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Various Assessments under IT Law

Various Assessments Under Income Tax Law

Last Update Date : October 05, 2018

Various Assessments under IT Law

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.

What is Income Tax Assessment?

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.

Few Common Terms

  1. Self-Assessment – Self-assessment is when an assessee, calculates the total tax liability after considering his/her income, investments, advance taxes paid. Here the tax paid by the assessee under his/her self-assessment category is deemed to paid under regular assessment category.
  2. Regular Assessment – An intimation is sent to the tax payer on the status of whether its tax payable, interest payable or refund that would apply to him/her.
  3. Best Judgement Assessment – The Assessing Officer arrives at the best judgement with honesty and impartially abiding by the Income Tax Law. There are two types of assessments here: Compulsory best judgement assessment and Discretionary best judgement assessment.
    • Compulsory best judgement assessment shall be made by the Assessing Officer where there is no co-operation received from the tax payer or doesn’t provide the required information against the intimation sent to him.
    • Discretionary best judgement assessment is made when the tax payer doesn’t follow a method in maintaining account books or in case the Assessing Officer is not convinced by the correctness or genuineness of the accounts or information provided by the tax payer.
  4. Income Escaping Assessment or Re-Assessment – If the Assessing Officer deduces the tax payer has evaded tax that was supposed to be paid to the Income Tax Department, then this assessment is carried out. It is also applicable if any income from other sources is escaped by not declaring it in the income tax return.
  5. Precautionary Assessment – This assessment is applicable under situations where there is no clarity on who received the income. To ensure the tax is paid by the same tax payer, the Assessing Officer can commence the proceedings to find out who is responsible to pay the taxes to the Income Tax Department.

What is Self-assessment under section 140A?

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.

Types of Assessments

As per Income Tax Law there are various assessments as categorised below:

  1. Assessment under section 143 (1)
  2. Assessment under section 143 (3)
  3. Assessment under section 144
  4. Assessment under section 147

Assessment u/s 143(1)

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).

Scope of Assessment u/s 143 (1)

After making the below adjustments, the assessment is made to understand whether it’s an income or loss.

  • any arithmetical error in the return; or
  • an incorrect claim, if such incorrect claim is apparent from any information in the return;
  • 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
  • disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; or
  • 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
  • additional 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.

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.

Procedure of Assessment

  • After correcting arithmetical error or incorrect claim (if any) as discussed above, the tax along with interest and fee (as per section 234F), if any, shall be computed based on the adjusted income.
  • The tax payer will be informed on the final status of the return whether it’s additional tax payable or refund and an intimation will be sent for the same.
  • The loss declared in the return of income by the taxpayer is adjusted but no tax or interest is payable by or no refund is due to him. In such scenarios, an intimation would be sent to the tax payer for clarifications.
  • In a case where no sum is payable by or refundable to the assessee or where no adjustment is made to the returned income, the acknowledgement of return of income is deemed to be the intimation.

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:

  • Rs. 5,000 is applicable in case the return is furnished on or before the 31st day of December of the assessment year;
  • Rs. 10,000 in any other case:
  • Provided that if the total income of the person does not exceed Rs. 5,00,000, the amount of fee shall not exceed Rs. 1000.

Time-limit

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.

Assessment under section 143 (3)

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.

Scope of Assessment u/s 143 (3)

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.

Procedure of Assessment

  • To ensure a correct return is filed, the AO may send a notice to the tax payer to visit his office along with relevant proof of documents to support against the claims or deductions
  • To carry out the process as per section 143(3), the Assessing Officer shall send intimation to the tax payer u/s 143(2)
  • This notice u/s 143(2) is sent to the tax payer within 6 months from the end of financial year in which the return is filed
  • The tax payer or his representative will appear before the AO along with supporting evidence/documents
  • After considering all the documents and verifying the details, the AO can make an order in writing on the sum payable by him or the refund due to him after the assessment.

Time-limit

As per Section 153, the time limit for assessment u/s 143(3) 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]

Assessment under section 144

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.

Scope of Assessment u/s 144

The Assessing Officer shall make an assessment to the best of his/her judgement as per the following scenarios:

  • In case the taxpayer fails to submit/file the return required within the due date as per 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: 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.

  • In case the tax payer 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 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.

  • In case the taxpayer doesn’t fulfil all the terms of a notice issued under section 143(2), i.e., notice of scrutiny assessment.
  • If the assessing officer is not satisfied on the completeness/correctness of the accounts of the taxpayer or if no method of accounting has been regularly employed by the taxpayer.

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.

Procedure of Assessment

  • The Assessing Officer will send a notice on the taxpayer to show cause why the assessment should not be completed to the best of his/her judgment if the above conditions are satisfied.
  • When a notice under section 142(1) has been issued prior to the making of an assessment under section 144, then no notice as mentioned above is required to be sent to the tax payer.
  • The Assessing Officer will carry the assessment to the best of his/her knowledge in case she is not satisfied by the arguments of the taxpayer and has reason to believe that the case demands the best judgment
  • After considering all relevant proofs and documents and listening to the tax payer along with the best judgment assessment conditions are satisfied, the Assessing Officer will make the total income / loss assessment to the best of his/her knowledge/judgment. The amount payable by the taxpayer on the basis of such assessment would be communicated to the taxpayer the by the AO.

Time-limit

As per Section 153, the time limit for assessment u/s 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]

Assessment under section 147

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.

Scope of Assessment u/s 147

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:

  • Where no return of income has been furnished by the taxpayer, although his/her total income or the total income of any other person in respect of which he/she is assessable during the previous year exceeded the maximum amount which is not chargeable to income-tax.
  • 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.
    Where the taxpayer has failed to furnish a report in respect of any international transaction which he/she was required to do under section 92E.
  • Where an assessment has been made, but:
    1. income chargeable to tax has been under assessed; or
    2. income has been assessed at low rate; or
    3. income has been made the subject of excessive relief; or
    4. excessive loss or depreciation allowance or any other allowance has been computed;
  • Where a person is found to have any asset (including financial interest in any entity) located outside India.
  • Where a return of income has not been furnished by the assessee and based on information or documents 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.
  • Where a return of income has been furnished by the assessee and based on 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.

Procedure of Assessment

  • The Assessing Officer shall issue notice under section 148 to the taxpayer and shall give him an opportunity of being heard to make an assessment u/s 147.
  • If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, then he may assess or reassess such income and any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. He is also empowered to re-compute the loss or the depreciation allowance or any other allowance, depending on the scenario, for the assessment year concerned.
  • Items which are the subject matters of any appeal, reference or revision cannot be covered by the Assessing Officer under section 147.

Time-limit

As per Section 153, the time limit for assessment u/s 144 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).

Assessment in Case of Search u/s 153A

Here the Assessing Officer shall:

  • Issue notice to such person who requires furnishing within such period, as specified in the notice. Clause (b) referred to the return of income of each assessment year falling within six assessment years and is verified in prescribed form. Setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return was a return required to be furnished under section 139;
  • Assessor re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made.

Here the notice is issued for 6 years under section 153A where a regular return needs to be filed u/s 139.

Time-limit for Completion of Assessment u/s 153A/153C

  1. Scenario 1 – Person searched under section 153A
    • 21 months from the end of the financial year this does not include the last authorization for search u/s 132 or requisition u/s 132A.
    • Even for the year of search, similar limits shall apply.
  2. Scenario 2- Any other person 153C
    • As provided in above clause (b) or 9 months from the end of the Financial Year where BOA/documents/assets seized/requisitioned are handed over to the assessing officer (AO), whatever is latest.

Time-limit for Issuance of Notice u/s 148

This notice can be issued to the tax payer by the AO after taking approval from the concerned authority only.

  1. Notice under section 148 can be issued within a period of 4 years from the end of the relevant assessment year. In case the escaped income is Rs. 1,00,000 or more, then notice can be issued up to 6 years from the end of the relevant assessment year after certain conditions are satisfied.
  2. Notice u/s 148 can also be issued in case the escaped income relates to any asset (including financial interest in any entity) located outside India, notice can be issued up to 16 years from the end of the relevant assessment year.

E-Assessments

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.

How H&R Block India Can Help You?

For any kind of assistance related to your income tax return or any communication received from the Income Tax Department, consult our tax experts at H&R Block India

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