When the taxman comes knocking :: Business Line

��

-->

You can choose to pay the tax demand or appeal against it.

A notice from the tax department was something Suresh Kumar had least expected. To the best of his knowledge, he had always paid his tax dues and filed his tax returns on time. Many others find themselves in similar situations. We spoke to experts to find out what tax payers should do when they get a notice.

DON’T PANIC

Read the notice calmly and carefully. Checkthe PAN number to confirm that the notice is indeed meant for you. Understand what the notice says. For all you know, it may just be asking for clarifications and not require you to pay anything.

Says Rakesh Nangia of Nangia & Company, “All notices from the tax department do not pertain to tax demand. The assessing officer may issue notices seeking certain information or documents in respect to the return of income filed by the assessee. The officer may also issue summons to the assessee in relation to return filed by some other person with whom the assessee has entered into a business transaction. To avoid hassles with the tax department, the assessee should check notices received and ensure proper compliance by filing appropriate responses to the tax office or by attendance personally or through representatives.”

Even if it is a notice demanding payment, there is no reason to panic. Find out why you have been asked to pay and under which section of the Income Tax Act (see Table). A demand notice can be issued for a variety of reasons, and you have the right to appeal if you do not agree with it. Frame your response accordingly.

DON’T IGNORE

Whatever the nature of the notice, be sure to respond. Ignoring the notice hoping that the taxman will forget about it is a bad idea.

According to M. G. Ramachandran, Associate Director, PwC, the taxpayer should respond to a demand notice within 30 days of the receipt of the notice or as mentioned in the notice, whichever is earlier. He adds, “If the taxpayer ignores the notice of demand beyond 30 days, the tax officer will consider the taxpayer as a ‘taxpayer in default’ and levy interest and penalty. Further, recovery proceedings may be initiated and the tax officer may proceed to recover the tax demanded by different modes including attachment of the taxpayer’s properties such as his bank account.”

APPEAL OR NOT?

You can choose to pay the tax demand or appeal against it It is not mandatory to first pay and then argue your case.

Sunil M. Lala, Partner, KPMG-Tax Dispute Resolutions says that if an appeal is preferred against the order, a letter needs to be filed with the Assessing Officer requesting to keep recovery of demand in abeyance till the disposal of appeal. However, it is at the assessing officer’s discretion to accept or reject the request. If no appeal is preferred, then the demand raised in the notice should be paid before the end of 30 days from the receipt of notice to avoid further interest liability and other penalty procedures.

There are four levels of appeal – the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, the High Court and finally the Supreme Court. But note that choosing to fight the case legally without paying the demand amount could prove costly. If the final decision is not in your favour, you have to pay the demand along with interest at the rate of one per cent monthly and penalty for the delayed payment.

DOCUMENTATION, ASSISTANCE

Make sure you have all relevant documents ready to support your case. This could include financial statements, vouchers, agreements, computation of income along with notes.

Sunil Lala says while requesting to keep the demand in abeyance, the tax payer should show that he has a strong case to succeed. Further, documents to demonstrate financial hardship if made to pay the tax demand should also be kept ready.

There is also the possibility of the taxman sending you a demand notice pertaining to many years earlier. So it is important to maintain tax related documents pertaining to past years too.

Says Maadhav Poddar, Associate Director-Tax & Regulatory Services, EY, “Generally, an assessee is required to preserve the documents for eight years. However, where the assessee has any asset situated outside India, then he may be required to preserve the documents for 18 years.”

Finally, it may be a good idea to tap into the services of tax practitioners when dealing with tax notices. Especially so, if the the cases are complex, amounts involved are high and awareness of tax laws is low.