How to handle notice received for Non-Filing of Income Tax Return – Asst Year 2013-14

Income tax department has started sending notices to non-filers for the assessment year 2014-15.

The income tax department has been capturing information on financial transactions /activities relating to you through Non-filers Monitoring System (NMS). This year NMS has identified 58.95 lakhs non-filers (Cycle 4 -2015) with potential tax liabilities for AY 2014-15.

The number of non-filers with potential tax liabilities identified in various NMS cycles is as under:

i) NMS cycle 1 (2013): 12.19 lakh

ii) NMS Cycle 2 (2014): 22.09 lakh

iii) NMS Cycle 3 (2015): 44.07 lakh

iv) NMS Cycle 4 (2015): 58.95 lakh

As a result of 1^st and 2^nd cycle, 30.68 Lakh returns have been filed and self-assessment tax of Rs. 4,733 crore has been paid by the identified target segment upto 31.03.2015.

Before going through how to handle notice received for non-filing of income tax return, let us understand what is all about “compliance management cell” and how “non-filing monitoring system” works.

Centralised Processing Cell-Compliance Management (CPC-CM)

To identify tax evaders, the Income Tax Department has set up a major data centre Centralised Processing Cell- Compliance Management (CPC-CM) which is in line with existing two such centres Central Processing Centre (CPC), Bangalore and TDS Centralised Processing Cell (CPC-TDS) which will have dedicated workforce, drawn from the department.

The CPC-CM is an ambitious project of the Central Board of Direct Taxes (CBDT) aimed at enabling the I-T department to use technical data to check cases of non-compliance and non- filers of taxes.

The CPC-CM will have the entire database of the Permanent Account Number (PAN), reports generated by financial snoop agencies and the full assortment of letters and notices issued to non-compliant taxpayers, their replies and the final action in the new centre.

Tax officials have issued polite letters to erring taxpayers as and when they obtain information in this regard and hence to streamline this process the CPC will act as an important tool

The department had initiated the business intelligence project in February 2013 to identify PAN holders who have not filed their returns and about whom specific information was available in its databases like the Annual Information Return (AIR), Central Information Branch (CIB) data or TDS/TCS returns.

Below are some of the information’s collected by compliance management cell through AIR, CIB and TDS return for which notice is being served to non-filer.

1. Annual Information Return(AIR)

• AIR-001: Cash deposits aggregating to Rs. 10,00,000/- or more in a year in any savings account
• AIR-002: Paid Rs. 2,00,000/- or more against credit card bills
• AIR-003: Investment of Rs. 2,00,000 or more in Mutual Fund
• AIR-004: Investment of Rs. 5,00,000/- or more in Bonds or Debenture
• AIR-005: Investment of Rs. 1,00,000/- or more for acquiring shares
• AIR-006: Purchase of Immovable Property valued at Rs. 30,00,000/- or more
• AIR-007: Investment in RBI Bond of Rs. 5,00,000/- or more

2. Central Information Branch (CIB)

• CIB- 94: Sale of Motor Vehicle
• CIB-151: Transfer of immovable property
• CIB-154: Transfer of capital assets where value declared for the purpose of stamp duty is more than sale value
• CIB-157: Purchase of Immovable property valued at Rs. 5 lakhs or more
• CIB-183: Time deposit of Rs 1,00,000/-
• CIB-185: Purchase of Bank Draft of more than Rs. 50,000/- in cash
• CIB 321: Share Transactions more than Rs. 20,000/-
• CIB-403: Investment in Fixed Deposit/Time Deposit exceeding Rs. 2,00,000/-
• CIB-406: Payment made against Credit Card more than Rs 2,00,000/-
• CIB-410: Cash deposit aggregating of Rs 200000 on a day
• CIB-502: Contract of Rs. 10,00,000/-or more in the Commodities Exchange
• CIB-514: Interest paid by co operative credit Society
• CIB: Payment in connection with foreign travel amount exceeding Rs. 1,00,000/- at one time
• CIB: Payment to Hotel and Restaurants exceeding Rs. 1,00,000/- at one time

3. TDS return

• TDS-94A : TDS Return   – Interest other than interest on security (section 194A)
• TDS-92B : TDS Return   – Salary to Employees (section 192)
• TDS-195 : TDS Return    – Payment to Non-residents (Section 195)
• TDS-196A : TDS Return – Income in repspect of Units of Non-residents (Sectio 196A)

Note : Details o transactions in TDS/TCS can be views in income tax website under menu  “view Credit Statement (Form 26AS) in “My Account”

4. Stock Broker

• STT-01: Purchase of equity share in a recognised stock exchange
• STT-02: Sale of equity Share (settled by actual delivery or transfer) in a recognised stock exchange
• STT-03: Sale of equity Share (settled by otherwise than by the actual delivery or transfer) in a recognised stock exchange
• STT-04: Sale of option in securities (derivative) in a recognised stock exchange
• STT-05: Sale of Futures (derivative) in a recognised stock exchange

5. Others: 

• EXC-001: Cash transactions exceeding Rs. 10,00,000/- in a month
• EXC-002: Turnover from services reported in Service Tax Return

Non-filers Monitoring System (NMS):

The Non-filers Monitoring System (NMS) under Compliance Management Cell, New Delhi, was implemented as a pilot project to prioritize action on non-filers with potential tax liabilities. Data analysis was being carried out to identify non-filers about whom specific information was available in AIR, CIB data and TDS/TCS Returns

How are non-fliers Monitoring System Works?

The Non-filers Monitoring System (NMS) was implemented to identify non-filers with potential tax liabilities.

Salient features of this initiative are:

• Data analysis was conducted to identify PAN holders who had not filed Income tax returns despite conducting high-value transaction as reported in AIR, CIB data and TDS/TCS Returns.

• Bulk Data matching exercise was carried out with the Financial Intelligence Unit (FIU) to include non-filers who had conducted high-value cash transactions.

• Rule based algorithms were applied to classify the cases as P1, P2, P3, P4 and P5 priority ratings (P1 being the highest priority) for graded monitoring.

• Compliance Management Cell (CMC) sends letters to PAN holders communicating the information summary and seeking to know the submission details of Income tax return.

• Compliance module on the e-filing portal and information related to non-filers is made available to the specific PAN holder and capturing responses from the non-filers. SMS and email are also being sent to the target segment asking them to access e-filing portal. The PAN holder is able to provide details electronically and keep a printout of the submitted response for record purposes.

• Online monitoring system will ensure further follow-up action and track return filing and tax payment of the target segment.

• An online monitoring system will also ensure that information related to non-filers is effectively used by the field formation.

How to deal with notice received for Non-Filing of Income Tax Return:

If you get a notice for non-filing of income tax return from compliance management cell, first you need to understand why you have received notice. After logging into your account on the e-filing portal at http://incometaxindiaefiling.gov.in, visit compliance menu where you will be able to view the details of the assessment years for which the return has not been filed and for which the third party information has been received by the ITD.

The taxpayer can choose one of the following response options:

i. ITR has been filed

ii. ITR has not been filed

If the taxpayer chooses the option that ITR has been filed then it need to provide the mode of filing the ITR (paper or e-file), date of filing the ITR and the acknowledgement number. In case the ITR is e-filed, the status will be automatically updated.

If the taxpayer chooses the option that it has not filed the ITR then it needs to choose one of the following options:

i. Return under preparation

ii. Business has been closed

iii. No taxable income

iv. Others

In case if the taxpayer chooses the option “others” then he has to mandatorily submit the remarks

If you are not registered with the e-filing portal, use the “registered yourself” link to register your PAN. The response has to be submitted electronically by clicking Compliance link after logging into the e-filing portal.

In case you have already filed your return:

If income tax return already filed update the details such as Mode of Filing (E-Filing or Paper Filing), Date of filing return, Acknowledgment Number and Circle or Ward and City.

In case you have not filed return for particular assessment year:

Please update the details such as Return under preparation or Business has been closed or No taxable Income or Others. If you select the options others, please proved remarks.

Further under the tab “Related Information Summary” you are required to chose of the following correct options

i. Self-Investment/ expenditure is out of exempt income: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of income exempt from tax under Income-tax Act, 1961.

ii. Self-Investment/ expenditure is out of accumulated savings: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of accumulated savings.

iii. Self-Investment/ expenditure is out of gifts/ loans from others: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of gifts/loans from others.

iv. Self-Investment/ expenditure is out of foreign income: This option is to be selected if the third party information relate to investment/expenditure which belongs to the taxpayer and the same is out of foreign income.

v. Self-Income from transaction is exempt: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the same is exempt under Income-tax Act, 1961.

vi. Self-Income from transaction is below taxable limit: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the taxable income there from is below taxable limit under Income-tax Act, 1961.

vii. Self-Income from transaction relate to different AY: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and the same is taxable in a different year as per the provisions of the Income-tax Act, 1961.

viii. Self-Not Known: This option is to be selected if the third party information relate to income/receipts which belongs to the taxpayer and there is any other explanation.

ix. Other PAN: This option is to be selected if the third party information relate to another taxpayer. In this case, the PAN of such other taxpayer is to be mandatorily provided.

x. Not Known: This option is to be selected if the taxpayer has no information about the third party information.

xi. I need more information: This option is to be selected if the taxpayer knows about the third party information but needs more information to submit response

Make sure that you reply correctly, or there are chances of department asking for further information.

It is advisable to take help of tax professionals or chartered accountant before submitting information as incorrect submission will lead your case selected for scrutiny for further investigation.

It is also advisable to compute tax liability if due, pay tax and file income tax return before submitting your response. If you chose option no taxable income without explaining proper source of income for high-value transaction, department may select your case for scrutiny and send you notice u/s 148 of income Tax act for further investigation.

Read: Can i file income tax return for more than 2 year if compliance notice recieved for non filing

I don’t have taxable in income in India, but I got a notice for non-Filing of Income Tax Return from compliance Management cell.

If a person makes huge or high-value transactions there are chances of getting a notice for non-Filing of Income Tax Return from compliance Management cell. It doesn’t necessarily mean that income tax department is looking at you as a tax evader. You may be rich agriculturist deposited cash more than 10.00 Lakh into your savings bank account or you may be NRI having invested huge money in Land and end up in getting a notice for non-filing of return.

Don’t worry, if there is no taxable income than either you are liable to pay tax nor file income tax return. You are only requested to furnish your response in the compliance module on the filing portal at http://incometaxindiaefiling.gov.in.  If you are not registered with the e-filing portal, use the “registered yourself link to register. The response has to be submitted electronically by clicking Compliance link after logging into e-filing portal.

What happens if no response is electronically submitted within in the time limit?

If you don’t submit a response within the prescribe limit CPC-CM may send information available with them to concerned assessing officer. With the available information, the assessing officer if he has reason to believe that any income chargeable to tax has escaped assessment, then he may take up your case for scrutiny and assess tax liability subject to other provisions of the income tax. In such case, you may end up in paying tax liability along with interest and penalty.

We would be glad to know your doubts or queries.

In case you need our assistance in handling notice received for non-filing of return , You may contact Balakrishna and Co Chartered accountant in Bangalore.

Alternatively,you can post your queries in forum of our blog and get the answer from our expert. 

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• Information sought by ITO during scrutiny assessment u/s 142(1)
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Forum Topic (Question and Answer):

• What happens after submission of response of compliance notice of non filing of return
• Notice for non filing of return (Assessment year 2014-2015)
• Notice for non filing of Income Tax Return (ITR): Can I file return more than 2 year
• Received notice for non filing of Income Tax Return from Compliance Cell
• Notice received for non filing of returns
• How to handle notice received for Non-Filing of Income Tax Return – Asst Year 2013-14

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