What to do if you face tax scrutiny

Hi

First, in a country of a billion people, only a minuscule number need to pay taxes and file income tax returns. And the money so collected contributes to building roads, dams, airports and the like. That's good reason to pay tax, isn't it? But not everyone contributes to nation building; several people prefer to evade paying taxes.

Now, it is natural to expect that these tax evaders will be caught and punished, and that the honest taxpayers will be thanked for their services. No, that's not what happens.

What happens is that the tax evaders generally are allowed to go scot-free, while the taxpayer who goes to the trouble of paying and filing returns is rewarded with a scrutiny of his returns. But whoever said the world was fair? All we can do is figure out how best one can deal with such a scrutiny.

The basics: First, what is a scrutiny? Under the Income Tax Act, if an income tax officer is of the opinion that you have concealed any income in your return or you have filed any inaccurate particulars in your return, he can take up your return for scrutiny.

The income tax officer can serve the scrutiny notice within one year from the end of the month in which you have filed your return. So, if you had filed your return of income for the year ended March 31, 2005, on July 24, 2005, you may get a notice any time on or before July 31, 2006. The time limit relates to the serving of the notice by the Income Tax Department and not the issue of the notice.

The notice itself comes in a fixed format, with the taxpayer's name, address, permanent account number (PAN) and the year for which it has been issued, as well as the date and time when the taxpayer should appear before the income-tax officer. The good news (if you can call this good) is that the taxpayer need not appear personally before the officer and can authorise a representative to plead his case.

Generally, chartered accountants or other tax practitioners appear on behalf of taxpayers. If you plan to send an authorised representative, you must issue a valid power of attorney in his favor.

Thanks