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July 27, 2020

Is reply for Compliance Intimation under E-Campaign by Income Tax Dept obligatory? What if Taxpayer Do not reply?

Is reply for Compliance Intimation under E-Campaign by Income Tax Dept obligatory? What if Taxpayer Do not reply?

If you have done a high-value transaction in FY 18-19 and haven’t filed tax return, there is chance that you may get a notice soon from the Income Tax (IT) Department.  The Central Board of Direct Taxes (CBDT) had launched an e-campaign on Voluntary Compliance of Income Tax.

The income-tax department will reach out to certain taxpayers who have either not filed income-tax returns (ITR) for AY2019-20 (relevant to FY2018-19) or failed to accurately report high-value transactions in their returns. The department would run an 11-day e-campaign for this purpose starting from July 20.

This e-campaign has been launched for the benefit and convenience of the taxpayers. The objective of the e-campaign is to facilitate taxpayers to validate their financial transaction information against information available with the IT department. The campaign seeks to enable voluntary compliance to avoid notice and scrutiny process. 

Under the campaign, the IT Department will send emails and SMS to identify taxpayers to verify information related to their financial transactions that were received by the IT Department from various sources such as Tax Deduction at Source (TDS), Statement of Financial Transactions (SFT), Tax Collection at Source (TCS) and Foreign Remittances (Form 15CC).

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The Department, also collected information related to goods and service tax (GST), exports, imports and transactions in securities, derivatives, commodities, mutual funds, etc., under information triangulation set up and data analytics.

Key Highlights of the E-Campaign 

  • Under the e-campaign, the taxpayers will be able to access details regarding their high value transactions online on a designated portal
  • The taxpayers would not be required to visit any Income Tax office, as the response will have to be submitted online.
  • They will be able to submit their response online by selecting any of the following options:
  • Information is correct
  • Information is not fully correct
  • Information related to another person/year
  • Information is duplicate/included in other displayed information
  • Information is denied. 
  • The data analysis of the IT department had revealed that identified certain taxpayers with high value transactions have not filed returns for AY 2019-20 (relevant to FY 2018-19). 
  • The analysis also revealed another set of return filers whose high value transactions were not in line with their Income Tax Return.
  • In case a notice is issued, the assessee can view detailed information on the income tax e-filing portal by logging into the account. Assessee can also file a response on the portal.

Taxpayers have Started receiving following SMS and Email

Attention (XXXXX8000X), the Income Tax Department has identified high value information which does not appear to be in line with the Income Tax Return filed for Assessment Year 2019-20 (relating to FY 2018-19). Please submit online response under e-Campaign tab on Compliance Portal (CP). Access CP by logging into e-filing portal (My Account) – ITD.

We appreciate that you have filed your Income Tax Return and contributed towards the progress of Nation. However, the Income Tax Department has received information on high value transactions relating to XXXXXxxxx  for Financial Year 2018-19.

On the basis of data analysis, the Income Tax Department has identified following high value information which does not appear to be in line with the Income Tax Return filed for Assessment Year 2019-20 (relating to FY 2018-19) : Receipts from sale of securities  Receipts from sale of securities Receipts from sale/transfer of securities (Off-market transaction).

IT department had previously also initiated the Non-filers Monitoring System (NMS) for a similar purpose in 2019

The Non-filers Monitoring System (NMS) aimed to identify and monitor persons who had entered into high value transactions and had potential tax liabilities but had still not filed their tax returns. Analysis was carried-out to identify non-filers about whom specific information was available in the database of the Income Tax Department.

The sources of information include Statement of Financial Transactions (SFT), Tax Deduction at Source (TDS), Tax Collection at Source (TCS), information about foreign remittances, exports and imports data etc.

Data analysis identified several potential non-filers who had carried-out high value transactions in Financial Year 2017-18 but who had still not filed Income Tax Return for Assessment Year 2018-19 (relating to FY 2017-18).

Non-filers were requested to assess their tax liability for AY 2018-19 and file the Income Tax Returns (ITR) or submit online response within 21 days. If the explanation offered is found to be satisfactory, matters were closed online. However, in cases where no returns were filed or no response was received, initiation of proceedings under the Income-tax Act, 1961 was being considered.

Is reply for compliance intimation received by SMS and email under E-campaign by the Income Tax Dept obligatory?

This campaign is to aid the voluntary compliance by taxpayers. Taxpayers though are not obligated to reply to such e-mails or SMS’s, the taxpayer must avail the opportunity to participate in the e-campaign for their own ease and benefit. After submitting the response under e-campaign, the taxpayer can file or rectify the return.

However, if the payment is due, they may get a tax notice or face penalty for non-filing tax returns or evading taxes. So if you receive such sms or email, there is no need to panic.  Just respond to the query within the prescribed time. Last date for filing as well as revising the ITR for AY2019-20 is July 31, 2020.

However if taxpayer fails to respond to the intimations received under the e-campaign compliances then they may receive the following three notices:-

1) Notice under Section 142(1) of the Income Tax Act

A notice under section 142(1) can be issued under the following circumstances:

  • If you have filed your return, but the Assessing Officer requires additional information and documents; or
  • If you have not filed your return, but the Assessing Officer wants you to file it.

The information is called, to enable the officer to make a fair assessment. If an assessee does not respond to such notice, he/she will be punishable with:-

  • A penalty of Rs 10,000 can be levied for each such failure
  • Prosecution which may extend up to 1 year
  • Both of the above

2) Intimation Under Section 143(1)

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

  • Any arithmetical error in the return
  • An incorrect claim (provided the incorrect claim is apparent from the information filed);
  • Disallowance of incorrectly claimed loss or expenditure
  • Any income which has not been included in the return

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 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 one year from the end of the year in which return has been filed.

3) Notice under Section 143(2) of the Income Tax Act

When the income tax department finds discrepancies, minor or major, in the income tax returns, a notice will be issued under Section 143(2). The discrepancies can be under-reporting income or over-reporting losses. The notice is issued to make sure that the assessee has not underpaid tax in any way. The notice under Section 143(2) can be issued after an income tax return has been filed but within a period of 6 months from the end of the financial year in which the return was filed.

Assessee will receive one of the following notices under Section 143(2):-

  • Limited Scrutiny: These are cases with inaccurate returns information or mismatches. The scrutiny will be limited to the particular area of return mentioned in the notice such as the claim of foreign tax credit or sale of a property
  • Complete Scrutiny: A complete scrutiny will be carried out on the return filed and all supporting documents. Though the scope of scrutiny is not limited in this type, the assessing officer cannot verify documents beyond the particular assessment year.
  • Manual Scrutiny: Cases are selected for complete scrutiny based on the criteria defined by the Central Board of Direct Taxes. The criteria may vary every year.

If an assessee does not respond to such notice, he/she will be punishable with:-

  • Penalty of Rs.10,000 for each failure to respond.
  • The assessment officer may close the assessment with the information he has with the best judgement under Section 144.
  • A higher taxable income can be considered, resulting in a higher tax and penalty payable by you.
  • If you choose to dispute the higher tax demand, a minimum of 20% of the tax due must be paid before you file an appeal with higher authorities.
  • It may lead to prosecution and if found guilty, it may result in imprisonment.

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