Section 142(1) – Notice for Non-Filing of Return / Inquiry before Assessment

Filing an Income Tax Return (ITR) is a fundamental obligation for most individuals and entities in India. The Income Tax Department has robust mechanisms to track taxable transactions and identify potential non-filers or those whose returns require further scrutiny. One such key provision is Section 142(1) of the Income Tax Act, 1961, which empowers the Assessing Officer (AO) to initiate inquiries or compel the filing of a return.

What is a Section 142(1) Notice?

A Section 142(1) notice is a formal communication issued by the Assessing Officer (AO) to a taxpayer. It primarily serves two distinct purposes:

1. Calling for a Return: If a person who is required to furnish a return of income (Section 139(1)) has not done so within the prescribed due date, the AO can issue this notice directing them to file the return within a specified period.
2. Requiring Information/Documents/Accounts: Even if a return has been filed, the AO can issue this notice to require the taxpayer to produce specific accounts or documents, or to furnish certain information. This is typically done to facilitate an inquiry or gather further details before proceeding with an assessment.

When is a Section 142(1) Notice Issued?

The Income Tax Department issues this notice in various situations:

• For Non-Filing of Return:
  • When the department possesses information (e.g., from Form 26AS, Annual Information Statement (AIS), Taxpayer Information Summary (TIS), or other third-party sources) indicating that an individual's income exceeds the basic exemption limit, but no ITR has been filed for the relevant Assessment Year.
  • If the department detects high-value transactions associated with a PAN (such as property purchase, large bank deposits, foreign remittances) where no corresponding income tax return has been filed.

  Example: Mr. Sharma sold a property for ₹70 lakhs. The sub-registrar reported this transaction to the IT Department. However, Mr. Sharma, who normally doesn't file ITR as his salary is below the taxable limit, did not file a return showing the capital gains from the property sale. He might receive a Section 142(1) notice asking him to file his return.

• For Inquiry Before Assessment (even if a return is filed):
  • To seek additional clarification or justification regarding reported income, deductions, or exemptions in a filed return.
  • To request the production of specific books of account, bank statements, invoices, or any other relevant documents that the AO deems necessary for an inquiry.

  Example: Ms. Kapoor filed her ITR. However, the AO noticed a significant deduction claimed for certain expenses that appeared unusually high for her profession. The AO might issue a Section 142(1) notice asking for detailed bills and proofs of those expenses.

Contents of a Section 142(1) Notice

A typical Section 142(1) notice will include:

• The name and Permanent Account Number (PAN) of the assessee.
• The relevant Assessment Year (AY) for which the notice is issued.
• The specific reason for issuing the notice (e.g., non-filing, request for specific information).
• A detailed list of documents, accounts, or information to be submitted.
• The due date by which the taxpayer must comply with the notice (typically 10 to 30 days).
• A clear mention of the consequences of non-compliance.

What to Do After Receiving a Section 142(1) Notice (Compliance Steps)

Receiving any notice from the Income Tax Department requires prompt and careful action. Here’s what you should do:

1. Do Not Ignore: This is a formal legal communication. Ignoring it can lead to severe adverse consequences.
2. Read Carefully: Understand the exact reason for the notice and the specific information/documents requested.
3. Gather Information: Collect all relevant financial records, bank statements, investment proofs, TDS certificates (Form 16, Form 16A), etc.
4. File the Return (if applicable): If the notice is for non-filing, you must file a belated return (Section 139(4)) for the specified Assessment Year. Ensure you use the correct ITR form and report all income, even if it leads to tax payable. Remember that belated returns attract penalties under Section 234F.
5. Submit Response Online: All responses to such notices are typically submitted online through the Income Tax e-filing portal under the 'e-Proceedings' or 'Pending Actions' section. Attach all requested documents and provide clear explanations.
6. Seek Professional Help: If the notice is complex, involves significant sums, or you are unsure about the required response, it is highly advisable to consult with a tax professional, Chartered Accountant, or tax lawyer.

Consequences of Non-Compliance

Failure to comply with a Section 142(1) notice can lead to serious repercussions:

• Best Judgment Assessment (Section 144): If you fail to file the return as directed, or do not furnish the requested information/documents, the Assessing Officer can proceed to make a Best Judgment Assessment. In this scenario, the AO estimates your income and tax liability based on available information, which often results in a higher tax demand.
• Penalties:
  • For Non-Filing: If you were required to file an ITR but failed to do so after the notice, you could be liable for a penalty under Section 234F (up to ₹5,000 or ₹10,000 depending on total income).
  • For Non-Compliance with Notice: Failure to comply with the directions of the notice (e.g., not producing documents) can attract a penalty under Section 272A(1)(d), which can be ₹10,000 for each default.
  • For Under-Reporting: If non-compliance leads to an assessment where income is found to be under-reported, penalties under Section 271(1)(c) or Section 270A (50% to 200% of tax payable) could be imposed.
• Prosecution: In severe cases of persistent non-compliance or significant under-reporting, prosecution proceedings (leading to imprisonment) might be initiated.

Conclusion

A Section 142(1) notice from the Income Tax Department is a clear signal that your tax affairs for a particular assessment year are under scrutiny. Whether it's a reminder to file your return or a request for more information, a timely, accurate, and comprehensive response is essential. Proactive compliance can save you from substantial penalties, further assessment proceedings, and potential legal troubles. Always keep proper records of your income and expenses to ensure you can respond effectively to any such inquiry.