FAQs on Assessments under Income-tax Law

Ans: ​​​​​​As per section 144, the Assessing Officer is under an obligation to make an assessment to the best of his judgment in the following cases:

• If the taxpayer fails to file the return of income as required within the due date prescribed under section 139(1) or a belated return under section 139(4) or a revised return under section 139(5).
• If the taxpayer fails to comply with all the terms of a notice issued under section 142(1).Note: section 142(1) deals with the general provisions relating to an inquiry before assessment. Under section 142(1), the Assessing Officer can issue notice asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the taxpayer, whether included in the accounts or not) as he may require.

If the taxpayer fails to comply with the directions issued under section 142(2A).

Note: Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get his

• ​​Accounts audited from a chartered accountant;
• ​Inventory valued by a Cost accountant​

nominated by the principal chief commissioner or Chief Commissioner or Principal Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.

If after filing the return of income, the taxpayer fails to comply with all the terms of a notice issued under section 143(2)​, i.e., notice of scrutiny assessment.

From the above criteria, it can be observed that best judgment assessment is resorted in cases where the return of income is not filed by the taxpayer or there is no co-operation by the taxpayer on various matters.​

Q12. What is the procedure adopted for making the assessment under section 144 i.e. best judgment assessment?

Ans: ​​​​​​Assessment under section 144 (called best judgment assessment) is an assessment carried out as per the best judgment of the Assessing Officer. The other procedures in this regard are as follows:

• If the circumstances justifying best judgment assessment (discussed in previous FAQ) are satisfied, then the Assessing Officer will serve a notice on the taxpayer to show cause why the assessment should not be completed to the best of his judgment.
• No notice as given above is required in a case where a notice under section 142(1)​ has been issued prior to the making of an assessment under section 144.
• If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has reason to believe that the case demands a best judgment, then he will proceed to carry out the assessment as per best of his knowledge.
• If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant material which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the taxpayer on the basis of such assessment.​

Q13. What is the time limit for making the assessment under section 144 i.e. best judgment assessment?

​​​​​​​​Ans: As per section​ 15​3, the time limit for making assessment under section 144 is:-

1. Within 21 months from the end of the assessment year in which the income was first assessable. [For assessment year 2017-18 or before]

2. 18 months from the end of the assessment year in which the income was first assessable. [for assessment year 2018-19]

3. 12 months from the end of the assessment year in which the income was first assessable [Assessment year 2019-20 and onwards]

Note: If reference is made to TPO, the period available for assessment shall be extended by 12 months

Q14. What is assessment under section 147?

​​​​​​​​Ans: ​This is an income escaping assessment. This assessment is carried out if the Assessing Officer observes that any income has escaped assessment.

Q15. What are the circumstances under which assessment under section 147 i.e. income escaping assessment can be carried out?

​​​​​​​​Ans: ​ ​​If any income of an assessee has escaped assessment for any assessment year, the Assessing Officer may, subject to the new provisions of sections 148 to 153, assess or reassess such income and also any other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for such assessment year.

It is imperative to note that once assessment or reassessment or re-computation has started, the Assessing Officer is empowered to assess or reassess the income which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under this procedure notwithstanding that the procedure prescribed in new section 148A was not followed before issuing such notice for such income.

Q16. What is the procedure adopted for making the assessment under section 147 i.e. income escaping assessment?

​​​​​​​​​​Ans: The Assessing Officer is required to make an assessment or re-assessment as per the following procedures:

Issue of Notice

The Assessing Officer shall serve on the assessee a notice under Section 148 along with a copy of the order passed under clause (d) of Section 148A, requiring him to furnish return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year. The return shall be furnished within 3 months from the end of the month in which such notice is issued. This period of 3 months can be extended by AO.​

The notice shall be issued in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of Income-tax Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.

Circumstances in which notice can be issued

Notice is required to be issued only when information with the Assessing officer suggests that the income chargeable to tax has escaped assessment. Prior approval of specified authority is also required to be obtained befo​re issuing such notice by the Assessing Officer.

However, no such prior approval is required if the Assessing Officer has passed an order under Section 148A(d) with prior approval of the specified authority stating that the income is escaping assessment.

Q17. What is the time limit for making the assessment under section 147 i.e. income escaping assessment?

Ans: ​​​​​​​As per section 153, the time limit for making assessment under section 147 is:-

1. Within 9 months from the end of the financial year in which the notice under section 148 was served (if notice is served before 01-04-2019).

2. 12 months from the end of the financial year in which notice under section 148 is served (if notice is served on or after 01-04-2019).

Note: If reference is made to TPO, the period available for assessment shall be extended by 12 months

Q18. What recourse is available to me if I am not satisfied with the order passed by my Assessing Officer?

Ans: If you are not satisfied with the order passed by your Assessing Officer then you can file an appeal to the higher authority. The first appellate authority is the Commissioner (Appeals). Subsequently, the matter can be taken to the Income-tax Appellate Tribunal, then to the High Court and the Supreme Court.

Alternatively, instead of going for the appeal mechanism, you can make an application of revision to the Commissioner of Income-tax.​

Form No. 35 .In case of appeals to Commissioner (Appeals) (irrespective of date of initiation of assessment proceedings) the following fee is payable :

Where assessed income is Rs. 1,00,000 or less – Rs. 250.

Where assessed income is more than Rs. 1,00,000 but not more than Rs. 2,00,000 – Rs. 500.

Where assessed income is more than Rs. 2,00,000 – Rs. 1,000.

Where subject-matter of appeal is not covered under any of the above – Rs. 250.​

Q19. How to file response to notice issued under section 143(2)?

Ans: ​​​​​If a return has been furnished under section 139 or in response to notice under section 142(1), the Assessing Officer or the prescribed income tax authority, as the case may be, if, considers it necessary to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve a notice on the assessee requiring him on a date specified in the notice, either to attend the office of the Assessing Officer or to produce before the Assessing Officer any evidence on which the assessee may rely in support of the return.

Provided that no  notice under this sub section shall be served on the assessee after the expiry of 6 months from the end of the financial year in which the return is furnished.

Q20. When it shall be deemed that Income has escaped Assessment?

Ans: ​​In cases other than Search, Survey or Requisition

The information suggesting that the income chargeable to tax has escaped assessment means any information flagged in the case of the assessee for the relevant assessment year as per the ‘Risk Management Strategy’ formulated by the CBDT from time to time or any final objection raised by the Comptroller and Auditor General of India (CAG) to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made as per the provisions of the Income-tax Act.

• In search, survey or requisition cases

In search, survey or requisition cases initiated or made or conducted, on or after 1st April 2021, it shall be deemed that the Assessing Officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the 3 assessment years immediately preceding the assessment year relevant to the previous year in the following cases:

(a) A search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April 2021, in the case of the assessee;

(b) A Survey is conducted under section 133A in the case of the assessee;

(c) The Assessing Officer is satisfied, with the prior approval of PCIT or CIT, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned in case of any other person on or after the 1st day of April 2021, belongs to the assessee; or

(d) The Assessing Officer is satisfied, with the prior approval of PCIT or CIT, that any books of account or documents, seized or requisitioned in case of any other person on or after the 1st day of April 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.

Procedure before Issuance of Notice

The Assessing Officer shall be required to follow the below procedure as laid down in Section 148A before issuing a notice under new section 148 in cases other than search, survey or requisition.

• Conducting Inquiry

The Assessing Officer shall conduct an enquiry, if required, with the prior approval of specified authority, concerning the information which suggests that income chargeable to tax has escaped assessment.

•  Granting an opportunity of being heard

The Assessing Officer shall provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than 7 days but not exceeding 30 days from the date on which such notice is issued, or such time, as may be extended by him based on an application in this behalf, as to why a notice under new section 148 should not be issued based on information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of an enquiry conducted, if any.

• Consider Reply of Assessee The Assessing Officer shall consider the reply furnished by the assessee furnished, if any, in response to the show-cause notice issued by AO.
• Passing an Order

The Assessing Officer shall decide, based on material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under new section 148, by passing an order, with the prior approval of specified authority, within 1 month from the end of the month in which the reply of the assessee is received by him, or where no such reply is furnished, within 1 month from the end of the month in which time or extended time allowed to furnish a reply expires.

Approval of higher authorities to be obtained in Search, Survey and Requisition Cases

The Finance Act, 2022 has inserted a new section 148B, w.e.f., Assessment Year 2022-23, to provide that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section​n 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.

The above mentioned four clauses of Explanation 2 to section 148 provide cases of deemed information. If situations, circumstances, or actions as described in these 4 clauses exist, then it will be a case of deemed information, and the AO can acquire jurisdiction to issue a notice under section 148.

Q21. What is the time limit for issuing notice under section 148 i.e. income escaping assessment?

​​Ans: Time limit for issuance of notice under Section 148 of the Income-tax Act:

Note:

1. Notice under  Section 148 of the Income-tax Act cannot be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April 2021, if a notice under  Section 148,  Section 153A,  Section 153C couldn’t have been issued at that time on account of being beyond the time limit specified under the provisions  Section 149(1)(b) or  Section 153A or  Section 153C, as it stood immediately before the amendment of the Finance Act, 2021.

2. The Finance Act 2023 has inserted a third and fourth proviso to Section 149(1) to provide that 15 days will be excluded while computing the limitation period.

​​​​​a. As per third proviso, 15 days will be excluded while computing the limitation period under Section 149 for the issue of notice under Section 148 if the following conditions are satisfied:

​i. A search is initiated, the last warrant is executed, or requisition is made after 15th March of the financial year; and
ii. Notice under section 148 is required to be issued for an assessment year on or before 31st March of that financial year.

1. As per fourth provis​​o, 15 days will be excluded while computing the limitation period undersection 149 for the issue of notice under section 148A(b) if the following conditions are satisfied:

2. The information received by the AO emanates from a statement recorded or documents impounded under summons or survey, as the case may be, on or before 31st March of the financial year; and
It should be in consequence of a search initiated, the last warrant executed, or requisition ii. made after 15th March of that financial year.

If the above conditions are satisfied, the notice so issued under Section 148/ Section 148A(b) shall be deemed to have been issued on 31st March of such financial year.

​3. To compute the period of limitation for issuance of notice under new  Section 148, the time or extended time allowed to the assessee in providing an opportunity of being heard or period during which such proceedings before issuance of notice under Section 148 are stayed by an order or injunction of any court, shall be excluded. If after excluding such period, time available to the Assessing Officer for passing order, about fitness of a case for issue of  Section 148 notice, is 7 days or less, the remaining time shall be extended to 7 days.

Further, the Finance Act, 2022 has introduced sub-section (1A) to  Section 148, w.e.f., Assessment Year 2022-23, to provide that if such escaped income, represented in the form of asset or expenditure in respect of transaction, event or occasion, is spread over more than 1 year and the total escaped income in all these years is Rs. 50 lakhs or more, then AO gets jurisdiction to issue a notice under Section 148 for all those years.