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Inquiry before Assessment of Tax (Section-142 or 142A)

  1. Giving Notice to the Assessee to Submit Return (if not submitted earlier), Produce Accounts, Documents, etc. [Section 142(1)]

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

  3. Giving direction to get Books Of Account Audited [Section 142(2A) to (2D]

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

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

Section 142 and 142A deals with the following :

1. Giving notice to the assessee to submit return (if not submitted earlier), produce accounts, documents, etc.

Section 142(1)

2. Making inquiry and giving opportunity to assessee

Section 142(2), (3)

3. Giving direction to get books of account audited

Section 142(2A) to (2D)

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

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

1. Giving Notice to the Assessee to Submit Return (if not submitted earlier), Produce Accounts, Documents, etc. [Section 142(1)]

For the purpose of making an assessment, the Assessing Officer may take any/all of the following steps:

  1. Serve a Notice to the Assessee under Section 142(1)(i) :

    to the person 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.

  2. Serve a Notice to the Assessee under Section 142(1)(ii) :

    to any person who has filed a return of income or not to produce or cause to be produced such accounts or documents as the Assessing Officer may require. However, the Assessing Officer shall not require the assessee to produce any accounts relating to a period more than three years prior to the previous year. Further, the notice under this clause can be sent only when the return has been submitted under section 139 [i.e. under section 139(1) or 139(3) or 139(4) or 139(4A) or 139(4D) or 139(5)] or when the time allowed under section 139(1), as the case may be, for furnishing the return has expired and the return is not submitted. Example: For making an assessment of assessment year 2017-18 the Assessing Officer can ask for books of account for previous years 2013-14, 2014-15 and 2015-16 besides, of course, for previous year 2016-17 which is in question.

  3. Serve a Notice to the Assessee under Section 142(1)(iii), :

    to any person who has filed a return of income or in whose case the time allowed under section 139(1) for furnishing the return has expired, to furnish, in writing and verified in the prescribed manner information in such form and on such points and matters as he may require. The Assessing Officer may also ask for a statement of all assets and liabilities of the assessee whether included in the accounts or not. However, prior approval of the Joint Commissioner of Income-tax will be required, if the Assessing Officer requires the assessee to furnish a statement of assets and liabilities not included in the accounts. Statement of assets and liabilities can be asked for any number of previous years.

  1. Notice under section 142(1)(i) or (ii) or (iii) can be served only for the purpose of making an assessment under the Income-tax Act.

  2. Notice under section 142(1)(i) to file a return of income can be served only after the time allowed under section 139(1) has expired.

  3. Further, the notice 142(1)(ii) or (iii) can be served whether the return of income has been submitted or not but it can be served only after the time allowed under section 139(1), has expired.

  4. Section 142(1) read with section 2(31) leads to the only conclusion that co-operative societies are also "person" as defined in the Income-tax Act. Therefore, the impugned notice under section 142(1) cannot be held issued without jurisdiction. [Mangalam Service Co-operative Bank Ltd. v ITO (2013) 86 DTR 399 (Ker)].

  5. The law does not provide any time limit for service of notice under section 142(1)(i) for filing the return but as per general provision, a return cannot be filed after the expiry of one year from the end of the relevant assessment year.

  6. If the assessee has not furnished the return of income within the time allowed under section 139(1), it is not mandatory for the Assessing Officer to serve notice under section 142(1)(i) for filing the return of income in case he wishes to make best judgment assessment under section 144. In that case, he shall have to follow the procedure given under section 144.

  7. Where the notice under section 142(1) was served to the assessee, calling for certain information, and the Assessing Officer also intimated to the assessee that his claim of residential status as not ordinarily resident was rejected and he was treated as ordinary resident, it was held that the determination of residential status after hearing the evidence was part of assessment under section 143(3) and the issue could not have been determined in notice under section 142(1) while calling the information.

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

(A) Make Inquiry [Section 142(2)]:

For the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such inquiry, as he considers necessary. While section 142(1) empowers the Assessing Officer to collect information from the assessee himself, section 142(2) on the other hand, empowers him to collect information from sources other than the assessee.

(B) 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 on the basis of the aforesaid inquiry under section 142(2) or on the basis of the audit conducted as per section 142(2A) above, where the Assessing Officer proposes to utilise such information for the purpose of any assessment. However, no such opportunity is necessary when the assessment is made under section 144.

3. Giving direction to get Books Of Account Audited [Section 142(2A) to (2D)]

The Assessing Officer may, at any stage of the proceedings before him, direct the assessee to get the accounts audited by a Chartered Accountant nominated by the Chief Commissioner/Commissioner of Income-tax. Such a decision may be taken by the Assessing Officer, if having regard to:

  1. the nature and complexity of the accounts,

  2. volume of the accounts,

  3. doubts about the correctness of the accounts,

  4. multiplicity of transactions in the accounts, or

  5. specialized nature of business activity of the assessee, the interests of the revenue,

is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

The Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.

Direction of audit can be given even if the accounts are already audited under the Income-tax Act or under any other law. [Section 142(2B)]

(A) Form and time limit for submission of report [Section 142(2C) and Rule 14A]:

The Chartered Accountant shall submit the audit report in Form No. 6B to the assessee who will in turn submit it to the Assessing Officer within such period as may be specified by the Assessing Officer. Such period may, however, be extended by the Assessing Officer suo motu or on the request of the assessee and for any good and sufficient reasons. The aggregate of the period originally fixed and the extended period(s) shall not, in any case, exceed 180 days from the date on which the directions for audit were received by the assessee.

(B) 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.

  1. The direction to get accounts audited can be issued only in the course of assessment proceeding which is pending and not after the completion of assessment. Further the assessment also includes reassessment.

  2. No appeal is possible against the orders under section 142(2A) for audit of accounts.

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

Assessing Officer can refer to the Valuation Officer, the estimation of valuation of any investment [Section 142A(1)]

  1. Reference by Assessing Officer to the Valuation Officer for estimate of the value including fair market value of any asset, property, or investment [Section 142A(1) and (2)]

    1. 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)]

    2. The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. [Section 142A(2)]

  2. Power of Valuation Officer and procedure to make the estimate of the value of the asset, property or investment [Section 142A(3), (4) and (5)]

    1. The Valuation Officer, on a reference being made, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. [Section 142A(3)]

    2. The Valuation Officer shall estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. [Section 142A(4)]

    3. If the assessee does not co-operate or comply with the directions of the Valuation Officer, he may, estimate the value of the asset, property or investment to the best of his judgment. [Section 142A(5)]

  3. Time period of submitting valuation report [Section 142A(6)]

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

  5. Assessing Officer may take such report into account in making assessment or reassessment [Section 142A(7)]

    The Assessing Officer on receipt of the report from the Valuation Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

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

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

  1. Best judgment assessment under section 144;

  2. Penalty under section 271(1)(b) which has been fixed at Rs. 10,000);

  3. Prosecution under section 276D with rigorous imprisonment which may extend to one year or with 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;

  4. Issue of a warrant of authorisation under section 132 for conducting search.

If the assessee proves that the non-compliance with the direction under section 142(2A) was not because of his fault but negligence or refusal of the auditor, then best judgment assessment shall not be made and the proceedings shall be dropped.

It may be noted that opportunity of being heard shall have to be given to assessee before making best judgment assessment and before levying penalty or launching prosecution. If the assessee proves that there was a reasonable course for the failure, for e.g. death in the family, some major illness or negligence on the part of chartered accountant, etc., the Assessing Officer shall not make the best judgment assessment or levy penalty, etc.

CONTENT : Return of Income and Procedure of Assessment (Section 139 to 154)

Related Topics... Return of Income and Procedure of Assessment

 
 
 
 
 
 
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