Understanding Notice under Section 142(1) of the Income-tax Act (ITA)

Delve into the intricacies of notices issued under Section 142(1) of the Income-tax Act, elucidating the procedural requirements, compliance obligations, and taxpayer rights under Indian tax law. This article provides clarity on the scope, implications, and remedies available to taxpayers in responding to income tax notices issued by tax authorities.

The Income Tax Act, 1961, is a comprehensive piece of legislation that governs the collection, administration, and enforcement of income taxes in India. Among its numerous provisions, Section 142(1) is particularly significant as it empowers tax authorities to issue notices to taxpayers for the purpose of gathering additional information or clarifications required for proper assessment. This article delves into the intricacies of Section 142(1), explaining when and why such notices are issued, the procedures involved, and the potential consequences of non-compliance.

What is Section 142(1) of the Income Tax Act?

Section 142(1) of the Income Tax Act grants the Assessing Officer (A.O.) the authority to issue a notice to taxpayers to furnish additional information or documents necessary for the assessment of their income. This provision is applicable regardless of whether the taxpayer has filed their income tax return under Section 139(1) or has failed to do so. The notice under Section 142(1) serves as a tool for tax authorities to ensure accurate and thorough tax assessments by obtaining detailed financial data directly from the taxpayer.

When is the Notice under Section 142(1) Issued?

A notice under Section 142(1) can be issued in various scenarios, including but not limited to:

1. Non-Filing of Return: If a taxpayer has not filed their income tax return within the prescribed time under Section 139(1), the Assessing Officer may issue a notice requiring them to furnish the return within a specified period.
2. Filed Returns: Even if the taxpayer has filed their return, the Assessing Officer may issue a notice if additional information is required to verify the accuracy and completeness of the return.
3. Post Assessment Year: This notice can be issued even after the end of the relevant assessment year, ensuring that the authorities can gather necessary information retrospectively.

Purpose of Notice under Section 142(1)

The primary objective of issuing a notice under Section 142(1) is to facilitate a comprehensive and accurate tax assessment. The notice serves several purposes, including:

1. Filing of Income Tax Return: This applies to the taxpayer’s own income and, in certain cases, the income of another person for whom the taxpayer is legally responsible, such as a legal guardian or representative of a deceased individual.
2. Provision of Accounts and Documents: The notice can require the taxpayer to provide various accounts and documents necessary for the assessment process.
3. Detailed Financial Information: The taxpayer may be asked to furnish written information on specific matters, including a detailed statement of assets and liabilities as of a particular date.

Safeguards for Taxpayers

To prevent harassment and ensure fairness, the law includes several safeguards:

1. Prior Approval Requirement: Before demanding a statement of assets and liabilities that are not part of the accounts, the Assessing Officer must seek prior approval from the Joint Commissioner.
2. Time Limitation: The Assessing Officer cannot request accounts related to a period more than three years prior to the previous year, ensuring that the information sought is relevant and recent.
3. Application to All Taxpayers: Notices under Section 142(1)(i) can be issued to both taxpayers who have filed their returns and those who have not, underscoring its comprehensive scope.

Procedure of Conducting Faceless Assessment

In recent years, the Indian government has introduced the faceless assessment scheme to enhance transparency and efficiency in tax assessments. Under this scheme, assessments are conducted without any physical interaction between the taxpayer and tax authorities. Here’s how the process works:

1. Issuance of Notice: The notice under Section 142(1) is issued electronically through the income tax portal.
2. Submission of Response: Taxpayers are required to respond to the notice using the ‘e-Proceedings’ utility within their registered ‘e-Filing’ account.
3. Review and Analysis: The submitted documents and information are reviewed and analyzed by a team of tax officials, who may request further clarification if needed.
4. Final Assessment: Based on the provided information, the assessment is finalized and communicated to the taxpayer electronically.

Sample of a Notice under Section 142(1) of the ITA

A typical notice under Section 142(1) will include the following details:

• Name and address of the taxpayer
• PAN number
• Assessment year
• Specific requirements (e.g., submission of return, accounts, and documents)
• Deadline for compliance
• Instructions on how to submit the required information electronically
• Contact details for queries or further assistance

Compliance under Section 142(1) is Mandatory

Responding to a notice under Section 142(1) is mandatory for all taxpayers. Non-compliance can lead to severe consequences, including penalties, prosecution, and a best judgment assessment by the tax authorities.

Penalty for Non-Compliance of Section 142(1) Tax Notice

Failure to comply with a notice under Section 142(1) can result in the following penalties and actions:

1. Monetary Penalty: A penalty of Rs.10,000 may be levied on the taxpayer under Section 271(1)(b).
2. Best Judgment Assessment: Under Section 144, the Assessing Officer can make an assessment based on their best judgment, using all relevant information available.
3. Legal Prosecution: Under Section 276D, legal prosecution could be initiated, potentially leading to imprisonment for up to one year, with or without a fine.
4. Search Warrant: A search warrant under Section 132 might be issued to conduct a search of the taxpayer’s premises.

How to Submit a Response to the Notice U/S 142(1)?

Responding to a notice under Section 142(1) involves using the ‘e-Proceedings’ utility on the income tax e-filing portal. Here is a step-by-step guide:

1. Access the Income Tax Portal: Log in to your registered account on the income tax e-filing portal.
2. Navigate to ‘Pending Actions’: Go to the ‘Pending Actions’ tab and select ‘E-Proceedings’.
3. View Notices: Click on ‘View Notices’ to see the notice issued under Section 142(1).
4. Submit Response: Click on ‘Submit Response’ and choose the response type (Partial or Full Response).
5. Attach Documents: Attach the required documents in PDF, Excel, or CSV formats.
6. Submit: Click ‘Continue’, tick the ‘Declaration’ box, and submit your response.
7. Confirmation: Upon successful submission, a confirmation message will be displayed, and you can download the response acknowledgement for your records.

Conclusion

Section 142(1)(i) of the Income Tax Act is a crucial provision that empowers tax authorities to request essential financial information from taxpayers to ensure accurate and comprehensive tax assessments. While it aims to facilitate transparency and fairness in the tax assessment process, it also includes safeguards to prevent misuse and harassment. Understanding this provision and adhering to the requirements of any notice issued under it is vital for taxpayers to maintain compliance and avoid severe penalties.

FAQs

Is there any upper limit on the number of years of information or related documents that an AO can seek under Section 142(1)(ii)?

Yes, the Assessing Officer cannot request accounts related to a period more than three years prior to the previous year. This limitation ensures that the information sought is relevant and recent.

When is it recommended to file a partial response to a notice under Section 142(1)?

A partial response is recommended when the taxpayer is able to provide some, but not all, of the requested information within the stipulated time. This can be followed up with the remaining information once it is available.

Who can serve notice under section 142 for making any inquiry before the assessment?

The Assessing Officer is authorized to serve a notice under Section 142(1) to gather necessary information before making an assessment.

What is the time limit for issuing section 142(1) notice?

There is no specific time limit for issuing a notice under Section 142(1), but it is generally issued during the assessment or reassessment process to ensure that the necessary information is available for accurate tax evaluation

What is inquiry before assessment in income tax?

An inquiry before assessment involves the Assessing Officer gathering additional information or documents from the taxpayer to ensure that the income tax return is accurate and complete. This process helps in identifying any discrepancies or underreported income.

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