Income Tax Assessment Procedure

Assessment Procedure under Income Tax  Act, 1961

Assessment in income tax is estimation of total income and tax thereon either by assessee himself or by income tax officer. Assessment is broadly covered in following types:

(1) Self-assessment u/s 140A

Every assessee before filing income tax return under various sections viz. 139, 142(1), 148 or 153A is supposed to find whether he is liable for any tax, interest or penalty.

For this purpose section 140A has been introduced in Income tax act.

Procedure of self-assessment is as follows:

Self-assessment calculation Summary:

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.

Enquiry before assessment – secton 142

Section 142(1) – for making assessment, the assessing officer may take any / all of the following steps:

i) Notice u/s 142 (1)(i): this notice can be issued to assessee (only those who have not filed return) requiring him to furnish return when no any return has been u/s 139(1) has been filed, within the time allowed u/s 139(1) or before the end of the relevant assessment year.

ii) Notice u/s 142 (1)(ii): this notice can be issued to all assessees who filed return or not to produce or cause to be produced such accounts or documents as the assessing officer may require but shall not require the assesse to produce any accounts relating to period of more than three years prior to the previous year along with accounts of previous year under assessment.

Example: suppose assessment for AY 2018-19 is to be made then accounts for last 3 years FY 2014-15, FY 2015-16, FY 2016-17 and previous year 2017-18 may be required by officer.

iii) Notice u/s 142 (1)(iii): this notice can be issued to ay assessee who has filed a return of income of whose time to file return u/s 139(1) has been expired, to furnish, in writing and verified in prescribed manner information in such form as he may require and he may also ask for a statement of all assets and liabilities of the assessee for any number of previous year.

Enquiry from other u/s 142(2):

This section empowers assessing officer to collect information from sources other than assessee in view of the provisions of sections 131, 133(6), 142(2).

Audit of accounts u/s 142(2A) to (2D): 

The assessing officer may, at any time at any stage of the assessment, direct the assesse to get the accounts audited by a Chartered Accountant nominated by Chief Commissioner / Commissioner of Income Tax, such a decision may be taken by assessing officer, if having regard to the nature, volume, multiplicity of transactions, doubts about the correctness of accounts, specialized nature of business activity and in the interest of revenue is of opinion that it is necessary to do so.

Above direction of Audit can be given even if accounts are already audited under the income tax Act or any other law.

Audit report instructed under this notice shall be submitted in Form 6B not later than 180 days from the date of such direction.

Expenses of such Audit determined by Chief Commissioner / Commissioner shall be paid by Central Govt.

Section 142(3): The assessing officer before using such information gathered u/s 142(2) and 142(2A) for any assessment shall give an opportunity of being heard to the assessee. However no such opportunity is necessary when the assessment is made u/s 144.

Consequences of non-compliance of section 142(1) and section 142(2A):

a) best judgement assessment u/s 144

b)penalty u/s 271(1)(b) which has been fixed at Rs. 10000/-

c) prosecution u/s 276D – rigorous imprisonment up to 1 year or fine from Rs. 4 to Rs. 10 per day or both

d) issue of warrant u/s 132 for search

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

Where a return under section 139 or in response to notice under section 142 (1) is filed then u/s 143(1) this return is checked form the point of arithmetical accuracy and will not be scrutinized in detail, in following way:

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 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.

An intimation u/s 143(1) shall also be sent if loss declared is adjusted but no any tax/interest/fee/ is payable by or no refund is due to him.

No intimation u/s 143(1) shall be sent after the expiry of one year from the end of the financial year in which return is filed. In case of revised return (section 139(5)) the one year period shall be counted from end of financial year in which return was revised.

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

Scrutiny assessment u/s 143(3) is also known as regular assessment.

To initiate assessment u/s 143(3), assessing officer has to issue notice u/s 143(2), which can only be issued in case where return u/s 139 or in response to section 142(1) has been filed by the assessee. Means notice u/s 143(2) and assessment u/s 143(3) cannot be issued / done if no return is filed.

Assessing officer, u/s 143(2), if consider it necessary or expedient to ensure that –

i) the assessee has not understated the income or

ii) has not computed excessive loss or

iii) has not under paid the tax in any manner shall require assessee to attend his office to produce documents / evidences in support of return.

Note:

1. No notice u/s 143(2) shall be served on the assessee after the expiry of 6 months from the end of financial year in which return is furnished.

Example: suppose return for FY 2016-17 was filed on 30/07/2017 then notice u/s 143(2) can be issued on or before 30/09/2018

Suppose above return was revised on 24/05/2018 then notice u/s 143(2) can be issued on or before 30/09/2019.

2. Fresh notice u/s 143(2) is requied to be issued if return is revised u/s 139(5).

3. Non-compliance of notice u/s 143(2) may result in ex parte, best judgement assessment u/s 144 and may also attract penalty u/s 271(1)(b) which has been fixed at Rs. 10000/-.

Assessment u/s 143(3)

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 A.Y. 2019-20) from the end of relevant Assessment Year.

Example: Last date for assessment order u/s 143(2):

for FY 2015 -16 (AY 2016-17) – 31^st Dec. 2018

for FY 2016 -17 (AY 2017-18) – 31^st Dec. 2019

for FY 2017 -18 (AY 2018-19) – 30^th Sep. 2020

for FY 2018 -19 (AY 2019-20) – 31^st Mar. 2021

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 A.Y. 2019-20) from the end of relevant Assessment Year.

(4) Best judgment assessment u/s 144

Where any person —

(a) fails to make the return required u/s 139 (1) / 139(4) or 139(5) depending upon circumstances, or

(b) fails to comply with

(i) all the terms of a notice issued u/s 142(1) or

(ii) directions issued under sub-section (2A) of that section], or

(c) 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 he has gathered, shall, after giving the assessee an opportunity of being heard (not necessary in case where notice u/s 142(1) is already served), 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.

Note: The assessing officer under this section cannot assess income below the returned income or cannot assess the loss higher than the returned income.

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.

Example: Last date for assessment order u/s 143(2):
for FY 2015 -16 (AY 2016-17) – 31^st Dec. 2018
for FY 2016 -17 (AY 2017-18) – 31^st Dec. 2019
for FY 2017 -18 (AY 2018-19) – 30^th Sep. 2020
for FY 2018 -19 (AY 2019-20) – 31^st Mar. 2021

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 A.Y. 2019-20) from the end of relevant Assessment Year.

(5) Protective Assessment

Sometimes it may happens that one particular income is assessed in one more than one hand i.e. one assessing officer is treating the some income in the hands of ‘A’ and same income might be treated in the hands of ‘B’ by some different assessing officer. And some time same officer may assess the same income in the hands of one person and also in the hands of a firm / family also.

It has been held by the Supreme Court in Lalji Haridas v. ITO, (43 ITR 387), that the officer may, when in doubt, to safeguard the interest of revenue, assess it in more than one hand. But this procedure is allowed at the level of assessment only and at higher level it is possible to give clear findings as who is really liable to be assessed leaving the one and in such case department should provide relief suo motu to one of them. (ITO vs. Bachu lal kapoor (1966) 60 ITR 74 (SC))

(6) Income escaping assessment u/s 147

Subject to provisions of section 148 to 153, if any assessing officer believes that any income, chargeable to tax, has escaped assessment for any assessment year, he may:

a) assess or reassess such income which has escaped assessment;

b) recompute the loss or depreciation allowance or any other allowance as the case may be, for the assessment year concerned i.e. the relevant assessment year

Deemed cases of escapement:

a) where no return has been filed and no assessment is done but his total income or total income of any other person in respect of which he is assessable, exceeds the maximum amount which is not chargeable to tax

b) where a return of income filed but no assessment is done and assessing officer noticed understatement of income or excessive claim of loss, deduction, allowance or relief etc.

c)  where assessee fails to report international transactions u/s 92E

d) where assessment u/s 143(3) / 144 has been made but income chargeable to tax:

(i) has been under assessed; or

(ii) has been assessed at low rate; or

(iii)has been assessed with excessive relief; or

(iv) excessive loss or depreciation or other allowance has been computed

Note: if any case is pending under appeal / revision then that case cannot be opened under section 147.

Notice u/s 148 (1)

Before making any assessment u/s 147, the assessing officer shall serve on the assesse a notice requiring him to furnish a return of his income or income of any other person in respect of which he is assessable during the previous year corresponding to the relevant assessment year with in such period as may be specified in the notice.

Note:

i) even though notice u/s 139 or 142(1) have been issued, then also notice under section 148 is must.

ii) return filed in response to notice u/s 148 (1) shall be treated as if the same is filed u/s 139 and for making assessment u/s 147 read with section 143(3), assessing officer is required to issue notice u/s 143(2) within a period of 6 months from the end of financial year in which such return is filed by the assessee.

iii) As per section 148(2), assessing officer is required to record the reasons for issuing notice u/s 148(1).

iv) However as per explanation 3 to section 147, reassessment can be done for an issue which is not already recorded.

v) Separate notice u/s 148(1) is required for each assessment year for which income has escaped.

Time limit and sanctions for issue of notice – section 149 /151

As per section 149(1) notice u/s 148(1) can be issued only –

a) within 4 years from the end of the relevant assessment year for any income escaping assessment’ or

Example: for FY 2015 -16 notice u/s 148(1) can be issued on or before 31^st March 2021.

b) within 6 years from the end of the relevant assessment in cases where the amount of income escaping assessment is likely to be Rs. 1,00,000/- or more for that year, or

c) within 16 years from the end of the relevant assessment year if the income in relation to any asset (including financial interest in any asset) located outside India, chargeable to tax, has escaped assessment.

In clause b) and c) above notice can be issued only after getting sanction from Principle Chief Commissioner or Chief Commissioner or Principle Commissioner or Commissioner.

Proviso to section 147

Where an assessment u/s 143(3) or 147 has already been made for relevant assessment year no any action u/s 147 is possible after expiry of 4 year as mentioned in clause b) and c) above, unless any income chargeable to tax has escaped assessment by reason of the failure on the part of assessee. However above proviso do not apply in relation to income from asset located outside India.

No time limit for issue of notice u/s 148 (1) in following situation:

If the notice u/s 148(1) is required to be issued to give effect to any finding or direction contained in a passed by:

i) By any authority in any proceeding under this Act by way appeal or revision

ii) By a Court / Supreme Court / High Court

iii) CIT Appeal u/s 250, ITAT u/s 254, Commission u/s 263 or 264 of Income Tax Act

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