Section 142 and 142A of the Income-tax Act deal with:

1. Giving notice to the assessee to submit returns, produce accounts, documents, etc.

2. Making inquiries and giving the opportunity of being heard to the assessee

3. Giving direction to the assessee to get their books of account audited

4. Estimation by Valuation Officer in certain cases for Assessment of Tax

5. Consequences of Non-compliance of Section 142(1) and Section 142(2A)

Giving Notice to the Assessee to Submit Return Produce Accounts, Documents, etc. [Section 142(1)]:

For the purpose of making an assessment, the Assessing Officer may Serve a Notice to the Assessee under Section 142(1)(I) requiring him to furnish a return of his income, or the income of any other person in respect of which he is assessable under the Act, in the prescribed form and within the time specified in the notice if the person has not filed a return of income within the time allowed under section 139(1) or before the end of the relevant assessment year.

Making Inquiry and giving Opportunity of being Heard to Assessee [Section 142(2), 142(3)]:

Make an Inquiry under Section 142(2) of the act

For obtaining full information in respect of income or loss of any person, the Assessing Officer may make such inquiry, as he considers necessary either through the assessee himself (section 142(1))], or from sources other than the assessee. (Section 142(2))

Opportunity of being Heard [Section 142(3)]:

The Assessing Officer shall give an opportunity to the assessee of being heard in respect of any information gathered by the Assessing Officer, where the Assessing Officer proposes to utilize such information for the purpose of any assessment. However, no such opportunity is necessary when the assessment is made under section 144.

Inquiry under Section 142 or 142A of Income Tax Act, 1961

Giving direction to get Books of Account Audited [Section 142(2A) to (2D)]:

The Assessing Officer may, may direct the assessee to get the accounts audited by a Chartered Accountant nominated by the Chief Commissioner/Commissioner of Income-tax if he is having doubts regarding:

  • the nature and complexity of the accounts,
  • the volume of the accounts,
  • doubts about the correctness of the accounts,
  • the multiplicity of transactions in the accounts, or
  • specialized nature of the business activity of the assessee, the interests of the revenue,

Audit Expenses [Section 142(2D)]:

The expenses of and incidental to such audit (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner, in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government. No appeal is possible against the orders under section 142(2A) for audit of accounts.

Estimates by Valuation Officer in certain cases for Assessment of Tax (Section 142A):

Assessing Officer can refer to the Valuation Officer for the estimation of valuation of any investment [Section 142A (1)] with regards to the value including the fair market value of any asset, property, or investment [Section 142A (1) and (2)]

The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to the Valuation Officer to estimate the value, including fair market value, of any asset, property, or investment and submit the report to him. [Section 142A (1)]

The time period for submitting a valuation report [Section 142A (6)]:

The Valuation Officer shall send a copy of the report of the estimate made by him under sections 142A (4) and (5) to the Assessing Officer within a period of six months from the end of the month in which the reference is made.

Consequences of Non-compliance of Section 142(1) and Section 142(2A):

Failure to comply with a notice under section 142(1) or to get accounts audited as per directions issued under section 142(2A) may result in:

i) Best judgment assessment under section 144.

ii) Fine under section 271(1)(b) which has been fixed at Rs. 10,000.

iii) Rigorous imprisonment which may extend to one year or with a fine which will not be less than Rs. 4 or more than Rs. 10 for every day during which the default continues, or with both.

iv) Issue of a warrant of authorization under section 132 for conducting the search.

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The author Sushant Gangurde is a legal analyst @Taxblock India who aims to educate people about various tax laws and financial planning.

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Taxblock, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Individual & Corporate View Full Profile

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