Income Tax Notice Under Section 142(1) of the Income Tax Act

Once you complete the e-filing of your income tax return, the Income Tax Department begins the process of assessment. If the Assessing Officer (AO) feels that additional clarification or details are required during this stage, a notice may be issued under Section 142(1) of the Income Tax Act.

Purpose of Notice under Section 142(1)

Through this notice, the AO may request the assessee to:

• Submit a return of income for himself/herself or on behalf of another person whose income he/she is assessable for (such as a legal guardian filing on behalf of a minor or for a deceased person).
• Furnish specific accounts or records necessary for assessment, such as a statement of assets and liabilities as of a given date.

Mandatory Compliance with Section 142(1)

Responding to a notice under Section 142(1) is compulsory, even if the taxpayer considers the requested documents irrelevant. Non-compliance may lead to serious consequences, including:

• Assessment by the AO using best judgment under Section 144,
• Penalty of ₹10,000 for each failure under Section 271(1)(b),
• Prosecution under Section 276D, which may extend to imprisonment for up to one year along with a fine.

If the AO finds the documents, return, or supporting evidence satisfactory, no further assessment is carried out. In such cases, the return submitted by the taxpayer will be accepted, and the proceedings will be closed.

E-Assessment Scheme, 2019

The Central Board of Direct Taxes (CBDT) has notified that the E-Assessment Scheme, 2019 will now be known as the Faceless Assessment Scheme, 2019. Under this system, all income tax assessments (with certain exceptions) are conducted in a faceless manner. The CBDT has further directed that the National e-Assessment Centre (NeAC) shall issue all assessment orders through this scheme.

Procedure for Faceless Assessment

The process of faceless assessment is carried out in the following steps:

1. Issue of Notice
   
   • NeAC serves a notice to the assessee, who must respond within 15 days.
   • The case is then automatically assigned to an Assessment Unit (AU) in one of the Regional e-Assessment Centres (ReAC).
2. Collection of Information
   
   • The AU may request NeAC to obtain documents, information, or evidence from the assessee.
   • It may also involve the Verification Unit (VU) for inquiries or the Technical Unit (TU) for expert assistance.
3. Transfer of Information
   
   • NeAC issues a notice to the assessee and forwards the received documents and reports from VU/TU to the AU.
4. Non-Compliance by Assessee
   
   • If the assessee fails to respond, NeAC may issue a notice under Section 144, requiring an explanation before completing assessment to the best of judgment.
5. Draft Assessment Order
   
   • Based on replies and reports, NeAC reviews the draft order using Risk Management Strategy (RMS) and automated tools.
   • It may finalise the order, provide an opportunity to the assessee (if modifications are proposed), or forward the draft to the Review Unit (RU).
6. Review by RU
   
   • The RU reviews the draft assessment order.
   • It may either agree with the order or suggest modifications. The revised draft is then sent back to NeAC.
7. Finalisation of Order
   
   • If the RU agrees, NeAC finalises the order.
   • If modifications are suggested, the case is reallocated to another AU, which considers the suggestions and prepares a revised draft for NeAC.
8. Show-Cause Notice (SCN)
   
   • If a show-cause notice is issued, the assessee must respond within the given timeframe.
   • If no reply is received, NeAC finalises the assessment based on the draft order.
   • If a reply is received, AU prepares a revised draft order, which is reviewed and finalised by NeAC.
9. Opportunity of Hearing
   
   • If the modifications are prejudicial to the assessee, NeAC provides an opportunity of being heard before finalising the order.

✅ In short, the Faceless Assessment Scheme, 2019 ensures assessments are conducted digitally, with no physical interface between the assessee and the tax department, promoting transparency and efficiency.

Process to File a Response to a Notice under Section 142(1)

A response to a notice issued under Section 142(1) must be submitted electronically through the ‘e-Proceedings’ feature in the assessee’s registered e-Filing account. There is no requirement to visit the Income Tax office or meet the Assessing Officer in person.

Step-by-Step Process:

1. Login
   
   • Visit the Income Tax e-Filing portal: www.incometax.gov.in
   • Log in using your credentials.
2. Navigate to E-Proceedings
   
   • Go to the ‘Pending Actions’ tab and select ‘E-Proceedings’.
   • Click on ‘View Notices’ and then ‘Submit Response’.
3. Select Response Type
   
   • You will be prompted to ‘Select Response Type for Notice’.
   • Choose between ‘Partial Response’ or ‘Full Response’.
4. Attach Documents
   
   • Upload the required documents in PDF, Excel, or CSV formats.
5. Submit Response
   
   • Click ‘Continue’, check the ‘Declaration’ box, and then ‘Submit’.
   • You will receive a confirmation message: ‘Submitted Successfully’.
6. Download Acknowledgement
   
   • Save or download the response acknowledgement for your records.