Income Tax Notice under Section 142(1)

After you file your income tax return online, the Income Tax Department carefully reviews your submission. If the assessing officer (AO) finds that further details or clarifications are needed on certain disclosures, they will issue an inquiry notice under Section 142(1) of the Income Tax Act.  This notice isn’t only for those who have filed their returns—it can be sent even if you haven’t filed one. The department might still ask for additional information to make sure everything in their records is correct. In this guide, we'll explain what an income tax notice under Section 142(1) means, why you might receive one, and how you can respond to it effectively.

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

A Income Tax Notice Section 142(1) is an official communication from the Income Tax Department requesting additional information or clarifications regarding your income tax return. This notice can be issued in two scenarios:

• When a Return is Filed: Even after you have submitted your return, the department might need further details to verify certain information. In such cases, they send a notice under Section 142(1) asking you to provide the required clarifications.
• When a Return is Not Filed: If you haven’t filed a return, the department can still issue this notice to request the necessary information. This ensures that all relevant details are available to the authorities for accurate record-keeping and assessment.

In essence, the Section 142(1) notice is a tool for the tax authorities to gather complete and accurate information from taxpayers, helping them verify and maintain correct records.

Power to issue a Section 142(1)  Income Tax Notice

As mentioned above, the power to issue a notice under Section 142(1) of the Income Tax Act primarily rests with the Assessing Officer (AO). Here’s what that means in simpler terms:

• Authority of the Assessing Officer: Whether you have filed your income tax return under Section 139(1) or not, the Assessing Officer has the authority to issue a notice under Section 142(1). This means that if the tax department needs more information or clarifications regarding your tax return—or even if you haven’t filed a return at all—the AO can send you this notice.
• Filing Deadline and Beyond: If you haven’t filed your return within the time specified under Section 139(1), the AO can issue a notice requiring you to file your return within the time given in the notice. Moreover, this notice can be issued even after the end of the relevant Assessment Year.
• Obligation to Respond: Even if you are not normally required to file a return under any provision of the Income Tax Act, you must still respond to a notice issued under Section 142(1)(i) by filing a return.

In essence, it is the Assessing Officer who holds the power to initiate this process, ensuring that the tax records are complete and accurate.

Objective for Issuing a Notice Under Section 142(1)

The primary objective of issuing a notice under Section 142(1) of the Income Tax Act is to ensure that the tax authorities have complete and accurate information for a proper assessment of a taxpayer's liabilities. Specifically, the notice aims to:

• Obtain Clarifications and Additional Details: The notice seeks extra information or explanations regarding certain entries or disclosures in the taxpayer’s return, helping the authorities verify the accuracy of the reported figures.
• Collect Comprehensive Financial Data: Taxpayers are required to furnish necessary accounts and supporting documents. This includes providing detailed information about assets, liabilities, and other financial transactions to ensure that all relevant data is available for assessment.
• Cover Multiple Incomes Under Responsibility: The notice applies not only to the taxpayer's own income but also to the income of any individual for whom the taxpayer is legally responsible. This includes cases involving legal guardians or situations where the taxpayer must report income on behalf of deceased individuals.
• Facilitate an Accurate Tax Assessment: By gathering all the required details, the Income Tax Department can carry out a thorough and fair tax assessment, ensuring compliance with tax laws and proper calculation of tax liability.

In summary, the notice under Section 142(1) is a mechanism to gather comprehensive financial information, clarify uncertainties, and support the overall accuracy of the tax assessment process.

Purpose of Notice Under Section 142(1) of the Income Tax Act

The Income Tax Department may issue a notice under Section 142(1) for several reasons. Here are the primary purposes behind such a notice:

Request to File the Income Tax Return:

If you have not filed your return within the specified time or before the end of the relevant assessment year, you might receive a notice asking you to file your income tax return.

Important: After filing your return, you must also e-verify it within 30 days. Failure to e-verify on time will render your return invalid and, in effect, it will be considered as if you have not filed a return for that financial year.

Submission of Specific Accounts and Documents:

Even if you have filed your income tax return, the Assessing Officer (AO) may require you to produce specific accounts or documents.

This could include evidence supporting deductions claimed, invoices for business expenses, or other documentation necessary to substantiate the figures reported in your return.

Providing Additional Information or Explanations:

The AO may also ask you to furnish written explanations, notes, or workings on particular points that might not be part of your formal books of accounts.

For example, you could be required to submit a detailed statement of your assets and liabilities or other relevant financial information as prescribed.

In summary, the notice under Section 142(1) is designed to ensure that the Income Tax Department has all the necessary details to accurately assess your tax liability, whether by ensuring timely filing of returns, verifying the authenticity of your claims, or clarifying any ambiguities in your submitted information.

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

Even if a taxpayer thinks that the accounts/documents requested are irrelevant, compliance remains mandatory.If you fail to comply with a notice issued under Section 142(1) of the Income Tax Act, you could face several serious consequences, including:

• Penalty Under Section 271(1)(b): A penalty of Rs 10,000 may be imposed if you do not respond as required.
• Best Judgment Assessment: Your case might be subjected to a "Best Judgement Assessment" under Section 144. This means that the Assessing Officer will assess your tax liability based on all the available information and materials rather than relying solely on your filed return.
• Prosecution Under Section 276D: Non-compliance can lead to prosecution under Section 276D, which carries a potential imprisonment of up to 1 year, with or without a fine.
• Issuance of a Warrant: In certain cases, the authorities may issue a warrant under Section 132 to conduct a search, further complicating the situation.

Have you received a tax notice under Section 142(1)? Don’t panic. IndiaFilings experts are here to help you resolve these notices and respond to them in a timely and accurate manner. Connect with an expert now to ensure you handle the situation correctly!

Steps to Take After Receiving a Section 142(1) Income tax Notice

Below are the essential steps you need to follow to respond promptly and accurately to your notice. 

• Read the Notice Carefully: Review the notice thoroughly to understand whether it requires you to file a return or to submit additional documents/clarifications regarding your filed return.
• Determine the Required Action: If you haven’t filed your return, prepare to file it immediately. If additional information is requested, note the specific documents or clarifications required.
• Gather Necessary Documents: Collect all relevant records, receipts, invoices, bank statements, and any other supporting documents the notice mentions.

After that, Respond promptly using the e-Proceedings utility in your registered e-Filing account to meet the specified deadlines. (Steps explained below)

The process to File a Response to the Section 142(1) Notice  

When you receive a notice under Section 142(1) of the Income Tax Act, you need to respond electronically using the ‘e-Proceedings’ utility available in your registered e-Filing account. Here's a step-by-step guide to help you file your response:

• Log In to the Portal: Visit the income tax portal and log in to your e-Filing account using your credentials.
• Access E-Proceedings: Navigate to the ‘Pending Actions’ tab and select ‘E-Proceedings’.
• View the Notice: Click on ‘View Notices’ to see the notice issued under Section 142(1) and then select ‘Submit Response’.
• Select Response Type: You will be directed to a page prompting you to ‘Select Response Type for Notice’.
• Partial Response: Use this option if you intend to provide only some of the requested information immediately.
• Full Response: Choose this if you are ready to submit all the required details and documents.
• Attach Documents: Upload the necessary attachments in the allowed formats (PDF, Excel, or CSV). These attachments may include supporting documents, detailed accounts, or any other evidence as specified in the notice.
• Submit Your Response: Click on ‘Continue’. Make sure to check the ‘Declaration and Submit’ box to confirm that the information provided is correct and complete. Then, submit your response.
• Confirmation and Acknowledgement: After submission, you will see a message indicating that your response has been ‘Submitted Successfully’. Finally, download the response acknowledgement for your records.

E-Assessment Under the Faceless Assessment Scheme, 2019

The Central Board of Direct Taxes (CBDT) introduced the Faceless Assessment Scheme in 2019 to conduct income tax assessments without direct, in-person interactions between taxpayers and assessing officers, except in a few cases. This process is entirely electronic, ensuring a more transparent and unbiased review.

If the Assessing Officer (AO) is not satisfied with the response you provided to a notice issued under Section 142(1), they can initiate a scrutiny assessment through this faceless process. This means that your case will be evaluated remotely based on the documents and information submitted, ensuring an objective and standardised approach to tax assessments

How to Safeguard Yourself Against Section 144(1) Notices?

Taxpayers can protect themselves from receiving a notice under Section 144(1) (which typically follows unsatisfactory responses or non-compliance) by adopting a proactive and disciplined approach to their tax obligations. Here are some practical steps to safeguard yourself:

Timely Filing of Returns:

• File on Time: Ensure your income tax return is filed before the due date. Late filings can trigger further scrutiny and invite notices.
• E-Verify Promptly: After filing, complete the e-verification within the prescribed 30-day period. Failing to do so may render your return invalid, increasing the likelihood of the best-judgment assessment.

Maintain Accurate and Complete Records:

• Organize Your Documentation: Keep all financial records, including receipts, invoices, bank statements, and supporting documents. Accurate records help you substantiate your claims if queried by the Assessing Officer (AO).
• Regular Updates: Periodically update your accounts and financial records to ensure they are comprehensive and current.

Prompt and Thorough Response to Notices:

• Respond Quickly: If you receive any notice—especially under Section 142(1)—reply within the given time frame. This prevents the issue from escalating to a best judgment assessment under Section 144(1).
• Be Detailed and Accurate: Provide clear, complete, and honest information. Address any discrepancies or gaps in your records promptly.

Stay Informed:

• Understand the Process: Familiarize yourself with the various notices and assessments under the Income Tax Act. Knowing what to expect can help you prepare and avoid surprises.
• Monitor Your Account: Regularly check the Income Tax portal for any pending actions or updates to your filings.

Seek Professional Assistance:

• Consult a Tax Expert: Engaging a professional can help you navigate complex tax regulations, ensure compliance, and prepare accurate documentation. A tax expert can also assist in preparing a timely and effective response if you receive any notice.

Need Expert Assistance? If you want to safeguard yourself against potential IT notices and ensure your tax affairs are in order, IndiaFilings is here to help.

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 If you've received an income tax notice, it's crucial to respond within the stipulated time frame to avoid heavy penalties and potential legal consequences. If you're unsure about how to proceed or need help addressing your notice, IndiaFilings is here to help you respond promptly and accurately.  Our team of experts can guide you through the entire process—from gathering necessary documents to submitting your response online.

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FAQs on Income Tax Notice Section 142(1)

What do I do when I receive a 142(1) notice from the income tax department?

You may receive a notice under Section 142(1) in two circumstances:

• If you fail to file your income tax return, You need to file the return immediately.
• If you have filed a return but the Assessing Officer (AO) wants to verify your accounts or documents, You must submit the documents as requested by the AO.

What can I expect after the submission of my ITR u/s 142(1)?

Once you submit your income tax return in response to the notice:

• The processing department will review your submission.
• If the AO finds your response satisfactory, your ITR will be processed without further action.
• However, if the AO is not satisfied with your reply, they may issue a notice under Section 143(2) to initiate a scrutiny assessment.

What happens if I don’t file a return or don’t respond to the notice u/s 142(1) received?

If you do not file a return or respond to the notice, you will fall under a “Best Judgement Assessment.” In this scenario, the Assessing Officer will evaluate all available information and assess your tax liability based on their best judgment, which could lead to higher tax demands and penalties.

What is the time limit to issue the notice under Section 142(1)?

There is no specific time limit mentioned for issuing a notice under Section 142(1). This means that the notice can be issued even after the relevant assessment year has ended.

What is the difference between a notice u/s 142(1) and 143(2)?

• Notice under Section 142(1): This notice is issued as an inquiry before the final assessment, primarily to verify specific accounts and documents or to request additional information.
• Notice under Section 143(2): If there are still doubts regarding the accuracy of the documents or the information provided after the initial inquiry, the AO may issue this notice for a more detailed scrutiny assessment.

When can a notice under Section 142(1) be issued?

A notice under Section 142(1) is issued in two situations:

• Filing Requirement: When the assessee has not filed their income tax return.
• Verification of Documents: When a return has been filed and the Assessing Officer (AO) requires additional documents or details to verify the information provided.

What can I expect after submitting my ITR under Section 142(1)?

After submission:

• The processing department will review your ITR.
• If the AO finds your response satisfactory, your ITR will be processed, and no further action is required.
•  If the AO is not satisfied, you may receive a notice under Section 143(2) for a scrutiny assessment.

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

There is no maximum time limit for issuing a notice under Section 142(1). The notice can be issued even after the relevant assessment year has ended.

What is the penalty for non-compliance with a 142(1) notice?

• Penalty under Section 271(1)(b): A penalty of Rs 10,000 may be imposed.
• Warrant: A warrant may be issued under Section 132 for conducting a search if non-compliance persists.

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