Getting a notice from the Income Tax Department can feel confusing and even stressful, especially when you’re unsure why it arrived in the first place. If you’ve received a letter under Section 142(1), don’t panic. It’s not a penalty notice. It’s simply the department’s way of asking for more details or reminding you to file your return if you haven’t done so yet.
This notice is part of a process called a preliminary inquiry, and it helps the tax officer complete your assessment fairly. Whether you’ve missed the deadline, forgotten to submit a document, or filed your return with gaps, this notice is their way of saying, “We need more information.” In this guide, we’ll walk you through what Section 142(1) means, why you might receive this notice, and how to respond properly.
What Is Section 142(1) Of The Indian Income Tax Act?
Section 142(1) is a provision under the Income Tax Act that allows the Assessing Officer to send a legal notice to any taxpayer. This notice is typically sent when the officer requires additional information to finalize the tax assessment. It applies regardless of whether the person has already filed their income tax return.
In some cases, the officer may ask you to submit a return if it has not yet been filed. In other cases, the officer may request extra documents or explanations related to the return you have already submitted.
The notice serves as an official step in the process of reviewing and verifying your tax records. If you receive this notice, you are legally required to respond, even if you believe you have already provided all necessary information.
When and Why Is a Notice Under Section 142(1) Issued?
This notice is issued at various stages and for different reasons, depending on your tax behavior. It applies whether you are a salaried employee, business owner, or crypto investor.
When Can a Preliminary Inquiry Notice Be Issued?
The timing of a Section 142(1) notice does not depend only on filing delays. It can be issued at various points, even after the end of the assessment year. Below are the most common situations that trigger this notice.
Return Not Filed Within Due Date
If you fail to file your income tax return within the deadline, the Assessing Officer may issue a Section 142(1) notice asking you to file it. This includes cases where income from sources such as salary, business, or cryptocurrency trading has not been declared.
Return Not Filed at All
Even if you were not required to file a return earlier, the tax department may still issue this notice if they believe you have reportable income. This often occurs when they detect bank transactions, property deals, or cryptocurrency activity that is not matched to a return.
After the Assessment Year Has Ended
There is no fixed time limit for sending this notice. It can be issued even after the end of the relevant assessment year. This gives the Assessing Officer flexibility to address late-discovered income, such as earnings from crypto assets.
Why Is a Preliminary Inquiry Notice Issued?
A Section 142(1) notice is not always a warning. Its purpose is to request missing details or prompt you to complete your tax filing duties. Here are the key reasons it may be issued.
To Enforce Return Filing
If you missed your tax filing altogether, this notice is the department’s formal request for you to comply. It acts as a legal push to ensure your tax return is submitted.
To Clarify Filed Return
Even if you have filed your return, you may still get this notice. The officer may require further clarification on specific entries or claims, such as substantial deductions or losses from cryptocurrency trading. Any mismatch with external data can trigger a clarification request.
To Assess Someone Else’s Income
You might receive this notice for income that does not directly belong to you. For example, as a legal guardian or representative of a deceased person, you may be asked to file on their behalf. In crypto-related estates, this is becoming more common.
Types of Requirements in a Section 142(1) Notice
The notice under Section 142(1) can ask for various documents or actions depending on the nature of your case. Below are the most common types of requirements taxpayers are expected to fulfil.
Filing the Income Tax Return
If you have not filed your return, the notice may request that you do so within a specific timeframe. This applies even if you were not previously required to file one. Crypto investors often receive this when the department detects wallet activity or exchange transactions without a matching ITR. Filing the return in response becomes mandatory once the notice is served.
Submission of Books of Accounts or Invoices
The notice may require you to submit specific financial records. These include books of accounts, profit and loss statements, or invoices supporting your income or expenses. Crypto traders may be asked to provide trade logs, transaction history from exchanges, or wallet summaries. These documents help the officer verify the accuracy of your claims.
Statement of Assets and Liabilities
In some cases, you may be asked to submit a detailed list of your assets and liabilities. This includes properties owned, bank balances, mutual funds, and crypto holdings. The officer may want to match your declared income against your actual wealth. Providing an honest statement is important to avoid further scrutiny or legal issues.
Clarifications on Specific Entries
You may also be required to provide written explanations for specific items on your return. This could involve tax deductions, unusually high expenses, or losses. For crypto-related queries, explain sudden gains or token swaps. These clarifications help the Assessing Officer determine whether to accept your return or conduct further investigation.
How to Respond to a Notice Under Section 142(1)?
Responding to this notice is a legal obligation, and the Income Tax Department has made the process entirely online. Below is a step-by-step explanation of how to file your response properly.
Step-by-Step Guide to Respond Online
Responding through the income tax portal is the standard procedure. Here is how you can submit your reply correctly:
- Log in to the Income Tax Portal: Visit www.incometax.gov.in and log in using your PAN, password, and captcha code.
- Go to ‘Pending Actions’: Once logged in, locate the ‘Pending Actions’ tab on the dashboard and select ‘e-Proceedings’ from the dropdown.
- View Your Notice: Under the e-Proceedings section, select ‘View Notices’ to read the notice sent under Section 142(1).
- Click ‘Submit Response’: After reviewing the notice, click ‘Submit Response’ to begin the reply process.
- Select the Response Type: Choose between ‘Full Response’ (if you are submitting everything requested) or ‘Partial Response’ (if you need more time to upload all details).
- Attach the Required Files: Upload documents in PDF, Excel, or CSV formats. Ensure they meet the requirements outlined in the notice.
- Tick the Declaration Box and Submit: Once all files are uploaded, check the declaration box and click ‘Continue’ to submit your response.
- Download Acknowledgement: After a successful submission, a confirmation message will be displayed. Download the acknowledgement for your records as proof of compliance.
When to Use the Partial Response Option?
The Partial Response feature is useful when you cannot submit all details within the time limit. For example, if you are waiting for a valuation report or account statements, submit what you have first. This shows that you are cooperating and may help prevent penalties. You can upload the remaining documents once the department reopens the response window.
Response Acknowledgement
After submission, the portal will display a ‘Submitted Successfully’ message. You should always download the acknowledgement receipt. This document serves as official proof that you responded on time and fulfilled your legal duty under Section 142(1).
What Happens After You Respond To a Notice Under Section 142(1)?
Once you have submitted your response to a Section 142(1) notice, the next steps depend entirely on the Assessing Officer’s review of the documents and explanations you provided.
Assessment May Be Closed
If the officer finds your documents and explanations to be accurate and sufficient, no further action will be taken. Your return will be accepted, and the assessment will be marked as complete. In many cases, this is the final step, especially when the response clears up any doubts raised in the notice.
Assessment May Move to Scrutiny
If the Assessing Officer still has doubts or finds discrepancies, they may issue a notice under Section 143(2) for a detailed scrutiny assessment. This typically happens when large transactions are unexplained or there are inconsistencies in your reported income. Responding accurately to the initial notice helps reduce the chances of this next step.
Additional Powers of the AO Under Section 142(1)
In complex cases, the Assessing Officer is given extra powers under Section 142(1) to collect accurate and detailed financial information. These powers are used when basic documents are insufficient for a comprehensive assessment.
Directing an Audit by a Chartered Accountant
The Assessing Officer can instruct the taxpayer to get their books of accounts audited by a Chartered Accountant. This is usually required when the accounts involve high-value transactions or when the officer suspects irregularities. The audit must be carried out at the taxpayer’s expense and submitted within a specified timeframe. It helps the department get a verified picture of the taxpayer’s finances.
Requesting a Stock Valuation by a Cost Accountant
In cases involving businesses or trading activities, the officer may ask for a stock valuation. This has to be done by a qualified Cost and Works Accountant. The aim is to ensure that the value of closing stock is reported accurately and no income is hidden by underreporting inventory. This step is more common in cases where the taxpayer deals with physical or digital assets, including cryptocurrencies.
In complex cases, the Assessing Officer is given extra powers under Section 142(1) to collect accurate and detailed financial information. These powers are used when basic documents are insufficient for a comprehensive assessment.
Penalties for Non-Compliance with Notices Under Section 142(1)
Failure to respond to a notice under Section 142(1) is treated as a serious offence. The Income Tax Department has the authority to impose financial penalties and initiate further legal actions.
Penalty Under Section 271(1)(b)
If you do not respond within the time mentioned in the notice, a penalty of INR 10,000 may be imposed for each instance of non-compliance. This applies even if the delay was unintentional. Repeated failure to comply may increase the risk of further assessments or inquiries. The penalty is meant to ensure that taxpayers take every communication from the department seriously.
Best Judgment Assessment Under Section 144
In the absence of a proper response, the Assessing Officer may proceed with your assessment based on the available information. This is known as a best judgment assessment. The officer is not required to consider any additional explanation after this stage. If your income or taxes are incorrectly calculated during this process, it may result in a higher tax liability or legal complications.
Prosecution Under Section 276D
If the non-compliance is considered intentional or repeated, prosecution may be initiated. Under Section 276D, a taxpayer can face up to one year of imprisonment, with or without a fine. This is more likely in cases involving large sums, repeated defaults, or suspected income concealment. It is always better to respond to notices on time to avoid any legal trouble.
Search and Seizure Actions Under Section 132
In extreme cases, where the department believes there is an attempt to hide income or assets, it may issue a warrant to search your premises. This is not common, but it is a legal possibility when there is no cooperation from the taxpayer. Providing a full and timely response to a Section 142(1) notice is the best way to avoid such outcomes.
Read More: How To Save Tax in India?
Faceless Assessment Under the e-Assessment Scheme
The Faceless Assessment Scheme was introduced in 2019 by the Central Board of Direct Taxes (CBDT) to streamline tax assessments. Under this scheme, all communications take place online through the National e-Assessment Centre (NeAC). Taxpayers no longer need to visit the tax office or interact with any officer in person. This change ensures that cases are handled uniformly and fairly nationwide.
Procedure of a Faceless Assessment
The process involves multiple units working independently to maintain transparency. Once the NeAC issues a notice under Section 142(1), here is how the case proceeds:
- The taxpayer receives the notice and is given 15 days to respond through the portal.
- NeAC assigns the case to an Assessment Unit (AU) in any regional centre using an automated system.
- The AU may request that NeAC collect additional documents, conduct inquiries through a Verification Unit (VU), or seek expert advice from a Technical Unit (TU).
- NeAC forwards the required notices or requests to the taxpayer or the appropriate unit.
- If no response is received, NeAC may issue a notice under Section 144 for assessment by best judgment.
- Once documents and reports are collected, AU prepares a draft assessment order.
- The Review Unit (RU) may review the draft and suggest changes.
- The AU revises the draft if required, and the NeAC finalises the assessment.
This process ensures that every assessment undergoes a structured and monitored workflow, thereby reducing the likelihood of unfair treatment or errors.
How Can KoinX Help With a Preliminary Inquiry Notice?
Tracking and calculating crypto taxes in India can be challenging. With multiple exchanges, wallet transfers, and token swaps, gathering accurate transaction data can be a daunting task. Manual tracking often leads to mistakes, missed entries, or misreported values, which can trigger a preliminary inquiry notice under Section 142(1). This is where KoinX becomes your most valuable tool.
Automated Crypto Tax Calculation
KoinX automatically calculates taxes for all your crypto transactions. You no longer need to track each trade or worry about complex calculations manually. It handles everything, making your tax reporting straightforward and accurate.
Accurate Generation of Schedule VDA
It generates a precise Schedule VDA report, which is essential for accurately reporting cryptocurrency transactions. This ensures that all your transactions are documented accurately, reducing the risk of errors and omissions in your tax filings.
Easy Integration with Major Exchanges
It seamlessly integrates with more than 800 cryptocurrency exchanges, wallets and integrations. This integration enables you to easily import your transaction data without manual entry, streamlining the process and ensuring that your data remains current and accurate.
Notice Response Assistance and Legal Backing
KoinX provides Notice response assistance and legal backing to file your tax returns. These reports include all the necessary details and are designed to meet compliance requirements, simplifying the submission process and giving you peace of mind.
File your crypto taxes with ease using KoinX and stay fully compliant with Indian tax laws. Join KoinX today and handle any tax notice with confidence.
Conclusion
result in penalties, audits, or even legal action. Whether you missed filing your return or need to clarify crypto trades, responding correctly is essential. If your records are complex or include digital assets, it’s best to stay organised and compliant.
Use tools like KoinX to simplify the process and respond to tax notices with confidence. Join KoinX today and discover a smart way to stay one step ahead of compliance requirements.
Frequently Asked Questions
Is There a Time Limit for Issuing Section 142(1) Notices?
There is no fixed upper limit for issuing this notice. It can be sent even after the end of the relevant assessment year. This gives the tax officer flexibility to address pending or missing information at any stage of the assessment process.
How Many Years of Records Can Be Requested?
The Assessing Officer cannot request financial records older than three years. If your case is related to older transactions, such requests should be limited to this time frame unless exceptional circumstances apply.
Can You Receive This Notice Even If You Are Not Required to File an ITR?
Yes, even if you were not required to file an income tax return under normal rules, the officer can issue a Section 142(1) notice. Once issued, you are legally required to respond and file the return.
Is It Possible to Get an Incorrect Notice?
Although rare, errors in notices do occur. For instance, your PAN may have been used in error, or the notice may reflect transactions that do not belong to you. If that happens, you should respond by explaining the situation with proof.
