s.142(1) — Inquiry before assessment
The information gathering notice at the front of an assessment: what the Assessing Officer may call for under its three clauses, the limits on that power, and why answering it is not the same as answering a scrutiny notice.
Long standing, with one recent package of change. The sub-section itself is stable; the Finance Act 2023, Act No. 8 of 2023, with effect from 1 April 2023, added the inventory valuation limb to sub-section (2A) as clause (ii) and carried it into sub-section (3). The second proviso to clause (i), allowing a notice for that clause to be served by the prescribed income-tax authority, and the deeming in the first proviso for notices served after the end of a relevant assessment year commencing on or after 1 April 1990, are both part of the long standing text. The current text here is taken from the Department's Year 2025 edition.
Income-tax Act, 1961
s.142(1)
Income-tax Act, 2025
s.268
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 142(1) of the Income-tax Act, 1961 allows the Assessing Officer, for the purpose of making an assessment, to serve a notice on any person who has made a return under section 139 or in whose case the time allowed under section 139(1) has expired. The notice may require the person, on a date specified in it, to do one of three things. Clause (i) requires a person who has not filed within time to furnish a return in the prescribed form. Clause (ii) requires him to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require. Clause (iii) requires him to furnish information in writing, verified in the prescribed manner, in such form and on such points or matters as the Assessing Officer may require, including a statement of all assets and liabilities whether or not included in the accounts. Two limits sit in the proviso that follows clause (iii) and are frequently overlooked. Previous approval of the Joint Commissioner must be obtained before the assessee is required to furnish a statement of assets and liabilities not included in the accounts, and the Assessing Officer shall not require production of accounts relating to a period more than three years prior to the previous year. Sub-section (2) is the general power of inquiry. Sub-section (2A) is the special audit and, from 1 April 2023, inventory valuation direction, which needs the previous approval of a Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner and a reasonable opportunity of being heard. Sub-section (3) requires the assessee to be heard on material gathered under sub-section (2) or (2A) and proposed to be used, except where the assessment is under section 144. The counterpart in the Income-tax Act, 2025 is section 268.
What the provision does
Gathers material. It lets the Assessing Officer call for a return, accounts, documents and information, and failure to comply with all its terms is a trigger for a best judgment assessment under section 144(1)(b). It does not, however, do the work of a notice under section 143(2): it does not tell the assessee that the Department proposes to go behind his return, it does not invite him to produce the evidence on which he relies in support of that return, and the Supreme Court held in Orissa Mining Corporation that a letter under it is not sufficient compliance with section 143(2). It also carries no limitation of its own comparable to the proviso to section 143(2), and it does not authorise any addition.
Threshold questions
- Which clause the notice is issued under, because clause (i) calls for a return while clauses (ii) and (iii) call only for accounts, documents and information
- Whether the notice asks for a statement of assets and liabilities not included in the accounts, because previous approval of the Joint Commissioner is a precondition for that
- Whether accounts are called for going back more than three years before the previous year, which the proviso forbids
- Whether a direction under sub-section (2A) carries the previous approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner, and whether the assessee was heard before it was given
- Whether material gathered under sub-section (2) or (2A) was put to the assessee before being used, as sub-section (3) requires unless the assessment is under section 144
- Whether the Department is relying on this notice to stand in place of a notice under section 143(2), which it cannot
In practice
The recurring disputes.
Whether a notice under this sub-section can take the place of a scrutiny notice
This was the third question in Principal Commissioner of Income Tax, Bhubaneswar v. Orissa Mining Corporation Ltd. (28 October 2026) and it is now answered. The Revenue's case was that the assessee had been told in terms what the reassessment was about and had answered, so the purpose of section 143(2) had been served and form should not defeat substance. The assessee's case was that the two sub-sections do different things, one obtaining material from the assessee and the other inviting him to support his return with evidence. The Court held at paragraph 22 that a letter under section 142(1) requiring the assessee to explain the grounds on which reassessment was proposed would not satisfy section 143(2), that the section 143(2) notice is a sine qua non for commencing the proceedings, and that a letter issued after the proceedings have commenced would not cover up the lacuna and would not validate what is non est. What remains open is the converse, whether a notice that is issued under section 142(1) but is framed in the language of section 143(2) can be read as the latter; the mislabelling of a notice is section 292B territory and that question has not been decided.
Whether the three year limit on accounts is a real restriction
The proviso says the Assessing Officer shall not require production of accounts relating to a period more than three years prior to the previous year. The assessee's case is that the word is "shall not", so a requisition going further back is bad to that extent and an addition resting only on what it produced should fall with it. The Revenue's case is twofold, that the limit governs what may be compelled under this sub-section and not what the officer may look at if it comes into his hands by another route, including a survey, a search or the assessee's own voluntary production, and that non-compliance with an excessive requisition is at worst harmless because the remedy is to object rather than to ignore it. The point is seldom litigated on its own and the consequence of a breach, as opposed to the fact of one, has not been worked out.
Whether the approval requirements are substantive or administrative
Both the Joint Commissioner's previous approval for a statement of assets and liabilities outside the accounts, and the senior approval for a direction under sub-section (2A), are expressed as preconditions. The assessee's case is that a power conditioned on approval can be exercised only in the manner prescribed, so an approval granted mechanically, or after the event, is no approval, and it draws the analogy with approval under section 153D, where the same objection to a mechanical or after the event approval is routinely taken. The Revenue's case is that these approvals are internal administrative steps in aid of supervision rather than conditions of jurisdiction, and the Income-tax Act, 2025 lends that argument weight because section 522 now declares in terms that approvals by income-tax authorities for assessment, reassessment or recomputation are administrative and supervisory and are not invalid for insufficiency of recorded reasons or defects in form, authentication or communication. Whether that characterisation will be read back into the 1961 Act is unresolved.