The Income Tax Department sends notices for various reasons, including non-filing of returns, discrepancies in tax returns, incomplete information, underreported income, tax evasion suspicions, reassessment, and statute of limitations. In cases where a return is not filed or the income tax department requires additional information regarding the disclosures made, they issue a notice under section 142(1).
Purpose of Notice under section 142(1) of Income Tax Act
Notice u/s 142(1) can be issued by the Income Tax Department for the following reasons:
1. To ask the assessee to file the Income Tax Return:
If the assessee has not filed a return within the specified period of time or before the end of the relevant assessment year, then the assessee might receive notice u/s 142(1) asking to file the return.
Note: The taxpayer must e-verify the return within 30 days of filing the income tax return. Failure to do so within the specified time limit will result in the return being considered an Invalid Return. Moreover, in such a case, it will be deemed that the taxpayer has not even filed their return for the relevant financial year.
2. Producing specific accounts and documents:
If the assessee has already filed an income tax return, the Assessing Officer (AO) may ask the assessee to produce such specific accounts and documents as required by them. For example, the department can ask the assessee to provide evidence of deductions claimed, invoices of expenses claimed under business incomes, etc.
3. Any other information, notes, or workings as desired by the AO:
The Assessing Officer may require the assessee to furnish in writing and in the prescribed manner the information, notes, or workings on specific points as required by him which may or may not form part of books of accounts. For example, A statement of assets and liabilities.
Sample Notice under section 142(1) of Income Tax Act
Consequences of non-compliance
If a taxpayer receives a notice under section 142(1), they must respond to it. Failing to do so can lead to the following consequences:
- It may result in Best Judgment Assessment u/s 144.
- The penalty of ₹10,000 can be imposed
- The warrant for Search u/s 132 can be issued
- There can be imprisonment, which can extend up to 1 year with or without fine
The Central Board of Direct Taxes (CBDT) has launched the ‘Faceless Assessment Scheme, 2019‘ to carry out all income tax assessments in a faceless manner, with a few exceptions. Therefore, if the Assessing Officer (AO) is not satisfied with the response given in reply to the notice issued under section 142(1), they will move ahead with a scrutiny assessment under this scheme.
How to file a response against notice
The reply to the notice can be submitted online by following steps:
- Log in to the Income tax e-filing portal
- Select Pending Action
- Click on E-Proceeding
- Choose the View Notices
- Submit a Response to proceed to the new page
- Click on the Select Response type for Notice
- Select between Partial Response and Full Response and submit your reply accordingly
You may receive a notice under section 142(1) in two circumstances. One is when you fail to file an income tax return, in which case you need to file the return. The second circumstance is when you have filed a return but AO wants to verify the accounts or documents. In such a case, you need to submit documents as asked by AO.
Once you submit the return, the processing department will process it. If the AO finds your response satisfactory, they will move forward with processing the ITR. And no further action is required. However, if the AO is not satisfied with your reply, they may issue a notice under section 143(2) for scrutiny assessment.
In this case, you will fall under “Best Judgement Assessment.” The assessing officer will evaluate all the relevant information available and make an assessment based on their best judgment.
There is no time limit mentioned for issuing the notice, so it can be issued even after the relevant assessment year.
When an AO needs to verify specific accounts and documents, they issue a notice under section 142(1) which is also termed as an inquiry before the assessment. If there are any doubts regarding the accuracy of the documents, then the AO will issue a notice under section 143(2) for scrutiny assessment.