Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing up his return of income. Once the return of income is filed up by the taxpayer, the next step is the processing of the return of income by the Income Tax Department. The Income Tax Department examines the return of income for its correctness. The process of examining the return of income by the Income Tax department is called as “Assessment”. Assessment also includes re-assessment and best judgment assessment under section 144.

Under the Income-tax Law, there are four major assessments given below:

  • Assessment under section 143(1), i.e., Summary assessment without calling the assesse.
  • Assessment under section 143(3), i.e., Scrutiny assessment.
  • Assessment under section 144, i.e., Best judgment assessment.
  • Assessment under section 147, i.e., Income escaping assessment.

Further the assessment may run for several years and/or at may be in litigation at various levels of hierarchy of the department.

In the course of Income tax Assessment proceedings for a company which covers several years, there are circumstances where there is substantial demand levied or substantial refund at the credit. The refunds so receivable are adjusted by the income tax department towards the demand until finality of the assessment. There may be instances where the matter is pending with the CIT (appeals) ,the Income Tax Appellate Tribunal or high court.

In such scenario, Income Tax Refunds and Demands are adjusted over several years at several different dates as per the updation with the Department.

In order to keep track of the adjustments and determine the correct amount of tax payable / refundable, it is very important for the company to keep high level of organized documentation.

The company need to develop systems and procedures to keep the trail of the tax movements.

Proper documentation can be developed using the following practices:

  • Separate filing for every assessment year – usually the files turn to big piles of papers and runs overs several files;
  • Consequential numbering and indexing of the files for every year;
  • Separate filing for submissions to each authority ;
  • All important and key orders to be additionally compiled in another file  can be referred to as “MASTER FILE”,this is particularly important when the orders / adjustments affect more than one year;
  • Effective maintenance of the MASTER FILE and analysis by professional taxation experts will refine the transparency and clarity of the Income tax Status.

The systematization and organization of the files and updating the same in core documents helps analysis and is a very effective and reliable tool for the management of the company to determine the correct tax effects to the company. Its saves on the time of the management and training cost. It demonstrates professionalism, proper integration and timely action.

The refinement helps to avoid delays, condonation of matters and thus helps to expedite the judiciary systems that is already overburdened with pending cases running over several years.

Further, it also helps the auditors of the company at the time of finalization of the audit and give a true and fair view on the books of accounts of the company. It also enhances the reliability of the internal financial controls of the company.

Conclusion: Documentation can play a pivotal role in ensuring correct tax impact. It reduces great amount of time and energy of the company, advisors, auditors and most importantly the judiciary system.

The views expressed in this article are personal.

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Qualification: CA in Practice
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Location: Mumbai, Maharashtra, IN
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