Key Takeaways
- Faceless assessment moves entirely through the portal, so an unread notice is an unanswered notice.
- A show cause notice with a draft order is the last practical opportunity to place evidence on record.
- A personal hearing through video conference has to be requested, it is not offered automatically.
- Most proposed additions in trading cases come from reconciliations nobody had performed.
- Anything not on record at assessment is harder to introduce at appeal, so the file is built once and built properly.
Executive Summary
A faceless assessment had been running against a Thrissur trading company for months before anyone in the business understood what it was. Two notices had arrived on the income tax portal and neither had been answered, because the accountant had read them as routine system messages.
JPKAD & Associates was engaged after a show cause notice arrived with a draft assessment order attached, proposing additions on three separate grounds.
The remaining time was short and the position was recoverable, because a show cause notice is an opportunity to place evidence on record rather than a decision.
Three reconciliations answered most of the proposed additions. Turnover reported for goods and services tax against turnover in the return of income, cash deposits against recorded sales, and purchases against transport and payment evidence.
A personal hearing through video conference was requested and held. The company now monitors the portal weekly and reconciles its returns quarterly rather than at year end.
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Client Overview
The client is a wholesale trading company in Thrissur district supplying building materials to contractors and retailers across central Kerala. It is closely held, run by two working directors from the same family.
Trade is high volume and low margin, with a large number of small transactions and a mix of credit and cash sales.
Accounts are maintained in house on accounting software, with an external practitioner handling return filing and statutory work.
Compliance had never been a problem in the sense of deliberate default. Returns had been filed each year and taxes paid.
What did not exist was any reconciliation between the different returns the business files, and no single person owned the income tax portal login.
Thrissur is a compact trading district where suppliers, customers and transporters are often known to one another personally. That closeness makes the trade work and it also means informal practice fills gaps that documentation would otherwise cover.
Business Challenges
The company had a defensible position on all three grounds and almost lost it, because nobody had opened the notices in time and nobody had reconciled the returns the business had already filed.
Four problems had to be solved in the time the show cause notice allowed.
Why were the first two notices never answered?
Because they arrived on the portal and nobody checked it. The registered email went to an address the accountant rarely opened, and the mobile number on record belonged to a former employee.
The accountant had seen one notice and read it as a routine system message, which is a common reaction to portal communications that arrive without any personal context.
The external practitioner filed returns each year and had not been engaged to monitor proceedings, and nobody had discussed who would.
Faceless assessment removes the physical visit and the local officer. That is the point of it, and it also removes the informal prompts that used to alert a small business.
What did the draft assessment order propose?
Three additions. A difference between turnover reported in the goods and services tax returns and turnover shown in the return of income.
Cash deposits into the bank account during a defined period that had not been explained on record.
Purchases from a supplier whose registration had been cancelled at a later date, which the order proposed to disallow.
None of the three was unreasonable on the material available. Each was a question the company had never been asked to answer because it had not read the notices asking it.
Why was the turnover difference not simply an error?
Because the two returns measure different things and the difference is normal in a trading business, provided it can be explained.
Goods and services tax turnover included transactions that are not revenue for income tax purposes, along with timing differences at the year boundary.
Credit notes, branch transfers and one advance received and later refunded all contributed to the gap.
The explanation was straightforward once the reconciliation was prepared. It had simply never been prepared, in that year or in any earlier one.
What made the purchase disallowance the difficult item?
Because the supplier’s registration had been cancelled after the transactions took place, which invites the inference that the purchases were not genuine.
The company had dealt with the supplier in good faith and had no way of knowing what would happen to that registration later.
Answering it therefore required evidence that goods had actually moved and that payment had actually been made through banking channels.
That evidence existed in transport documents and bank statements, though it sat across three separate filing systems and had never been assembled together.
Received a show cause notice with a draft order? Read more about our taxation work at https://jpkad.com/service/taxation/
Business Objectives
The directors wanted the assessment answered properly rather than merely answered quickly, because anything left off the record at this stage becomes harder to raise later.
What did the company need most urgently?
A response filed within the window the show cause notice allowed, since letting that window pass would have left the draft order to stand largely unchallenged.
Evidence for each of the three proposed additions, organised so that the connection between a document and a proposition is obvious rather than implied.
A personal hearing, which the directors wanted because two of the items involved explanation rather than arithmetic.
And an honest view of which items were strong and which were not, so they could plan for the possibility of a demand.
Why was building the record treated as more important than speed?
Because evidence not placed on record at assessment stage is more difficult to introduce at appeal, and the appellate route is slower and more expensive.
A thin response filed on time is not better than a complete one filed on the last day of the window.
The directors were told plainly that the objective was to make the assessment the last stage rather than the first of several.
That framing also determined how the response was written, since a document prepared for a possible appeal reads differently from one written only to satisfy a deadline.
What defined success for this engagement?
A complete response on record for each proposed addition, with the supporting evidence indexed and referenced rather than attached in bulk.
A hearing requested and held, so that the explanation could be given rather than only written.
Reconciliations prepared for the year under assessment and for the two years on either side, since a question answered for one year invites the same question for others.
And a monitoring routine that would make a missed notice impossible to repeat.
Success also meant the directors understanding the process well enough to recognise the next notice for what it is.
Want the assessment to be the last stage rather than the first? Explore our approach at https://jpkad.com/contact-us/
Solution Strategy
The strategy was evidence first and argument second. Each proposed addition was treated as a separate question with its own document set, rather than answered in a single narrative letter.
Work began with the deadline, because the response window governs everything and it cannot be extended by wishing.
How was the turnover difference reconciled?
By preparing a line by line bridge from turnover reported in the goods and services tax returns to turnover in the return of income, with each reconciling item supported.
Timing differences at the year boundary were identified from the sales register and matched to the returns filed on either side of it.
Credit notes, branch transfers and the refunded advance were each evidenced separately rather than grouped as a single adjusting figure.
The bridge was presented as a statement with document references against every line, which is what makes a reconciliation checkable rather than assertive.
How were the cash deposits explained?
By matching deposits to recorded cash sales, using the sales register, the cash book and the daily collection records maintained at the counter.
The pattern of deposits was compared against the pattern of cash sales across the year, which showed a consistent relationship rather than isolated events.
Two deposits did not match cash sales. One was a refund from a supplier and one was a director’s loan, both of which were evidenced and disclosed.
Disclosing those two items rather than leaving them inside a general explanation was deliberate, because an unexplained item found later undermines everything explained around it.
How was the purchase disallowance answered?
By evidencing that goods had moved and that payment had been made, which is what the question actually turns on.
Transport documents, weighbridge slips and inward gate records were assembled for each transaction with the supplier.
Payment was traced through banking channels, showing amounts leaving the company’s account and matching the invoices.
The subsequent onward sale of those same goods was also traced, because goods that were sold to third parties had evidently been received.
Ledger confirmations were sought from the supplier as well, though the response was treated as supporting rather than primary evidence given the circumstances.
How was the response document constructed?
As three separate sections, one for each proposed addition, each with its own statement of facts, its reconciliation and its indexed annexures.
Every assertion carried a reference to a specific annexure and page, so that nothing relied on the reader searching for support.
The tone stayed factual. A response that argues before it evidences invites a longer exchange and rarely shortens one.
A short covering summary set out what was accepted and what was contested, because a response that contests everything is read differently from one that concedes what it should.
How was the hearing handled?
A personal hearing through video conference was requested, since it is available on request and is not offered automatically.
The request was made in the response itself rather than separately, and the reason for seeking it was stated.
Preparation covered the two items that involved explanation rather than arithmetic, with a single page of points for each.
One director attended alongside the adviser, because questions about how the business actually operates are better answered by the person who runs it.
Need a response built on documents rather than argument? Read more at https://jpkad.com/service/accounting-and-financial-reporting/
Records and Reconciliations Used
Everything required already existed inside the business. The work was assembling it in a form that connects a document to a proposition without the reader having to do that work.
Which records answered the questions?
The sales register, the cash book and the daily counter collection records, which together explained the cash deposits.
Purchase invoices with transport documents, weighbridge slips and inward gate records, which evidenced receipt of goods.
Bank statements for the full year, used to trace payments outward and deposits inward against the underlying transactions.
The goods and services tax returns as filed, alongside the sales and purchase registers, which supported the turnover bridge.
Stock records were used alongside them, since movement of goods through the godown corroborates both the purchase and the onward sale.
Which reconciliations were prepared?
Turnover reported for goods and services tax against turnover in the return of income, with each reconciling item evidenced.
Cash sales against cash deposits, presented as a pattern across the year rather than as a set of individual explanations.
Purchases against payments and against onward sales, which is the reconciliation that answers a genuineness question.
Reported receipts against the annual information statement, which is where a difference will surface in any future year if it is not monitored.
Each reconciliation was prepared for the two adjacent years as well, so a question answered for one year would not arrive unanswered for another.
How is the portal monitored now?
A named person checks the income tax portal weekly and records the check, so an unanswered notice cannot be explained by nobody having looked.
The registered email and mobile number were corrected, since one belonged to a former employee and the other was rarely opened.
Alerts are forwarded to both directors as well as the accountant, because a single point of contact is a single point of failure.
The external practitioner’s scope now states explicitly whether monitoring is included, which had never been discussed before.
Implementation Process
The engagement ran across the weeks the show cause notice allowed and then through the hearing. Nothing about the timetable was chosen by the company.
The first action was to read the entire proceedings history on the portal, which nobody in the business had done.
How does a faceless assessment file get read from the start?
By downloading every notice and every attachment from the proceedings history and reading them in sequence with the draft order.
That sequence mattered, because the draft order refers back to information sought in earlier notices that had never been supplied.
Each proposed addition was then mapped to the records that would answer it, and the gaps in those records were identified immediately.
The directors received a written view within days, setting out what was strong, what was arguable and what would need to be conceded.
How was the evidence assembled under time pressure?
By splitting the work across three parallel streams, one per proposed addition, rather than working through them in sequence.
The transport and gate records were the longest lead item, since they sat in physical files at the godown rather than in the accounting system.
Bank statements for the full year were obtained early, because a bank request is outside the company’s control and cannot be compressed.
Everything was indexed as it was collected rather than at the end, which is what allowed the response to be referenced properly.
How was the response filed?
Through the electronic proceedings facility on the portal, within the window the show cause notice allowed, with the annexures uploaded in an indexed sequence.
Upload limits meant the annexures had to be split, so the index was designed around the split rather than the split breaking the index.
The acknowledgement was retained, along with a complete copy of everything filed, which is the record the company will need if the matter goes further.
Filing was completed with time in hand rather than on the final day, because a portal problem on a deadline is a risk nobody needs to take.
How was the hearing conducted?
Through video conference, on the request made in the response, with one director and the adviser attending together.
Preparation had reduced each explanation to a single page, since a hearing of this kind is short and a long answer is rarely the useful one.
The director explained how counter sales and daily collections actually work in the trade, which is context no document conveys on its own.
A written note of what was said was prepared immediately afterwards and retained with the file.
Have notices sitting unread on the portal? Explore how we can help at https://jpkad.com/contact-us/
Business Results
Results are described here in direction of change rather than in figures. Assessment outcomes depend on the evidence on record and on the view taken by the assessing authority, and figures would suggest a certainty that does not exist.
What follows is what the company reported after the assessment concluded.
What changed on each ground of the faceless assessment?
Each of the three grounds was answered on evidence rather than on assertion, with the supporting material on record and indexed.
The turnover difference was reconciled item by item, which converted an unexplained gap into an explained one.
The cash deposits were matched to recorded sales across the year, with the two non sale items disclosed and evidenced separately.
The purchase question was answered by evidencing movement of goods, payment through banking channels and the onward sale of the same goods.
What changed about the company’s exposure?
The company moved from having no response on record to having a complete one, which is the difference that matters most at this stage.
The directors understood which items were strong and which were arguable before the order was passed rather than after it.
Because the evidence is on record, any subsequent stage begins from a built file rather than from a reconstruction.
The two years on either side were reconciled as well, so the same questions will not arrive unanswered if those years are examined.
What changed operationally?
The portal is checked weekly by a named person and the check is recorded, which removes the explanation that nobody looked.
Registered contact details were corrected, since one belonged to a former employee and the other was rarely opened.
Reconciliation between the goods and services tax returns and the books now happens quarterly rather than never.
The annual information statement is reviewed each year against recorded receipts, which is where the next difference would otherwise surface.
Responsibility for each of these steps is written down, because a routine that depends on one person remembering it is not a routine at all.
What changed about how the company buys?
Supplier registration status is checked at onboarding and periodically thereafter, which is a routine step that had not been taken.
Transport and gate records are now filed with the purchase invoice rather than separately at the godown.
Payments to suppliers run through banking channels as a matter of policy, which was already the practice and is now the rule.
None of this would have prevented a supplier’s registration being cancelled later. It makes the position evidenceable when it is.
Want your returns reconciled before anyone asks? Explore our advisory work at https://jpkad.com/contact-us/
Lessons Learned
The company had a defensible position throughout and nearly lost it to an unread portal. That is the whole lesson of faceless assessment for a small business.
What surprised the directors most?
That a proceeding could run for months with nobody in the business aware of it, because nothing arrives by post and nobody visits.
Nobody had thought to check the registered mobile number, which belonged to an employee who had left two years earlier.
That the turnover difference, which felt alarming when it appeared in a draft order, was ordinary and explainable once reconciled.
That the show cause notice was an opportunity rather than a verdict, which they had not understood when it arrived.
What worked better than expected?
Splitting the work into three parallel streams. Working through the additions in sequence would not have finished inside the window.
Disclosing the two deposits that were not sales. Volunteering them strengthened everything else rather than weakening the explanation.
Requesting the hearing. The director’s account of how counter collections actually work carried context that no document conveys.
Indexing as the evidence was collected rather than at the end, which is what made proper referencing possible under time pressure.
Reading the entire proceedings history in sequence also helped, since the draft order refers back to information sought in notices nobody had opened.
What would be done differently next time?
The portal would be monitored from the day the company was incorporated, with a named owner and a recorded weekly check.
Reconciliation between the returns would happen quarterly, which turns a notice into a document retrieval exercise rather than a project.
The scope of the external practitioner would state whether monitoring of proceedings is included, since the assumption that it was caused the whole matter.
Transport and gate records would be filed with the purchase invoice, since separating them cost days that the window did not have.
What should other Kerala businesses check?
Log into the income tax portal today and read the proceedings history. That single action answers whether a problem exists.
Confirm that the registered email and mobile number belong to somebody currently in the business and currently reading them.
Reconcile turnover across the returns already filed, since that difference is the most common opening question in a trading case.
Establish who is responsible for monitoring notices, in writing, because in most small businesses that responsibility has never been assigned.
Finally, check whether transport and gate records are filed alongside purchase invoices, because separating them costs days when a window is closing.
Frequently Asked Questions
What is a faceless assessment?
It is the procedure under Section 144B of the Income Tax Act 1961 under which scrutiny assessments are conducted electronically without a physical interface with a local officer. Notices are issued and responses filed through the income tax portal. The design removes territorial jurisdiction and the physical visit, and it also removes the informal prompts that used to alert small businesses that something was underway.
What happens if a notice goes unanswered?
The proceeding continues without the taxpayer’s explanation. Where information sought is not supplied, the assessing authority may proceed on the material available, and an assessment under Section 144 becomes possible. Practically, unanswered notices lead to a draft assessment order proposing additions that a straightforward reconciliation would often have answered had it been supplied.
Is a show cause notice with a draft order the end of the matter?
No. It is an opportunity to respond before the final order is passed, and it is usually the last practical chance to place evidence on record cheaply. Evidence not on record at assessment stage is more difficult to introduce at appeal, so the response to a show cause notice deserves the effort that a full submission requires.
Can a personal hearing be obtained in a faceless assessment?
A hearing through video conference may be requested, and it is not offered automatically. The request should be made in the response itself, with the reason stated. It is most useful where an item involves explanation of how the business actually operates rather than arithmetic, since that is context documents do not convey on their own.
Why do turnover differences between tax returns trigger questions?
Because the returns measure different things and the difference is visible to the department. Goods and services tax turnover can include items that are not revenue for income tax, along with timing differences at the year boundary, credit notes and branch transfers. The difference is ordinary. What is not ordinary is being unable to explain it when asked.
How are cash deposits explained?
By matching them to recorded sales using the sales register, the cash book and daily collection records, and by showing the relationship as a pattern across the year rather than as isolated explanations. Deposits that are not sales, such as a supplier refund or a director’s loan, should be disclosed and evidenced separately rather than absorbed into a general answer.
What if a supplier’s registration is cancelled after the purchases were made?
The question becomes whether the transactions were genuine, so the answer lies in evidence that goods moved and payment was made. Transport documents, weighbridge slips and inward records evidence receipt. Bank statements evidence payment. Tracing the onward sale of the same goods is often the most persuasive element, because goods sold to third parties were evidently received.
How should a response be organised?
As separate sections, one for each proposed addition, each with a statement of facts, the reconciliation prepared for it and indexed annexures. Every assertion should reference a specific annexure and page. Where annexures must be split because of upload limits, the index should be designed around the split rather than broken by it.
What happens after the assessment order?
Where tax is payable a notice of demand follows. An appeal lies to the Commissioner of Income Tax Appeals within the prescribed period, and applications for rectification of apparent errors and for stay of demand are separate routes with their own requirements. Each of these is materially easier where the evidence is already on record from the assessment stage.
How can a small business avoid this situation?
Assign responsibility for monitoring the portal in writing, check it weekly and record the check, and confirm that the registered email and mobile number belong to somebody currently reading them. Reconcile turnover across the returns quarterly. Those three habits turn a notice into a document retrieval exercise instead of a project run against a closing window.
Conclusion
Faceless assessment did not create this company’s problem. An unread portal did. Two notices had arrived and neither had been answered, because the registered mobile number belonged to an employee who had left two years earlier and the accountant had read a portal message as routine. By the time a show cause notice arrived with a draft assessment order attached, three additions were proposed and the company had placed nothing on record against any of them. All three were answerable. The turnover difference was ordinary once a bridge between the returns was prepared. The cash deposits matched recorded sales across the year, and the two that did not were volunteered rather than buried. The purchase question was answered by evidencing that goods moved, that payment left the bank and that the same goods were later sold on. None of that evidence had to be created. It existed across three filing systems and had never been assembled. If your business has an income tax portal login that nobody checks, that is the single thing worth fixing this week, ahead of any reconciliation. JPKAD & Associates advises businesses on assessments, reconciliations and tax compliance, and you can read more through the contact page at https://jpkad.com/contact-us/