Receiving a Notice Under Section 133(6) of Income Tax Act? Here’s What You Need to Know. Getting an income tax notice can be an unnerving experience for any taxpayer. You may have filed your returns diligently year after year, but suddenly find yourself at the receiving end of a notice under Section 133(6) of the Income Tax Act.
This provision empowers income tax authorities to call for and examine information related to your financial transactions as they conduct tax assessments or investigations. A notice under Section 133(6) essentially means that the assessing officer wants to reopen your case to verify if there is any income that has escaped assessment in previous years.
Naturally, you may be worried or feel unfairly targeted when you get such a notice. However, it’s important not to panic. As a taxpayer, you have certain rights and responsibilities when dealing with a notice under Section 133(6).
This comprehensive guide will equip you with everything you need to know about Section 133(6) – from what it means to how you can respond in the most appropriate way. Let’s get started!
What is Section 133(6) of Income Tax Act?
Section 133(6) is an important provision under Chapter XIII of the Income Tax Act, 1961. It empowers income tax authorities to:
- Call for or inspect books of accounts maintained by a person.
- Require anyone to furnish information relating to such accounts.
This can be done only in the context of an ongoing inquiry or proceeding under the Act. Section 133(6) is a crucial investigative power given to tax authorities while they conduct assessments, surveys, inspections, or any other inquiries.
Things to note about Section 133(6):
- The section allows tax authorities to gather information useful for tax assessments from any person, whether the person is the one being assessed or not. For example, they can ask for information from your bank even if the bank itself is not being assessed.
- The scope of inquiry under S. 133(6) is quite wide. The tax officer can call for “any” information or documents which they may need during a proceeding under the Act.
- The request can be made to any individual or entity who may possess the relevant information – banks, employers, businesses who have financial dealings with you, etc.
- The requested information could include your financial statements, bank account statements, transaction details, or any other documents relevant to the inquiry.
- Failure to comply with a notice under S. 133(6) can attract a penalty under section 272A(1)© of the Act.
Clearly, Section 133(6) gives extensive powers to the tax authorities. However, this does not mean it can be exercised arbitrarily without reason. There are certain safeguards for the taxpayer built into the provision itself.
Your Rights and Responsibilities as a Taxpayer
When you receive a notice under Section 133(6), you have certain rights and responsibilities as a taxpayer:
Right to Know Purpose of Inquiry: The notice must clearly spell out the purpose of inquiry and details of the specific information required from you. Tax officials cannot go on open-ended “fishing expeditions” for data.
Reasonable Timeframe: You must be given reasonable time to prepare and furnish the information, depending on the nature and complexity of records required. What constitutes “reasonable time” may vary across cases.
Limited Scope: The tax officer’s powers under S. 133(6) have limitations. Information sought must pertain only to the inquiry at hand, not beyond it. Request should not be too open-ended.
Right to Object: You have the right to file an objection if you find the notice or requisition excessive, arbitrary, or unjustified. Your objection will need to be substantiated properly.
Maintain/Locate Records: You are responsible for maintaining updated records and providing accurate information as per notice. You may need to retrieve archived records or obtain information from other sources.
Seek Professional Help: Depending on the situation, you can seek help from a CA, tax expert or lawyer in responding to the notice appropriately and defending your case.
Cooperate but Safeguard Interests: While cooperating with authorities, ensure your own interests are not compromised. Be judicious in sharing confidential data.
Comply with Timelines: Make sure to furnish the required information and documents within the timeframe specified in the notice. Delay can lead to penalties.
While the tax department has powers to call for information under S. 133(6), taxpayers also have the right to fair treatment. Your rights as an assessee must be upheld while you cooperate with the inquiry.
Typical Situations When 133(6) Notice Can Be Issued
Some common scenarios when a notice under Section 133(6) can be issued to a taxpayer are:
- Reopening past assessments: If the Assessing Officer (AO) has reason to believe some income has escaped assessment in previous years, your case can be reopened for verification under S. 147. Section 133(6) helps gather requisite information.
- Third-party tax proceedings: If a third party whose transactions are connected to you is undergoing tax proceedings, you may receive a notice under 133(6) to furnish relevant information.
- Discrepancy in returns or accounts: If the taxman finds glaring discrepancies, inconsistencies or suspicious entries in your annual returns or audited accounts, you may receive a 133(6) notice for explanations or information.
- High-value financial transactions: If you have made very high-value transactions, especially cash transactions, the AO may issue a 133(6) notice for transaction trails to rule out tax evasion.
- Information from central agencies: Tax authorities may rely on information shared by agencies like CBDT, FIU, CIB, etc. This can trigger a notice under S” 133(6) to further investigate the matter.
However, you should note that mere objections during a regular audit assessment do not warrant reopening of completed assessments or inquiries under Section 133(6). The reasons need to be substantive enough.
How far can the assessment be reopened?
Under Section 149 of the Act, the time limit for reopening past assessment is:
- Up to 6 years from end of relevant assessment year – Except for serious offences like undisclosed foreign income or assets.
- Up to 16 years in special cases – For income escaping assessment due to foreign assets or incomes.
However, this does not mean assessments can be arbitrarily reopened for up to 6 years in all cases. The AO needs to have strong, sound reasons to believe income has escaped assessment based on tangible material evidence.
Some important safeguards in this regard are:
- AO needs prior approval – Reopening beyond 4 years requires approval from higher authorities.
- Reasons for reopening must be furnished – AO must share reasons for reopening when you file your objection.
- Time limit for issuing notice – Notice must be issued within certain time from getting approval. Delay can make it time barred.
- You can file objections – You can challenge the reopening notice if you believe grounds relied on are shaky or unsatisfactory. Your objections must be adequately considered.
- Approving authority must apply independent mind – Approval for reopening cannot be merely ritualistic. The reasons must justify reopening.
- AO must form opinion based on material already available or obtained – Reasons to believe income escaped assessment must be grounded in some tangible material or evidence available to AO. Mere conjecture is not enough.
Thus, while tax authorities have powers to reopen past assessments, there are checks and balances against frivolous notices. Your assessments cannot be indiscriminately reopened for up to 6 years without strong grounds or evidence.
Can completed assessments be reopened based on audit objections?
A common area of concern is whether assessments can be reopened under Section 147 based only on audit objections raised during regular assessments under Section 143(3). The courts have held that this cannot be done lightly.
Some key principles laid down in judicial precedents are:
- Audit objections or inquiries cannot be starting point – There must be “reason to believe” income escaped assessment, not just objections per se.
- Reasons must demonstrate application of mind by AO – AO must show how audit objections lead him to believe income escaped assessment in earlier years.
- Alleged wrong legal inferences cannot justify reopening – Mere audit objections on point of law cannot warrant 147 reopening.
- Reason to believe must not be a mere change of opinion – AO must bring material on record to justify reasons to believe, not just change of opinion.
- Reopening notice cannot rely solely on same material already considered – Fresh tangible material indicating escaped assessment is needed for reopening.
Thus, completed assessments should not be mechanically reopened under Section 147 based only on audit objections during regular assessment. The AO needs to justify reopening based on new, compelling evidence.
As a taxpayer, you must object if a reopening notice is founded solely on audit objections without substantive reasons or evidence demonstrating escaped assessment.
What should you do when you get a notice u/s 133(6)?
Practical tips on responding to a notice under Section 133(6):
- Remain calm – No need to panic. Review the notice carefully and understand what is required from you.
- Seek professional help – Consult your tax advisor or lawyer to understand how to respond appropriately, especially if reopening of past assessments is involved.
- Check if notice is valid – Ensure the notice mentions inquiry purpose, information required, reasonable time given, etc. Object if notice seems excessive or arbitrary.
- Ask for more time if needed – If time period granted seems inadequate given volume of data requested, represent for more time. But don’t default on time given initially.
- Gather all relevant information – Start collecting and compiling all documents and information sought in notice – account statements, transaction documents, emails, contracts, etc.
- Organize records systematically – Maintain proper records. Keep information ready as per sequence in notice. This aids efficiency and shows cooperation.
- Provide accurate and complete data- Disclose all material facts fully. Furnish authentic documents. Avoid concealing any information requested.
- Be judicious in sharing confidential data- Share confidential data prudently if it is not material to inquiry but still requested. Seek expert advice on sensitivity of information before sharing.
- Send response via proper channel- Hand over information to designated officials within time frame through authorized channel – speed post, registered post, in person submission etc. Get acknowledgement.
- Follow up if unanswered- If assessment order is not received after submitting information, follow up with AO.
- Be cooperative not combative- Don’t volunteer additional information unasked but cooperate fully when lawful reasonable requests are made.
- Know your rights- Stay aware of your rights and protections as taxpayer. But don’t take adversarial stance if inquiry is legitimate.
Taking these steps can help you respond prudently, efficiently and lawfully to notices under Section 133(6). Stay informed, seek expert help, cooperate with tax department but safeguard your interests.
How to draft response to notice u/s 133(6)?
If you receive a notice under Section 133(6), your reply to the notice requires careful drafting. Here are some tips:
- Address reply correctly – Notice number, section, date, name and designation of concerned income tax authority.
- Mention reference number and date of Section 133(6) notice in your reply.
- State that reply is being furnished in reference to said notice.
- Briefly describe nature of proceedings or inquiry you received the notice in context of.
- List information and documents furnished in compliance with notice – account statements, transaction details, etc.
- Categorize information clearly – as per sequence and details sought in notice. Helps tax officer link replies to their data requests.
- Provide self-attested copies of documents furnished. Inform if any document is a photocopy and original not available.
- If certain information cannot be furnished, explain reasons for the same clearly. Eg. Confidentiality issues, privacy concerns, data security grounds, information not available despite effort.
- Similarly, explain any delay or inability to furnish info within time granted in notice.
- Stick to information sought in notice. Do not over-disclose unnecessary data or go beyond scope of inquiry.
- Sign reply and declaration yourself if individual assessee. Authorized representative should sign in other cases.
- Attach notice copy, authorization form, etc where required.
- Mail acknowledgement copy once department acknowledges info furnished.
Drafting a concise, relevant reply addressing the notice point-wise, and furnishing complete information sought, can help establish your bonafides and cooperation. However, avoid over-disclosing confidential data not material to inquiry. Seek expert guidance on drafting reply if needed.
Conclusion
Receiving a notice from the Income Tax Department under Section 133(6) can seem intimidating, but such notices are a routine part of tax administration. Tax authorities have the power to call for information that can help them verify if income has escaped assessment in previous years.
As a taxpayer, you have certain rights like being informed of the inquiry purpose, given reasonable time to respond, and objecting in case of any arbitrary treatment. You are expected to maintain updated records, be cooperative, and furnish accurate information that the tax officer may need for assessment. But you should also stay aware of your protections under the law.
Staying tax compliant by paying your dues diligently and furnishing correct returns is important. But you should also know your legal rights in case you do get a reopening notice. Seeking professional guidance can help you take the right steps. The key is responding lawfully, without getting unnerved.
With some prudence and awareness of the process, you can steer through a notice under Section 133(6) efficiently. Maintain compliance, but stand up for your rights if the situation demands. This balanced approach can help you fulfill your tax responsibilities in a lawful manner.
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