What is Section 142: Inquiry before Assessment and What to do in case of assessment initiated under this section?

Once we file income tax return, all we believe is that the compliance of reporting income ends with this. But in reality, this the very point where the whole processing begins. Once we report our income, now the departmental authorities actually begin to verify the data/details reported by an us and if any discrepancy is identified therewith then the authorities/officers may call for information/documentary records relied upon to report the income details.

1. Who can issue notice u/s 142?

2. When can a notice be issued u/s 142?

3. What further actions be taken by A.O.?

4. What to do when notice is issued u/s 142?

 

Section 142(1) Income Tax Act, 1961:

Who can issue notice u/s 142?

Notice for initiating inquiry assessment u/s 142 can be issued by Assessing Officer. However, A.O. can issue such notice only after obtaining due approval from Joint Commissioner.

When can a notice be issued u/s 142?

Only if any of the below mentioned condition is getting satisfied then only assessment as referred above be initiated by A.O.:

1.    Furnished ITR u/s 115WD/139; or

2.    Failed to furnish ITR within time-line specified u/s 139(1).

A.O. may require an assessee to submit details/explanations with regards to ITR furnished or to furnish ITR-in case of 2^nd situation within time-line as specified in the notice document. Furthermore, AO would not be able to ask assessee to submit documents-details-explanation relating to period more than 3 years back counting from relevant previous year.

What further actions be taken by A.O.?

Section 142(2) Income Tax Act, 1961 provides that AO may further also conduct an inquiry if found necessary to obtain information.

Section 142(2A)-(2B)-(2C) Income Tax Act, 1961 further authorizes AO that if it believes, depending on nature and complexity of accounts or multiplicity of transactions, that thorough inspection/verification is required then it may, with prior approval of PCCIT/CCIT/PCIT/CIT require assessee to get either or both of below conducted, in addition to audit conducted under any other law: -

a.     Get the books of accounts audited by an accountant as nominated by PCCIT/CCIT/PCIT/CIT, and furnish the report of same in prescribed form, duly signed-verified by an accountant, setting forth relevant particulars as required apart from additional information as asked for by AO, within period of 90 days from issue of notice, further extendable by additional 90 days if so required by assessee/accountant;

b.    Get the inventory valued by a cost accountant as nominated by PCCIT/CCIT/PCIT/CIT, and furnish the report in prescribed form duly signed-verified by such accountant, setting forth relevant particulars as required apart from additional information as asked for by AO, within period of 90 days from issue of notice, further extendable by additional 90 days if so required by assessee/accountant;

 

Section 142(2D) Income Tax Act, 1961 lays down that any expense of and incidental to such audit/inventory valuation be determined by PCCIT/CCIT/PCIT/CIT and paid off by the Central Government.

 

Section 142(3) Income Tax Act, 1961 however, favors assessee stating that except in case of assessment-initiated u/s 144, otherwise an opportunity of being heard be given to assessee prior to initiating any assessment based on evidence/material gathered from such inquiry/audit/valuation.

What to do when notice is issued u/s 142?

 

Thus, wherein case assessee receives any such notice/communication for assessment under this section all they need is: -

-        Furnish ITR if pending within allowed time;

-        Accumulate and submit all base-documents, they have relied upon to report income;

-        Submit necessary explanations as have been asked for;

-        Assist accountant in audit/inventory valuation/both as have been ordered by AO;

 

Hope, this article has been helpful to have understanding of Section 142 laying down provisions for inquiry assessment.