Income Tax Notice Under Section 142(1) of the Income Tax Act: What It Means and How to Respond

Receiving an income tax notice under Section 142(1) of the Income Tax Act can cause a lot of anxiety. The good news is, it doesn’t always indicate wrongdoing, but it does require your prompt attention. Understanding what this notice is, why it’s issued, and how to respond correctly can help you avoid penalties and stay compliant with the Income Tax Department. In this blog, we’ll break down everything you need to know about Section 142(1) of the Income Tax Act, from its purpose to how you can safeguard yourself against potential issues.?

What is Section 142(1) of the Income Tax Act??

Section 142(1) of the Income Tax Act permits the Income Tax authorities to issue a notice requesting additional clarification or documents concerning the income tax return (ITR) you have filed. If you haven’t filed your return, the authorities can ask you to submit your ITR within a specified time frame.

The notice can also be issued for other purposes, such as the need for further details or discrepancies in the return you have already filed. Essentially, it serves as an official inquiry to make sure the accuracy of your tax return and the proper fulfilment of tax obligations.?

Who Can Issue This Income Tax Notice??

This notice can be issued by the Assessing Officer (AO), irrespective of whether you have already filed your tax return under Section 139(1) or not. If you miss the deadline for filing your return, the AO can issue a notice requiring you to submit it even after the end of the relevant Assessment Year.?

Even if you’re not required to file a return, Section 142(1)(i) mandates that you must file one if you receive this notice.?

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

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

Failure to File a Return?

If you fail to file your return within the prescribed time (under Section 139(1)), the AO can issue a notice asking you to file it. This could happen even after the assessment year ends.?

Additional Information Required?

If the Income Tax Department needs more information about the income or deductions declared in your return, they will issue this notice, asking for supporting documents or further clarification.?

Purpose of the Notice Under Section 142(1)?

The primary objective of issuing a notice under Section 142(1) is to make sure that all the necessary information is gathered for an accurate tax assessment. This can include:?

Request for Specific Documents?

After reviewing your filed return, the AO may ask for specific accounts, receipts, or supporting documents that were declared in your return. This can include receipts for claimed deductions, invoices for expenses, etc.?

Statement of Assets and Liabilities?

If required, the AO may request a detailed statement of your assets and liabilities to support your filed return. This information must be provided in the prescribed manner.?

Clarifications on Specific Points?

If the AO finds any discrepancies or areas needing further explanation, they can ask for notes or workings related to those points.?

Penalties for Non-Compliance with Section 142(1)?

Non-compliance with a notice under Section 142(1) can lead to severe consequences. The penalties include:?

Penalty of Rs. 10,000?

Under Section 271(1)(b), failing to comply with the notice can result in a penalty of up to Rs 10,000.?

Best Judgment Assessment?

If you don’t respond to the notice, your case could fall under Best Judgement Assessment (under Section 144), where the AO assesses your income based on their judgement, which could be unfavourable.?

Prosecution?

In cases of significant non-compliance, you could face prosecution under Section 276D, which could lead to imprisonment for up to one year, or without a fine.?

Search Warrants?

The AO may issue a warrant under Section 132 for conduction a search at your premises.?

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

It’s crucial to act quickly when you receive a Section 142(1) notice. Here’s how you can respond by following the below steps:?

Step – 1: Start by logging into your account on the Income Tax E-filing portal.?

Step – 2: Navigate to the ‘Pending Actions’ tab and click on ‘E-proceedings.’?

Step – 3: Here, you’ll find the notice that has been issued to you.?

Step – 4: Choose whether you want to submit a ‘Partial Response’ or a ‘Full Response’ to the notice.?

Step – 5: If the notice asks for specific documents or clarifications, make sure to upload them accurately and on time.?

It’s important to submit your response within the time frame given in the notice to avoid penalties and complications.?

Safeguarding Yourself from Section 142(1) Notices?

To safeguard yourself from the negative implications of a Section 142(1) notice:?

Timely Filing?

File your tax returns within the prescribed time limits to avoid receiving this notice. If you miss the deadline, make sure you respond quickly.?

Accurate and Complete Information?

Make sure your returns are accurate and that all the necessary documents are submitted to avoid follow-up notices.?

Comply with Document Requests?

If the AO requests specific documents, be sure to provide them in the prescribed manner and within the specified time.?

Seek Professional Help?

If you’re uncertain about how to respond, it’s always best to consult with a tax expert like TaxSpanner. They can help you navigate through the process with guaranteed compliance.?

In conclusion, a Section 142(1) notice from the Income Tax Department is a routine procedure that asks for additional information or clarifications regarding your income tax returns. Whether you’ve filed your return or not, it’s essential to understand the notice and respond to it promptly. Failing to do so can lead to penalties and other serious consequences.?

If you’ve received a Section 142(1) notice or are unsure how to handle one, TaxSpanner’s expert team is here to guide you through the process. By providing timely and accurate responses, you can avoid penalties and keep your tax filings in good standing.?

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