Section 133(6) Of Income Tax Act
Section 133(6) Of Income Tax Act
The Income Tax Act 1961 governs India’s taxation system. It comprises 23 chapters, 298 sections and many essential provisions that the income tax department follows to levy, administer, collect and recover taxes.
One of the sections playing a crucial role in helping tax authorities gather information necessary for assessing and collecting taxes is Section 133(6). It allows tax authorities to seek information from various individuals and organisations to ensure compliance with tax laws and to detect and prevent tax evasion.
If you have received a notice related to Section 133(6) of the Income Tax Act in your mail, this article is for you. It delves into the details of the provision, making it easier for you to understand its implications and how to respond to the notice.
What is Section 133(6) of the Income Tax Act?
Section 133(6) gives specific professionals of the income tax department the authority to demand information and evidence from taxpayers if they suspect any misreporting or underreporting in their tax filings. Under the Act, assessing officers and other department officials can demand the information for investigation through notices.
The different scenarios in which such notices are sent to taxpayers include withholding of sources of income or reporting lower income. Notices are also sent if taxpayers claim income tax exemptions and deductions incorrectly. The other reasons for which assessing officers issue notices to taxpayers include inappropriate or incomplete tax filings or refusal to file income tax returns (ITR).
Sec 133 (6) of the Income Tax Act also grants officers the right to send notices to those parties having information related to the transactions of the concerned taxpayer. If you receive such a notice, you must respond to it within the specified time limit. The income tax department expects your cooperation in this regard.
The income tax department and the authorised assessing officer can also levy a penalty if you do not follow the directions and respond to the notice.
The information demanded in the notice under Section 133(6) can be used for the following purposes:
Assessing the tax liability of a person.
Verifying the accuracy of information furnished in tax returns.
Ensuring compliance with tax laws.
Detecting and preventing tax evasion.
Who Can Issue a Notice Under Section 133(6)?
The various professionals who can send notices directly to taxpayers under section 133 of the Income Tax Act include:
Assessing Officers (AO)
Joint Commissioners
Joint Commissioners (Appeals)
Deputy Commissioners (Appeals)
Director General or Chief Commissioner
Only a person above the rank of Assistant Commissioner or Assistant Director can send notices for non-compliance to taxpayers in countries where the Double Taxation Avoidance Agreement (DTAA) applies.
Who Can the Income Tax Department Summon U/S 133(6)?
Section 133(6) authorises the income tax department to gather information for investigations and proceedings from a wide range of sources. Tax officers can summon anyone who can have financial records related or relevant to the concerned person.
Thus, the department can send notices to the taxpayer as well as employers, banks, entities, government organisations or anyone else who can provide vital information.
Tax authorities may broadly seek information from:
Any Person or Entity
This includes individuals, businesses and organisations. For example, a tax officer may ask a company to provide details of salaries paid to its employees.
Banks and Financial Institutions
Banks can be asked to provide details of transactions, account balances and other financial information. This is often done to trace unaccounted money or verify the income reported by taxpayers.
Other Government Agencies
The tax authorities can collaborate with other government departments and agencies to gather information. For instance, they may seek data from the Registrar of Properties to verify real estate transactions.
When any of the above-mentioned parties receive a notice under section 133(6), they are legally obligated to respond and present the information or documents requested. The authorities can levy penalties and impose other legal implications if the summons are ignored.
When Does Section 133(6) Apply to Taxpayers?
The tax authorities can apply Section 133(6) in the following scenarios:
During Tax Assessments
When assessing a taxpayer’s income, the tax authorities may need additional information to verify the accuracy of the tax return filed. For instance, if there are discrepancies in the reported income and actual financial transactions, the authorities can seek information from banks or other financial institutions.
Suspicion of Tax Evasion
If the tax authorities suspect a person is evading taxes, they can use Section 133(6) to gather relevant information. This could include details of large transactions, bank statements or other financial records that may indicate undeclared income.
For Cross-Verification
The authorities may use Section 133(6) to cross-verify data to ensure that the information provided by taxpayers is accurate. For example, if a taxpayer claims a large deduction on the premium paid for a health insurance plan, the authorities might seek information from the insurance company to verify the legitimacy of the payment.
Section 133(6) of the Income Tax Act Time Limit
A critical aspect of sec 133(6) of the Income Tax Act is the time limit within which the information must be provided once a notice has been issued. The income tax department can request details of accounts, opinions and matters related to tax proceedings at any time.
When a tax authority issues a notice under Section 133(6), the duration within which the requested information must be provided is generally specified in the notice itself.
The Act does not prescribe a specific time limit, but it is typically understood to be a reasonable period depending on the complexity and nature of the information requested.
Examples of Application of Section 133(6)
The following two examples can help you understand how Section 133(6) works:
Example 1: Verifying Bank Transactions
Suppose Aman reports an annual income of ₹10 lakh. However, tax authorities notice several large deposits in his bank account, totalling ₹50 lakh, which do not show in his reported income.
To verify these transactions, the tax authorities issue a notice to Aman’s bank under Section 133(6), requesting details of all transactions for the year. The bank provides the requested information, which reveals that Aman received substantial income from sources he did not disclose. This leads to a reassessment of his tax liability and potential penalties for underreporting his income.
Example 2: Cross-Verification of Business Expenses
ABC Pvt. Ltd. claims a significant deduction for business expenses in its tax return. To verify the legitimacy of these expenses, the tax authorities issue notices under Section 133(6) to the company’s suppliers, requesting details of transactions with ABC Pvt. Ltd.
The suppliers provide invoices and payment records, which the authorities cross-check with the company’s tax return. The company’s deductions may be disallowed, resulting in a higher tax liability if discrepancies are found.
How to Respond to a Section 133(6) Notice?
Receiving a notice under sec 133 of the Income Tax Act can be a cause of worry. But you must prepare yourself to respond to it correctly and promptly to avoid penalties and further legal obligations.
Follow the steps mentioned below to provide an effective response to the notice:
Understand the Notice
The first step is to read the notice thoroughly. Understand what specific information is being requested and the deadline for submission. Also, check which tax authority or officer has issued the notice.
This information is usually mentioned at the top of the notice. Ensure that the notice is addressed to you or your business correctly and pertains to relevant financial periods or transactions.
Collect the Required Information
Make a list of all the documents and information requested in the notice. Gather the necessary records, such as bank statements, financial statements, invoices, transaction details, or other relevant documents.
Make sure you double-check the accuracy of the information you are going to submit, as any discrepancies can lead to further scrutiny.
Prepare the Response
You can submit the response electronically or in written format, depending on the instructions provided in the notice. Draft a cover letter with a reference to the notice number and date, a summary of the information you are providing and any explanations or clarifications needed to understand the documents submitted.
Ensure all required documents are attached in an organised manner, labelling each document clearly to match the list of requirements.
Review and Confirm
Before submission, review the response and all attached documents for completeness and accuracy. If the notice involves complex financial transactions or if you are unsure about any aspect of the response, consider consulting a tax professional or chartered accountant.
Submit the Response
Submit the response as per the instructions provided in the notice. This could be via post, in person or electronically through the income tax department’s portal. If submitting in person or by post, ensure you get an acknowledgement receipt.
Follow Up
Keep a copy of the submitted response and all supporting documents for your records. Be alert for any further communication from the tax authorities. They may request additional information or clarifications.
Responding to the Notice Using the Comply to Notices (CTN) Facility
You can also submit your response using the online portal of the income tax department using the CTN facility under Quick Links. You will need to enter the Document Identification Number (DIN) and other necessary details.
Penalties Levied Upon Failure to Respond to Notice Under Section 133(6)
Failing to file an appropriate response to the notice with the income tax department can result in serious consequences:
The AO can deem your initial return invalid and issue a notice under Section 148, requesting you to refile your return within the stipulated time with an explanation for discrepancies.
You may need to refile tax returns after removing incorrect deductions/exemptions and disclosing unreported income.
Section 272A (2) of the Income Tax Act empowers AOs to impose penalties if taxpayers fail to comply with the directions of the notice. The penalty amount is ₹100 per day till you file revised returns. The amount can increase depending on the time you take.
If any wrongful claims or misreported income are found in the investigation, you are required to pay:
200% penalty on evaded taxes
a penal interest of 12% per annum on unpaid taxes
Conclusion
Section 133(6) of the Income Tax Act is a powerful provision, which enables tax authorities to gather information necessary for effective tax administration. It helps ensure compliance with tax laws, detect tax evasion and maintain the integrity of the taxation system.
By understanding the provisions of Section 133(6), taxpayers can be better prepared to comply with information requests and navigate the complexities of the tax system.
Income Tax Deductions with Medical Insurance
A taxpayer is eligible to claim deductions on the premium paid for medical insurance for up to ₹25,000. To ensure there are no discrepancies with this deduction claimed under Section 80D, make sure you buy your medical insurance policy from a trusted insurer like TATA AIG, which provides the required documentation.
Along with the tax deduction on health insurance plans, you can also enjoy extensive coverage for your health expenses with us, including cashless treatments and coverage for pre-existing disease, to ensure you enjoy hassle-free medical treatment.
Disclaimer / TnC
Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.
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