Understanding Notice under Section 142(1) of the Income-tax Act (ITA)
Understanding Notice under Section 142(1) of the Income-tax Act (ITA)
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After you complete the e-filing process of the income return, the income tax department conducts an assessment. In case the assessing officer (AO) realises that there is more clarification needed regarding a particular detail during the assessment, they are likely to dispatch a notice under Section 142(1) of the ITA.
Purpose of Notice under Section 142(1)
With the issue of notice under Section 142(1), the AO may call upon the assessee to:
Furnish a return of income in respect of which he/she is assessable, where he/she has not filed the return of income within the normal time allowed. It may include a return in respect of his/her income or income of another person for which he/she is liable to be assessable. For example, in the case of a legal guardian or a deceased person
Produce accounts or documents to make an assessment
Furnish in writing any information on matters, including a statement of the assessee. For example, a statement of assets and liabilities of the assessee on a particular date
Compliance under Section 142(1) is Mandatory
Even if a taxpayer thinks that the accounts/documents requested are irrelevant, compliance remains mandatory. In case an assessee does not comply with the provisions of Section 142:
It may result in the best judgement assessment under Section 144,
A penalty under Section 271(1)(b), which is Rs 10,000 for each failure, or
Prosecution under Section 276D, which may extend up to a year and may attract a fine
The AO may or may not start assessment after compliance with this notice, depending upon the facts of the case.
If AO is satisfied with the documents or return or supporting evidence, he/she may not start with the assessment process.
E-Assessment Scheme, 2019
The Central Board of Direct Taxes (CBDT) has notified that ‘e-Assessment Scheme, 2019’ will be termed as ‘Faceless Assessment Scheme, 2019’, and all income tax assessments (subject to certain exceptions) shall be conducted in a faceless manner. Further, the CBDT has directed that the National e-Assessment Centre (NeAC) shall pass all the assessment orders through the ‘Faceless Assessment Scheme, 2019’.
Procedure of Conducting Faceless Assessment
The following steps are adopted concerning the Faceless Assessment.
NeAC serves notice to an assessee. He/she (assessee) needs to reply within 15 days of receipt of the notice. The NeAC will assign the case to specific assessment units (AU) in any one regional e-assessment centre (ReAC) through an automated allocation system.
The AU requests the NeAC to obtain information, documents, or evidence from an assessee, conducting inquiry or verification by the verification unit (VU), or seeking technical assistance from the technical unit (TU).
The NeAC issues notice to an assessee and assigns the request to the VU and the TU. After receiving documents from an assessee and relevant reports from the VU and TU, the NeAC transfers the same to AU.
In case an assessee fails to comply with the notice, then the NeAC serves notice under Section 144 as to why an assessment should not be completed to the best of judgement.
An assessee needs to file a reply to the NeAC within a given time frame. If the assessee fails to file a response, then the NeAC examines the draft assessment order as per risk management strategy (RMS) and automation examination tools. Based on this, it may decide to finalise the assessment order, provide an opportunity to an assessee if modification is proposed, or assign draft assessment order to Review Unit (RU) in any one ReAC. This is done through automated allocation system for conducting a review of such an order
The RU conducts the review of the draft assessment order and may decide to concur with it and intimate or suggest modifications and send them to the NeAC.
The NeAC on receiving the concurrence of the review unit finalises the draft assessment order. The NeAC, after receiving suggestions for modifications from the RU, will assign the case to AU, other than the AU who made the draft assessment order through an automated allocation system. The AU, on its part, will consider RU’s suggestions on modifications and send a final draft assessment order to the NeAC.
The NeAC is likely to finalise the assessment order or if modifications are proposed, follow such a procedure accordingly.
In case a show-cause notice (SCN) has been served to an assessee, he/she furnishes a reply within a particular time frame. The NeAC shall in case of no response to the SCN, finalise an assessment as per the draft assessment order. In case a response to an SCN is received, the NeAC will send a response to the AU. The AU then makes a draft assessment order and sends it to the NeAC.
The NeAC receives the revised draft assessment order. If modification is not prejudicial to the interest of an assessee regarding the draft assessment order, it will finalise an assessment order. In case a modification is prejudicial to the interest of an assessee regarding a draft assessment order, NeAC will provide an opportunity of being heard.
The NeAC deals with a response as per a similar procedure, that is the AU will make draft assessment order and so on.
Sample of a Notice under Section 142(1) of the ITA
Process to File a Response
A response to a notice under Section 142(1) has to be furnished electronically only via the ‘e-Proceedings’ utility in the registered ‘e-Filing’ accounts of the assessee. There is no need to visit the income tax office or schedule an in-person meeting with any assessing authority in this regard.
Go to the ‘Pending Actions’ tab and select ‘E-Proceedings’
Click on ‘View Notices’ and hit ‘Submit Response’
You will be directed to a page that will prompt you to ‘Select Response type for Notice’
You are required to choose between ‘Partial Response’ and ‘Full Response’
Note: The attachments to be submitted can be in PDF/ Excel/Comma-Separated Values (CSV) formats.
Click on ‘Continue’, mark a tick on the ‘Declaration and Submit’
You will receive a response ‘Submitted Successfully’
You can download the response acknowledgement
Frequently Asked Questions (FAQs)
Is there any upper limit on the number of years of information or related documents that an AO can seek under Section 142(1)(ii)?
Yes, an AO cannot ask for any information or documents older than three years.
When is it recommended to file a partial response to a notice under Section 142(1)?
In case the timeline given to you is about to expire and if you do not have the relevant details to be submitted, it is recommended to submit at least a partial response. It acts as proof that you have complied with the issued notice and need more time to furnish further details. The income tax department will send one more notice stating that in case you wish to add more attachments to the notice, then you can do so accordingly.