Alignment of timeline provisions under section 153 of the Act – Budget 2023
Section 153 of the Act, as substituted vide Finance Act, 2016, provides for the time limit for completion of assessment, reassessment or recomputation. The sub-section (1) of the said section provides the time limit for order of assessment under section 143 or section 144 of the Act as 21 months from the end of the assessment year in which the income was first assessable. Thereafter, vide subsequent Finance Acts, this time period of 21 months was reduced to 9 months from the end of the assessment year in which the income was first assessable for assessment year 2021-22 and later assessment years. Further, vide Finance Act, 2022 sub-section (1A) was inserted in the section 153 of the Act providing that in a case where an updated return under sub-section (8A) of the section 139 of the Act has been furnished by an assessee, an order of assessment or reassessment under section 143 or section 144 of the Act may be made at any time before the expiry of 9 months from the end of the financial year in which such return was furnished.
2. Further, a notice under sub-section (2) of section 143 of the Act can be served on the assessee up to 3 months from the end of the relevant assessment year. This gives a time of 6 months to the Assessing Officer for making assessment which, inter alia, includes making investigations, giving assessees opportunities of hearing, bringing on record any material relevant to the case, analysing judicial positions of various legal matters etc. Further, with the Faceless Assessment, different aspects of the assessment are carried out by different units viz. Assessment Unit, Verification Unit, Technical Unit and Review Unit, Therefore, a lot of co-ordination is required between the different units in every single scrutiny assessment and adequate time is essential for a rational and speaking order.
3. The period of six months is, however, short to complete the entire process of assessment. As a result, taxpayers’ grievances of not being given enough time to explain themselves or provide evidences in their favour may arise. This may also compromise the dispensation of reasonableness of orders as well as natural justice to the assessees. Therefore, it has been proposed that the time available for completion of assessment relating to the assessment year commencing on or after the 1st day of April, 2022 shall be twelve months from the end of the assessment year in which the income was first assessable. Consistent with the above, the time available for completion of assessment proceedings in the case of an updated return is also proposed to be increased to 12 months from the end of the financial year in which such return is furnished.
4. Further, vide Finance Act, 2021 the section 263 of the Act was amended to enable Principal Chief Commissioner and Chief Commissioner to also pass an order of revision under the said section. However, the time line provided in section 153 of the Act under sub-sections (3), (5) and (6) to pass an order of assessment or reassessment or order under section 92CA by the Transfer Pricing Officer does not refer to the orders so passed by Principal Chief Commissioner or Chief Commissioner. Therefore, it is proposed that section 153 may be amended to provide that the provision of the said sub-section (3), (5) and (6) shall also be applicable to order under section 263 or section 264, passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.
5. It may also be noted that prior to the Finance Act, 2021 in cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, assessment was made in the case of the assessee, or any other person, in accordance with the special provisions of sections 153A, 153B and 153C of the Act that deal specifically with such cases. The section 153A of the Act provided that an assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years, as given in section 153A of the Act, and for the relevant assessment year or years pending on the date of initiation of the search under section 132 of the Act or making of requisition under section 132A of the Act, as the case may be, shall abate. The scrutiny proceedings would later on be re-opened under the provisions of section 153A of the Act, so that correct assessment of income subsequent to a search operation can logically be concluded based on the information available as a result of the search.
6. Vide Finance Act, 2021 the provisions of sections 147 of the Act and others relating to re-assessment proceedings were amended providing that search assessments were to be carried out under the provisions of section 147 of the Act. However, the current provisions of the Act relating to reassessment do not provide for abatement or revival of any assessment or reassessment proceedings pending on the date of search under section 132 of the Act or requisition under section 132A of the Act. As a result, the information available in a search, which has a bearing on the pending scrutiny proceedings may not be effectively used due to the limitation of such proceedings.
7. Further, even if the last of the authorizations have been executed in the relevant search case, the seized material etc. are transferred to the Assessing Officer only after some time owing to the pre-assessment processing of such material and data. Further, the Assessing Officer also needs to carry out investigation and gather evidence to compute the income of the assessee as a result of the search or requisition proceedings. Therefore, there is a need to amend the provisions of the Act so as to allow the Assessing Officer to conduct proper scrutiny of the case on the basis of seized material and investigation made and align the dates of limitation for completion reassessment proceedings for all the assessment years under scrutiny consequent to a search under section 132 or requisition under section 132A of the Act.
8. In view of the above, it is proposed that a new sub-section (3A) may be inserted in section 153 of the Act to provide that where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (1A), (2) and (3) of the said section shall be extended by twelve months in a case of an assessee where such search is initiated under section 132 or such requisition is made under section 132A or in the case of an assessee to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or in the case of an assessee to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to.
9. Furthermore, consequent to the introduction of sub-section (1A) of section 153 of the Act vide Finance Act, 2022, it is proposed to insert the reference to sub-section (1A) in sub-sections (3), (4), (6) as well as in the first proviso to Explanation 1 of section 153.
5. These amendments will take effect from the 1st day of April, 2023.
[Clause 72]
Extract of relevant clause of Finance Bill 2023
Clause 72 of the Bill seeks to amend the section 153 of the Income-tax Act relating to time limit for completion of assessment, reassessment and recomputation.
It is proposed to amend the third proviso to sub-section (1) to provide that the period of nine months specified therein to pass an order of assessment shall be applicable only to the assessment year commencing on 1st April, 2021.
It is further proposed to insert a new proviso, so that an order of assessment relating to the assessment year commencing on or after 1st April, 2022 shall be passed within twelve months from the end of the assessment year in which the income was first assessable.
It is also proposed to increase the said time limit to pass an order of assessment from nine months to twelve months from the end of the financial year in which return under subsection (8A) of section 139 was furnished.
It is also proposed to amend sub-section (3) of the said section to provide that the provisions of the said sub-section shall also be applicable to order under section 263 or section 264, passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.
It is also proposed to insert a new sub-section (3A) in the said section to provide that notwithstanding anything contained in sub-sections (1), (1A), (2) and (3) of the said section, where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (1A), (2) and (3) of the said section shall be extended by twelve months in a case where such search is initiated under section 132 or such requisition is made under section 132A or in the case of an assessee to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to or in the case of an assessee to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to.
It is also proposed to amend sub-section (4) of the said section to provide that the provisions thereof shall also be applicable to cases covered by sub-sections (1A) and (3A) of section 153 of the Act.
It is also proposed to amend sub-section (5) of the said section to provide that the provision of the said sub-section shall also be applicable to an order under section 263 or section 264 passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.
It is also proposed to amend sub-section (6) of the said section to provide that nothing contained in sub-section (1A) shall also apply to the classes of assessments, reassessments and recomputation mentioned therein.
Clause (i) of the sub-section (6) of the said section provides that where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, section 254, section 260, section 262, section 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act, such assessment, reassessment or recomputation shall be completed on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner, as the case may be.
It is also proposed to amend the said sub-section to provide that provisions of the said sub-section shall also be applicable to an order under section 263 passed by the Principal Chief Commissioner or Chief Commissioner.
It is also proposed to amend the first proviso to Explanation 1 of the said section so as to also make it available to the period of limitation mentioned in sub-section (1A) of the said section.
These amendments will take effect from 1st April, 2023.
It is also proposed to amend clause (iv) of Explanation 1 to the said section, so as to exclude the period for inventory valuation through the cost accountant for the purposes of computation of time limit.
This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
72. Amendment of section 153.
In section 153 of the Income-tax Act,–
(I) in sub-section (1),–
(a) in the third proviso, the words “or after” shall be omitted;
(b) after the third proviso, the following proviso shall be inserted, namely:–
“Provided also that in respect of an order of assessment relating to the assessment year commencing on or after the 1st day of April, 2022, the provisions of this sub-section shall have effect, as if for the words “twenty-one months”, the words “twelve months” had been substituted.”;
(II) in sub-section (1A), for the words “nine months”, the words “twelve months” shall be substituted;
(III) in sub-section (3),–
(a) for the words, brackets and figures “sub-sections (1) and (2)”, the words, brackets, figures and letter “subsections (1), (1A) and (2)” shall be substituted;
(b) for the words “Principal Commissioner or Commissioner” at both the places where they occur, the words “Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be,” shall be substituted;
(IV) after sub-section (3), the following sub-section shall be inserted, namely:–
“(3A) Notwithstanding anything contained in subsections (1), (1A), (2) and (3), where an assessment or reassessment is pending on the date of initiation of search under section 132 or making of requisition under section 132A, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections shall,–
(a) in a case where such search is initiated under section 132 or such requisition is made under section 132A;
(b) in the case of an assessee, to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to;
(c) in the case of an assessee, to whom any books of account or documents seized or requisitioned pertains or pertain to, or any information contained therein, relates to,
be extended by twelve months.”;
(V) in sub-section (4), for the words, brackets and figures “sub-sections (1), (2) and (3)” at both the places where they occur, the words, brackets, figures and letters “sub-sections (1), (1A), (2), (3) and (3A)” shall be substituted;
(VI) in sub-section (5), for the words “the Principal Commissioner or Commissioner”, the words “the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be,” shall be substituted;
(VII) in sub-section (6),–
(a) in the opening portion, for the words, brackets and figures “sub-sections (1) and (2)”, the words, brackets, figures and letter “sub-sections (1), (1A) and (2)” shall be substituted;
(b) in clause (i), after the words “passed by the”, the words “Principal Chief Commissioner or Chief Commissioner or” shall be inserted;
(VIII) in Explanation 1,–
(a) in clause (iv),–
(i) in the opening portion, after the word “audited”, the words “or inventory valued” shall be inserted;
(ii) in sub-clause (a), after the words “such audit”, the words “or inventory valuation” shall be inserted;
(b) in the first proviso, for the words, brackets and figures “sub-sections (1), (2)”, the words, brackets, figures and letter “sub-sections (1), (1A), (2)” shall be substituted.
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