As, Douglas Adams said, “I love deadlines. I like the whooshing sound they make as they fly by”. Deadlines are necessary to manage our tasks efficiently both on a personal and professional level. Instead of waiting till the last minute, it’s advisable to complete the relevant job before the due date or deadline. When we apply the same concept to income tax returns, a tax payer has to prioritize this task of submitting or e-filing his returns well in advance. This is to avoid last minute delays, incorrect declarations, or missing out in filing other sources of income or any other details as part of the return.
The Income Tax Department (ITD) processes the returns submitted by the tax payer for its accuracy, genuineness etc. In case of any discrepancies, the ITD sends out various assessments under relevant sections as per the Income Tax Law through electronic mode/ physical mode to the tax payer asking for more clarifications on the Income declared, Investments, Claims, Exemptions etc. This guide outlines the various assessment under different sections.
Every year all the citizens in India are expected to submit their income tax return furnishing their income details, tax information along with the Investment details to the Income Tax Department. After the submission of IT returns, the Income Tax Department starts processing the return to check on its accuracy, which is called “Assessment”, under the Income Tax Law. As per section 144, this Assessment also includes re-assessment and best judgement assessment.
The tax payer files his/her return based on the total income earned throughout the year after calculating the tax liability along with considering the advance taxes paid by him/her. The tax paid at the time of filing the tax return by the tax payer is the self-assessment tax u/s 140A. The self-assessment tax is paid before filing his/her income tax return but after considering all the taxes paid in advance for that relevant financial year.
As per Income Tax Law there are various assessments as categorised below:
This is the first assessment that is made by the income tax department to check the income tax return at a preliminary level without contacting the Assessee (Tax Payer).
After making the below adjustments, the assessment is made to understand whether it’s an income or loss.
After checking on the above scenarios, an intimation is given to the Assessee in writing and electronic mode. The Income Tax Department will consider the response sent by the Assessee before making any adjustments. If the response is not received within 30 days, then the relevant adjustments will be made however, such adjustments are not made when there is no Intimation sent to the tax payer.
As per the Section 234F of Finance Act 2017 from FY 2017-18 (AY 2018-19) onwards, a late fee is applicable in case the return is not filed by the tax payer as per the due dates u/s 139(1) and here is the fee applicable as below:
The Assessment u/s 143 (1) is made within one year from the end of financial year in which the income tax return is filed by the tax payer.
This is also referred to as a Scrutiny assessment as a detailed examination of the return is made at this stage. The assessor will try to get a clear picture of the different deductions, exemptions or claims and the genuineness of the return filed by the tax payer.
Here the importance is laid on whether the tax payer has paid the appropriate amount of tax, declared correct income without understating it or is not showing excess losses etc. To verify these aspects, the Assessing Officer (AO) carries a detailed scrutiny on the income tax return and gets clarification if required from the tax payer against the exemptions/claims or deductions declared in the income tax return.
As per Section 153, the time limit for assessment u/s 143(3) is:
The Assessing Officer as per his/her best judgement conducts this assessment based on the documents and proofs available to him/her. This assessment is conducted by the AO when a tax payer fails to comply with the terms as per section 144.
The Assessing Officer shall make an assessment to the best of his/her judgement as per the following scenarios:
Note: The Assessing Officer can issue notice under section 142(1) asking the taxpayer to file the return of income if he/she has not filed the return of income or has to produce or cause to produce such accounts or documents as he/she may require and to furnish in writing and verify 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.
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 AO will direct the taxpayer to get his/her accounts audited by a chartered accountant referred by the Chief Commissioner or Principal Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.
As per the details above, the AO can take his/her best judgement if the tax payer has not filed the income tax return or the required information is not provided by the tax payer which is also not appropriate in terms of genuineness and completeness.
As per Section 153, the time limit for assessment u/s 144 is:
The assessment u/s 147 is carried out in case the AO believes that the income is not shown by the tax payer due to excess tax situation to be paid to the Income Tax Department.
Original assessment in this scenario u/s 147 means includes the assessment under sections 143(1), 143(3), 144 and 147 as the case may be to get the tax payer, who has evaded paying the income. Any income that is escaped in all the above sections can be brought under tax net under section 147. Below are the scenarios where the income is treated to be escaped from the assessment:
As per Section 153, the time limit for assessment u/s 144 is
Here the Assessing Officer shall:
Here the notice is issued for 6 years under section 153A where a regular return needs to be filed u/s 139.
This notice can be issued to the tax payer by the AO after taking approval from the concerned authority only.
As per the Finance Act, 2018, there is a new sub section 3(A) introduced as part of section 143 by the Central Government. This addition is to ensure there is more transparency, accuracy and efficiency by eliminating the interface between the Assessing Officer and the Assessee. Optimised utilization of resources along with technology through a team based assessment.
As part of the E-Assessments programme, the Income Tax Department has launched the “E-Proceedings” option where the tax officers conduct the assessments or scrutiny electronically. The Central Board of Direct Taxes has issued all relevant formats to conduct the scrutiny related assessments through the “E-Proceedings” option available on the Income Tax Department web site.
As we have seen various assessments taken up by the Income Tax Department, it’s always good practice to file correct and genuine income tax returns before the due date every year. Ensure to safeguard the relevant proofs towards the claims or deductions for future reference. All the assessments should be taken on priority and submit relevant response by the tax payer to avoid any interest or penalty.
For any kind of assistance related to income tax notice and scrutiny communication received from the Income Tax Department, consult our tax experts at H&R Block India