Income Tax Notices, Assessment & Appeals

Which Act applies to which year — an important point

The Income-tax Act, 2025 came into force on 1 April 2026, but it does not sweep away proceedings for earlier years. The Income Tax Department's own guidance confirms that the repealed Act continues to apply to any proceeding pending when the new Act commenced, and that assessment, reassessment, rectification, penalty and revision for earlier years can still be both initiated and completed under the old Act.

In practical terms: a notice issued now for an earlier assessment year is governed by the old law and the old section numbers, and an assessment order passed after April 2026 in such a case is still an order under the old Act. A reassessment begun under the old provisions continues under them throughout, subject to the old limitation periods.

This matters because taxpayers receiving a notice quoting familiar section numbers sometimes assume it must be invalid now that the Act has been replaced. It is not. Equally, the limitation periods that apply are those of the old Act, and those remain a real and frequently decisive defence.

The notices taxpayers actually receive

Intimation after processing the return. The return is processed and an intimation issued, sometimes with a demand or a reduced refund arising from a difference in tax credit, a disallowed deduction or an arithmetical adjustment. Many of these are simply wrong and are corrected by rectification; others need an appeal. The distinction matters because the two have different time limits.

Defective return notice. Where the return is incomplete or internally inconsistent. If not corrected within the time allowed, the return can be treated as never having been filed — which then costs the carry-forward of losses and the benefit of a timely filing.

Notice calling for information. A request for documents, accounts or explanation, which may precede a scrutiny assessment or stand alone.

Scrutiny notice. The formal start of a detailed assessment. There is a time limit on issuing it — broadly three months from the end of the financial year in which the return was filed — so a notice issued outside that window is open to challenge on that ground alone.

Reassessment. Where the department considers that income has escaped assessment for an earlier year. This is now a structured process: an inquiry notice must be issued and the taxpayer's response considered before the reassessment notice itself can be issued, and the Supreme Court has confirmed that the preliminary stage is mandatory. The sequence, the approval obtained, and the limitation period are all capable of being tested, and reassessments are set aside on those grounds regularly.

Adjustment of refund against demand. Where a refund due is proposed to be set off against an outstanding demand. This should be checked rather than accepted, because the demand set off is sometimes one already disputed or already paid.

Demand and penalty notices. Following an assessment, and each with its own appeal route and time limit.

Limitation is a real defence

Reassessment for an earlier year is subject to time limits, and the limits depend on the amount said to have escaped assessment — a shorter period ordinarily, and a longer one only where the escaped income reaches a prescribed threshold. Notices issued beyond the applicable period have been quashed on that basis, including where the department invoked the extended period but the amount involved fell below the threshold for it.

This is worth stating plainly because taxpayers often assume that a notice, once received, must be answered on its merits and nothing else. The first questions are always whether the notice is within time, whether the prescribed preliminary steps were followed, and whether the required approval was obtained at the right level. Where any of those fails, the entire proceeding may fall — and that is a far better outcome than winning on the figures.

Faceless assessment and faceless appeals

Assessment is now largely faceless. Notices are uploaded to the taxpayer's account on the portal, with email and message alerts, and there is no local officer to visit. First appeals are also processed through a national faceless centre: the appeal is allocated at random to an appellate officer who may be anywhere in the country, communication is electronic, and the taxpayer does not meet the officer.

Two consequences follow, and both work against taxpayers who are not paying attention.

Notices are easy to miss. They arrive in the portal account. Where the registered email or mobile number is out of date, or where nobody is monitoring the account, the first a taxpayer knows of proceedings can be a demand. Checking the account regularly is now part of basic compliance, and we monitor it for clients.

The written record is everything. With no face-to-face hearing in the ordinary course, the submission and the documents attached to it are the case. A right to a personal hearing exists and can be requested, but the substance still has to be on the record. Vague replies that would once have been supplemented in conversation now simply stand as they are.

Appeals

First appeal lies to the Commissioner (Appeals), in the prescribed form, generally within thirty days of receipt of the order or demand. The appeal is handled through the faceless appeal centre. Grounds of appeal and a statement of facts must be filed, and unlike GST there is no fixed percentage pre-deposit — but an application for stay of the demand is usually necessary and should be made promptly, since a demand is otherwise recoverable while the appeal is pending.

Second appeal lies to the Income Tax Appellate Tribunal, generally within sixty days. The Tribunal is the last authority on questions of fact, which makes it the most important stage in most disputes — beyond it, appeals lie to the High Court on questions of law only.

Rectification is a separate and often better route where the error is apparent from the record — a tax credit not given, an arithmetical mistake, a figure wrongly picked up. It is quicker than an appeal and does not use up the appeal period, but it cannot be used for a matter requiring argument.

Choosing between rectification, appeal and, in some cases, a revised or updated return is a decision worth taking deliberately at the outset. The wrong choice can waste the time limit for the right one.

An option worth costing before you reply

Where income was genuinely not fully disclosed for an earlier year, an updated return may be available and may cost less overall than contesting a reassessment — additional tax is payable, but penalty and prolonged proceedings are avoided. There are restrictions: the facility is not available in every situation, and it closes off once reassessment proceedings have reached a certain stage.

The comparison is worth making with actual figures before replying to a preliminary notice, because the option may not survive the reply. We work through both routes and set out the cost of each.

What we see most often in Raipur

Property and land transactions. Reporting of purchases and sales feeds into the department's data, and differences between the consideration stated, the stamp duty value and what appears in the return are among the commonest triggers for reassessment. With sustained land activity around Raipur and Naya Raipur, this is the single largest category we deal with.

Agricultural income. Claims that are challenged where the land holding, the nature of the activity or the scale of the receipts does not support them. The department has landholding data to test against.

Cash deposits and cash sales. Traders and retail businesses facing enquiry into deposits that do not sit comfortably with declared turnover.

Purchases questioned in the steel and scrap trade. Allegations that purchases are not genuine, where the answer lies in transport documentation, weighbridge records and the payment trail rather than in the invoice alone.

Tax deducted at source not matching. Credit claimed that the deductor never reported, or reported against the wrong year — resolved by taking it up with the deductor, which has its own time limit.

Non-filers who received a notice. Frequently the simplest matters to resolve, and frequently the ones left longest.

Scope of our work

We review the notice and establish what is being alleged, under which provision and whether it is within time; check whether the prescribed preliminary steps and approvals were complied with; assemble the documents and reconcile the return against the department's own data; draft and file replies and submissions in assessment and reassessment proceedings; advise on whether an updated return is the better route and cost both options; file and conduct first appeals, including applications for stay of demand; appear in appeals before the Tribunal; file rectification applications where the error is apparent from the record; and monitor the portal account so that notices are seen when they arrive rather than after a demand.

Where a matter is better conceded or settled than contested, we say so, with the figures.