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How to deal with the notice received for non filing of income tax return

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TAX TALK-23.11.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

How to deal with the notice received for non filing of income tax return

Query 1]
I have got a notice on 16^th Nov’2015 from income tax department stating the following:-

I have not filed IT return for AY 2013-14.
I have purchased immovable property valued at Rs. 30 lakhs or more in 2012
I have purchased equity shares in a recognized stock exchange in 2012 & sold equity shares (settled by the actual delivery of transfer) in a recognized exchange in 2012.

However, the facts are as under:

I have purchased a flat in joint name with my wife in FY 2012-13 costing Rs. 29 lakhs & not Rs. 30 lakhs as mentioned by IT department.
I am a defense pensioner with 30% disability. As per CBDT circular No. 2/2001 Dated 02^nd July 2001, my complete pension (retiring & disability) is exempt from tax.
My income from other sources does not exceed basic exemption limit & so I am not filing income tax return since AY 2012-13 due to above reasons

My queries are:

Am I liable to file IT return for AY 2013-14 and for subsequent years?
If yes, then what is the penalty for not filing IT return for AY 2013-14 & for subsequent years?
What will be my reply to the notice?

An early reply is requested since I have to respond by 24^th Nov 2015. I am a senior citizen since FY 2012-13. [Col Sisir Kumar Misra- An army veteran- sisir_misra@yahoo.com]
Opinion:
The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing - Jean Baptist Colbert.

The time has changed and so is the working of tax department of the country. Income tax department is capturing & analyzing the multiple data relating to financial transactions of the taxpayers. If a person makes huge or high-value transactions & not filing income tax return, there are every chances of getting a notice if Income Tax Return is not filed. The department is getting strict with the non filers & sending notices to non-filers for even earlier assessment years as well. The data analysis is done at the compliance Management cell (CM) of Centralized Processing Cell (CPC) of Income Tax Department through Non-filers Monitoring System (NMS). Most of the taxpayers are getting panic after the receipt of the notice from CPC-CM. However, notice may not always mean that the recipient is viewed as a tax evader. NMS is implemented to identify non-filers with potential tax liabilities. Data analysis is carried out to identify PAN holders who had not filed Income tax returns despite conducting high-value transaction as extracted from Annual Information Return (AIR), Central Information Branch (CIB) data or TDS/TCS returns. Bulk Data matching exercise is carried out with the Financial Intelligence Unit (FIU) to include non-filers who had conducted high-value cash transactions. Before undertaking the detailed analysis, Compliance Management Cell (CMC) sends letters to PAN holders communicating the information summary and seeking to know the details of income, Income tax return etc so as to decide further course of action for each individual noticee. Online monitoring system will ensure further follow-up action and track return filing and tax payment of the target segment. An online monitoring system will also ensure that information related to non-filers is effectively used by the field formation officers.
Taxpayers have a curiosity to know the reason for receipt of notice or about the information the tax department are compiling for monitoring. Below are some of the information’s collected by the department through AIR, CIB and TDS return for which notices are being served to non-filer.

Annual Information Return(AIR):
a. AIR-001: Cash deposits aggregating to Rs. 10,00,000/- or more in a year in any savings account
b. AIR-002: Paid Rs. 2,00,000/- or more against credit card bills
c. AIR-003: Investment of Rs. 2,00,000 or more in Mutual Fund
d. AIR-004: Investment of Rs. 5,00,000/- or more in Bonds or Debenture
e. AIR-005: Investment of Rs. 1,00,000/- or more for acquiring shares
f. AIR-006: Purchase of Immovable Property valued at Rs. 30,00,000/- or more
g. AIR-007: Investment in RBI Bond of Rs. 5,00,000/- or more
Central Information Branch (CIB)
- CIB- 94: Sale of Motor Vehicle
- CIB-151: Transfer of immovable property
- CIB-154: Transfer of capital assets where value declared for the purpose of stamp duty is more than actual sale value
- CIB-157: Purchase of Immovable property valued at Rs. 5 lakhs or more
- CIB-183: Time deposit of Rs 1,00,000/-
- CIB-185: Purchase of Bank Draft of more than Rs. 50,000/- in cash
- CIB 321: Share Transactions more than Rs. 20,000/-
- CIB-403: Investment in Fixed Deposit/Time Deposit exceeding Rs. 2,00,000/-
- CIB-410: Cash deposit aggregating of Rs 2,00,000/- on a day
- CIB-514: Interest paid by co operative credit Society
TDS return
- TDS-94A: TDS Return – Interest other than interest on security (section 194A)
- TDS-92B: TDS Return – Salary to Employees (section 192)
Stock Broker
- STT-01: Purchase of equity share in a recognized stock exchange
- STT-02: Sale of equity Share (settled by actual delivery or transfer) in a recognized stock exchange
- STT-03: Sale of equity Share (settled by otherwise than by the actual delivery or transfer) in a recognized stock exchange

How to deal with such notice received by the taxpayers:

If the noticee don’t submit a response within the prescribe limit, CPC-CM may send information available with them to concerned assessing officer. With the available information, the assessing officer, if he has reason to believe that any income chargeable to tax has escaped assessment, may take up your case for scrutiny and assess tax liability subject to other provisions of the income tax. In such case, taxpayer may be unnecessarily required to represent and attend the case on regular basis with the assessing officer. Obviously, responding to the notices would be the best option.
To reply, first & foremost the taxpayer should ascertain the reasons for issue of notices. The reason is available on the notices received by the taxpayers and normally pertains to one or more of the reasons mentioned in point no. 1 to 4 above.
To reply to such notices, taxpayer would be required to log in at www.incometaxindiaefiling.gov.in wherein click would be required at the compliance menu which would reflect the details of the assessment years for which return has not been filed and for which certain information is available with the department. [If you are not registered with the e-filing portal, use the “registered yourself” link to register your PAN. The response has to be submitted electronically by clicking Compliance link after logging into the e-filing portal].
The taxpayer can choose one of the following two response options available as under:
i. ITR has been filed
ii. ITR has not been filed.
If ITR has been filed:
If the taxpayer chooses the option that ITR has been filed then it need to provide the mode of filing the ITR (paper or e-file), date of filing the ITR and the acknowledgement number. In case the ITR is e-filed, the status will be automatically updated.
If ITR has not been filed:
If the taxpayer chooses the option that it has not filed the ITR then it further needs to reply by choosing one of the following options:
i. Return under preparation
ii. Business has been closed
iii. No taxable income
iv. Others
In case if the taxpayer chooses the option “others” then he has to mandatorily submit the remarks. The screen shot of the screen in such cases would be as under:

Submit

Additionally, related information summary would also required to be submitted against the specific transactions mentioned in the notice. The reply could be done in most of the cases by clicking various readymade options like Self-Investment/ expenditure is out of exempt income, Self-Investment/ expenditure is out of accumulated savings, Self-Investment/ expenditure is out of gifts/ loans from others, Self-Income from transaction is below taxable limit, Transactions doesn’t pertain to taxpayer, Taxpayers need more information about the transactions etc.

The screen shot of the screen in such cases could be as under:

Submit

It’s time for the non filers to be very cautious. If the income of any individual is above the basic exemption limit, file the return within time. And the most important, don’t ignore such notices by the CPC-CM. Non-responding to the notices would not end up the proceeding.
In the specific case of Mr. Sisir Kumar,
1.      If your income is below the basic exemption limit, you would not be required to file the return of income.
2.      You may reply to the notice keeping in mind the above discussion, mentioning that
(i) Property value is Rs. 29 Lacs and not more than Rs. 30 Lacs as printed on the notices
(ii) Your income is below the basic exemption limit
3.      No Penalty/fine would be imposed in such cases as there is no violation at your end.

[The author is a practicing Chartered Accountant from Nagpur.
Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at
nareshjakhotia@ssrpn.com.
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