Inquiry Before Assessment [Section 142]

Section 142 empowers the Assessing Officer (AO) to conduct a preliminary inquiry before finalizing an income tax assessment. It allows the AO to gather additional information, documents, or even compel a non-filer to submit a return. Below is a detailed breakdown of its provisions, procedures, and consequences.

1. When is a Notice Under Section 142(1) Issued?

A notice under Section 142(1) can be issued in the following scenarios:

(A) For Non-Filers

• If a taxpayer fails to filean Income Tax Return (ITR) under Section 139(1) by the due date, the AO can issue a notice demanding the return within a specified period.
• This notice can be issued even after the Assessment Year (AY) ends.

(B) For Filers (Additional Information Needed)

• If the AO finds discrepanciesin the filed return (e.g., unreported income, mismatched TDS, or missing documents).
• To verify high-value transactions(e.g., property purchases, foreign assets, or crypto earnings).

(C) For Special Cases

• Legal guardians or representatives of deceased persons may be asked to file returns for the deceased.

2. Key Components of a Section 142(1) Notice

The notice typically includes:

• Taxpayer details(Name, PAN, Address).
• Assessment Yearunder inquiry.
• Specific documents/information required(e.g., bank statements, property deeds, business accounts).
• Deadline for compliance(usually 15–30 days).

3. Documents/Information That Can Be Demanded

The AO may request:

• Books of accounts(for up to 3 years prior to the relevant financial year).
• Bank statements, invoices, or investment proofs(e.g., LIC receipts, home loan interest certificates).
• Statement of assets and liabilities(requires prior approval from the Joint Commissioner if not part of regular accounts).
• Audit reports(if applicable, e.g., Form 3CA/3CB for tax audits).

4. How to Respond to a Section 142(1) Notice?

(A) Online Process (Mandatory)

1. Log into the Income Tax e-filing portal.
2. Go to “e-Proceedings” → “View Notices” → “Submit Response”.
3. Choose between “Full Response”(all documents) or “Partial Response” (if some details are pending).
4. Upload supporting files (PDF/Excel/CSV) and submit.

(B) Offline Submission (Rarely Allowed)

• Only in exceptional cases (e.g., technical issues).

5. Consequences of Non-Compliance

Failure to respond may lead to:

• Penalty of ₹10,000under Section 271(1)(b).
• Best Judgment Assessment (Section 144): The AO estimates income and tax liability, often unfavourably.
• Prosecution (Section 276D): Up to 1 year imprisonment+ fine.
• Search & Seizure (Section 132): In severe evasion cases.

6. Key Differences from Other Notices

7. Recent Updates (Faceless Assessment Scheme)

• Notices are now issued digitallyvia the National e-Assessment Centre (NeAC).
• Responses must be submitted online; no physical interaction is required.

8. Practical Tips for Taxpayers

✅ File returns on time to avoid notices.

📌 Maintain records (bank statements, invoices, proofs) for 6–7 years.

⚠️ Never ignore a notice—respond within the deadline.

🔍 Seek professional help if the notice is complex (e.g., audit cases).