Section 142(1) Income Tax Notice

Also known as ‘Inquiry Notice’, Section 142(1) Income Tax notice can be due to not filing tax return or collecting the relevant documents

Income Tax is a vast subject and it continues to confuse people from time to time. There are hundreds of different rules and new ones are regularly getting created. There is even greater anxiety among taxpayers when they receive a tax notice from the Income Tax department. Based on the situation, the Tax department can send various types of notices. Here we look at detailed information about Section 142(1) Income Tax notice.

What is Section 142(1) Income Tax notice?

Under Section 142(1) of the Income Tax Act, 1961 (India), the assessing officer (AO) has the power to issue a notice for inquiry before assessment. With this notice, the AO can gather more information such as requesting the necessary documents. Information regarding the income tax return can also be asked in this process.

The AO can ask the individual to file their tax return if they have not done so. They can also ask why the individual has failed to file their tax return. Details about assets and liabilities can also be demanded, as per the legal provisions in the relevant form and within a specified timeline.

When is a Section 142(1) Income Tax notice issued?

In case the individual has not filed their tax return, and if the AO feels that their income is taxable, they can ask the individual to file their tax return. A proper deadline for filing the tax return is mentioned in the notice. Section 142(1) Income Tax notice can also be issued even if the tax return is filed. This happens if the information provided in the tax return has errors or is incomplete.

In such cases, the AO can demand various types of additional information. For example, the taxpayer could be asked to provide clarifications, documents, bank statements, books of accounts or a statement of assets and liabilities. Such additional data is usually requested when there is a mismatch between ITR and Form 26AS/AIS. The notice can also be issued if there are one or more high-value transactions that look suspicious.

How to respond to a Section 142(1) Income Tax notice?

There is absolutely nothing to worry in case you have received a Section 142(1) Income Tax notice. This is a standard procedure that Income Tax officials are required to follow. It is important to know that your response to a Section 142(1) Income Tax notice has to be filed online through the Income Tax e-Filing portal (under “e-Proceedings” or the relevant notice section). Offline options are unlikely to be accepted.

You have to log in to your account on the Income Tax portal and go to Pending Actions or ‘e-proceedings’. You first need to acknowledge the notice. You can then choose a Full Response or Partial Response. Next, you need to provide your answers to the queries mentioned in the notice. If any documents have been requested, you need to provide them too. When done, click on the submit button.

What happens if you do not respond to a Section 142(1) Income Tax notice?

Not responding to a Section 142(1) Income Tax notice can have various outcomes. For example, there is a penalty under Section 271(1)(b). Taxpayers who do not respond may have to pay a fine of Rs 10,000 for each failure to comply with the notice. The assessing officer also has the right to use their best judgment in case you do not respond. This can lead to higher income estimation and subsequently higher tax.

In case there is serious and willful non-compliance, the taxpayer can face imprisonment of up to 1 year, with or without fine. If there are tax demands and you do not respond to the notice, additional interest and penalties can be applied under Section 234A, 234B, etc. Your future tax returns could be put through increased scrutiny when you do not respond to a Section 142(1) Income Tax notice.

It is highly recommended that you do not ignore a Section 142(1) Income Tax notice. It is just a standard procedure and nothing to be worried about. Make sure you provide all the documents and forms requested within the deadline period. For complex cases related to a Section 142(1) Income Tax notice, it will be better to consult a tax advisor or a Chartered Accountant.