Understanding Section 142(1) Income Tax Act: Assessments, Notices, Compliance and Your Rights.

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Table of Content

Section 142(1) of the Income Tax Act

Power to issue Notice under section 142(1)

The objective of issuing a notice under Section 142(1)

Safeguards for Taxpayers

Penalty for Non-Compliance with Section 142(1) Tax Notice

Steps to submit a response to the notice U/S 142(1)

Conclusion

Most Asked Questions

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Section 142(1) of the Income Tax Act

Section 142(1) of the Income Tax Act 1961 grants the authorities the authority to issue a notice when additional information or further details are needed, particularly in cases where a tax return has been filed or in cases where it has not been filed, to compel the taxpayer to provide the necessary information in the prescribed format.

Power to issue Notice under section 142(1)

A notice under Section 142(1) can be issued regardless of whether you have filed your income tax return under Section 139(1) or you have not filed your income tax return under Section 139(1)

If the assessee has not furnished the return of income within the time prescribed under section 139(1), then the Assessing Officer may issue a notice requiring him to furnish the return of income within the time specified in the notice.

This notice can also be issued after the end of the relevant Assessment Year.

If a notice under section 142(1)(i) is issued to a person who is not required to furnish the return of income under any provision of the Income Tax Act, 1961, even then, he is liable to furnish a return in response to the notice issued under section 142(1)(1).

The objective of issuing a notice under Section 142(1)

The primary objective of issuing a notice under Section 142(1) of the Income Tax Act

• Filing of Income Tax Return: This requirement applies to the taxpayer's own income as well as the income of another individual for whom the taxpayer is legally responsible. This is particularly relevant in cases involving legal guardians or deceased individuals.

• Provide the necessary accounts and documents to facilitate the tax assessment process.

• Furnish written information on various matters, encompassing a detailed statement of the taxpayer's assets and liabilities as of a specific date.

Safeguards for Taxpayers

Demand for Accounts and Statements:

Section 142(1)(i) empowers the Assessing Officer to demand not only financial accounts and documents but also a statement of assets and liabilities, whether or not these details are included in the accounts.

Prior Approval Requirement:

To prevent harassment, the Assessing Officer must seek prior approval from the Joint Commissioner before requiring the taxpayer to provide a statement of assets and liabilities that are not part of the accounts.

Time Limitation:

Section 142(1)(i) specifies that the Assessing Officer cannot request accounts related to a period more than three years prior to the previous year. This limitation helps ensure that the information sought is relevant and recent.

Application to All Taxpayers:

Notice under Section 142(1)(i) can be issued to both those who have filed their income tax return and those who haven't, emphasising its comprehensive scope.

Penalty for Non-Compliance with Section 142(1) Tax Notice

Failure to adhere to a Notice under Section 142(1) can result in the following consequences:

• A penalty of Rs 10,000 may be levied on the taxpayer under Section 271(1)(b).

• The assessment of the taxpayer's case can be subject to a "Best Judgment Assessment" under Section 144. This entails the Assessing Officer making an assessment based on their best judgment using all relevant information at their disposal.

• Legal prosecution under Section 276D could be initiated, carrying the potential for a one-year imprisonment with or without a fine.

• A search warrant, as per Section 132, might be issued for conducting a search of the taxpayer's premises.

Steps to submit a response to the notice U/S 142(1)

To respond to a notice under Section 142(1), it is necessary to use the 'e-Proceedings' utility within the taxpayer's registered 'e-Filing' account. Personal visits to the income tax office or scheduling face-to-face meetings with assessing authorities are not required.

Here's a step-by-step guide on how to respond to the notice electronically:

1. Access the income tax portal

2. Navigate to the 'Pending Actions' tab and select 'E-Proceedings.'

3. Click on 'View Notices' and proceed to 'Submit Response.'

4. You will be directed to a page where you can choose the response type for the notice.

5. You are given the option to select either a 'Partial Response' or a 'Full Response.'

(Note: Attachments to be submitted can be in PDF, Excel, or Comma-Separated Values (CSV) formats.)

6. Click on 'Continue,' place a checkmark in the 'Declaration' box, and proceed to submit your response.

7. Upon successful submission, you will receive a confirmation message indicating that your response has been submitted.

8. You can also download the response acknowledgement for your records.

Conclusion

Section 142(1)(i) is a crucial provision within the Income Tax Act that empowers tax authorities to request vital financial information and asset statements from taxpayers. While it provides a means to ensure accurate tax assessments, safeguards are in place to prevent misuse and harassment. Understanding this provision is essential for taxpayers to navigate the tax assessment process effectively and comply with the law.

FAQs

Q1. What is Section 142(1)(i) of the Income Tax Act?

Section 142(1)(i) is a provision that grants the Assessing Officer the authority to issue notices to taxpayers, requiring them to provide specific financial documents, including accounts and a statement of assets and liabilities, for the purpose of tax assessment.

Q2. Can the Assessing Officer demand a statement of assets and liabilities not included in the accounts?

Yes, the Assessing Officer can request a statement of assets and liabilities, regardless of whether these details are part of the formal financial accounts. This allows for a comprehensive assessment of the taxpayer's financial position.

Q3. Is there a time limit on the period for which accounts can be requested under Section 142(1)(i)?

Yes, Section 142(1)(i) limits the period. The Assessing Officer cannot request accounts related to a period more than three years prior to the previous year. This ensures that the information sought remains relevant.

Q4. Who approves the demand for a statement of assets and liabilities not included in the accounts?

To prevent potential misuse or harassment, the Assessing Officer is required to seek prior approval from the Joint Commissioner before making a request for a statement of assets and liabilities that are not part of the formal financial accounts.

Q5. Can the notice under Section 142(1)(i) be issued to all taxpayers, whether they have filed an income tax return or not?

Yes, this notice is comprehensive and can be issued to all taxpayers, regardless of whether they have filed an income tax return. It ensures that all taxpayers are subject to a thorough assessment when necessary.

Q6. What is the purpose of requesting a statement of assets and liabilities under Section 142(1)(i)?

The statement of assets and liabilities provides a holistic view of the taxpayer's financial position. It assists the Assessing Officer in conducting an accurate and comprehensive tax assessment.

Q7. Can the Assessing Officer request asset and liability statements for any year, or is there a specific requirement?

Typically, the request for asset and liability statements is related to the assessment year under consideration. This ensures that the information is relevant to the specific assessment.

Q8. What should taxpayers do if they receive a notice under Section 142(1)(i)?

It is advisable for the taxpayer to promptly comply with the notice by providing the requested documents and statements. This facilitates the assessment process and helps maintain tax compliance.

Q9. Can a taxpayer challenge the Assessing Officer's request for asset and liability statements?

Taxpayers have the right to seek clarification or challenge the request if they believe it is not in accordance with the law. They can also initiate the appeal process if required.

Q10. Are there any penalties for non-compliance with a Section 142(1)(i) notice?

Non-compliance may result in penalties, further actions by tax authorities, and potential repercussions for the taxpayer's financial standing. It is essential to adhere to the notice to avoid these consequences.