Stay calm while dealing with Income-Tax notices

Source: The Hitavada      Date: 06 Jan 2017 09:29:22


By Julfesh Shah,

THE notification of the Central Board of Direct Taxes (CBDT) asking banks to furnish details of cash deposits above a certain amount has got many worried about receiving notice from the Income-Tax department. But, if a person has been a regular taxpayer and can account for his deposits, he has no reason to worry.


The Government has directed the banks to provide details of individuals/ assesses who deposit Rs 2.5 lakh or more in savings accounts or fixed deposits between November 9, 2016 to December 30, 2016.


Also, deposits of Rs 12.5 lakh or more in a current account need to be reported to the authorities. The notification also said that the permanent account number (PAN) needs to be compulsorily quoted in case of cash deposits exceeding Rs 50,000 on a single day, or over Rs 2.5 lakh between November 9, 2016 to December 30, 2016.


As the Government has gone into overdrive against black money, many notices are expected this year.
Firstly, determine the type of notice you have received. Sometimes the tax department sends enquiry notices, where the officer asks for specific information. A tax scrutiny notice is for examining your I-T return in great detail. For black money-related cases, the department could issue enquiry notices anytime, asking people to explain the source of large deposits in their bank accounts.


When you receive a notice, maintain calm and no need to panic. Even if a notice is issued, it will ask the person to explain the source of income. The assessee will need to provide documents in support of his claim regarding the source of money. Just because one has received a notice does not mean that he has done something wrong. Initially, prima-facie try to understand the scope of the notice: Is it a scrutiny notice or only asking for certain specific information?


Next, establish whether it is a valid notice and if the tax officer has the jurisdiction or power to issue it. The notice ought to specify the nature of proceeding and relevant provision under which information is being requested.
Consult your chartered accountant or tax consultant and prepare your submission with relevant supporting documents.


Large and disproportionate deposits will certainly be scanned minutely by the authorities. The assessing officer can take the stand that the disproportionate deposits belongs to previous financial years and proceed accordingly. He may also verify details of tax deduction at source, service tax, value-added tax, etc. The Government has made clear its intention to penalise black money earners and may amend sections that give immunity to tax evaders. In some cases, penalties and prosecutions under other Acts like the Prevention of Money Laundering Act, 2002, can also be invoked.
The Government’s new scheme on declaration of black money ‘Pradhan Mantri Garib Kalyan Yojana, 2016’ pitched as a “last chance” for those having black money to come clean. It is somewhat similar to IDS, except that the tax rate is higher at 49.9 per cent and a quarter of the declared income will be locked in for four years.

Points to take care:
1) Maintain proper books of accounts. Keep all relevant and supporting documents.
2) Those who file returns under presumptive tax should preserve proof of sales, VAT and service tax paid.
3) To justify inventory, have purchase bills, sales invoices, record of opening and closing stock, stock register etc.
4) LIC, PPF passbook, taxsaver mutual fund, school tuition fees receipt and home loan statements serve as proof for Section 80C deductions.
5) For major transactions like property purchase; preserve sale deed and for purchase of fixed assets like furniture, machinery etc., maintain proper bills.
6) Ensure gift deeds are in place for large gifts.
7) Always keep a copy of your bank statement for the financial year.

(The author is Member of National Economic Advisory Committee, New Delhi of The Institute of Chartered Accountants of India)