Responding to Tax Notices Under Section 142(1) for Missing Income and Deductions
- Nimisha Panda
- Jun 11
- 8 min read
Updated: Jun 13
Taxpayers may receive a notice under Section 142(1) of the Income Tax Act when the Assessing Officer seeks clarification or compliance before completing an assessment. These notices are typically triggered by non-filing of returns, discrepancies in reported income, or unsubstantiated deduction claims. Ignoring such communication can lead to serious consequences including penalties and detailed scrutiny. A timely and accurate response, backed by proper documents, is essential to avoid escalated proceedings. Understanding what the notice means and how to respond using the e-Proceedings portal can save time, money, and legal hassle.
Table of Contents
What Triggers a Section 142(1) Notice?
A notice under Section 142(1) is not an accusation—it’s a formal communication from the Income Tax Department asking the taxpayer to provide clarifications, submit documents, or complete a missing step in their filing process. This notice is usually part of a preliminary assessment phase and gives the taxpayer a chance to correct, explain, or support their income and deductions before any further scrutiny begins. Here's what typically sets off such a notice:
1. Non-Filing of Income Tax Return (ITR)
One of the most common reasons for receiving this notice is failure to file the return of income within the prescribed time limit. If you’ve earned income above the taxable threshold and haven't submitted your ITR, the department’s systems, powered by Annual Information Statements (AIS) and Form 26AS, can flag this. When there’s a record of financial activity but no corresponding return, the system automatically alerts the Assessing Officer (AO) to issue a 142(1) notice requesting compliance.
2. Income Mismatch Between Sources
When the income declared by the taxpayer doesn’t align with the income data available to the department (from sources like banks, mutual fund houses, employers, or stock exchanges), it’s a red flag. For example, if your Form 26AS reflects TDS on bank FD interest but this income is missing from your return, the system highlights a discrepancy. This triggers a notice asking for explanation or correction, allowing the taxpayer to justify or revise the details during assessment.
3. Unsupported or Excessive Deductions
Deductions under Section 80C, 80D, 80E, and similar provisions are closely scrutinised. Claiming deductions without submitting valid proof, such as PPF receipts, LIC premiums, or medical insurance documents, can raise questions. The AO may issue a notice requiring the taxpayer to submit scanned copies of these documents to verify the legitimacy of the deductions. In some cases, the amount claimed appears inconsistent with the taxpayer’s income level, prompting further inquiry.
4. Unexplained High-Value Transactions
Large cash deposits, real estate purchases, credit card payments, foreign travel, or mutual fund investments may appear on the AIS even if not reflected in the tax return. If such transactions are deemed disproportionate to the declared income, the AO may seek clarification. These notices are meant to ensure that all high-value financial activities are appropriately explained and, where necessary, taxed.
5. Incomplete Return or Missing Details
Sometimes, even when a return is filed, it may lack critical information—such as balance sheet details in the case of business income, or missing capital gains schedules. The AO might issue a notice requesting those additional components to complete the assessment. This is especially relevant for professionals and freelancers filing ITR-3 or ITR-4, where omitted annexures can lead to queries.
Receiving a Section 142(1) notice does not mean you’re being penalized. It’s an opportunity to correct or clarify gaps in your return. Responding promptly and properly not only helps conclude your assessment smoothly but also avoids deeper scrutiny under more serious sections like 143(2).
How to Respond to Section 142(1) for Missing Income or Deductions
The nature of your response depends entirely on what the notice highlights—whether it’s undeclared income, incorrect deductions, or both. Precision and documentation are key.
1. If Income Was Missed
Start by identifying the specific income component that was not reported. Common examples include:
Interest from savings or fixed deposits that may not have been captured while filing the return.
Capital gains from shares, mutual funds, or property sales that weren't disclosed.
Freelance or consulting income received directly into bank accounts but not included in the return.
Rental income from properties, especially when rent is credited informally or via cash.
In such cases, disclose the omitted amount clearly in your response. Provide matching documentation such as:
Bank account statements
Form 26AS or AIS/TIS reports (to validate TDS credits or reported income)
Brokerage statements for capital market transactions
Rental agreements or tenant declarations
It’s important to accept any genuine error and correct it through a fact-based explanation. Do not try to justify or cover up the omission—transparency reduces the risk of further escalation.
2. If Deduction Claims Were Flagged
If the notice questions deductions claimed under Sections like 80C, 80D, or 24(b), you’ll need to submit valid proof for each deduction. Here’s how to respond:
Salary Income Deductions:
Attach Form 16 showing TDS deductions and claimed exemptions.
Include salary slips that reflect HRA, LTA, or other deductions claimed.
House Rent Allowance (HRA):
Provide rent receipts for each month claimed.
Mention the PAN of the landlord if annual rent exceeds ₹1,00,000.
Attach the rent agreement if available.
Investment-Based Deductions (Section 80C):
Include payment proofs for PPF, LIC, ELSS, tuition fees, or home loan principal.
Upload scanned copies of passbooks, premium receipts, or mutual fund statements.
Health Insurance Premiums (Section 80D):
Submit policy documents and payment receipts with insurer details and coverage.
Provide a home loan interest certificate from your lender showing interest paid during the year.
Make sure all documents are clear, legible, and match the amounts declared in your return. Group and name files properly to aid the Assessing Officer's review—avoid cluttered uploads or vague file names like “Document1.pdf.”
3. Explanation Tips
Your written explanation should:
Be concise but comprehensive
State the nature of the discrepancy (e.g., “FD interest not included due to oversight”)
Mention the supporting documents attached
Avoid subjective or emotional reasoning (e.g., “I was not aware” or “It was unintentional”)
Stick to facts and timelines
Every statement should connect with evidence. If your deductions are legitimate and documented, there’s nothing to worry about—the notice is just an opportunity to validate your claim.
Step-by-Step Guide to Responding Online via e-Proceedings
Login to the Income Tax e-Filing Portal.
Go to ‘Pending Actions’ > ‘e-Proceedings’ section.
Open the relevant Section 142(1) notice.
Click on ‘Submit Response’.
Choose between a Partial or Full response.
Upload supporting documents in accepted formats (PDF, JPEG, etc.).
Add detailed explanations in the designated text box.
Submit the response.
Download the Acknowledgement and keep it for future reference.
Ensure the response is submitted before the mentioned deadline (typically 30 days unless specified otherwise). Late or missed responses can escalate matters to the scrutiny stage.
What Happens If You Don’t Respond?
Failing to respond to a Section 142(1) notice can result in:
Best Judgment Assessment: The AO will assess based on available data, often overestimating your liability.
Penalties and Interest: Additional tax demands may be raised, along with late fees and interest charges.
Scrutiny Assessment under Section 143(2): A deeper probe that requires more detailed documentation and multiple rounds of questioning.
Reduced Scope to Rectify: Once the AO proceeds, revising or defending your claims becomes more complex and limited.
Responding is not optional—it is a statutory requirement once the notice is issued.
Common Scenarios: Missed Income, Deductions & Bank Interest
A few examples of typical mistakes that trigger notices:
Missed Bank Interest: Savings and FD interest often go unreported. The AO may have AIS data showing it.
Capital Gains Not Reported: Selling shares, mutual funds, or property without declaring profits can trigger alerts.
Unclaimed Deductions with No Proof: Claiming deductions like 80C without uploading PPF or tuition fee receipts.
Mismatch in TDS vs. Reported Income: Employer deducts tax, but employee fails to file or underreports income.
In all such cases, disclosing the correct figures and attaching valid documentation is key to resolution.
Can You Revise a Return After Receiving Section 142(1) Notice?
Once a Section 142(1) notice is issued and assessment proceedings begin, revising your return under Section 139(5) is no longer allowed. However, the notice response is an opportunity to:
Rectify mistakes through explanation
Disclose omitted income
Submit deduction proofs
Clarify ownership of joint accounts or transactions
Treat this response as your chance to correct the record—even if formal revision is no longer available.
Role of TaxBuddy in Helping Respond to Section 142(1) Notices
Navigating tax notices can be daunting. TaxBuddy simplifies the process by:
Automatically detecting and flagging notices in your account
Helping collect and organize documents required by the department
Drafting clear, compliant responses to notices
Providing expert review before final submission
Enabling submissions via the e-Proceedings portal within deadlines
By using the TaxBuddy platform or app, taxpayers avoid errors, missed deadlines, and incomplete filings—reducing stress and the risk of future scrutiny.
Conclusion
Receiving a Section 142(1) notice may seem intimidating, but with proper guidance and prompt response, it can be resolved without penalties or legal complications. Ensure all income is disclosed, deductions are supported, and communication is timely. Platforms like TaxBuddy can ease this burden with tools, expertise, and hands-on assistance. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides both options. Users confident in handling their tax matters can choose self-filing, while those seeking expert review and compliance assistance can opt for guided filing with professional support.
Q2. Which is the best site to file ITR?
The official Income Tax e-Filing portal is the primary platform. However, for users looking for a smoother experience, platforms like TaxBuddy offer intuitive interfaces, smart calculators, and personalized filing options that reduce the chances of errors and missed benefits.
Q3. Where to file an income tax return?
Returns can be filed electronically via www.incometax.gov.in or through authorized platforms like TaxBuddy that integrate with government systems and offer added features like auto-fetch of Form 26AS and pre-filled details.
Q4. What should I do if I receive a Section 142(1) notice for missing income?
Disclose the unreported income in your response along with valid documentation such as bank statements, transaction summaries, or brokerage reports. Pay any resulting tax liability to prevent interest or penalties.
Q5. How can I submit my response to a Section 142(1) notice?
Login to the Income Tax portal, navigate to the ‘e-Proceedings’ section under ‘Pending Actions’, open the notice, and submit your response by uploading documents and a detailed explanation. TaxBuddy simplifies this by preparing the documents and response in a ready-to-upload format.
Q6. What happens if I ignore the notice?
Ignoring a Section 142(1) notice can lead to a ‘best judgment assessment,’ where the Assessing Officer finalizes your tax liability without your input. This often results in higher tax demands, interest, and penalties, along with increased scrutiny in future assessments.
Q7. Can I revise my return after receiving the notice?
Once a Section 142(1) notice is issued and assessment proceedings have begun, revision under Section 139(5) is no longer permitted. However, you can still correct or clarify errors by submitting an accurate and complete response through the portal.
Q8. Can I get professional help with gathering and submitting the required documents?
Yes. TaxBuddy offers document checklists, digital folders, and expert-led document reviews to help users compile and validate everything from Form 16s and rent receipts to deduction proofs and income statements—ensuring compliance and accuracy.
Q9. How do I substantiate my deduction claims under 80C, 80D, etc.?
To substantiate claims, upload supporting documents such as PPF passbooks, LIC premium receipts, ELSS investment statements, medical insurance policies, or tuition fee bills. Make sure these documents are legible and match the claimed amounts.
Q10. Is it mandatory to respond even if my income is below the taxable limit?
Yes. A Section 142(1) notice must be responded to, regardless of your income level. If you believe you are not required to file a return, you must still log in and submit a suitable explanation to avoid non-compliance consequences.
Q11. What is the usual timeline to respond to a Section 142(1) notice?
Typically, the response period is 30 days from the issue date. However, the Assessing Officer can specify a shorter or longer duration depending on the urgency of the case. It’s advisable to respond well within the deadline to avoid escalations.
Q12. Can TaxBuddy track and alert me if I receive such a notice?
Yes. TaxBuddy’s integrated dashboard alerts users instantly when a notice is issued under their PAN. It also provides a detailed action plan, tracks deadlines, and assists in preparing responses through its expert-assisted service or guided workflow.
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