Income Tax Assessment
What is Income Tax Assessment?
• Every assessee, who earns income beyond the basic exemption limit in a Financial Year (FY), must file a statement containing details of his income, deductions, and other related information. This is called the Income Tax Return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. The process of examination of ITR by the Income Tax Department is called “Assessment”.
• Income Tax Assessment is a post filing procedure. Once a taxpayer has filed his income tax return, they go through each and every detail of it. There are occasions where, based on set parameters by the Central Board of Direct Taxes (CBDT), the return of an assessee gets picked for an assessment.
Types of Income Tax Assessment:
1. Self Assessment –u/s 140A
2. Summary assessment –u/s 143(1)
3. Scrutiny assessment –u/s 143(3)
4. Best Judgment Assessment –u/s 144
5. Protective assessment
6. Re-assessment or Income escaping assessment –u/s 147
7. Assessment in case of search –u/s 153A
Self Assessment:
The process of calculating the income and payment of tax, when done by the taxpayer himself, is called Self-Assessment. The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS and Advance Tax from that amount to determine the tax payable on such income. Tax, if still payable by him, is called self assessment tax and must be paid by him before he files his return of income. This process is known as Self Assessment.
Self-Assessment is covered under Income Tax Act - Section 140A. Section 140 A states that if a taxpayer has filed a return under Section 139, and the tax amount is reduced due to tax already paid, then the assessee should pay the balance tax within 30 days of filing the return.
Summary Assessment
This is a preliminary assessment and is referred to as summary assessment without calling the assessee (i.e., taxpayer). Assessment under section 143(1) is like initial checking of the return of income. The assessee is not called or required for this assessment. It is like reconciliation of information shared by the taxpayer and information available with the AO. In this assessment, it is assumed that information/facts shared by the taxpayer are correct. There is no detailed scrutiny of the income tax return.
This Assessment is carried out digitally. During online Assessment of the Income Tax Return, arithmetical errors are corrected. Besides this, incorrect claims and disallowances are automatically corrected.
Following details are checked:
• Calculations or Arithmetic errors
• Inconsistency between various entries
• Excess deductions/exemptions claimed
• Inadequate information
After all the corrections, if the taxpayer is required to pay income tax, intimation will be sent to him with the details of tax refund/tax payable under Section 143(1). The assessee must respond to this intimation accordingly.
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 is filed.
Scrutiny Assessment
Scrutiny assessment is the assessment of the return filed by the assessee by giving an opportunity to the assessee to substantiate the declared income and expenses and the claims of deductions, losses, exemptions, etc. in the return with the help of evidence. This is a detailed assessment and is referred to as scrutiny assessment.
The income tax department authorizes the Assessing Officer or Income Tax authority, not below the rank of an income tax officer, to conduct this assessment. At this stage, a detailed scrutiny of the return of income will be carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income. The purpose is to ensure that the assessee has neither understated his income or overstated any expense or loss or underpaid any tax.
He is appointed when a case does not satisfy certain criteria. When a tax assessment is undertaken by an Income Tax Officer, it is his duty to inform the taxpayer. This is done through an Income Tax Notice under Section 143(2). Thereafter, the Income Tax Officer may demand certain information, documents and account books for scrutiny assessment. Income Tax Officer conducts a thorough examination of the documents and then computes the income tax payable by the taxpayer.
If any discrepancy is observed under detailed scrutiny then the taxpayer may be called to attend the office of AO and produce the evidence to support his claim. If there is a mismatch disparity between the income amount and the tax due to be paid, the taxpayer could agree to pay the extra amount, or accept the refunds.
If the taxpayer is not satisfied, he can apply for recitation under Section 154. Otherwise, a revision application can also be submitted under Section 263 or Section 264. If the order approved in Scrutiny Assessment is still considered invalid, the taxpayer can take things to the higher authorities. Like CIT (A), ITAT, High Court and The Supreme Court, in that particular order.
E-Assessments:
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.
Best Judgement Assessment:
Best Judgement Assessment is issued for those individuals who fail to co-operate with the Income Tax Department. This simply means that the taxpayer does not respond to the multiple notices issued by the Income Tax Department. Or he fails to produce the requested information or does not maintain proper account books. In such cases Best Judgement Assessment is put into action.
In the case of best judgment assessment, the assessing officer will make the assessment based on best reasoning i.e. they will not act dishonestly. This is a type of income tax assessment which involves the input of both the assessee and the officer equally.
This is an assessment carried out as per the best judgment of the Assessing Officer on the basis of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.
The Best Judgement Assessment is made by an Income Tax Officer in the following cases:
• There is no filing of Income Tax Return by the taxpayer
• The taxpayer fails to carry out the written requests made by the Income Tax Department regarding the filing of Income Tax Return or maintain book of accounts.
• When a Scrutiny Assessment is put into action, the taxpayer fails to produce relevant documents
• If the Income Tax Officer is not satisfied by the information or documents presented by the taxpayer
Procedure of assessment under section 144
• If the conditions given above calling for best judgment are satisfied, then the Assessing Officer will serve a notice on the taxpayer to show cause why the assessment should not be completed to the best of his judgment.
• No notice as given above is required in a case where a notice under section 142(1) has been issued prior to the making of an assessment under section 144.
• If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has reason to believe that the case demands a best judgment, then he will proceed to carry out the assessment to the best of his knowledge.
• If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant materials which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of his knowledge/judgment and determine the sum payable by the taxpayer on the basis of such assessment.
As per section 153, The assessment u/s 144 shall be made within 2 years from the end of the relevant assessment year.
Protective Assessment
The assessments which are meant to protect the interest of the revenue are considered under Protective Assessment. 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. It is open to the authorities to make a protective or an alternative assessment if it is not ascertainable who is really liable to pay the tax among a few possible persons.
During Protective Assessment, the assessing officer records all the assessment on paper until the matter is sorted out. A protective order of assessment can be passed but not a protective order of penalty.
Income Escaping Assessment
Income Escaping Assessment under section 147 is the assessment which is done by the Assessing Officer if there is a reason for him to believe that income chargeable to tax has escaped assessment for any assessment year. It gives power to him to re-assess or re-compute income, turnover etc. which has escaped assessment.
It is possible that a taxable income might have escaped assessment. In cases like this, the Income Tax Department can open an assessment. When the assessing officer has sufficient reasons to believe that any taxable income has escaped assessment, he has the authority to assess or reassess the assessee’s income. To do this, he needs to issue a notice under Section 148.
Conditions under which Income Escaping Assessment is carried out are:
a. The assessee has taxable income but has not yet filed his return.
b. The assessee, after filing the income tax return, is found to have either understated his income or claimed excess allowances or deductions.
c. The assessee has failed to furnish reports on international transactions, where he is required to do so.
Time-limit for issuance of notice under section 148
Under section 148, notice can be issued within a period of 4 years from the end of the relevant assessment. If escaped income amounts to Rs. 1, 00,000 or more, then notice can be issued for up to 6 years from the end of the relevant assessment year. If escaped income is associated with any assets (including financial interest in any entity) i.e. located outside India, then notice can be issued up to 16 years from the end of the relevant assessment year.
For making an assessment under section 147, the Assessing Officer has to issue notice under section 148 to the taxpayer and has to give him an opportunity of being heard. Notice u/s 148 can be issued by AO only after getting prior approval from the prescribed authority mentioned in section 151.
Assessment in case of search Under Section 153A:
Section 153A allows the assessing officer to assess the income tax return of a person. The Assessing Officer can examine the income of past 6 years and draft his report. While making assessment under this section the additions or disallowances for which the preceding does not abate should be restricted.
Under this type of Income Tax Assessment, the Assessing Officer will:
• Issue notice to such person 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 were a return required to be furnished under section 139;
• Assess or 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.
Conclusion
All types of income tax assessment should be taken seriously. Moreover, file the income tax return accurately and mention all the proofs to avoid any type of income tax assessment in front of the assessing officer.
