Once the assessee files the income tax return, the Income Tax Department scrutinises his return and issues assessment intimations and scrutiny notices. This applies even if the assessee fails to file their income tax return. However, the Department may request additional information to ensure everything is in its records. Timely income tax return filing is mandatory to stay compliant.
In this guide, we’ll explain what an income tax notice under section 142 (1) means, the reasons behind issuing it, and the process to effectively file a response.
Understanding Income Tax Notice Under Section 142 (1)
An income tax notice under section 142 (1) of the Income Tax Act, 1961, is issued by the Assessing Officer (AO) to collect additional information required for completing an assessment. It also furnishes a return of income and provides clarification on any aspect of your filed return for assessment purposes. However, this notice is typically issued before the assessment is completed and does not necessarily indicate tax evasion.
The income tax notice under section 142(1) is served via email, SMS, or the e-filing portal, and taxpayers usually have 15 days to respond to income tax notice, though an extension may be requested if needed.
Read more:- What are the Different Types of Income Tax Notices?
Purpose of the Income Tax Notice Under Section 142 (1)
The income tax notice, which is a standard part of the assessment process under section 142 (1) of the Income Tax Act, must be filed for the following reasons:
- Request to file the income tax return
- Ensure proper assessment of the taxpayer’s liability
- Obtain clarifications and explanations regarding certain disclosures
- Collect comprehensive financial data and transactions
- Cover multiple incomes of any individual who is legally responsible
- Facilitate accurate and fair tax assessments
- Submission of specific accounts and documents
- Produce accounts or documents to make an assessment
What are the Reasons for Receiving Income Tax Notice under Section 142 (1)?
The income tax notice is an official request from tax authorities for certain records, information, or clarifications about your financial situation. Hence, it can be mainly issued due to the following reasons:
- Non-filing of Income Tax Return: To curb any inconsistencies in the income tax return for the relevant assessment year, the income tax notice under section 142 (1) is received.
- High-Value Transactions: You receive the income tax notice if there is any requirement to know the source of funds and details of high-value transactions by the tax authorities.
- Inconsistencies in Income or Financial Data: Receiving an income tax return under section 142 (1) is a reminder to find discrepancies between the income reported in the ITR and other available information.
- Tax Audit Requirement: It is required in case the tax department wants to inspect the audit report or connected financial information.
- Random Scrutiny or Regular Assessment: You can receive an income tax notice if any additional information is required for further scrutiny or regular assessment.
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When Can a Notice Under Section 142 (1) be Issued?
The two scenarios when an income tax notice under section 142 (1) can be issued are as discussed below:
- When a Return is Filed: Even after you have submitted your return, the Department might need further details to verify certain information.
- When a Return is not Filed: If you haven’t filed a return, the Department can still issue a notice to request the necessary information.
Who Can Issue a Notice under Section 142 (1) of the Income Tax Act?
The notice under section 142 (1) of the Income Tax Act can be issued in situations where you file an income tax return under section 139 (1).
In situations where you haven’t filed your return within the time limit specified under Section 139(1), the Assessing Officer (AO) is authorised to issue a notice to file a return within the specified time period. This notice can be issued after the end of the relevant assessment year. Moreover, it can be issued when the Income Tax Department needs additional information, whether or not tax returns have been filed.
Steps to be Taken After Receiving an Income Tax Notice
After receiving your income tax return, do not panic or ignore it; rather, follow a well-structured approach. Below are the steps you need to comply with after receiving an income tax return:
- Carefully Read the Notice: The applicants must thoroughly review their notice to understand whether it requires them to file a return or submit clarifications regarding their filed return.
- Determine Required Action: If you haven’t filed your return, you need to prepare and file it along with additional information (if requested).
- Gather Mandatory Documents: You can gather all necessary documents, including records, receipts, invoices, bank statements, and any other supporting documents as mentioned in the notice.
- Prepare Response: For this step, you need to consider help from professionals to organize information and prepare a response in the required format.
- Submit on Time: Compliance with the specified deadline for filing a response to the income tax notice under section 142 (1) is mandatory.
How to File a Response to Section 142 (1) Notice?
Upon receiving an income tax notice under section 142 (1), you need to immediately respond by employing an electronic or e-proceeding utility available in your registered e-filing account. The step-by-step guide explaining the entire process for filing a response to section 142 (1) income tax notice is as discussed below:
Step 1: Log in to the Portal: First, visit the income tax portal and log in to your e-filing account using your credentials.
Step 2: Access e-Proceedings: Next, move to the pending actions tab and access e-proceedings.
Step 3: View Notices: You are further required to click View Notices to view and submit a response to the notice under section 142(1).
Step 4: Select Response Type: Next, you are directed to a page prompting you to select the Response Type of Notice.
Step 5: File Partial or Full Response: If you intend to provide some of the requested information immediately, file a partial response; if you are ready to submit all required documents, file a full response.
Step 6: Attach Documents: Next, upload the required documents in supported formats, such as PDF, Excel, or CSV.
Step 7: Submit Your Response: Next, click continue to declare and submit your response for the income tax notice under section 142 (1).
Step 8: Receive Confirmation of Response: After submission, you see a message confirming that your response was successfully submitted. Hence, you can now download the receipt or confirmation of your records.
Read more:- Analysis of Reduction or Waiver of Income Tax Penalty
Mandatory Compliance under Section 142 (1) of the Income Tax Act
Compliance under section 142 (1) of the Income Tax Act is mandatory even if the taxpayer is of the opinion that the documents requested are relevant. The taxpayers planning to safeguard themselves from receiving an income tax notice under section 142 (1) must comply with the following preventive measures, as discussed below:
- Ensure timely filing of the income tax return before the due date
- Complete e-verification within 30 days of filing their return
- Maintain financial documents for at least 7 years
- Familiarise yourself with various notices & assessments under the Income Tax Act
- Regularly check the Income Tax portal for any pending actions
- Promptly respond to address any tax notices within the given time frame
- Seek advice from tax professionals dealing with complex issues
Consequences for Non-Compliance with Section 142 (1) Income Tax Notice
Any non-compliance with the provisions of section 142 (1) of the Income Tax Act attracts the following consequences, as discussed below:
- Assess income and income tax liability using the information based on their best judgment
- Penalised under section 271 (1) (b), i.e., Rs. 10,000 for each failure
- Prosecution under Section 276D, which may extend up to 1 year, or without a fine
- Issuance of a warrant for the search of premises
- Increase the scope of security for future returns
- Upon satisfaction of the documents or supporting evidence, the return filed by you will be accepted, and proceedings will be closed.
Time Limit to Serve & Respond to the Income Tax Notice
Generally, there is no specific time limit for serving an income tax notice under section 142 (1). This implies that if the tax authorities need additional details to verify your return, this notice may be served at any time during the assessment year or during scrutiny assessments. However, a response to the income tax notice must be filed within 30 days from the date of its receipt, excluding extensions received upon a written request to the assessing officer.
To Wrap Up
It is crucial for everyone to ensure compliance with their mandatory tax obligations and to promptly respond to income tax notices issued under section 142(1). This approach not only helps you in the short term but also offers long-term benefits, including accurate and compliant tax filings.
Dealing with the tax matters might be stressful for you. Connect with Corpbiz team for quick and efficient filing of a response to the income tax notice under section 142 (1) of the Income Tax Act.
Read more:- An Overall Assessment of Income Tax Notice
Top Questions Regarding Income Tax Notice
What do I do when I receive a 142(1) notice from the income tax department?
Upon receiving a notice under section 142 (1) of the Income Tax Act, you must file an electronic response through the official e-filing portal within the specified timeframe.
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 under section 142 (1) of the Income Tax Act, you must wait until the processing department reviews your submission and the assessing officer finds your response satisfactory. However, in case the assessing officers do not find your reply satisfactory, they may issue another notice for the initiation of a scrutiny assessment under section 143 (2).
What is the time limit to issue the notice under Section 142(1)?
There is no specific time limit for the issuance of notice under section 142 (1) of the Income Tax Act. However, it ensures that the notice can be issued even after the end of the relevant assessment year.
What is the difference between a notice u/s 142(1) and 143(2)?
The notice issued under section 142 (1) is an inquiry before the final assessment of accounts and documents, whereas the notice issued under section 143 (2) is an initial inquiry by the assessing officer, ensuring a more detailed scrutiny.
Who can issue the notice under Section 142(1)?
The notice under section 142(1) of the Income Tax Act can be issued by the Assessing Officer, who is the primary authority empowered under the Income Tax Act to issue it as a preliminary inquiry before a final assessment is made.
What is the penalty for non-compliance with a 142(1) notice?
Any failure to comply with the filing of a reply to the notice issued under section 142 (1) of the Income Tax Act imposes the following penalties, as provided below:
1. Assess income tax liability using the information based on their best judgment
2. Penalized under section 271 (1) (b), i.e., Rs. 10,000 for each failure
3. Prosecution under Section 276D, which may extend up to 1 year, or without a fine
4. Issuance of a warrant for the search of premises
5. Increase the scope of security for future returnsCan Income Tax send a notice after 10 years?
Yes, the Income Tax Department is competent to send a notice even after 10 years of filing the income tax return. However, it is only possible for cases involving significant undeclared or escaped income.
