Income tax Assessment Procedure in Nutshell

CA Abhijit Sawarkar

Income tax assessment is estimation for an amount assessed while paying Income Tax by assessee himself or by income tax officer. Following types of assessment are carried out under Income tax act. We will discuss each type of assessment in detailed in this article.

(i) Self assessment u/s 140A.

(ii) Summary Assessment u/s 143(1)

(iii) Scrutiny assessment u/s 143(3).

(iv) Best judgment assessment u/s 144.

(v) Protective Assessment.

(vi)  Income escaping assessment u/s 147.

(vii) Assessment in case of search u/s 153A

For making assessment under these various provisions of the act, some compliance is mandatory to assessing officer:

Particulars	Mandatory Requirements
Self assessment u/s 140A.	–
Scrutiny assessment u/s 143(3).	Section 143(2) Notice
Best judgment assessment u/s 144.	Show cause notice u/s 144
Protective Assessment	–
Income escaping assessment u/s 147.	Section 148 Notice
Assessment in case of search u/s 153A	Section 153A

 Self Assessment u/s 140A

Before submitting returns assessee is supposed to find whether he is liable for any tax or interest. For this purpose this section has been introduced in Income tax act.

Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or section 148 or section 153A, after deducting:

1. Advance tax Paid, if any
2. TDS/TCS
3. Relief under section 90, 91 & 90A
4. MAT credit under 115JAA or 115JD

Then assessee shall pay tax & interest and fee before furnishing return and proof of such payment will be accompanied with return of income.

Self assessment calculation Summary:

	Particulars	Amount
	Income tax + Edu. Cess +Surcharge if any	Xxx
Add	Interest u/s 234A, 234B, 234C	Xxx
Less	TDS/TCS	Xxx
Less	Advance tax Paid, if any	Xxx
Less	Relief under section 90, 91 & 90A	Xxx
Less	MAT credit under 115JAA or 115JD	Xxx
	Amount Payable by way of Self Assessment u/s 140A	xxx

 If any amount is payable under section 140A then amount so paid shall be adjusted against interest payable first and then balance amount to be adjusted toward tax payable.

Summary Assessment u/s 143(1)

“Summary Assessment”, it is not an actual assessment. Under this section, the Return of Income filed by assessee will not be scrutinized, however whatever, is claimed by assessee in his ROI will be accepted by assessing officer after only confirming arithmetical accuracy.

1. the total income or loss shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the return; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;

(iv)  disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return. However no adjustment shall be made under this  in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018

However no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

The response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made.

2 .the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a);

3. the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax and interest and fee, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest and fee;

4. an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

5. the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

Scrutiny assessment u/s 143(3).

 Scrutiny assessments are popularly known as regular assessment.

1. On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.

2. No order of assessment/ reassessment under section 143(3) shall be made after the expiry of 21 months(18 months for A.y 2018-19 and 12 months wef wef A.y 2019-20) from the end of relevant Assessment Year.

3.Where a reference has been made to Transfer Pricing Officer to determine Arm’s Length Price, then no order of assessment/ reassessment under section 143(3) shall be made after the expiry of 33 months(30 months for A.y 2018-19 and 24 months wef wef A.y 2019-20) from the end of relevant Assessment Year.

What if Analysis of Section 143(2) and 143(3)?

What if –	Answer
What if assessee has not filed Return of Income?	Notice under section 143(2) can not issue therefore assessment under 143(3) not possible.
What if notice under section 143(2) not issued?	Assessment is Void
What if Notice is served after the expiry of six months from the end of the financial year in which the return is furnished.	Assessment is Void
What if, Assessing officer reduce income below returned income?	Yes AO can reduced below returned income, as per CBDT clarification
What if assessee claims certain deduction through letter to Assessing officer during assessment?	No request will be entertain unless return has been revised

Best judgment assessment u/s 144.

If any person—

(a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or

(b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section], or

(c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143,

the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment :

Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment :

Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.

(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.

(3)  No order of assessment/ reassessment under section 144 shall be made after the expiry of 21 months(18 months for A.y 2018-19 and 12 months  wef A.y 2019-20) from the end of relevant Assessment Year

(4)  Where a reference has been made to Transfer Pricing Officer to determine Arm’s Length Price, then no order of assessment/reassessment under section 144 shall be made after the expiry of 33 months(30 months for A.y 2018-19 and 24 months wef wef A.y 2019-20) from the end of relevant Assessment Year.

What if Analysis of Section 144 –

What if –	Answer
What if Assessing Officer has not provided opportunity of being heard by servicing notice?	Assessment is Void
What if Assessing Officer has not provided opportunity of being heard by servicing notice but notice under 142(1) (i) is already issued?	Assessment is Valid
What if, Assessing officer (AO) reduces income below returned income?	AO can not reduce income.
What if, assessment is done in an arbitrary manner?	Assessment is Void. Assessment should be based on material which AO collects.
What if, assessment carried out after 2 years of completion of assessment year	Assessment is Void

Protective Assessment.

There appears to be no provision in the Act providing for the manner in which a protective assessment has to be done. But traditionally wherever the department has been in doubt on ac­count of a pending litigation as to how exactly an assessment had been framed against the assessee, the Assessing Officer has been making an assessment in a manner in which he thought the assess­ment should be done and apprehending that such assessment may be set aside in the pending litigation, he would make another as­sessment as per the stand of the assessee for the purpose of protecting the interest of the revenue. There is no provision anywhere in the Act stipulating that such protective assessment has also to be made along with the original assessment – Bhatia Motor Stores  v. CIT [2006] 152 Taxman 89 (MP). Certain case laws based on protective assessments are Supreme Court in Lalji Haridas v. ITO, (43 ITR 387) also G. Topi Saheb vs Commissioner of Income-Tax (170 ITR 181 AP).

We will discuss Income escaping assessment u/s 147 & Assessment in case of search u/s 153A in details in second part of this article. You can send any queries on this article in comment column or mail me at abhijit.sawarkar@gmail.com.

Also Read:

Assessment or Reassessment Notice U/s 148

Re-assessment Procedure under Section 147 of Income Tax Act, 1961

(Republished With Amendments)