How To Tackle Apparent Mistakes By The Tax Department In Issuing Notices

There are times when a taxpayer might receive a notice from the income tax department. While these notices have to be studied very closely, it might even be the case that the demand or the position taken by the tax department is not in line with the reality on the ground. Closing the matter logically and conclusively is crucial, as neglecting the necessary procedure could potentially resurface later. Here are some points to follow in such cases.

The tax department may issue a notice in one of two types of situations. One scenario involves a potential discrepancy between the tax department's interpretation and the taxpayer's underlying assumptions. This situation necessitates a closer examination and expert opinion. In the other scenario, there appears to have been an error. If the taxpayer has done this, then they should pay the demanded tax and close the matter. In some cases, even the tax department may make mistakes due to issues with the software or the way it has interpreted the situation. In this case too, the apparent mistake has to be pointed out to the tax department.

A very good example of this is the case that has been seen recently with employees of one of India's top information technology companies, where notices were issued to them because the tax department did not consider the tax deducted at source for such employees in the workings.

One of the first things that an individual has to do when they get such a notice is to go through the details carefully and find out the reason why it has been issued. This will enable them to get to the bottom of the whole matter. No matter who is at fault, the taxpayer should not ignore the notice, as this will not go away on its own. If they need to pay some additional tax, they should do so, and even if it is a mistake by the tax department, they should point out this fact and make the necessary correspondence with the department.

Only when the tax department issues a rectification order for a mistaken notice or work in their previous assessment can the matter be considered closed. The rectification order proves that the department saw and fixed the mistake, making it crucial. This is also crucial as it aids in resolving any outstanding queries in the tax department's records. If there is a fault of the department but this order is not issued and the matter is corrected officially, then in the records it will still show as a demand pending, and this can come back to haunt the taxpayer at a later date.

If there was such a mistake, then there is no need for the taxpayer to pay the tax demanded in the assessment order or the notice. This holds significant importance as it's not mandatory for an individual to comply with every tax demand. If this is a wrong demand, then there is no need to pay, and one should just ensure that the right intimation is made with the facts pointed out so that the matter can be closed according to the requirements of the Income Tax Act.

Arnav Pandya is founder of Moneyeduschool