The Income Tax Department sends notices for various reasons, including non-filing of
returns, discrepancies in tax return, incomplete, underreported income, tax evasion
suspicions, reassessment etc. In case where a return is not filed or filed or the income tax
department requires additional information regarding the disclosure made, they issue a notice
under section 142(1).
1. Purpose of Notice Under Section 142(1)

After issuing notice under Section 142(1) the AO may request the assessee to:-

Filing of Income Tax Return:

Issue Notice to Assessee Under Section 142(1)(i) to a person who wants to file a tax return or
pay money or who has not filed the return of income within normal time allowed. It may
include a return in respect of his/her income of another person for which he/she is liable to be
assessable. For example, if there is a legal guardian or a deceased person.

Creation of special accounts and information:

While reporting to the assessee under section 142(1)(ii) of declaration of income of an
applicant, the Assessing Officer (AO)may ask the assessee to produce such specific amount
and documents as required by them. For example, the department may ask the appraiser to
provide evidence of deductions, invoices for expenses claimed against business income, etc.
may ask to present it.

Other documents, writings or acts required by the AO:

Service of Notice under Section 142 (1)(iii) to any person who has filed a return of income,
the Assessing Officer (AO) may require the assessee to furnish in writing and in the
prescribed manner the information, notes or working point as required by him which may or
may not form part of books of account. For example, balance sheet.

2. Making Inquiry and opportunity to be heard [section 142(2), 142(3)]
Make Inquiry [section 142(2)]:

For the purpose of obtaining documents in respect of income and loss of any person, the
Assessing Officer may make such inquiry, as he considers necessary. Section 142(1) allows
the Assessing Officer to collect information from the assessee himself, while Section 142(2)
allows the Assessing officer to collect information from other sources other than the assessee.

Opportunity of being Heard [Section 142(3)]:

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 utilise such information for the purpose of any assessment.
However, no such opportunity is necessary when the assessment is made u/s 144.

3. Giving direction to get Books of Account Audited [Section 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:
• the nature and complexity of the accounts,
• volume of the accounts,
• doubts about the correctness of the accounts,
• multiplicity of transactions in the accounts, or
• specialized nature of business activity of the assessee, 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.
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)]

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. However, this period may be extended by the Assessing Officer on his
own initiative upon the request of the assessee and based on a valid and sufficient reason. 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 accountant’s remuneration) 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.
Consequences of Non-Compliance
If a taxpayer receives a notice under section 142(1), they must respond to it. Failure to do so
will lead to the following consequences:
• It may result in the Best Judgement Assessment under Section 144
• The penalty of Rs. 10,000 can be imposed
• The warrant for Search u/s 132 can be imposed
• Imprisonment up to 1 year with or without fine
If the AO is satisfied with the information or return or supporting evidence, proceed with the
assessment.

E-Assessment Scheme, 2019

The Central Board of Direct Taxes (CBDT) has announced the ‘Faceless Assessment
Scheme, 2019 to anonymised all income assessments barring some exceptions. Therefore, if
the Assessing Officer (AO) is not satisfied with the response to the notice issued under
Section 142(1), they will move ahead with scrutiny assessment under this scheme.

Estimation of value of assets by Valuation Officer (Section 142A)

(1) The Assessing Officer may, for the purposes of assessment or reassessment, make a
reference to a Valuation Officer to estimate the value, including fair market value, of any
asset, property or investment and submit a copy of report to him.
(2) The Assessing Officer may make a reference to the Valuation Officer whether or not he is
satisfied about the correctness or completeness of the accounts of the assessee.
(3) The Valuation Officer, on a reference being made, shall, for the purpose of estimating the
value of the asset, property or investment, have all the powers of section 38A of the
Wealth-tax Act, 1957.
(4) The Valuation Officer, on a reference being made, shall, for the purpose of estimating the
value of the asset, property or investment, have all the powers of section 38A of the
Wealth-tax Act, 1957.
(5) If the assessee does not co-operate or comply with the directions of the Valuation Officer,
he may, estimate the value of the asset, property or investment to the best of his
judgment.
(6) If the assessee does not co-operate or comply with the directions of the Valuation Officer,
he may, estimate the value of the asset, property or investment to the best of his
judgment.
(7) The Assessing Officer on receipt of the report from the Valuation Officer may, after
giving the assessee an opportunity of being heard, take into account such report in
making the assessment or reassessment.

Written by
gkkedia