Explore Income Tax Notices under Section 142(1) of the Income-tax Act, detailing procedural requirements, compliance obligations, and taxpayer rights. This article clarifies the scope, implications, and remedies available to taxpayers when responding to notices from tax authorities.

The Income Tax Act, 1961, is a key piece of legislation that regulates the collection, administration, and enforcement of income taxes in India. One of its important provisions, Section 142(1), grants tax authorities the power to issue notices to taxpayers requesting additional information or clarification for accurate tax assessment. This provision plays a crucial role in ensuring compliance and transparency in the tax filing process.

This article explores the nuances of Section 142(1), explaining the circumstances under which these notices are issued, the procedures that follow, and the potential consequences for taxpayers who fail to comply. Understanding the purpose and implications of Section 142(1) can help individuals and businesses navigate their tax obligations with greater clarity and confidence.

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

Section 142(1) of the Income Tax Act empowers the Assessing Officer (A.O.) to issue a notice to a taxpayer requesting additional information or documents required for the proper assessment of their income. This provision applies regardless of whether the taxpayer has filed their income tax return under Section 139(1) or has failed to file it altogether. The notice under Section 142(1) acts as a mechanism for tax authorities to gather comprehensive financial data directly from the taxpayer, ensuring accurate and complete tax assessments. It is an important tool to maintain compliance and transparency in the tax process.

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

The Income Tax Act’s Section 142(1) allows for the issuance of a notice in the following situations:

1. Non-Filing of Return: If a taxpayer fails to file their income tax return within the prescribed time under Section 139(1), the Assessing Officer (A.O.) may issue a notice requiring them to furnish the return within a specified period.
2. Filed Returns: Even when a taxpayer has already filed their income tax return, the Assessing Officer may issue a notice under Section 142(1) to request additional information or clarification to verify the accuracy and completeness of the filed return.
3. Post Assessment Year: This notice can be issued even after the end of the relevant assessment year, enabling tax authorities to gather necessary information retrospectively for proper assessment and compliance.

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 significant tool for tax authorities. It is designed to ensure accurate and fair tax assessments by requesting essential financial information from taxpayers. This provision promotes transparency and accountability in the tax process while incorporating safeguards to protect taxpayers from potential misuse or harassment. To avoid penalties and maintain proper compliance with tax laws, taxpayers must understand this provision and comply with any notices issued under it.

FAQs for Section 142(1) of Income Tax Act

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, under Section 142(1)(ii) of the Income Tax Act, the Assessing Officer (AO) is restricted in terms of the number of years for which they can seek accounts or documents. The AO cannot request accounts or information related to a period more than three years prior to the previous year. This limitation ensures that the inquiries remain relevant and focused on recent financial activity, protecting taxpayers from being asked for outdated records.

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

It is recommended to file a partial response to a notice under Section 142(1) when the taxpayer can provide some of the requested information but is unable to furnish all of it within the stipulated time. Submitting a partial response demonstrates the taxpayer’s intention to comply with the notice and can help avoid penalties or negative consequences. The remaining information should be submitted as soon as it becomes available, and it is advisable to communicate with the Assessing Officer about the delay in providing the full response.

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

The Assessing Officer (AO) is authorized to serve a notice under Section 142(1) of the Income Tax Act. The purpose of this notice is to gather necessary information, documents, or clarifications from the taxpayer before proceeding with the assessment of their income. This inquiry ensures that the AO has all the required details to conduct an accurate and thorough assessment.

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

There is no specific time limit prescribed for issuing a notice under Section 142(1) of the Income Tax Act. However, the notice is typically issued during the assessment or reassessment process to gather additional information or clarifications from the taxpayer, ensuring that the Assessing Officer has all the necessary details for accurate tax evaluation before the completion of the assessment.

What is Inquiry Before Assessment in Income Tax?

An inquiry before assessment in income tax refers to the process where the Assessing Officer (AO) seeks additional information or clarification from the taxpayer to ensure that the income declared and taxes paid are accurate. This is typically done under provisions such as Section 142(1) of the Income Tax Act, where the AO issues a notice requesting further documentation, details, or explanations regarding the income tax return filed by the taxpayer. The purpose of this inquiry is to verify the accuracy of the taxpayer's financial records, identify discrepancies, and gather any missing information before finalizing the tax assessment. This ensures transparency, fairness, and compliance in the tax assessment process.

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