Section 142 of the Income-tax Act, 1961: Inquiry Before Assessment
Section 142 empowers the Assessing Officer to seek a return, records and information, conduct inquiries, and, subject to safeguards, require a special audit or inventory valuation before completing an assessment.
Meaning and purpose of Section 142
An inquiry before assessment is the statutory process through which the Assessing Officer (AO) obtains facts necessary to determine a taxpayer's income or loss. A notice under Section 142(1) may seek a missing return, books of account, supporting documents or written explanations. It is not, by itself, a final assessment order or an automatic finding of tax evasion.
Section 142(1): Three types of requirements
| Provision | What it authorises | Practical meaning |
|---|---|---|
| Section 142(1)(i) | Notice requiring a return of income where the statutory conditions are satisfied. | A person who has not furnished the required return may be directed to file it in the prescribed manner. |
| Section 142(1)(ii) | Production of accounts or documents required by the AO. | Books, statements, invoices and other relevant records may be requested. |
| Section 142(1)(iii) | Written and duly verified information on specified matters. | Explanations of transactions, income, deductions, assets or liabilities may be sought. |
The notice specifies the date for compliance. The law also permits a prescribed income-tax authority to issue a notice for filing a return under clause (i), subject to applicable rules.
Safeguards and restrictions
- Prior approval of the Joint Commissioner is required before demanding a statement of assets and liabilities not included in the accounts.
- Under the statutory proviso, the AO cannot require production of accounts relating to a period more than three years before the relevant previous year. This restriction should not be confused with a blanket three-year limit on every document or inquiry.
- The taxpayer should examine the notice, applicable statutory time limits and the scope of each request.
Section 142(2): Power to make inquiries
The AO may make inquiries considered necessary to obtain full information about the income or loss of a person. Such inquiries can include examination of evidence and verification of transactions. The power must be exercised for the statutory purpose of assessment and subject to procedural safeguards.
Section 142(2A): Special audit and inventory valuation
Where the nature or complexity of accounts, their volume, doubts about correctness, multiplicity of transactions, specialised business activities and the interests of revenue justify further examination, the AO may direct either or both of the following:
- Special audit: audit of accounts by a nominated accountant as defined with reference to Section 288(2).
- Inventory valuation: valuation of inventory by a nominated cost accountant holding the prescribed professional qualification.
The direction requires previous approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, as applicable. The assessee must first receive a reasonable opportunity of being heard. The Finance Act, 2023 expanded this mechanism to include inventory valuation, an important change absent from older versions of the section.
Sections 142(2B), 142(2C) and 142(2D)
Section 142(2B): Other audits do not bar a direction
A special audit may be directed even where the taxpayer's accounts have already been audited under another law or otherwise.
Section 142(2C): Time to submit the report
The AO specifies the reporting period and may extend it, either independently or on application for good and sufficient reason. The original period together with extensions cannot exceed 180 days from receipt of the direction under Section 142(2A).
Section 142(2D): Expenses
For directions issued on or after 1 June 2007, the expenses of the special audit or inventory valuation, including professional remuneration, are determined under the prescribed guidelines and paid by the Central Government. The older assessee-payment language remains relevant to historical directions, not as the general rule for modern directions.
Section 142(3): Opportunity of being heard
Where material obtained through an inquiry under Section 142(2), or a special audit or inventory valuation under Section 142(2A), is proposed to be used for assessment, the assessee must be given an opportunity of being heard, except where assessment is made under the relevant assessment provisions read with the express exception for Section 144. This subsection does not eliminate other procedural protections applicable to best-judgment assessments.
Section 142(4): Historical assessments
Section 142(4) preserves the earlier form of the provision for assessment years commencing on 1 April 1988 or earlier. It is primarily of historical significance and should not be applied indiscriminately to later assessment years.
How to respond to a Section 142(1) notice
- Verify the notice, assessment year, statutory reference, issuing authority and compliance deadline on the official income-tax portal.
- Identify each document or explanation requested and reconcile it with the filed return and available records.
- Submit a complete, accurate, properly supported response through the specified electronic procedure, retaining the acknowledgement.
- If additional time is genuinely required, seek an extension before the deadline and retain proof of the request.
- For complex disputes, proposed special audits or potential adverse additions, obtain professional advice promptly.
Failure to comply may expose the taxpayer to a best-judgment assessment under Section 144 and other consequences where the statutory conditions are met. The precise consequences depend on the notice, governing law and facts.
Related provisions and transition to the 2025 Act
Section 139 concerns filing of returns; Section 142A addresses valuation by a Valuation Officer; Section 143 deals with assessment; and Section 144 governs best-judgment assessment. Section 142B provides for faceless inquiry or valuation arrangements. For tax years under the Income-tax Act, 2025, consult its corresponding provisions and current rules rather than assuming that section numbers are unchanged.
Frequently asked questions
Is a notice under Section 142(1) the same as a scrutiny assessment notice?
No. Section 142(1) enables information-gathering or a requirement to file a return; scrutiny assessment has its own statutory framework, including Section 143(2) under the 1961 Act.
Can the AO require an inventory valuation?
Yes. The amended Section 142(2A) permits a nominated cost accountant to value inventory, subject to approval and an opportunity of being heard.
Who pays for a special audit directed today under the saved 1961 Act procedure?
For directions issued on or after 1 June 2007, the statutory framework provides for payment of the prescribed expenses by the Central Government.
Does Section 142 apply to tax year 2026-27?
The Income-tax Act, 2025 is effective from 1 April 2026. For proceedings governed by that Act, consult Section 268 and its applicable rules; Section 142 of the 1961 Act may still matter for saved earlier-year proceedings.