A Section 142(1) notice is an inquiry notice from the Assessing Officer demanding accounts, documents, or information during scrutiny assessment. You must respond within the specified timeframe (typically 15-30 days). Non-compliance attracts a Rs 10,000 penalty under Section 271(1)(b) and possible prosecution under Section 276D.
Section 142(1) Inquiry Notice: Time Limit and How to Reply
A Section 142(1) notice is an inquiry notice issued by the Assessing Officer (AO) during the course of a scrutiny assessment, directing you to produce specific accounts, documents, or a statement of assets and liabilities. It has 3 sub-clauses, each with a different scope. You must respond by the date stated in the notice – typically 15 to 30 days from the date of issue. Failure to comply attracts a penalty of Rs 10,000 per instance under Section 271(1)(b), and repeated non-compliance can lead to a prosecution under Section 276D. This guide covers all 3 sub-clauses, the full timeline, and the step-by-step response process on the e-filing portal.
Key Takeaways: Section 142(1) at a Glance
- Authority: The Assessing Officer assigned to the case (not CPC); issued through the Faceless Assessment portal for most taxpayers from FY 2020-21 onwards.
- 3 sub-clauses: 142(1)(i) = file a return; 142(1)(ii) = produce accounts and documents; 142(1)(iii) = furnish written information including asset-liability statement.
- Response window: As specified in the notice; no fixed statutory minimum – typically 15 to 30 days. Extension can be sought from the AO.
- No time limit to issue: The AO can issue 142(1) notices at any point during open assessment proceedings, up to the Section 153 assessment completion deadline.
- Penalty for non-compliance: Rs 10,000 per failure under Section 271(1)(b); prosecution under Section 276D for wilful non-compliance.
- Best-judgment assessment risk: Repeated non-compliance can lead the AO to complete the assessment on a best-judgment basis under Section 144, adding income on estimate without your inputs.
- Special audit power: Under Section 142(2A), the AO can direct a special audit by a PCIT/CIT-nominated CA if accounts are complex – cost borne by the government.
Contents
- What Is Section 142(1) of the Income Tax Act and When Can the AO Issue This Notice?
- What Are the 3 Sub-Clauses Under Section 142(1) and What Can Each Demand?
- What Is the Time Limit for Issuing a Section 142(1) Notice and When Must You Reply?
- How Do You Respond to a Section 142(1) Notice on the Income Tax E-Filing Portal?
- What Documents Are Commonly Demanded Under Section 142(1) Inquiry Notices?
- What Happens If You Fail to Comply With a Section 142(1) Notice?
- What Are the Most Common Questions About Section 142(1) Inquiry Notices?
What Is Section 142(1) of the Income Tax Act and When Can the AO Issue This Notice?
Section 142(1) of the Income Tax Act 1961 confers the power on the Assessing Officer to make inquiries before completing an assessment. It is an information-gathering tool that sits at the core of the scrutiny assessment process. The AO serves the notice on any person who has filed a return under Section 139, or on any person whose return filing time under Section 139(1) has expired – whether or not they have actually filed.
The notice is not a finding of wrongdoing. It is an administrative demand for information. Receiving a 142(1) notice does not mean the AO suspects evasion – it means the AO needs specific documents or explanations to complete the arithmetic and legal verification of your return. However, how you respond to a 142(1) notice shapes the entire outcome of the assessment. A thorough, well-organised response reduces the scope for adverse inferences; an incomplete or defensive response often invites further notices and, in the worst case, a best-judgment assessment under Section 144.
Position in the Assessment Flow
A Section 142(1) notice fits into the overall income tax assessment workflow as follows:
| Stage | Notice / Action | Section | Purpose |
|---|---|---|---|
| 1 | Return filing | Section 139 | Assessee voluntarily declares income |
| 2 | Summary assessment | Section 143(1) | CPC processes the return arithmetically; sends intimation with refund or demand |
| 3 | Defective return notice | Section 139(9) | CPC or AO flags procedural deficiency; assessee has 15 days to correct |
| 4 | Scrutiny notice | Section 143(2) | AO opens scrutiny assessment; must be issued within 6 months of end of AY |
| 5 | Inquiry notice | Section 142(1) | AO demands specific accounts, documents, and information within open scrutiny proceedings |
| 6 | Assessment order | Section 143(3) or 144 | AO completes the assessment; passes order determining taxable income |
| 7 | Demand notice | Section 156 | If additional tax is determined in the assessment, a demand notice is issued |
What Are the 3 Sub-Clauses Under Section 142(1) and What Can Each Demand?
Section 142(1) contains 3 sub-clauses that have distinct scopes. A notice may invoke one, two, or all three sub-clauses simultaneously.
Under this sub-clause, the AO can direct a person who has NOT filed a return under Section 139(1) to file a return in the prescribed form, verified in the prescribed manner, by a date specified in the notice. This sub-clause is used when the AO has reason to believe the person is assessable to tax – for example, based on AIR (Annual Information Return) data, SFT (Statement of Financial Transactions) data from banks, or information from third parties showing large transactions.
Key point: A return filed in response to a 142(1)(i) notice is treated as a return filed under Section 139(1) for the purpose of processing but is a “return under notice” for the purpose of certain time-limit computations. The assessee cannot file a belated return under Section 139(4) after a 142(1)(i) notice has been issued for the same year – the notice return is the valid filing.
This is the most frequently invoked sub-clause in scrutiny assessments. The AO can require the assessee to produce or cause to be produced any accounts or documents relevant to the assessment – for the year under scrutiny or any prior year. There is no restriction on which financial year’s records can be demanded; the AO can call for records of earlier years if they are necessary to verify the entries in the year under scrutiny.
Key point: Section 142(3) provides a safeguard: the AO cannot make a direction under 142(1)(ii) unless the assessee has been given a reasonable opportunity to be heard in respect of any material gathered from third-party sources and proposed to be used against the assessee. In practice, this means the AO must put adverse third-party information to the assessee and allow a rebuttal before using it in the final assessment order.
Under this sub-clause, the AO can require the assessee to furnish written information, verified in the prescribed manner, on any points or matters the AO specifies – including a complete statement of all assets and liabilities of the assessee, whether or not those assets and liabilities appear in the books of accounts. This sub-clause is the basis for AL (Assets and Liabilities) schedule queries and net worth reconciliation exercises.
Key point: The phrase “whether or not included in the accounts” is significant. The AO can ask for personal assets such as jewellery, vehicles, fixed deposits, foreign assets, and immovable property even if these do not appear in the business books. The Schedule AL in ITR-2, ITR-3, and ITR-4 (mandatory for income above Rs 50 lakh) is a pre-emptive disclosure designed to address exactly the kind of inquiry this sub-clause enables.
Section 142(1) vs Section 148: The Critical Distinction
Section 142(1) and Section 148 are frequently confused but operate in entirely different contexts. Section 142(1) is a notice issued within an ongoing scrutiny assessment that has already been validly opened by a Section 143(2) notice. Section 148 is a notice to initiate a new assessment (called reassessment) for a year that is no longer open for regular assessment – i.e., the Section 143(2) window has closed. Section 148 can only be issued if the AO has reason to believe that income for the year has escaped assessment, requires specific prior approval from a higher authority, and is governed by strict time limits (3 years for escaped income below Rs 50 lakh; 5 years for Rs 50 lakh and above with specific evidence; 10 years for foreign assets). A Section 142(1) notice has no such pre-conditions: once a valid 143(2) scrutiny notice is in force, the AO can issue 142(1) notices freely within the assessment window. If you receive a 142(1) notice for a year where you did not receive a prior 143(2) notice, that is a serious procedural irregularity and grounds for a legal challenge.
What Is the Time Limit for Issuing a Section 142(1) Notice and When Must You Reply?
The Income Tax Act does not prescribe a specific deadline by which the AO must issue a Section 142(1) notice. The constraint is indirect: the AO must complete the assessment by the deadline under Section 153, so any 142(1) notice must be issued early enough to receive the response and still have time to complete the assessment before that deadline.
| Time Limit / Deadline | Details for AY 2025-26 (FY 2024-25 returns) |
|---|---|
| Section 143(2) scrutiny notice | Must be issued within 6 months from the end of the AY (i.e., by 30 September 2026 for AY 2025-26) |
| Section 142(1) inquiry notice | No outer time limit for issuance; AO can issue at any time during open assessment proceedings before assessment completion under Section 153 |
| Assessee response to 142(1) | As specified in the notice; typically 15 to 30 days from the date of the notice. No statutory minimum or maximum – the AO determines the time allowed |
| Extension of response time | Assessee can apply to the AO for an extension before the response deadline expires. The AO has discretion to grant an extension – no automatic right |
| Section 153 assessment completion | Regular scrutiny assessment under Section 143(3): within 12 months from end of AY (i.e., by 31 March 2027 for AY 2025-26) |
| Section 142(2A) special audit | If directed, the audit must be completed within the period specified in the direction (which the AO determines based on complexity and the remaining assessment window) |
Faceless Assessment and the Role of the National Faceless Assessment Centre
Under the Faceless Assessment Scheme notified under Section 144B (effective from 13 August 2020), most Section 142(1) notices for individual and non-corporate taxpayers are now issued by the National Faceless Assessment Centre (NaFAC) rather than the local AO. The taxpayer and the AO do not interact physically; all notices are issued electronically through the e-proceedings portal on incometax.gov.in and all responses are submitted digitally. The faceless regime has specific time requirements: after the taxpayer submits a response, the draft assessment order must be prepared within the time remaining under Section 153, and the taxpayer is given a show-cause notice (SCN) with 15 days to respond before the final order is passed.
How Do You Respond to a Section 142(1) Notice on the Income Tax E-Filing Portal?
Requesting an Extension for the Response Deadline
If you cannot submit a complete response by the date in the notice – for example, because bank records are pending, the CA is unavailable, or documents need to be retrieved from an outstation location – submit a formal extension request on the e-proceedings portal before the response deadline. Select the relevant notice, click “Seek Adjournment,” state the reason clearly, and mention the additional time needed. The AO has discretion to grant an extension. Do not wait until after the deadline to seek an extension, as the penalty under Section 271(1)(b) can be levied for each day of default.
What Documents Are Commonly Demanded Under Section 142(1) Inquiry Notices?
The specific documents demanded vary depending on the type of income in the return, the transaction size, and the information the AO already has from third-party sources (Form 26AS, AIS, SFT reports from banks, registrars, and stock exchanges). The most frequent demand categories are:
Bank and Financial Records
- Bank statements for all accounts for the relevant FY
- Fixed deposit receipts and interest certificates
- Cash deposit explanations (for deposits above Rs 10 lakh)
- Loan account statements (taken and given)
- Foreign bank account statements if any
Business and Professional Income
- Books of accounts: ledger, day book, cash book
- Purchase and sales registers with invoices
- Stock register and closing stock valuation
- P&L account and balance sheet
- GST returns (GSTR-1, GSTR-3B) for the relevant year
Capital Gains
- Purchase and sale deeds for immovable property
- Broker contract notes and DEMAT statements
- Cost of improvement invoices and receipts
- Computation of capital gains with indexation
- LTCG/STCG reconciliation with Form 26AS
Investments and Assets
- Details of shares held in unlisted companies
- Mutual fund statements (CAS from CAMS/Karvy)
- Jewellery valuations and purchase receipts
- Details of immovable property owned
- Foreign assets and income from foreign sources
Salary and Other Income
- Form 16 from employer and salary slips
- Form 16A for TDS on other income
- Rental income: lease agreements and receipts
- Evidence of exempt income claimed (agricultural income, etc.)
- Details of gifts received or given above Rs 50,000
Deductions and Exemptions
- 80C investment proofs: PPF, ELSS, LIC, NSC
- 80D: health insurance premium receipts
- HRA: rent receipts and landlord PAN above Rs 1 lakh
- 80G: donation receipts with trust registration number
- Interest certificates for home and education loans
How AIS and SFT Data Drive Section 142(1) Queries
The Annual Information Statement (AIS) on the e-filing portal aggregates all financial information reported about you by third parties – banks (SFT-005 for cash deposits, SFT-006 for FDs), stock exchanges and depositories (SFT-017 for listed securities), mutual fund registrars (SFT-015), sub-registrars (SFT-012 for property purchases), and many others. Before the AO issues a 142(1) notice, they review the AIS data and identify mismatches between the reported transactions and what is declared in your return. If the AIS shows a cash deposit of Rs 15 lakh in your savings account but no explanation in the return, a 142(1) query will follow. The best preparation for a 142(1) notice is to review your own AIS on the e-filing portal before filing the return and proactively reconcile and explain all major transactions in the return itself. For business owners, cross-checking AIS with GST turnover figures and the GSTR-3B annual summary is also important because the AO will compare reported turnover across systems.
What Happens If You Fail to Comply With a Section 142(1) Notice?
Penalty Under Section 271(1)(b)
The primary penalty for failure to comply with a notice issued under Section 142(1) is Rs 10,000 for each such failure under Section 271(1)(b). This is a per-instance penalty: if the AO issues 3 separate 142(1) notices and you fail to respond to all 3, the penalty can be levied 3 times (Rs 30,000 in total). The penalty proceedings are separate from the assessment and are initiated by the AO after recording a finding of non-compliance. You are given an opportunity to show cause before the penalty is levied.
Prosecution Under Section 276D
Section 276D provides for prosecution for wilful failure to produce accounts or documents demanded under Section 142(1). The punishment is rigorous imprisonment for a term that may extend to 1 year, plus a fine. Prosecution under 276D is initiated only when the failure is wilful and persistent – it is not triggered by a single delay or a genuine inability to produce documents. However, it is a serious provision that underscores that compliance with 142(1) notices is not optional.
Best-Judgment Assessment Under Section 144
The most consequential non-penalty outcome of non-compliance is a best-judgment assessment under Section 144. If the assessee fails to comply with notices under Section 142(1) or 143(2), the AO is empowered to assess the income to the best of their judgment – meaning the AO estimates the income based on whatever information is available (including third-party data from AIS, SFT, and comparable case data) without being constrained by what the assessee has declared. A best-judgment assessment routinely results in a significantly higher assessed income and a large demand. The assessee can appeal a best-judgment assessment, but the burden of proof shifts: the assessee must demonstrate that the AO’s estimate is excessive.
Section 142(2A) Special Audit: The Costliest Outcome of a 142(1) Proceeding
If the AO finds during the scrutiny that the accounts are complex, the volume of transactions is large, or there are intricate legal or accounting questions, the AO can direct a special audit under Section 142(2A) after obtaining approval from the PCIT or CIT. This means your accounts will be audited by a CA nominated by the tax department, not your own CA. The special audit can take several months, significantly extending the assessment proceedings. While the cost of the special audit is borne by the Central Government (clarified by the Supreme Court), the process is highly disruptive: the nominated CA has full access to your books, records, and premises. You have the right to object to the direction and be heard before it is issued (Section 142(3)), and the direction is challengeable by way of a writ petition if the AO has not followed the prescribed procedure. Ensure your books are well-maintained, your accounts reconcile clearly with your return, and all major transactions are backed by documentation – this is the most effective way to avoid triggering a 142(2A) direction. For firms, maintaining clean books also supports Section 40(b) partner remuneration deductions and for MSME suppliers it supports Section 43B(h) compliance.
Summary of Consequences by Level of Non-Compliance
| Level of Non-Compliance | Consequence | Applicable Section |
|---|---|---|
| Late but eventually complied | Possible penalty of Rs 10,000; assessment proceeds normally | Section 271(1)(b) |
| Partial compliance with explanation | AO may accept explanation or issue further notice for missing items; penalty if no valid reason | Section 271(1)(b) |
| Non-compliance across multiple notices | Rs 10,000 penalty per instance; AO may proceed to best-judgment assessment | Section 271(1)(b); Section 144 |
| Wilful and persistent non-compliance | Prosecution; rigorous imprisonment up to 1 year; fine | Section 276D |
| Complex accounts flagged during scrutiny | Special audit by PCIT/CIT-nominated CA; lengthy and disruptive | Section 142(2A) |
What Are the Most Common Questions About Section 142(1) Inquiry Notices?
Can the AO issue a Section 142(1) notice without first issuing a Section 143(2) scrutiny notice?
For sub-clause (i) – yes, the AO can issue a 142(1)(i) notice to file a return even without a 143(2) notice, because this applies to non-filers. For sub-clauses (ii) and (iii) – the AO typically needs valid Section 143(2) scrutiny proceedings to be open before demanding accounts and information, because these sub-clauses are tools within an assessment proceeding. Issuing a 142(1)(ii) or (iii) notice without a valid 143(2) notice being in force is procedurally vulnerable and can be challenged before the Income Tax Appellate Tribunal (ITAT) or High Court. If you receive a 142(1)(ii)/(iii) notice and have not received a prior 143(2) notice for that AY, check immediately whether a 143(2) notice was issued within 6 months of the end of the AY and whether it was validly served on you. If the 143(2) was time-barred, the entire scrutiny proceeding – including all 142(1) demands – may be invalid. See our guide on the Section 139(9) defective return process for the full overview of the assessment timeline.
What is the difference between a Section 142(1) notice and a Section 143(2) scrutiny notice?
A Section 143(2) notice formally opens scrutiny assessment proceedings. It must be issued within 6 months of the end of the AY in which the return is filed (for AY 2025-26: by 30 September 2026). Once issued, it gives the AO jurisdiction to conduct a detailed examination of the return. A Section 142(1) notice is an inquiry tool used within those open proceedings to demand specific documents, accounts, or information. The 143(2) notice is the jurisdiction-granting document; the 142(1) notice is the information-demand document. The AO cannot issue a new 143(2) notice once the deadline has passed, but can issue multiple 142(1) notices throughout the scrutiny period as long as the 153-deadline for completing the assessment has not expired. The AO does not need to issue 142(1) notices sequentially – they can issue several simultaneously, or one after another as the scrutiny progresses.
Can the AO demand information for assessment years other than the one under scrutiny under Section 142(1)?
Yes, under Section 142(1)(ii), the AO can call for accounts or documents for any previous year if they are relevant to the assessment year under scrutiny. For example, if there is a question about a loan introduced as capital in FY 2024-25, the AO may demand loan documentation, bank statements, and the lender’s return of income from the prior years to verify the genuineness of the loan. However, the information obtained under 142(1) during the scrutiny of one year cannot be used as the sole basis for opening a new assessment for a completely different year without going through the proper Section 148 reassessment route. The AO must separately establish reasons to believe that income has escaped assessment for the other year and obtain prior approval from the specified authority before issuing a Section 148 notice for that year.
What is the special audit under Section 142(2A) and when is it triggered?
Section 142(2A) empowers the AO to direct the assessee to get their accounts audited by a CA nominated by the Principal Chief Commissioner or Commissioner of Income Tax. The direction can be given when the AO is of the opinion that the nature of the accounts is complex, the volume of transactions is large, there are intricate legal questions of accounting, or it is otherwise necessary. Before issuing the direction, the AO must obtain the prior approval of the PCIT or CIT and give the assessee a reasonable opportunity to object. The Supreme Court held in Rajesh Kumar v. DCIT (2007) that the cost of the special audit is borne by the Central Government, not the assessee. A special audit can significantly delay the completion of the assessment (the assessment deadline under Section 153 is extended by the period of the audit). The assessee can challenge the 142(2A) direction through a writ petition if the AO did not follow the procedural requirements or if the direction is arbitrary or mala fide.
Can you object to complying with a Section 142(1) notice or the documents demanded?
You can raise legal objections to specific demands in a 142(1) notice, but you cannot simply ignore the notice without consequence. Valid grounds for objection include: the documents demanded are not relevant to the assessment year under scrutiny; the demand is for documents protected by legal professional privilege (e.g., legal advice letters); the demand is disproportionately broad and constitutes a fishing expedition; or the underlying 143(2) scrutiny notice was not issued within the prescribed time limit (making the proceedings void). Any objection must be formally submitted through the e-proceedings portal with a written explanation of the legal basis. If the AO overrules the objection and insists on compliance, and you still believe the demand is legally untenable, the next step is a writ petition before the jurisdictional High Court, as the Income Tax Act does not provide an intermediate appellate remedy against a 142(1) notice itself. In the meantime, comply with any uncontested parts of the notice and maintain the objection only on the specifically contested items. Also see our guide on the Udyam MSME certificate for documentation that MSME suppliers should retain for both GST and income tax proceedings.
CA Madhusmita Padal is a Practicing Chartered Accountant with firms based in Odisha and Chennai. She specializes in taxation, company law, and auditing. She is passionate about simplifying complex concepts and making knowledge accessible to all.