All taxpayers are assessed u/s.143, u/s.147, u/s.148 and u/s.153 of the Income-tax Act, 1961. After filing of return, when an asses see is being assessed by an Assessing Officer, he/she is required to file his/her submissions before the respective authority during the course of assessment. All these assessments are popularly known as ‘Scrutiny’ assessments. In case of these assessments, the authority before whom these proceedings are going on is supposed to form his opinion after verifying books of accounts, documents, submissions, proofs, evidences, statement of cross-examination of the parties concerned, etc. by bringing on record all or some of these things from the assessee, his/her representative and also by collecting independent evidences, proofs, documents, etc. To collect information, the assessing authority also can call outsiders by taking his/her statement on oath u/s.131 or u/s.133. After doing this exercise in full or in part, if the assessing authority is satisfied on issues arising out of the assessment proceedings, he records his findings in respect of the said assessment and he passes an order known as assessment order.
The following information is necessary in the assessment order :
(i) Section under which the assessee is being assessed,
(ii) Assessment year for which he is being assessed,
(iii) Dates of hearing,
(iv) Date of filing return by the assessee,
(v) Amount of income at which he has assessed him,
(vi) Amount of income declared by the assessee in his return of income,
(vii) Why the assessing authority is making addition, if any ?
(viii) Details of records verified by him during the course of assessment,
(ix) Date of passing assessment order,
(x) Demand, if any, arising after the assessment proceedings. While raising the demand he will have to give proper credit of the taxes paid by the assessee as advance tax, self-assessment tax and TDS/TCS, if any.
While forming his opinion, he will have to give proper consideration to the submissions made by the assessee during the course of scrutiny. He has to consider the proofs, documents, evidences, etc. produced by the assessee. He may verify the statements, trading, Profit & Loss A/c, balance sheet & relevant schedules with the books of accounts of the assessee. He may take relevant extracts of one or more accounts from the books of accounts of the assessee. He may further cross-examine the account extract given by the assessee with those of the extracts he has called from the relevant parties from their own books of accounts. Such parties may be the debtors, creditors, suppliers or customers of the assessee concerned. The Assessing Officer is supposed to know the following important things :
(i) The nature of business,
(ii) All important characteristics of business,
(iii) Nature of transactions being carried out in the business,
(iv) All uncommon terms used in the business under assessment before him.
The Assessing Officer must know the following things before starting the assessments of some uncommon types of assessees. The Assessing Officers are generally conversant with the way of common transactions of trading, manufacturing and professional income and its assessments, but many times are found non-conversant with the following types of assessees and the terminology being used in these types of businesses.
For example :
A. In lottery business :
(i) Prize Winning Tickets : In case of lottery business, the stallholder from whom the customer purchases lottery tickets makes the payment to the buyer of the winning lottery ticket, which has got prize. The stallholder in turn, while making his payment to his supplier (wholesaler) makes payment partly in terms of cash/cheque and partly in terms of these winning tickets. This chain of payment continues till end to the govt. under which the lottery is monitored. The amount seen on the assets side of any balance sheet of lottery dealer (whether wholesaler, retailer, distributor, stockist or sole stockist) is the balance of such tickets held by him on the particular day received by him from his customers in discharge of their liability of price of tickets. These are awaited for sending to the supplier in the chain as payment of his cost of tickets.
(ii) Cost of Participation in Draw (CPD) : While framing a scheme of lottery, the expenses on cost of printing tickets, royalty payable to govt., local taxes (sales tax, octroi, etc.), profit of the parties involved in the chain including sole distributor, cost of transport, cost of distribution, etc. are taken into account for deciding the amount available for distribution by way of winning, to the people taking part in the lottery. This is termed as Cost of Participation in the Draw i.e., CPD.
(iii) Cost towards Prize Fund (CPF) : While forming a scheme of lottery after allowing the expenses referred above which are termed as CPD, whatever is kept for distribution by way of various prizes of lottery is collectively termed in lottery business as Cost towards Prize Fund (CPF). This amount remains unchanged from the govt. till the final consumer. The amount of CPD goes on changing at each point due to addition of expenses and margin of profit of each party involved in the chain.
(iv) Unsold Loss : After the scheduled time of draw of a particular lottery, if some tickets remain in balance with the seller, these tickets become nonsaleable and are required to be scrapped. Amount paid as purchase price of these tickets is known as unsold loss.
(v) Unsold Winnings : After the scheduled time of draw of a particular lottery, if some tickets remain in balance with the seller, these tickets become nonsaleable and are required to be scrapped. Out of these scrapped tickets if some ticket wins some prize, it is known as unsold winnings.
B. In case of a labour contractor :
(i) Mess Charges : Amount paid by the labour contractor towards food charges of the labourers and their families is termed as mess charges and deducted as expenditure from the income of the labour contractor.
(ii) Tent charges : Amount paid by the labour contractor towards lodging and accommodation facilities of labourers and their families is termed as tent charges and deducted as expenditure from the income of the labour contractor.
For giving proper justice to the assessment, it is necessary that the Assessing Officer should know the terms used by the assessee in his business in detail; otherwise, he cannot do proper justice to the work of assessment entrusted to him. The above detailed examples are given to elaborate the essence of knowledge of these terms to an Assessing Officer in respect of uncommon terms used in such uncommon businesses.
Many times before the higher forums of appeal, it is seen that the Assessing Officer has :
(i) Not given proper justice to the submissions made by the assessee,
(ii) Not understood the nature of transaction and therefore misinterpreted it and added it to the assessee’s income,
(iii) Not understood the exact nature of business of the assessee,
(iv) Acted beyond his authority,
(v) Not given proper time to the assessee for proving his case,
(vi) Misinterpreted the facts brought before him by the assessee,
(vii) Not called for information independently, which he could have otherwise collected easily, for want of proper justice,
(viii) Not allowed the opportunity of cross-examination
(ix) Not given the assessee the opportunity of natural justice,
(x) Not given the assessee the opportunity of being heard,
(xi) Decided the case only with oral directions of his higher authorities without giving thought to the interpretations made by such authorities, whether the same are correct or otherwise.
(xii) Decided the case on the basis of some irrelevant papers, proofs, records, etc. not related to the case.
For giving justice to the assessee, for want of proper interpretation of facts of each case, for helping the Assessing Officer to interpret the facts in a proper manner, thereby to avoid the loss of revenue as well as loss of assessee, to avoid scenario of apparent mistakes or errors of facts in assessments, the system of monitored assessments must have been introduced in the statute. The intention of the statute behind introducing the above system must be to reduce unnecessary paperwork, reduction in appeals and proper justice to the assessee at the assessment stage only, due to wrong interpretation, if any which may take place because of misunderstanding of facts of each case by the assessing officer at assessment stage only. Though the intention of the statute was genuinely to help the assessee, what is the present position ? The present position is not as the statute has expected at the time of its introduction, but is totally different.
The Assessing Officer is required to act on the directions of the senior authorities . During the course of assessment, the Assessing Officer generally presents views of his senior official to the assessee or his representative in respect of a point of disagreement that, though he is satisfied with the explanation given by the assessee or his representative, the Additional Commissioner or the Administrative Commissioner to whom he has to report, is in disagreement with the view. He may say that the senior authorities are hardpressing for making addition on some point or the other on any of the grounds for the various reasons.
In such a situation, generally the assessee or their representatives try to narrate the case orally before the senior authority with or without the consent of the Assessing Officer. In fact, such type of oral representation has no legal standing. In some cases, it may have helped the assessee to avoid the proposed addition. But as opposed to the few times the assessee may have got justice by this exercise of meeting senior authorities and explaining before them the case, in majority of the times the senior authorities may put the ball in the court of the Assessing Officer by giving some oral reply which is not legally binding on them. At the same time, they direct their junior regarding their own interpretation and ask him to pass an assessment order as per their oral directions, which in their opinion is the correct interpretation of facts. On such interpretation, the Assessing Officer is bound (though not legally) to pass the assessment order as per the interpretation of the senior authority. But, in such situations, we tax professionals should not choose this path of meeting and explaining orally to the concerned senior authority the facts of the case, but we should choose the legal available path to come out of the situation at the assessment stage only. This gives us a legal tool for avoiding the situation of appeals and thereby avoiding expending of time, money and man-hours.
The following steps can be taken :
In case an Assessing Officer during the course of assessment is in disagreement with the views taken by the assessee and puts it that the view is not taken by him but is a directive given by his senior (Additional Commissioner/Administrative Commissioner), if an assessee or his representative finds that a particular interpretation of facts in a case is not being correctly done by the Assessing Officer, then the assessee can present his case by giving the facts in detail in writing to such senior authority (generally, an Additional Commissioner or Administrative Commissioner) of the Assessing Officer and ask him his view of the matter in writing u/s.144-A. S. 144-A of the Income-tax Act, 1961 is a very important legal tool in our hand in the situation narrated above. In present situation, when there are a number of cases being selected for scrutiny, occurrence of such a situation may be so frequent.
S. 144-A of the Income-tax Act, 1961 reads as follows :
“A Joint Commissioner may, on his own motion or on a reference being made to him by the (Assessing) Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the (Assessing) Officer to enable him to complete the assessment and such directions shall be binding on the (Assessing) Officer.
Provided that no directions, which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.
Explanation : For the purposes of this Section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be direction prejudicial to the assessee.”
Interpretation of the above Section clearly shows that an Additional Commissioner is bound to answer the application made under this Section. If the senior authority agrees with the view taken by the assessee, then on getting the answer in writing the lower authority is bound to accept that view in respect of the assessment and frame his assessment by considering the same. At the same time, we may file a letter in writing to the assessing authority that he may wait till the reply of application made by the assessee to the senior authority u/s.144-A is received.
The above-referred situation to the best of my knowledge, in present times, is only a theoretical situation. In day-to-day practice, neither the practitioners nor the assessees use this Section, and in effect do not use an important weapon in the hands of the assessee. This Section is a very important tool, which the assessee and practitioners may use for their benefit and thereby reduce the wastage of time and energy to some extent.
In fact, neither the senior officers in the Income-tax Department in capacity of Administrative Commissioners or Additional Commissioners want to give their opinion in writing. What is going on practically is the hybrid mix of the Section, whereby the assessee and practitioners are put into trouble and the Departmental senior officials are not bound by anything directed by them to their juniors, as they are neither giving anything in writing to the junior officer, nor to the assessee, who is finally becoming the victim of such wrong directions. At the same time, the senior officer in the Department is not bound by any of his directions. The present practice of monitored (!) (?) assessments is therefore wrong, impractical and hence required to be immediately changed with the use of available tool of S. 144 by the assessee as well as by the tax professionals.
I sincerely feel that the present system of monitored assessments is wrong for reasons given above. The submissions made by the assessee are, in his absence, being interpreted by the Assessing Officer to his senior authorities or the senior as per his own understanding. He may interpret the submissions made by the assessee, without going into the details of the case from the assessee or his counsel. The interpretation of the senior authorities may be different if the assessee himself or his counsel explains the fact to the authority. On explanation by the assessing officer in the absence of the assessee, the senior forms his views and gives his opinion to the Assessing Officer, who in turn raises the views of the senior before the assessee, and the assessee is required to answer the questions so raised. In this system, there is every possibility of misinterpretation of facts by the senior authority, non-consideration of an important fact by the authority while forming his opinion and dictating it to his junior Assessing Officer. Also, there is every possibility of improper representation of a case by the Assessing Officer to his senior for various reasons given above, thereby resulting in injustice.
I therefore sincerely feel that the present system of monitored assessments should be changed with the use of available tool of S. 144 by the assessee as well as by the tax professionals. But in cases having higher tax stake, points raised by the higher authorities should be heard by both the Assessing Officer and the monitoring authority simultaneously. Opinion formed by both of them after such hearing will have some sense. Otherwise, the present system of monitored assessments, without using the tool of S. 144-A, will result in assessments without doing proper justice to the assessees.
Author/s : Santosh S. Sharma, Tax Consultant