is so important once you get to know that there is a demand, don't act like an ostrich. What people do once they see there is a demand. They say they're doing some communication & miscalculation. Let's forget about it. Let's put our hand in hand. And this strength will pass away. But basically, it doesn't happen. Once you get that demand, that means there is a liability fix on you, and the income tax department will recover the money Some way, so how they can go for your money. Firstly, they can adjust your refund. So, suppose in this year they are supposed to receive some refund. They will adjust against that demand and this is another fault I have seen. But this is what I've seen in some cases where the demand is coming in the present year. Suppose somebody has to receive a one Lac rupees refund.
What they do generally will go 5 years, 10 years down the line. Then out of somewhere, they will create a demand of maybe 70 or 80 thousand or 90 thousand rupees. They will adjust and pay you ten ₹10,000 and we'll tell you to thank you for your service. So, this also happens, but again, if you have a demand. They can rightly adjust your refund for the future and present. Plus, I have some people say I don't bother about that. Then the second thing can happen if your demand is high, they can attach your bank statement, and they convert money from there also. Yes, they have the power to do that also. Some people even say I don't bother because I don't have anything in my bank statement. So what 3rd thing they can do. They can simply attach your property. Of course, they will not sell the property right away, but they will simply threaten you by now, and otherwise, I'm going to sell you a property at whatever the prices.
Suppose my demand is for 10 Lac rupees. If the property value is 1 crore then I don't bother. I will sell. You sell this property to anybody anyway. I will get my taxes. And you forget about your property. This thing can happen because you understand the income tax department is vasuli department for the Government of India. So, they have more faith in the Government of India, and the need of the Government of India is more than the middle taxpayer. So, this article makes you aware that appeal is quite accessible. It's not like you can say the Criminal court or Civil court where you have to go and stand and you have to wait for your turn, no. It's completely online, it's a faceless assessment and an appeal. Now that means if you hire A qualified chartered accountant, they can do it from their office and you don't have to even move from your home. You just have to provide information to the chartered accountant like our form and under our form, the team will work out everything and communicate with you, and file a proper appeal within it.
And as I told you, it's not a guarantee because if you have to pay some taxes, you have to pay taxes. Nobody can get you out of there. But if there is a high pitch assessment, wrong assessment, wrong demand issued on that. I'm saying that in almost 90 percent, 95% cases they will. You will get relief from that unnecessary tax payment. And actually all middle class should go for an appeal. Why I'm making such a statement is because if they start going from an appeal then this income tax department will do their assessment very carefully and they will have to be careful and they will put every support. But the problem is most of the time they know that these people will not act and this is a very easy way to get money and get their assessment and get their targets and get their promotion just on the post of this middle class, people who are already struggling with their daily life due to paying unnecessary and high taxes. On top of that, they issued this kind of demand also.