Many clients who have been trading on WazirX have reported that they are getting Income Tax Notice for Crypto Sold on WazirX. These usually are sent as summons to assessee under section 131(1a) of the income tax.
The client actively traded cryptocurrencies on WazirX and also engaged in peer-to-peer (P2P) trading on both WazirX and Binance platforms.
In this post, we will discuss in detail about section 131(1A) and various points around it.
Table of Contents
- When the Summons under section 131(1A) can be issued?
- What does the summons say?
- Why have you received this income tax notice?
- How is Section 131(1A) related to the Civil Code of Procedure?
- What are the steps to take when responding to a Summon Notice under Section 131(1A)?
- What are the steps to prepare and submit a timely response to a notice under Section 131(1A)?
- What are the powers granted to an income tax officer?
- What is the difference between Section 131(1) and 131(1A)?
When the Summons under section 131(1A) can be issued?
Summons can be issued by the Income Tax Department under section 131(1A) if there is a reasonable suspicion that income has been concealed or is likely to be concealed. It is not necessary for the summons to be issued during any ongoing proceedings; it can be issued for the purpose of conducting an inquiry or investigation based on suspicion.
What does the summons say?
Why have you received this income tax notice?
The assessing officer (AO) has suspicions that you may have concealed income. This is a serious matter that requires your attention. Concealment of income is a violation of tax laws and can lead to severe legal consequences, such as penalties and prosecution.
The AO will conduct an investigation to determine whether your income has indeed been concealed. This will involve a thorough review of your financial records and any other relevant information. You may be asked to provide additional documentation and explanation regarding your income sources and expenses.
It is important to cooperate with the AO during this investigation and provide accurate and complete information. Failure to do so may result in further legal action. It is also advisable to seek professional legal advice to ensure that your rights are protected throughout the investigation process. If you have received a notice from the Income Tax Department, it is advisable to schedule a call with our Tax Attorneys / CA to understand your options and to ensure that you comply with tax laws.
In case the AO finds that you have indeed concealed income, penalties may be imposed, and legal action may be taken against you. It is, therefore, in your best interest to be transparent and forthcoming with the information requested by the AO, and to ensure that you have complied with all tax laws and regulations.
How is Section 131(1A) related to the Civil Code of Procedure?
The Civil Code of Procedure governs civil proceedings in India and empowers Section 131(1A) to issue commissions and enforce an individual's attendance, discovery, and inspection of any property. Additionally, it allows the section to examine assessees under oath and to require the production of necessary books of accounts and documents.
Nature & purpose of proceedings:
The person against whom the summons is issued is not entitled to know the full details of the nature & purpose of the proceedings in respect of which the summon is issued as held in respect of FEMA case 2009 110L: - 645: - H.C: FEMA.
In case of witness personal appearance is required as witness has no right of being represented by an authorised representative. However, a notice other then witness may be represented by his authorised representative in response to notice u/s 131.
Referance can be made to the following case laws:
a) Jamnadas Madhavji & Co. vs ITO (1986) 162 ITR 331 (Bom.)
b) V. Datchinamurthy V. Assistant Director (1984) 149 ITR 341 (Mad.)
What are the steps to take when responding to a Summon Notice under Section 131(1A)?
When receiving a Summon Notice under Section 131(1A), the first step is to gather all the necessary documents that have been summoned. It is crucial to pay close attention to the notice and to physically attend if required. In case of valid reasons, you may request an extension, but it is usually limited to one time.
Have you received any income tax notices? Trust us to assist you in responding to the IT Department. Our team at CA Mitesh & Associates is well-versed in engaging with the Income Tax Department. By assisting you in responding properly, our team will help you avoid legal repercussions & penalties.
Read about various income tax notices issued under relevant sections in India
What are the steps to prepare and submit a timely response to a notice under Section 131(1A)?
A notice under Section 131(1A) is usually issued by the assessing officer when there is a suspicion of concealed income. If you have done trading on crypto exchanges then you will be required to provide the Books of Accounts, Transaction details, Income Tax Returns and prove your source of funding. In addition, if you have engaged in P2P trading, then you will be required to provide details of TDS deductions, counter party PAN number, etc.
In cases where your physical presence is required, check if an Authorized Representative (AR) which would be a Qualified CA can be hired to represent or accompany you during the proceedings. You can also submit all the necessary documents electronically within the deadline specified in the notice. If any documents are missing, request an extension from the assessing officer.
What are the powers granted to an income tax officer?
An income tax officer has the authority to investigate individuals suspected of tax evasion, and some of their powers include the ability to conduct discovery and inspection, enforce the attendance of any person, including officers of banking companies, and examine them under oath. Additionally, income tax officers can compel the production of books of accounts and other necessary documents, issue commissions, and perform search and seizure operations.
What is the difference between Section 131(1) and 131(1A)?
|Section 131(1)||Section 131(1A)|
Section 131(1) empowers the jurisdictional assessing officer to issue summons.
|Section 131(1A) empowers the officers of the investigation wing viz. Assistant Director, Deputy Director or the Director of Income Tax (Investigation) to issue summon.|
As can be seen from above, receiving income tax summons for crypto is a serious matter and all income tax notices have to be taken very seriously and dealt with professionally.
If you have received a notice from the Income Tax Department, it is advisable to schedule a call with our Tax Attorneys / CA to understand your options and to ensure that you comply with tax laws.