Notice under section 142(1) of Income Tax Act 1961

1) Rationale behind introduction of Section 142 in the Act:

♦ Assessee fails to file the ROI within due date u/s 139(1) is expose to risk of Best Judgment Assessment us 144 of the Act.

♦ It would be unfair for him if after the due date revenue directly proceed for assessment us 144 without giving any further opportunity to file the ROI, typically when law itself allows the Assessee to file the ROI upto the end of Relevant Assessment Year.

♦ It is not mandatory for AO to issue notice us 142(1) to all those assessee who failed to file the ROI us 139(1)

♦ Practically these notices are issued in those cases where department intended to make assessment under Income Tax Act, 1961.

♦ If an assessee hadn’t furnished the ROI within due date mentioned u/s 139(1) then by issuing this notice assessing officer can call for Return of Income to be furnished within such time mentioned in this notice.

♦ Further Assessment in Income Tax can be made even if assessee file the ROI like 143()/147 etc.

♦ But for making any kind of assessment books of accounts, information, statements of assets & liabilities are prerequisite requirement.

♦ However, by issuing notice for assessment like Section 143(2)/148/153A etc. AO can’t call for Books of accounts etc.

♦ Therefore, AO issue this notice & call for books of accounts, information, statement of assets & liabilities etc. from the assessee.

♦ This notice can be issued even before the end of the relevant assessment year or after the end of the relevant assessment year.

♦ By issuing this notice alone AO can’t make assessment. This notice is served along with Notice us 143(2)/144/148/153A.

♦ Broadly this notice is divided into two parts:

(i) Part A- Notice u/s 142(1)(i) – By issuing notice under this clause only Return of Income can be called upon by Assessing Officer. Hence this notice can be issued only to those assessees who hasn’t file the Return of Income neither u/s 139(1) nor u/s 139(4).

(ii) Part B- notice u/s 142(1)(ii) & (iii) – By issuing notice under this clause books of accounts, informations, statement of assets & liabilities whether included in books of accounts or not, have been called upon by AO.

♦ If assessee file ROI in pursuance of notice u/s 142(1)(i) then this ROI is known as ROI us 142(1)(i)

2) Special Consideration of Notice u/s 142(1)(i)

A) Notice us 142(1)(i) can be issued even before the end of the relevant Assessment Year

To Understood the larger impact, consider the example given below.

Example (1) – For Assessment Year 2019-20 X Limited didn’t file the ROI within due date i.e. 30^th September, 2019. X Limited incurred a net loss of Rs 56 Lacs which comprises of Rs 40 Lacs from Long-Term Capital Gains & Balance from House Property. Assessee on 5^th October, 2019 get the notice us 142(1)(i) to file the ROI upto 30^th October, 2019. Assessee filed the ROI on 25^th October, 2019. On 04/11/2019 it realized that actual losses of House property were Rs 25 Lacs & Capital gains was Rs 52 Lacs. Comment.

Ans-

• Any ROI which is filed after the Due date us 139(1) but before the end of relevant Assessment Year is known as ROI filed us 139(4). The ROI filed on 25/11/2019 is ROI us 139(4)
• Return filed us 139(4) now can revised us 139(5) of the Act.
• Held in the Landmark Judgment of Dhampur Sugar Mills Limited, if assessee revised the ROI on 4/11/2019 then such ROI would deem to be filed on the date of Original ROI i.e. 25/10/2019.
• The losses under the head Capital Gains be it Long-Term or Short-Term shall be carried forward in accordance with Section 74 read with Section 80 of the Act. Which states that to carry forward ROI must be filed within due date us 139(1).
• Hence, even after filing of Revised ROI such losses of Rs 52 Lacs will lapsed.
• However, assessee can move a condonation application to CBDT as per Circular 26/2015 to carry forward the Losses.
• To carry forward the losses of house property it can carried forward even if ROI is not filed.
• Since Section 80 doesn’t make any reference to Section 71B of the Act.
• Therefore, assessee can carry forward losses of House property of Rs 25 Lacs.

Example – 2: Assessee didn’t filed its ROI us 139(1). Income from Business was Rs 60 Lacs. Receive notice us 142(1)(i) to file the ROI within 30 days on 10^th October, 2019. Assessee filed the ROI on 5/10/2019. Can assessee file Revised return to claim the reduce profits of Rs 40 Lacs on:

Case A – 31/12/2019

Case B – 04/04/2020

Ans-

• ROI filed on 10/10/2019 is a Return filed us 139(4). As per Section 139(5) this return can also be revised upto 31/03/2020. Hence in case A he can revise Return & show income as Rs 40 Lacs.
• In case B Return can’t be revise.
• Even in the case revision is allowed it is of high probability that such case came into Scrutiny Assessment since revenue wants to know the reason to reduce the income by Rs 20 Lacs.
• Hence although filing of Revised Return is a facility for assessee still they should use it carefully.
• Since at the time of filing of original return assessee provided necessary data/information which can be used by the revenue to open the case specially us 147.

Example 3: For AY 2019-20, Assessee get the notice us 142(1)(1) on 30/11/2019 to file the ROI upto 15/12/2019. Assessee filed the ROI on 12/02/2020. Discuss the consequences.

Ans- 

• The ROI filed on 12/02/2020 is a valid ROI us 139(4).
• However, the violation of notice us 142(1)(i) takes place since ROI not filed within notice period.
• Assessee is liable to penalty bus 272A of the Act i.e. Rs 10,000/-
• Again, assessee is exposing to Risk of Best Judgment Assessment us 144. Further AO is not required to issue SCN to the assessee since it is failure on the part of Notice us 142(1).
• Revenue can directly proceed against assessee us 144.
• The Return filed in section 139(4) will be consider for the purpose of completion of Best Judgment assessment.
• It is a common misconception that 144 is possible only when assessee fails to file the ROI.
• In the given case, even assessee file ROI still he is exposed to the Risk of 144.

B) Notice us 142(1)(i) can be issued even after the end of the relevant Assessment Year. Further there is no maximum time limits of issue of notice us 142(1)(i) of the Act. However, following points are worthy to note:

• In Income Tax Act, 1961 Return of income can be filed within only under four sections.
• Under Section 139 & all its subsections, 142(1)(i), 148 & u/s 153.
• This is the exhaustive list. Apart from these four sections ROI can’t filed.
• The notice us 142(1)(i) is used to call for return of Income. it means if during the relevant assessment year assessee filed ROI under any of the Section then by issuing this notice AO can’t call for return of income us 142(1)(1).
• If notice us 142(1)(i) is issued after the due date, then ROI filed will be deemed ROI us 142(1)(i).
• This ROI can’t be revised us 139(5) since under section 139(5) only those return can be revised which was filed us 139(4) & 139(5).

Example – 1: For AY 2017-18, Mr X get the notice us 142(1)(i) on 10/06/2018 to file the ROI within 30 days. Mr X filed the ROI within due date & declare total Income of Rs 68 Lacs. Later he realizes that he had overstated the income by Rs 5 Lacs. Because he forgot to claim the Business expenditure of Rs 15 Lacs. He knows that he can’t revise his return. What is possible remedy available to him?

Ans –

• He is very well aware that he can’t revise his Return of Income.
• See, in practically this notice is issue to make the assessment under this Act. Assessment means all the assessment.
• Often it is misunderstood that notice us 142(1)(i) is issued only to make best judgment assessment which is not correct fully.
• Intention is to call for ROI so that assessment can be completed in a scientific manner.
• If assessee fails to comply with notice us 142(i) then he is exposed to the Risk of 144.
• But in the given case, since he fulfils the requirement of notice us 142(1) that’s why 144 will not be done.
• Section 144 is made solely for the benefit of the revenue. In that situation he will not able to claim that his income should be lower by Rs 15 Lacs.
• Current case is different. He hadn’t violated section 142(1). Return is filed us 142. Such case may be opened u/s 143(3) which is revenue neutral Assessment. Means assessee can also get benefit during assessment proceeding us 143(3).
• He couldn’t claim the benefit through the Letter. Only method remain with him to file the revised return. Which is also not possible since every event was conducted after the end of the relevant assessment year. (Held by Supreme Court in Goetzee India Limited)
• He can file appeal against the order us 143(3) to CIT(A) or CIT u/s 246 or 264 respectively.
• Both of them can consider only that matters which arises from assessment proceedings held as per Gurjargraveours Limited.
• However, if the situation warrants that such a deduction/allowances couldn’t be raised by the assessee because it was not available at the time of filing of ROI then Assessee can claim such deduction during appellate proceedings. (Held as per CIT Vs Jute Corporation India Limited)
• But it was not his case. The option of last resort available to him is to claim such losses i.e. to claim the losses before Income Tax Appellate Tribunal. Held in the case of NTPC Limited tribunal have right to consider all those matters even they were raised by the assessee for the first time.
• Hence, in such a way assessee can claim the deduction of Rs 15 Lacs before ITAT.
• Hon’ble High Courts & Supreme court are not income tax authority. They can’t allow such expenses to Assessee.

Example-2:  Decide whether notice u/s 142(1)(i) can be issued in the different case given below on 2/04/2019:

Case A – Relevant Assessment Year is 2017-18. Case is pending us 143(3).

Case B – Relevant Assessment year is 2015-16, notice us 148 already issue to file the ROI.

Case C – Relevant Assessment year is 2016-17 no ROI is filed at all. Department want to open the case us 147 of the Act.

Case D – Relevant Assessment Year 2017-18. No ROI is filed within due date. Notice us 142(1) was issued on 25/12/2017 to file the ROI upto 15/01/2018. Assessee filed it within date. Department on 15/06/2020 want to give notice u/s 142(1)(i) for filing of the ROI again for AY 2017-18.

Case E – Relevant Assessment Year 2018-19. ROI not upto end of relevant Assessment Year. Notice u/s 142(1)(i) was issued on 10^th April, 2019 to file the ROI upto 30^th April, 2019. Assessee didn’t file return. Before making 144 department wants to give another opportunity to file ROI by issuing notice u/s 142(1)(i) on 30^th September, 2019.

Case F – Assessee file ROI for AY 2018-19 with due date us 139(1). But fails to file the ROI for AY 2019-20 upto 31^st March, 2020. Can notice u/s 142(1)(i) on 5^th June, 2020 issue by AO?

 Solution: 

Case A – Notice u/s 142(1)(i) can’t be issued. Since the case is pending u/s 143(3). Regular Assessment is not possible until the assessee filed any Valid return of income either u/s 139 or u/s 142(1)(i). It means he had already filed the ROI. Therefore, AO can’t issue notice u/s 142(1)(i) in the given case.

Case B – Notice u/s 142(1)(i) is not required to issue at all. Since while issuing the notice us 148 department itself ask for filing of the ROI. Therefore 142(1)(i) will not issued in such a case.

Case C – If department want to open Section 147 then notice us 148 is required. Notice us 148 is issue to call for ROI. Therefore, no need to issue separate notice of 142(1)(i).

Case D – Since assessee already file the ROI for AY 2017-18 u/s 142(1)(i). If revenue want to issue again a notice u/s 142(1)(i) for the same Assessment year i.e. 2017-18 it will tantamount to asking for revising the Return that already filed us 142(1)(i). Revision of Return which was filed us 139(1) & 139(4) is possible us 139(5). However, Revision us 139(5) is not possible for ROI that was filed us 142(1)(i). Therefore, Revenue can’t issue notice u/s 142(1)(i) second time for the same Assessment Year.

Case E – In this case Assessee hadn’t file the ROI under any section of the Act. Neither u/s 139 nor in response to notice u/s 142(i)(i). hence department can issue second notice to assessee on 30^th

September, 2019 to file the return of income. Additionally, assessee is also liable for penalty u/s 272A which will be Rs 10,000/- for each failure.

Case F- Revenue can give notice u/s 142(1)(i) for Assessment year 2019-20 & not for AY 2018-19 since ROI was already filed for that year.

3) Special consideration for notice u/s 142(1)(ii) & 142(1)(iii) of the Act.

• The objective of notice issued under this part is to call for books of accounts, information, statement of Assets & liabilities etc. for the purpose of making Assessment under this Act.
• By issuing the notice us 143(2)/148/153A/SCN of 144 AO can’t call for Books of accounts etc. Hence here is the importance of notice u/s 142(1)(ii)/(iii).
• That’s the reason in practical life we can see the notice of scrutiny or 148 is presented as ‘148/142(1)” or ‘143(2)/142(1)’’
• This notice can be issue to the person before the end of the Assessment year & after the end of the Assessment Year.
• The statement of Assets or Liabilities which is not included in the books of Accounts can also be called upon by the AO.
• Provided prior permission of JC is required in such a case. Permission of JC is not required at all if JC is himself assessing officer.
• Maximum 3 years prior to previous year books can be ask to produce. It means if case of the assessee is open for AY 2014-15 on 02/06/2020 then by issuing notice us 142(1)(ii) AO can ask to produce before him books of Accounts maximum upto 2011-12. i.e. For AY 2011-12, AY 2012-13 & AY 2013-14 along with books of the relevant Previous year 2014-15.
• Assessee can deny to produce the books of Accounts before 2013-14. Since, he is liable to maintain the books of accounts only upto the end of 6 Assessment year.