The Tax Relief India Blog

Failing to file a tax audit report on time attracts a significant late fee under the Income Tax Act. Many taxpayers are unaware of the exact penalty provisions, the ceiling limits, and the grounds on which relief can be sought. This article covers everything you need to know.

Key Points Covered

• Applicable provision: Section 271B of the Income Tax Act prescribes penalty for delay in furnishing audit report
• Penalty amount: 0.5% of total sales/turnover or Rs. 1,50,000 — whichever is lower
• Reasonable cause defence: Penalty can be waived if reasonable cause for delay is established
• Common grounds for relief: Illness, natural calamity, delay by auditor, or genuine hardship

The Income Tax Act, 2025 overhauls TDS from the ground up — new section numbers, consolidated payment codes, revised thresholds, and unified rate tables replace the scattered provisions of the 1961 Act. This complete comparison covers every key change effective 1st April 2026.

Key Changes at a Glance

• Sections renumbered: Old Sections 192-196D replaced by new Sections 392-393 and unified schedules
• Consolidated TDS table: All TDS payments to residents brought under one section with payment codes
• New payment codes: Each nature of payment assigned a unique code for challan and return filing
• Threshold revisions: Several TDS thresholds revised upward for individuals and businesses
• Salary TDS retained separately: Section 192 equivalent maintained as a distinct provision

India's six-decade-old Income Tax Act, 1961 is finally being replaced. The Income Tax (No. 2) Bill, 2025 received Presidential assent on 22nd August 2025 and comes into force on 1st April 2026 — one of the most significant overhauls of India's direct tax framework in modern history.

The reform does not alter tax rates or change the fundamental tax burden. Instead, it is a bold exercise in simplification — stripping away decades of patchwork amendments, redundant provisions, and convoluted language, and replacing them with a clean, modern, accessible code.

Key Highlights at a Glance

• Sections reduced: 931 → 552 (a 35% reduction)
• Chapters halved: 47 → 23
• 'Tax Year' replaces 'Assessment Year': One unified term aligned to the financial year
• TDS/TCS consolidated: All TDS provisions (except salary) brought under one unified section
• Virtual Digital Assets formally recognised within the tax and seizure framework
• House property reliefs restored: Pre-construction interest and vacancy allowance corrections
• DRP transparency: Dispute Resolution Panel must now record reasoned orders

What This Means for You

For individual taxpayers, there is no immediate change in tax liability — the new Act applies from Tax Year 2026–27 onwards. For businesses and corporates, TDS compliance will simplify significantly with consolidated tables. For tax practitioners and CAs, the CBDT has published a utility mapping old sections to new clauses — an essential tool for the transition.

A notice under Section 148 of the Income Tax Act is one of the most alarming communications a taxpayer can receive. It means the Income Tax Department believes that income chargeable to tax has escaped assessment for a past year. If you have received one, acting promptly and correctly is critical — and this article explains precisely what to do.

What Is a Section 148 Notice?

Under Section 148 of the Income Tax Act, 1961, an Assessing Officer can reopen a completed assessment if he has "reason to believe" that income chargeable to tax has escaped assessment. This is called a reassessment proceeding. The notice requires you to file a fresh return of income for the year in question.

Following the Finance Act 2021, significant changes were made to the reassessment framework. The new regime under Sections 147–151 introduced stricter conditions — including the requirement of prior approval from senior authorities and a limitation period of three years (extendable to ten years for larger amounts of escaped income).

Step 1 — Do Not Ignore the Notice

Many taxpayers make the critical mistake of ignoring a Section 148 notice, assuming it will go away. It will not. Ignoring the notice leads to an ex-parte assessment — where the officer passes an order based solely on the department's information, without your response. This almost always results in a large addition to your income and a significant demand.

Step 2 — Check the Validity of the Notice

Before responding, examine the notice carefully for the following:

• Time limitation: Is the notice within the permissible time limit? For most cases, reassessment beyond three years requires specific conditions.
• Sanction / approval: Has the required prior approval been obtained from the specified authority? Post-2021, this is a mandatory procedural requirement.
• Jurisdiction: Is the notice issued by the officer who has jurisdiction over your case?
• Reasons recorded: You have the right to demand a copy of the reasons recorded for reopening. Always request this — it is the foundation of any challenge to the notice.

Step 3 — File the Return and Respond Strategically

You are required to file a return in response to the Section 148 notice. However, the return you file and the strategy behind it must be carefully considered. You can file the return "under protest" while simultaneously challenging the jurisdiction of the reopening through a writ petition or by raising preliminary objections before the Assessing Officer.

Step 4 — Challenge the Reasons to Believe

This is the most critical step. The Assessing Officer must have "reason to believe" — not merely "reason to suspect" — that income has escaped assessment. This reason must be based on tangible material that has a live nexus with the formation of belief. A mere change of opinion about the same facts already examined in the original assessment is not a valid ground for reopening.

File detailed objections to the reasons recorded, citing the Supreme Court's judgment in GKN Driveshafts (India) Ltd. vs ITO and subsequent decisions. The officer is required to pass a speaking order disposing of your objections before proceeding with the assessment.

Step 5 — Engage Expert Representation Immediately

Section 148 matters are highly technical and time-sensitive. The grounds on which you challenge the notice, the return you file, the objections you raise, and the conduct of the reassessment proceedings all have lasting consequences — including for any appeal you may need to file later.

Input Tax Credit (ITC) denial is the most common and financially damaging outcome of GST litigation for businesses across India. Millions of rupees in ITC are denied every year — often on grounds that are legally challengeable. This article explains when ITC denial can be contested and how to build a winning appeal.

Why Is ITC Being Denied?

The GST department denies ITC on several grounds, including:

• GSTR-2A/2B mismatch: The supplier has not filed GSTR-1 or has filed it incorrectly, causing the ITC to not appear in the recipient's GSTR-2B.
• Supplier's tax non-payment: The supplier collected GST from you but did not deposit it with the government.
• Section 17(5) restrictions: ITC claimed on items that are specifically blocked under Section 17(5) — such as motor vehicles, food and beverages, etc.
• Non-receipt of goods or services: Department alleges that goods were not actually received.
• Invalid invoice: Invoice does not meet the requirements of Section 31 of the CGST Act.

The Critical Legal Position on GSTR-2A/2B Mismatch

This is where significant amounts of ITC are being wrongly denied. The department frequently disallows ITC simply because invoices do not appear in GSTR-2B. However, numerous High Courts have held that ITC cannot be denied solely on the basis of GSTR-2A/2B mismatch when the recipient can demonstrate:

• A valid tax invoice has been received
• The goods or services have actually been received
• Payment including GST has been made to the supplier
• The recipient had no knowledge of the supplier's default

The Madras High Court in D.Y. Beathel Enterprises vs State Tax Officer and several other decisions have affirmed this position — holding that the recipient cannot be penalized for the supplier's failure to comply.

Building a Strong ITC Appeal

A winning ITC appeal requires:

• Complete documentation: Tax invoices, e-way bills, goods receipt notes, payment proof, and bank statements.
• Reconciliation statement: A detailed reconciliation of the ITC claimed versus what appears in GSTR-2B, with explanations for each discrepancy.
• Supplier evidence: If possible, confirmation from the supplier of tax payment, or copies of their returns.
• Relevant case laws: A curated set of High Court and AAR decisions supporting your position.
• Legal submissions: A well-structured written submission addressing each ground of denial with the applicable legal position.

Time Limits for GST Appeal — Act Immediately

If an ITC denial order has been passed against you, the appeal must be filed within 3 months from the date of communication of the order before the GST Appellate Authority. A pre-deposit of 10% of the disputed ITC amount is required. Missing this deadline can be fatal to your case — so act without delay.

Receiving a scrutiny notice under Section 143(2) of the Income Tax Act means your Income Tax Return has been selected for detailed examination. For most businesses and individuals, this is an unfamiliar and stressful experience. This guide explains what to expect and how to respond effectively.

What Is a Section 143(2) Notice?

After you file your ITR, the Income Tax Department processes it under Section 143(1). If the return is selected for detailed scrutiny, a notice under Section 143(2) is issued within six months from the end of the financial year in which the return was filed. This notice requires you to appear before the Assessing Officer and produce documents in support of your return.

Receiving a Section 143(2) notice does not mean you have done anything wrong. Returns are selected for scrutiny on a risk-based or random basis — but the proceedings that follow require careful and professional handling.

Types of Scrutiny

• Limited Scrutiny: The examination is restricted to specific issues identified in the notice. You are required to respond only to those specific points.
• Complete Scrutiny: A comprehensive examination of all aspects of your return — income, deductions, exemptions, and supporting documentation.
• Manual Scrutiny: Selected based on specific criteria identified by the CBDT or the Assessing Officer.

How to Respond to a Scrutiny Notice — The Right Approach

The scrutiny assessment process involves attending hearings before the Assessing Officer and submitting documentation in support of every item in your return. Here is how to approach this correctly:

• Read the notice carefully: Identify precisely what documents and information are being called for. Respond only to what is asked — do not volunteer information beyond what is required.
• Organize your documentation: Collect all supporting documents — bank statements, invoices, contracts, loan agreements, investment proofs — organized by the items questioned in the notice.
• Prepare written submissions: For each query, prepare a written response that explains your position with supporting documents. Oral explanations at hearings must always be backed by written submissions on record.
• Attend every hearing: Missing a hearing or seeking repeated adjournments creates a negative impression and may lead to an ex-parte order.

Common Issues Raised in Scrutiny Assessments

• Unexplained cash credits and deposits under Section 68
• Unexplained investments under Section 69
• Disallowance of business expenses claimed under Section 37
• High-value transactions flagged through Annual Information Return (AIR)
• Discrepancy between income declared and TDS reflected in Form 26AS

A GST Show Cause Notice (SCN) is the starting point of most GST disputes. How you respond to it largely determines whether the matter gets resolved at the adjudication stage or escalates into a protracted appeal. This article covers seven critical things every business must know when handling a GST SCN.

1. Understand the Exact Nature of the Allegation

Every GST SCN must specify the grounds on which the notice is issued and the tax, interest, and penalty proposed to be recovered. Read the notice carefully to understand precisely what is being alleged — ITC mismatch, short payment of tax, classification dispute, or something else. Your reply must address each allegation specifically and completely.

2. Check the Validity of the Notice

GST notices are subject to strict procedural requirements. Check whether the notice has been issued within the limitation period (2 years for normal cases, 5 years in cases involving fraud or suppression), whether the required prior approval has been obtained, and whether the notice is issued by an officer with proper jurisdiction.

3. Never Miss the Response Deadline

The deadline mentioned in the SCN is critical. Failing to respond within the time given (typically 15–30 days) may result in an ex-parte order where the officer passes an order entirely based on the department's case. If you need more time, request an extension immediately — do not simply let the deadline pass.

4. The Quality of Your Reply Determines Everything

A well-drafted SCN reply can result in the proceedings being dropped entirely at the adjudication stage. A poorly drafted reply — or no reply at all — almost always results in a confirmed demand. The reply must address each allegation with documentary evidence, applicable legal provisions, and relevant judicial decisions.

5. Personal Hearing Is Your Right — Use It

You have a statutory right to a personal hearing before an order is passed. Always request and attend the personal hearing. This is your opportunity to present oral arguments, clarify factual issues, and submit additional documents that may not have been part of your written reply.

6. Prepare a Complete Reconciliation

In ITC-related SCNs or turnover-related SCNs, the department typically identifies discrepancies based on data from GSTR-1, GSTR-3B, GSTR-2A, and your financial statements. Preparing a complete, item-by-item reconciliation of these figures — with explanations for each difference — is one of the most effective ways to neutralize such notices.

7. Engage Expert Help Before Responding

Many businesses attempt to respond to GST notices on their own and inadvertently make admissions or concessions that weaken their position. Expert involvement from the SCN reply stage — before any response is submitted — gives you the best possible chance of resolving the matter at the earliest stage.