Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Section 142]- Enquiry by the Assessing Officer before Assessment

[Section 142]- Enquiry by the Assessing Officer before Assessment
[Section 142]- Enquiry by the Assessing Officer before Assessment

1. Service of a Notice [Section 142(1)] of Income Tax Act 1961.:

For the purpose of making an assessment, the Assessing Officer may take any / all of the following steps:

(a)   Serve a Notice under Section 142(1)(i)

to the person requiring him to furnish a return of his income, or the income of any other person in respect of which he is assessable under the Act, in the prescribed form and within the time specified in the notice, if the person has not filed a return of income within the time allowed under section 139(1) or before the end of the relevant assessment year.

(b) Serve a Notice under Section 142(1)(ii)

 to any person who has flied a return of income or not to produce or cause to be produced such accounts or documents as the Assessing Officer may require. However, the Assessing Officer shall not require the assessee to produce any accounts relating to a period more than three years prior to the previous year. Further, the notice under this clause can be sent only when the return has been submitted under section 139 or when  the time allowed under section 139(1), as the case may be, for furnishing the return has expired and the return is not submitted.

Example: For making an assessment of assessment year 2019-20 the Assessing Officer can ask for books of account for previous years 2015-16, 2016-17 and 2017-18 besides, of course, for previous year 2018-19 which is in question.

Only 3 years’ Books Of Account can be Summoned:

The officer, however, may not summon accounts relating to a period more than 3 years prior to the accounting year in question. Should a notice calling for account books for a period more than 3 years prior to the accounting year be issued, the same may be regarded as consisting of two parts, one for the period of three years for which the books can be rightly called for, and another for the period beyond three years for which the books cannot be called for. The latter part of the notice may be regarded as uthorizedi and illegal, but to the extent to which the former part is legal, the assessee should produce books for the three years; and if he fails to do so, he would be regarded as being in default and liable to best judgment assessment.

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(c) Serve a notice under section 142(1)(iii),

to any person who has filed a return of income or in whose case the time allowed under section 139(1) for furnishing the return has expired, to furnish, in writing and verified in the prescribed manner information in such form and on such points and matters as he may require. The Assessing Officer may also ask for a statement of all assets and liabilities of the assessee whether included in the accounts or not. However, prior approval of the Joint Commissioner of Income-tax will be required, if the Assessing Officer requires the assessee to furnish a statement of assets and liabilities not included in the accounts. Statement of assets and liabilities can be asked for any number of previous years.

2. [Section 142(2)]- Make Inquiry by Assessing Officer:

For the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such inquiry, as he considers necessary. While section 142(1) empowers the Assessing Officer to collect information from the assessee himself, section 142(2) on the other hand, empowers him to collect information from sources other than the assessee.

3. Audit of Accounts [Sections 142(2A) to (2D)]:

The Assessing Officer may, at any stage of the proceedings before him, direct the assessee to get the accounts audited by a Chartered Accountant nominated by the Chief Commissioner / Commissioner of Income-tax. Such a decision may be taken by the Assessing Officer, if having regard to:

(a)        the nature and complexity of the accounts,

(b)        volume of the accounts,

(c)        doubts about the correctness of the accounts,

(d)        multiplicity of transactions in the accounts, or

(e)        specialized nature of business activity of the assessee,

AND

the interests of the revenue,

is of the opinion that it is necessary so to do. He may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

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The Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.

Direction of audit can be given even if the accounts are already audited under the Income Tax Act or under any other law. [Section 142(2B)]

Form and Time Limit for Submission of Report [Section 142(2C) and Rule 14A]:

The Chartered Accountant shall submit the audit report in Form No. 6B to the assessee who will in turn submit it to the Assessing Officer within such period as may be specified by the Assessing Officer. Such period may, however, be extended by the Assessing Officer suo motu or on the request of the assessee and for any good and sufficient reasons. The aggregate of the period originally fixed and the extended period(s) shall not, in any case, exceed 180 days from the date on which the directions for audit were received by the assessee.

Audit Expenses [Section 142(2D)]:

The expenses of and incidental to such audit (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner, in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government

4. [Section 142(3)]- Opportunity of being Heard by Assessing Officer:

The Assessing Officer shall give an opportunity to the assessee of being heard in respect of any information gathered by the Assessing Officer on the basis of the aforesaid inquiry under section 142(2) or on the basis of the audit conducted as per section 142(2A) above, where the Assessing Officer proposes to utilize such information for the purpose of any assessment. However, no such opportunity is necessary when the assessment is made under section 144.

5. Consequences of Non-Compliance of Section 142(1) and Section 142(2A):

Failure to comply with notice under section 142(1) or to get accounts audited as per directions issued under section 142(2A) may result in:

(a)        Best judgment assessment under section 144;

(b)        Penalty under section 271(1)(b) which has been fixed at Rs. 10,000;

(c)        Prosecution under section 276D with rigorous imprisonment which may extend to one year or with fine which will not be less than Rs. 4 or more than Rs. 10 for every day during which the default continues, or with both;

(d)        Issue of a warrant of authorisation under section 132 for conducting search.

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If the assessee proves that the non-compliance with the direction under section 142(2A) was not because of his fault but negligence or refusal of the auditor, then best judgment assessment shall not be made and the proceedings shall be dropped.

It may be noted that opportunity of being heard shall have to be given to assessee before making best judgment assessment and before levying penalty or launching prosecution If the assessee proves that there was a reasonable course for the failure, for e.g. death in the family, some major illness or negligence on the part of chartered accountant, etc., the Assessing Officer shall not make the best judgment assessment or levy penalty, etc.

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