ASSESSMENT
INTRODUCTION
Every taxpayer has to furnish the details of his income by filing up his
return of income. Once the return of income is filed up by the taxpayer,it is
examined by the Income-Tax department which process is called as
“ Assessment” . This entire procedure involves participation of
‘ Assessee’ and ‘ Income Tax Department’ .
DEFINITION OF ASSESSMENT
The definition of assessment has not been provided with the Income Tax
Act, but a perusal of the term within the scope of the Act makes it obvious
that it implies an investigation and ascertainment of the correctness of
the returns and accounts filed by the assessee.
TYPES OF ASSESSMENT :
Following are the types of assessment under the Income Tax Act:
(a) Self assessment (Section 140A)
(b) Regular assessment (Section 143)
(c) Protective assessment .
(d) Best judgment assessment (Section 144)
(e) Income escaping assessment or re-assessment (Section 147)
(f) Assessment in case of search or requisition (Section 153A)
SELF ASSESSMENT (SECTION 140A )
Self assessment is the first step in the process of assessments. Self
Assessment is simply a process where a person himself assesses his tax
liability on the income earned during the particular previous year and
submits Income Tax Return to the department. The work of income tax
department has become easy due to the system of self assessment.
In it was held that,
Companies constitute a different class by themselves, and therefore,
prescribing different dates for filing return of income other
assessees cannot be considered to be violative of article 14 of the
Constitution.
REGULAR ASSESSMENT (SECTION 143)
As per section 2(40) of the Act, ‘ regular assessment’ means the
assessment made under section 143(3) or section 144. Again, as per
section 2(8) of the Act, ‘ assessment’ includes reassessment; therefore,
assessment made under section 143(3)/144/147 is also a ‘ regular
assessment’ .
Assessment under Section 143(3):Summary assessment
This is a preliminary assessment under Section 143(1) and is
referred to as summary assessment without calling the assessee (i.e.,
taxpayer). 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 adjustments (if any), which includes any arithmetical
error in the return and an incorrect claim, if such incorrect claim is
apparent from any information in the return.
Time-limit:
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.
Assessment under Section 143(3):Scrutiny assessment
This is a detailed assessment and is referred to as scrutiny
assessment. Scrutiny assessment refers to the examination of a return of
income by giving an opportunity to the assessee to substantiate the
income declared and the expenses, deductions, losses, exemptions, etc.
claimed in the return with the help of evidence. During the course of
scrutiny, the assessing officer gets an opportunity to conduct enquiries,
as deemed fit, from the assessee and from third parties. If any omissions,
discrepancies, inaccuracies, etc. come to light as a result of this
examination, the assessing officer makes his own assessment of the
assessee’ s taxable income after taking into consideration all the
relevant facts.
Time-limit:
As per Section 153, assessment under Section 143(3) shall be
made within a period of two years from the end of the relevant
assessment year.
PROTECTIVE ASSESSMENT :
Protective assessment is said to those assessments which are
made to ‘ protect’ the interest of the revenue. When the AO isn't certain
of the person whom the income belongs to, by the time it becomes certain,
the assessment may get barred by limitation. In these circumstances the
AO may proceed to complete the assessment on protective basis.
In a leading English case Attorney-General v. Aramayo & Others
(1925) 9 Tax Case 445 (F)., it was held that the AO cannot be expected to
be a silent spectator of the uncertainty as the inherent power given to him
in the law is to protect the interest of the revenue which will be frustrated
if he fails to act within the time of limitation. This principle was reaffirmed
by the judiciary in India in Jagannath Hanumanbux v. ITO, (1957) 31 ITR
603 Cal, it was held that though there is no provision in the Act authorizing
the levy of income-tax on a person other than ‘ the assessee’ , i.e., the
person by whom the income-tax, etc. is payable, it is open to the
income-tax authorities to make a ‘ protective’ or ‘ alternative’
assessment where, owing to litigation between the parties concerned in
Civil Court or for other reasons, the person who is really liable to pay the
tax cannot be finally determined by the income-tax authorities. The
demand raised by a protective assessment cannot be recovered. It is
required to be stayed by the AO. Similarly there cannot be any penalty on
protective assessment. After recording the facts and circumstances of
the case and the reason for making the assessment on protective basis in
the assessment order, the AO may write that the demand that is
attributable to the protective income is being stayed till substantive
assessment is made.
BEST JUDGMENT ASSESSMENT (S.144)
Best judgment assessment is the process of determination of the
income of the assessee by the I-T officer, to the best of his judgment and
based on the information available with him.
As per Section 144, the Assessing Officer is under an obligation to
make an assessment to the best of his judgment in the following cases:
If the taxpayer fails to file the return required within the due
date prescribed under 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).
If the taxpayer fails to comply with the directions issued under
Section 142(2A).
If after filing the return of income the taxpayer fails to comply
with all the terms of a notice issued under Section 143(2), i.e.,
notice of scrutiny assessment.
If the assessing officer is not satisfied about the correctness
or the completeness of the accounts of the taxpayer or if no
method of accounting has been regularly employed by the
taxpayer.
In a best judgment assessment the assessing officer should really
base the assessment on his best judgment i.e. he must not act
dishonestly or vindictively or capriciously.
There are two types of judgment assessment:
1. Compulsory best judgment 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 information.
2. Discretionary best judgment 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.
INCOME ESCAPING ASSESSMENT OR RE-ASSESSMENT (SECTION
147,148):
Sec 147 and 148 empowers the AO to reopen the proceedings if he
has reason to believe that the whole income or part of the income has not
been taken into consideration during assessment proceedings.
The Supreme Court in Parshuram Pottery Works Co. Ltd. v.CIT,
[1977] 106 ITR 1 (SC) held two conditions which have to be satisfied for
the Assessing Officer to issue a notice under Section 148 of the Act, as a
consequence of the requirement to reopen assessment proceedings.
They are as follows:
(i) The Income Tax Officer must have reason to believe that income
chargeable to tax has escaped assessment;
(ii) He must have reason to believe that such income has escaped
assessment by reason of the omission or failure on the part of the
Assessee to disclose fully and truly material facts necessary for his
assessment for that year.
In Hirachand Kanuga v. Deputy Commissioner of Income-tax
(2015 ) it has been held that where the Commissioner simply put
'approved' and signed report thereby giving sanction to Assessing Officer
to reopen assessment, it did not amount to recording of proper
satisfaction in terms of section 151(1)
Issue of Notice
Before making a re-assessment the AO, has to serve a notice under
Section 148 requiring the assessee to file a return of his income or
income of any person to which he is assessable. The return should be
filed within the prescribed time limit as mentioned in the notice.
The date of issue of notice denotes the date on which the AO signed and
initiated the notice. Whereas, service of notice indicates the date on which
the assessee was actually served with the notice.
Time-limit for issue of notice under Section 148-Section 149
Particulars Upto 4 years fromBeyond 4 yearsBeyond 4 years
thee end of but up to 6 yearsbut up to 16
relevant AY from the end of years from the
relevant AY end of relevant
AY
Whether For any amountWhen the amountIncome relating
assessment underthat has escapedchargeable to taxto any asset
Sections 143(3) orassessment exceeds 1 lakh including
147 is complete or financial
not interest in any
entity located
outside India is
chargeable to
tax has
escaped
assessment.
Time-limit for issue of assessment under Section 147
As per Section 153, assessment under Section 147 shall be made
within a period of one year from the end of the financial year in which
notice under Section 148 is served on the taxpayer.
