Budget 2021 Update: In order to reduce the compliance burden, the time-limit for re-opening of assessment is being reduced to 3 years from the current 6 years from the end of the relevant assessment year. Re-opening up to 10 years is proposed to be allowed only if there is evidence of undisclosed income of Rs. 50 lakh or more for a year.
Further, it is proposed to completely remove discretion in re-opening and henceforth re-opening shall be made only in cases flagged by system on the basis of data analytics, objection of C&AG and in search/survey cases.
Further, in order to bring certainty in income tax proceedings at the earliest, it is also proposed to reduce the time limits for general assessment or processing of income tax return by three months and also for filing of returns.
Update:The Finance Act, 2018 had inserted Section 143(3A) to implement e-assessment scheme for the regular assessment carried out by the Assessing Officer under Section 143(3). Now, the Finance Act 2020 has expanded the scope of e-assessment to cover the best judgment assessment under Section 144. The Central Government will issue the necessary directions in this regard by 31-03-2022.
Every Person, who is earning, which is chargeable to tax, has to furnish his return of income to the Income Tax Department. After filling of return of income, the next step is the processing of income tax return by the Income Tax Department. The income tax department examines the return of income and specifies any correction, if any. The process of examination of the return of the Income Tax Department is called "Assessment". Assessment includes re-assessment and best judgment assessment under section 147 and 144 respectively. We will discuss each type of assessment in detail in this article.
Under Income Tax Act, 1961, there are four types of assessment as mentioned below:
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:
Then assessee shall pay tax & interest before furnishing return and proof of such payment will be accompanied with return of income.
Assessment under section 143(1) is like preliminary checking of the return of income. Under this section, Income tax department sent intimation u/s 143(1) in which comparative Income Tax computation [i.e. as provided by Tax payer in Return of Income and as computed u/s 143(1)] is sent by Income Tax Department. 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 adjustment (if any), namely-
Time Limit
Assessment u/s 143(1) can be made within a period of one year from the end of financial year in which the return of income is filled.
Scrutiny assessment refer to the examination of a return of income by giving opportunity to the assessee to substantiate the income declared and the expenses, deduction, losses, exemptions, etc. claimed in the return with the help of evidence. During the course of scrutiny, the assessing officer gets opportunity to conduct enquiry as he deemed fit from the assessee and from third parties. The exercised is aimed at ascertaining whether the income in the return is correctly shown by the assessee and whether the claims for deductions, exemptions etc. are factually and legally correct. If any omission, discrepancies, inaccuracies, etc. comes light to as a result of examination, the assessing officer makes his own assessment of the assessee’s taxable income after taking into consideration all the relevant facts. These assessments are made under section 143(3) of the income tax act.
The case selected for Scrutiny Assessment can be of by two types - i.e. (1) Manual scrutiny cases and (2) Compulsory Scrutiny cases.
Following can be reason for manual scrutiny case:
The following cases are compulsorily selected for scrutiny:
There can be two types of scrutiny assessment i.e. (1) Limited scrutiny assessment and (2) Complete Scrutiny Assessment. When case is selected for Limited scrutiny assessment, assessing officer can ask only the details regarding the reason behind the selection of any specific matter. However, in case of Complete Scrutiny Assessment, Assessing officer can ask complete details of transaction reflecting in the return of the income.
Section 144 of Income tax act, 1961 speaks about Best Judgment Assessment. In the best judgment assessment, an assessing officer makes an assessment based on his best reasoning. Assessee should neither be dishonest in his assessment nor have a vindictive attitude.
a. Compulsory best judgment assessment: It is done when assessing officer finds that there is an act amounting to non co-operation by the assessee or where assessee is found to be a defaulter in supplying information to the department.
b. Discretionary best judgment assessment: It is done in cases where assessing officer is dissatisfied with the authenticity of the accounts given by the assessee or where no regular method of accounting has been followed by the assessee.
The process of Best Judgment Assessment is applied in conformity with the Principle of Natural justice. As per the provision of Section 144 of the Income Tax Act, 1961, the Assessing officer is supposed to make an assessment of the income of an assessee to the best of his Judgment in the following cases:
In the case of best judgment assessment, an assessee has a right to file an appeal u/s 246 or to make an application for revision u/s 264 to the commissioner.
One should also keep in view the following
The best judgment assessment can only be made after giving the assessee an opportunity of being heard. Such opportunity shall be given by issue of a notice to the assessee to show cause why the assessment should not be completed to the best of his Judgment and that opportunity for hearing will not be necessary where notice u/s 142(1) already been issued.
Though there is no provision in the income tax act authorizing the levy of income tax on a person other than whom the income tax is payable, yet it is open to the authorities to make a protective or alternative assessment if it is not ascertainable who is really liable to pay the tax among a few possible persons.
In making a protective assessment, the authorities are merely making an assessment and leaving it as a paper assessment until the matter is decided (as to whom the asset owned by) one way or another. Further more, a protective order of assessment can be passed but not a protective order of penalty must, however be noted that while protective assessment is permissible, a protective order for recovery is not permissible.
Re-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.
Scope of assessment u/s 147
The objective of carrying out assessment u/s 147 is to bring under the tax net, any income which has escaped assessment in original assessment. Here, Original assessment means an assessment u/s 143(1) or 143(3) or 144 and 147 (as the case may be).
Procedure of assessment u/s 147
Time limit for completion of assessment under section 147
As per section 153 (2), assessment u/s 147 shall be made within 9 month from the end of the financial year in which notice u/s 148 was served.
Time limit for issuance of notice under section 148
Notice u/s 148 can be issued by AO only after getting prior approval from the prescribed authority mentioned in section 151.
Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003,
The Assessing Officer shall -
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b) in the prescribed form and verified in the prescribed manner and 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 were a return required to be furnished under section 139;
(b) Assess or reassess 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.
Note: Sec. 153A contemplates issue of notice for 6 years preceding the search but not for the year of search or requisition and thus no return is required to be filed for the year of search u/s 153A. Only regular return u/s139 is to be filed.
In case of person searched: 153A
In case of any other person: 153C
As provided in above clause (a) or clause (b) or 9 months from the end of the Financial Year in which Books of accounts or documents or assets seized/requisitioned are handed over to the AO having jurisdiction over such person; whichever is later.
Reference:
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