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. Many taxpayers have lot of confusion regarding various types of assessments, time limits also when which assessment is applicable etc. Hence today I am writing this detailed article on Types of assessment and will also discussed the most debatable assessment i.e. Best Judgement Assessment in detail at the end of the article.
The assessee is required to make a self assessment and pay the tax on the basis of the returns furnished. Any tax paid by the assessee under self assessment is deemed to have been paid towards regular assessment. This type of Income Tax Assessment is the one in which the assessee calculate the tax by himself, usually to accompany his calculation with payment of the amount he regards as due.
Assessment under section 143(1) is like preliminary checking of the return of income. At this stage no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is computed after making the following adjustments (if any), namely:-
1. any arithmetical error in the return; or
2. an incorrect claim (*), if such incorrect claim is apparent from any information in the return;
3. 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 section 139(1); or
4. disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; or
5. disallowance of deduction claimed u/s 10AA, 80IA to 80-IE, if the return is furnished beyond the due date specified under section 139(1); or
6. 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 such adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter.
However, no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Assessment under section 143(1) can be made within a period of one year from the end of the financial year in which the return of income is filed.
The objective of scrutiny assessment is to confirm that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.
To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of income and will satisfy himself regarding various claims, deductions, etc., made by the taxpayer in the return of income.
As per Section 153, the time limit for making assessment under section 143(3) is 12 months from the end of the assessment year in which the income was first assessable [Assessment year 2019-20 and onwards]
The Finance Act, 2018 has inserted a new sub-section (3A) in Section 143 that the Central Govt. may make a scheme for the purpose of making assessment so as to impart greater efficiency, transparency and accountability by:
1. Eliminating the interface between the Assessing Officer and the assessee in the course of proceeding to the extent technologically feasible;
2. Optimising utilization of the resources through economies of scale and functional specialization;
3. Introducing a team-based assessment with dynamic jurisdiction.
As part of e-governance initiative to facilitate conduct of assessment proceedings electronically, Income-tax Dept. has launched ‘E-Proceeding’ facility. Under this initiative, CBDT has made it mandatory for the tax officers to take recourse of electronic communications for all limited and complete scrutiny. The CBDT had issued the instructions and notice formats for conducting scrutiny assessments electronically. As per the instruction, except search related assessments, all scrutiny assessments shall be conducted only through the ‘E-Proceeding’ functionality available at e-filing website of Income-tax Dept.
This assessment is carried out if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year
In the following cases, it will be considered as income having escaped assessment:
1. Where no return of income has been furnished by the taxpayer, although his total income or the total income of any other person in respect of which he is assessable during the previous year exceeded the maximum amount which is not chargeable to income-tax
2. Where a return of income has been furnished by the taxpayer but no assessment has been made and it is noticed by the Assessing Officer that the taxpayer has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.
3. Where the taxpayer has failed to furnish a report in respect of any international transaction which he was required to do under section 92E.
4. Where an assessment has been made, but:
a) income chargeable to tax has been under assessed; or
b) income has been assessed at low rate; or
c) income has been made the subject of excessive relief; or
d) excessive loss or depreciation allowance or any other allowance has been computed
5. Where a person is found to have any asset (including financial interest in any entity) located outside India
6. Where a return of income has not been furnished by the assesse and on the basis of information or document received from the prescribed income-tax authority under section 133C(2), it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax.
7. Where a return of income has been furnished by the assessee and on the basis of information or document received from the prescribed income-tax authority under section 133C(2), it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.
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).
Where it is not clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.
In a best judgement assessment the assessing officer should really base the assessment on his best judgement i.e. he must not act dishonestly or vindictively or capriciously. There are two types of judgement assessment :
Compulsory best judgement assessment made by the assessing officer in cases of non-co-operation on the part of the assessee or when the assessee is in default as regards supplying informations.
Discretionary best judgement assessment is done even in cases where the assessing officer is not satisfied about the correctness or the completeness of the accounts of the assessee or where no method of accounting has been regularly and consistently employed by the assessee
Judgment is a process of reaching a judicial decision to the best of the reasons. Best Judgement Assessment u/s 144 of the Income Tax Act, 1961 gives an Assessing Officer (AO) the power to make best of his judgement against a person who fails to supply relevant information with regard to his total income/loss and resolve the sum payable by the assessee on the basis of such assessment.
There are four circumstances for making a Best Judgement Assessment which was rendered in the context of 1922 Act, and has also been held in the context of 1961 Act.
Firstly, An Assessee is required to furnish his return of income u/s 139(1) where his taxable income exceeds the limit prescribed for the relevant Assessment Year, within the due date as mentioned in the section. If the return is not filed as per Section 139(1), the assessee can file his Belated Return u/s 139(4) within the end of the relevant Assessment Year and if the assessee finds that there exists any mistake or omission in the return, the original return can be revised within one year from the end of the relevant Assessment Year. If the assessee fails to submit his return in all the three circumstances mentioned above, the AO is required to make assessment to the best of his judgement.
Secondly, the AO can serve a notice to the assessee u/s 142(1) who has not filed his return within the due date requiring him to file his return or production of accounts and documents. The AO may also issue a notice u/s 142(2A) which may require the assessee to get his accounts audited by a practicing Chartered Accountant, having regard the nature of the accounts and interest of revenue of the assessee. The default in compliance of the above two notices will result in Best Judgement Asssessment.
Thirdly, when the return is filed as per circumstance (1) and (2) and if the AO finds that the assessee has claim any expenditure which is inadmissible in nature may issue a notice u/s 143(2) stating the assessee to produce any evidence or cause to be produced on which the assessee may rely in support of the return. If the assessee fails to comply with the terms u/s 143(2) the AO may take assessment u/s 144 of the Act.
Lastly, if the AO is not satisfied with the method of accounting regularly employed by the assessee u/s 145 or the correctness or accuracy or completeness of accounts. The AO will take best of its Judgement.
These circumstances are alternative and not cumulative as upheld in the case of CIT v Segu Buchiah Setty (77 ITR 539). The assessee made a default u/s 142(1)(i) of the Income-tax Act by not filing the return pursuant to a notice thereunder, and he also did not comply with the notice u/s 142(1) of the Act for production of accounts. The Income Tax Officer (ITO) then made a best judgment assessment. It was upheld in the case that the assessee must show sufficient reasons for non-compliance with both the provisions. He cannot get the best judgment assessment order passed u/s 144 of the Act cancelled merely by showing sufficient cause only for one of the two defaults. It means even in the presence of any one or more or all conditions in a case, assessment u/s 144 will apply.
The Time Limit for the completion of Assessment u/s 144 is 12 months from the end of the assessment year in which the income was first assessable [Assessment year 2019-20 and onwards]
In case of Best Judgement the assessment has to proceed upon relevant material or data. The authority passes an order u/s 144 only on availability of certain definite data and not on the pleasure of the concerned authorities. The net taxable income arrived after the assessment should be arrived after taking into consideration all allowances and deductions permissible.
One of the consequences of Best Judgement is the refusal to register the assessee where it is a firm seeking registration or the cancellation of its registration if already granted, in any of the above four contingencies.
Remedies available to assessee against best judgement assessment:
After completion of the assessment u/s 144, the assessee has a right to appeal to the Deputy Commissioner or the Commissioner for the grant of Relief u/s 246A; however it is resorted to in rare cases, if at all. Revision of the same is available u/s 264. An assessee can ask for a fresh assessment.
An officer makes an assessment in view of his knowledge, assessee’s circumstances and other matters which helps him in arriving at a fair and proper estimate of his net taxable income. The officer makes guess work but it should be an honest guess work arrived from the available definite data. The judgement as concluded by the officer should be fair and on rational basis, without any bias or prejudice.
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(Republished with Amendments by Team Taxguru)