Section 268(1) Income Tax Notice (Inquiry before assessment): Income Tax Act 2025
Under the Income-tax Act, 2025, a Section 268(1) Notice represents the formal “Inquiry before assessment” process. It is a powerful tool used by the Assessing Officer (AO) to gather necessary information, documents, or compel the filing of a tax return before finalizing a taxpayer’s assessment.
Here is a detailed explanation of the rules governing this notice:
1. When can the notice be issued?
The AO can issue this notice to any person who has already filed their return of income under Section 263, or to a person whose deadline to file the return has already expired.
2. What can the Assessing Officer demand in the notice?
The notice can require the taxpayer to do any of the following by a specified date:
- File a Pending Return: If the taxpayer has not filed a return within the allowed time or before the end of the succeeding financial year, the notice can compel them to furnish a return of their income (or the income of any other person they are assessable for). Note: This specific notice to file a return can also be served by a prescribed income-tax authority other than the AO.
- Produce Documents: The AO can demand the production of specific accounts, records, or documents.
- Provide Verified Information: The AO can ask the taxpayer to furnish written, verified information on specific points or matters. This can even include a complete statement of all assets and liabilities, regardless of whether they are included in the taxpayer’s regular books of account.
3. Statutory Limitations on the AO’s Power
To protect taxpayers from unreasonable demands, Section 268(2) places strict limitations on what the AO can ask for under this notice:
- Approval for Asset Statements: If the AO wants to demand a statement of all assets and liabilities that are not included in the regular accounts, they cannot do so independently; they must first obtain the previous approval of the Joint Commissioner.
- Three-Year Limit on Accounts: The AO is legally prohibited from requiring the taxpayer to produce any accounts relating to a period that is more than three years prior to the relevant tax year.
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