Receiving an income tax notice can be unsettling, especially when it comes under Section 142(1). Many taxpayers worry that it signals wrongdoing, but in reality, it is often just a preliminary inquiry. The Income Tax Department issues this notice to request missing returns, seek clarifications, or ask for supporting documents to complete the initial stage of assessment.
Knowing how to respond correctly is crucial. Ignoring the notice could invite penalties, but handling it on time can settle the matter quickly. This guide will explain what a Section 142(1) inquiry notice is, why it is issued, and the exact steps you need to follow to submit your response confidently and avoid unnecessary complications.
What is a Section 142(1) Inquiry Notice?
A Section 142(1) inquiry notice is a formal communication from the Income Tax Department issued during the preliminary assessment of your Income Tax Return. It can be sent whether you have filed your return or not.
The purpose of this notice is to request additional information, documents, or clarification so that the Assessing Officer can verify the accuracy of your filing. In some cases, it may also require you to file a return if one has not been submitted for the relevant assessment year.
How to Submit a Response to a Section 142 (1) Notice?
Submitting a response to a Section 142(1) notice is a structured online process through the income tax portal. Following these steps ensures that your reply is correctly recorded and acknowledged.
Step 1: Log In to the Income Tax Portal
Visit www.incometax.gov.in and log in using your PAN, password, and captcha code. Ensure your details are up to date.
Step 2: Go to Pending Actions and Select E-Proceedings
Once logged in, navigate to the Pending Actions tab. Under this section, click on E-Proceedings to view notices issued against your PAN.
Step 3: View the Notice and Choose Submit Response
Open the notice listed and carefully review its details. Click on Submit Response to proceed to the response page.
Step 4: Select Response Type (Partial or Full)
You will be asked to choose whether you are giving a Partial Response or a Full Response. Pick the option that matches the documents and details you currently have.
Step 5: Attach Required Documents (PDF, Excel, CSV)
Upload the supporting evidence requested in the notice. Accepted formats include PDF, Excel, and CSV. Ensure the documents are legible and complete.
Step 6: Confirm, Submit, and Download Acknowledgement
Tick the declaration box, click Continue, and submit your response. A success message will appear. Download and save the acknowledgement for your records.
Partial Vs Full Response Under Section 142 (1)
When replying to a Section 142(1) notice, the income tax portal allows you to choose between a partial or full response. Understanding the difference ensures you reply correctly within the given time.
|
Response Type |
When to Use? |
What Does It Mean? |
|
Partial Response |
Use this when you cannot provide all requested details immediately. |
You submit part of the required documents now and can add the remaining information later when available. |
|
Full Response |
Use this when you have all the documents and details ready. |
You complete the entire response in one go, covering everything requested in the notice. |
Faceless Assessment and Section 142(1)
The Central Board of Direct Taxes introduced the Faceless Assessment Scheme in 2019 to make the tax process transparent and impartial. All responses to Section 142(1) notices are now handled digitally, without any face-to-face interaction.
What Is the Faceless Assessment Scheme?
This scheme eliminates physical meetings with Assessing Officers. Instead, all communication is electronic, making the process more efficient, standardised, and fair.
Role of NeAC and Regional Units
The National e-Assessment Centre (NeAC) acts as the central body for faceless assessments. It assigns cases to different Assessment Units, Verification Units, or Review Units in regional centres through an automated system.
Timeline for Response
Generally, you are expected to respond to a Section 142(1) notice within 15 days of receiving it. If no response is filed, the department may proceed with a best judgement assessment under Section 144.
Compliance Under Section 142(1) is Mandatory
Responding to a Section 142(1) notice is not optional. Even if you feel that the requested details are irrelevant or unnecessary, you are legally bound to provide the information. Non-compliance can result in strict consequences, including penalties or a best judgement assessment, where the Assessing Officer finalises your tax liability without your input.
This means that ignoring the notice can put you at risk of higher tax demands, interest charges, or even prosecution. By responding on time with the required details, you not only meet your legal obligations but also ensure that your return is assessed fairly and accurately.
Penalties for Non-Compliance with Section 142(1)
Failing to respond to a Section 142(1) notice can lead to serious financial and legal consequences. The Income Tax Department has clear provisions to penalise non-compliance.
- Penalty of INR 10,000 under Section 271(1)(b): This applies for each failure to provide the required information or documents.
- Best judgement assessment under Section 144: The Assessing Officer may finalise your tax liability using available records, often resulting in higher tax demands.
- Prosecution under Section 276D: Non-compliance can attract imprisonment of up to one year, along with a fine.
- Possibility of search action under Section 132: In rare cases, repeated failures may lead to more stringent measures like search and seizure.
Example for Crypto Investors
If you deal in crypto, you may be more likely to face a Section 142(1) notice due to mismatches in reporting. For instance:
- You reported trades from one exchange but forgot wallet-to-wallet transfers.
- TDS deducted by an exchange was not reflected in Form 26AS.
In such cases, the Assessing Officer may request additional documents like wallet statements, trade history, or proof of TDS. Submitting these promptly through the portal helps clear discrepancies and prevents unnecessary penalties.
How Can KoinX Help You File an Accurate Revised Return?
Filing a response to Inquiry notice becomes more complex when your tax records involve crypto transactions. From calculating gains to preparing Schedule VDA, every detail matters. KoinX helps simplify this process by providing accurate reports, real-time integrations, and expert support, so you can respond to notices confidently and stay compliant.
Consolidated Crypto Tax Reports
KoinX automatically pulls transaction data from all your connected exchanges and wallets, then generates a consolidated tax report. This report reflects all realised gains or losses, saving you the trouble of manual entry. With accurate cost and sale values, your capital gains calculations become error-free, helping you file a clean and correct revised return.
Easy Integration With Exchanges and Wallets
KoinX integrates with 800+ major exchanges, blockchains and wallets. This allows you to import your entire transaction history automatically, without the need for manual uploads or spreadsheets. Real-time syncing helps ensure your data is always up to date when preparing your revised return, saving you time and reducing errors.
Precise Schedule VDA Generation
Schedule VDA is required for reporting crypto trades in your ITR. KoinX generates this schedule in a format approved by the Income Tax Department. It includes transaction-wise details of your buys, sells, and transfers, ensuring that every trade is reported accurately. This helps prevent assessment delays caused by incomplete or inconsistent crypto disclosures.
Auto Classification of Transactions
Every crypto transaction is different, buy, sell, swap, airdrop, staking reward, or transfer. KoinX automatically classifies these transactions based on their type, which ensures that each one is taxed correctly. This feature reduces the chances of misreporting or accidental omission, especially when filing a revised return after receiving a tax notice.
Assistance With Revising ITR via the Portal
KoinX not only prepares your reports but also guides you through the process of revising your ITR on the portal. It ensures that your corrected figures match your tax documents and meet the department’s filing standards. This support is especially useful for individuals who are new to the revised return process.
Make crypto tax compliance stress-free with KoinX. Get started today and file your revised return with confidence.
Conclusion
A Section 142(1) inquiry notice should not be seen as a penalty but as a chance to clarify your income details and ensure your return is complete. Responding within the given time frame is essential to avoid penalties, best judgement assessments, or further legal complications.
For taxpayers dealing with crypto, reconciling every transaction can be challenging. KoinX provides automated tools and expert support to prepare accurate reports, detect mismatches, and simplify your response. Get started with KoinX today and make tax compliance stress-free.
Frequently Asked Questions
What Is the Deadline to Respond to a Section 142(1) Notice?
You generally have 15 days from the date of receiving the notice to submit your response. The exact deadline will be mentioned in the notice itself. Delaying beyond this period can lead to penalties, best judgement assessments, or further notices from the Income Tax Department.
Can I Revise My Return After Receiving a Section 142(1) Notice?
Yes, if you notice errors or omissions in your original ITR, you can file a revised return under Section 139(5). This option remains open until the end of the relevant assessment year, provided the assessment has not been completed. It helps in correcting mistakes before further action is taken.
What Documents Are Commonly Requested in a Section 142(1) Notice?
The documents vary depending on the case but often include bank statements, Form 16, Form 26AS, investment proofs, and invoices for expenses. For crypto users, transaction records from exchanges or wallets may also be required. Submitting the exact documents listed in the notice ensures smooth processing.
Does a Section 142(1) Notice Mean I Am Being Audited?
No, receiving a Section 142(1) notice does not always mean you are being audited. It is often a preliminary step where the Assessing Officer seeks clarification or additional information. Only if deeper issues are suspected may it progress into a detailed scrutiny assessment under Section 143(2).
What Happens If I Submit Only a Partial Response?
Submitting a partial response is acceptable when you cannot provide all requested documents immediately. It acts as proof of compliance within the deadline. However, you must later furnish the remaining documents when requested again, otherwise the case could still be escalated for incomplete information.
Can Crypto Transactions Trigger a Section 142(1) Notice?
Yes, crypto transactions are increasingly monitored by the tax department. If there are inconsistencies between your ITR and exchange or wallet data, you may receive a notice. Providing complete transaction history and accurate Schedule VDA reports can resolve these issues effectively and prevent escalation.
