Every person, who earns income in excess of the basic exemption limit in a financial year, is required to file a statement containing details of his income, deductions, and other related information. This is called the income-tax return (ITR).
Verification of ITR
The first thing that a taxpayer should do after uploading his/her ITR is to verify and sign the same. The income-tax department provides two methods for verification, electronic or manual. There are different options for verification available under the electronic method. In case of tax returns which are required to be audited, a taxpayer can verify and sign the ITR electronically with a digital signature. In case of other type of tax returns, which would typically be Form ITR 1, or ITR 2 or ITR 4, the electronic verification can be completed using an Aadhaar-enabled one-time password or through net-banking or even through a demat account. In case a taxpayer is unable to use any of the electronic verification modes, verification can be done manually by dispatching a hard copy of the signed ITR acknowledgement (in form ITR-V) through speed post to the income-tax department’s centralized processing cell located at Bengaluru. It is important to note that the verification needs to be completed within 120 days of filing the return, else the return would be considered as invalid.
Intimation from I-T department
After the verification of the ITR, the income tax department starts processing it. On processing the ITR, the income-tax department sends an intimation under Section 143(1) of the Income-tax Act, 1961 to the taxpayer. The intimation is a preliminary level of review which, among other aspects, ascertains the arithmetical accuracy, any apparent incorrect claim, any mismatch between the tax credit statement and the ITR filed, etc.
The intimation confirms whether the income-tax department has accepted the details furnished in the ITR as it is or whether it differs with the computation of income reported by the tax payer. Consequently, the tax payer will also get to know whether he is entitled for any income tax refund or if he is liable to pay any tax.
If as per the intimation, the income-tax department accepts the details furnished in the ITR, any refund is due to the taxpayer would be issued after the processing is complete. However, if there is any tax payable reflected in the intimation, then the intimation is treated as a ‘notice of demand’.
In such a case, if the taxpayer finds the demand genuine, then he/she should pay the short fall amount of tax within a period of 30 days from the receipt of the intimation. In case, the demand is not paid within the stipulated time, interest and penalty will be levied. On the other hand, if the taxpayer disagrees with the demand notice, then the onus is on the taxpayer to justify the claim with proper supporting evidence.
Income tax scrutiny assessment
As per the income-tax law, the jurisdictional income tax officer (tax officer) may serve a notice of assessment to any person under his jurisdiction. In practice, however, only few ITRs are picked for detailed tax scrutiny. The Central Board of Direct Taxes (CBDT), which is the apex tax administration body, issues instructions each year which lay down the criteria and procedure for selection of cases for scrutiny. The underlying objective of the scrutiny assessment is to ensure that the taxpayers have not understated the income earned or have not underpaid the tax in any manner.
If selected for a scrutiny assessment, a notice would be issued to the taxpayer informing that his case is selected for scrutiny assessment and requesting certain information and documents for undertaking such assessment. Such notice can be served only within six months from the end of the financial year in which the ITR has been filed. For example, for ITR filed on 25 July 2019, notice can be issued till 30 September 2020.
On receiving the information and documents, the tax officer would complete the assessment and compute the amount of income and any tax payable by the taxpayer. If there is any tax demand raised and if the taxpayer agrees with such demand, then the taxpayer is required to pay the taxes within stipulated time.
Revision and appeals
If the taxpayer does not agree with the order passed by the tax officer and finds that there is any mistake apparent from record, he can apply for rectification of such mistake. The rectification application can be filed within four years from the end of the financial year in which the assessment order was passed.
The taxpayer also has an option to make a revision application against the assessment order within one year from receipt of such order to commissioner of income tax. However, a limitation of filing the revision application is that the order passed cannot be further appealed before any higher authorities.
Further, if the taxpayer does not agree with the order passed by the tax officer, the taxpayer can file an appeal with the first appellate authority, ie the Commissioner of Income-tax (Appeals) [CIT (Appeals)] within 30 days from the date of receipt of the assessment order.
It may be noted here that in case of a foreign company and where transfer pricing adjustment has been undertaken, the tax officer is required to pass a draft assessment order. This draft assessment order can be challenged before the dispute resolution panel (DRP). The tax officer is bound to follow instructions by the DRP and issue the final assessment order.
If the taxpayer is not satisfied with the order passed by the CIT(A) or by the order of tax officer (in DRP cases), he may appeal before the Income Tax Appellate Tribunal (ITAT) within 60 days from the receipt of order. If not satisfied with the ITAT’s order, the tax payer further has an opportunity to appeal to a High Court and then the Supreme Court, if required.
The ITR process is not entirely complete till the time an intimation is received or the scrutiny assessment is closed. Therefore, it is important to keep record of all the supporting documents till the time assessment is completed. Some of the documents which should be kept for any assessment in the future are copy of ITR along with ITR-V, any communication received from the income-tax department, withholding certificates, tax payment challans, proof of any deduction or exemption claimed like housing loan certificate, life insurance premium payment receipts, house rent receipts, donation receipts, bank statements, credit card statements, etc.
Shashishekhar Chaugule contributed to this story
Vikas Vasal is national leader-Tax Grant Thornton India LLP.