Section 142 Inquiry before assessment

Section 142 : Inquiry before assessment

Notice under section 142(1) is served by the Assessing Officer for making preliminary investigation into the discrepancy found by the AO in the return of income of assessee. As the name suggests it is an inquiry of the details which we have submitted before making the final assessment by the Assessing Officer. Failure to respond to this kind of notice will lead the assessee into difficult situations. This notice can be sent to assessee before or after assessment of his tax return. Section 142(1) tax notice is the notice that is usually served, in a case where the return has been filed, to call for further details and documents from the assessee and to take a particular case under assessment. This notice can also be sent to require him to file his return where he has not yet furnished it. This notice is issued when information is missing from the taxpayer’s end.

Purpose of the Notice

The basic purpose of section 142(1) tax notice is to inquire the details of the assessee before making an assessment under the Act. It is like a preliminary investigation. The reasons for the issuance of Section 142(1) Tax Notice can be:

  • By issuing section 142(1) tax notice, the AO may ask an assessee to furnish his ITR in respect of income for which he is assessable, in case the assessee has not yet filed the return of income within the time allowed.
  • The Assessing Officer may ask to produce accounts or documents which he may require for the purpose of making an assessment.
  • The AO may also ask the assessee to furnish in writing any information on any matter which may include the statements. For Example-Statement of assets and liabilities on a particular date.

Dealing with the Notice u/s 142(1)

  1. After the assessee has filed the return, then the required documents under inquiry need to be produced by him.
  2. The taxpayer is given a reasonable opportunity of being heard for any material that may have been gathered on the basis of such inquiry.
  3. In the case of non-filing of the return, the Income Tax Return needs to be filed within the time given in the notice and a proof of the same be submitted along with the required documents.

Penalty for non-compliance of Section 142(1) Tax Notice

Failure in compliance with the Section 142(1) Tax Notice may result in Best Judgment Assessment u/s 144. Further, the penalty includes:

  • Imposition of penalty of Rs 10,000 for each failure u/s 271(1)(b) or;
  • Prosecution under section 276D which may extend up to 1 year with or without fine.
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