Practical Aspects of Assessment Proceedings under Income-tax Act 1961

Practical Aspects of Assessment Proceedings under Income-tax Act 1961

Type of Assessment

Section 143 of the Income-tax Act, 1961 dealing with “Assessment” provides for two types of Assessment:

i)             Summary Assessment [Section 143(1)]

ii)            Scrutiny Assessment [S.143(3)]

i)              Summary Assessment [Section 143(1)]

• In “Summary Assessment”, an “Intimation” u/s 143(1) of the Income-tax Act, is sent to an assessee determining the amount of tax payable or refund due on total income computed after making prima facie, mostly arithmetical, adjustments (if need be) to the total income declared in the return filed by an assessee.
• No such intimation shall be sent after expiry of one year from the end of the financial year in which such return is filed.
• In case where no amount of tax stands payable or refundable and no adjustments have been made, acknowledgment of return shall be deemed to be an “Intimation” u/s 143(1) of the IT Act.

 ii)             Scrutiny Assessment [S.143(3)]:

• In “Scrutiny Assessment”, The assessing officer makes a detailed inquiry about financials and finally passes an Assessment Order unlike “Summary Assessment” where there is no room for any inquiries.
• The procedure begins with a Notice u/s 143(2) which needs to be “Served” on an assessee prior to expiry of six months from the end of the financial year in which the return is furnished. Assessment framed u/s 143(3) without serving notice u/s 143(2) shall be void-abinitio.
• It is followed by a notice u/s 142(1) calling for various information by assessing officer for carrying out the assessment.
• Assessing Officer shall consider all the information furnished by an assessee at the assessment stage in response to his notices or queries raised vide order sheet entries.
• Assesssing Officer shall issue a Show Cause Notice (SCN) intimating the assessee about the additions which he proposes to make in the assessee’s case.
• Assessee shall furnish a reply in response to such SCN which shall be considered by AO prior to making the additions.
• Assessing Officer must ensure that Principles of Natural Justice are not violated throughout the assessment proceedings.
• Finally, an assessment order shall be passed u/s 143(3) of the Income-tax Act 1961. Such assessment order must be a “Speaking Order”.

Further, the Section 144, Section 147 and Section 153 of the Income-tax Act are method to opens cases for scrutiny proceedings under section 143(3) of the IT Act, subject to conditions satisfied with said sections.

-          Section 144 - Best Judgment Assessment;

-          Section 147 - Income From Escape Assessment;

-          Section 152A – Block Assessment.     

Section 144 –  Best Judgment Assessment

• Best Judgment Assessment means an assessment framed by AO on the basis of information available on records. It is an outcome of complete non co-operation at the assessee’s end.
• Such an assessment is framed if an assessee – a) fails to furnish a return u/s 139(1) or 139(4) or, b) fails to comply with notices issued u/s 142(1) or 142(2A) or 143(2).
• Principles of Natural Justice must be followed by assessing officer.
• Computation of income must be on rational & scientific basis and the same must be specified in the Order.
• Assessing Officer must pass a “Speaking Order”.

Section 147 – Income From Escape Assessment

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also 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, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Section 153A – Block Assessment

(1) 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 and for the relevant assessment year or 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 and for the relevant assessment year or years :

OTHER ANCILLARY POWERS OF ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT

• As per Section 131(1) of the IT Act, Assessing Officer may issue “Summons” to any person for discovery and inspection, enforcing attendance and for compelling production of books of accounts.
• As per Section 131(3) of the IT Act, Assessing Officer may impound and retain books of accounts or any other document produced before him during the assessment proceedings.
• As per Section 133(6) of the IT Act, Assessing officer may call for information from third parties.
• As per Section 142(2A) of the IT Act, Assessing officer may, with the previous approval of CCIT or CIT, direct an assessee to get the accounts audited by an accountant and furnish a report of such audit within time specified by AO (not exceeding 180 days in aggregate). Cost of such Special audit shall be borne by Central Government.
• As per Section 142A of the IT Act, Assessing Officer may make a reference to “Valuation Officer” for estimating “Value” of any investment referred to u/s 69, 69A or 69B or for estimating “Fair Market Value” of any property referred in Section 56(2) and report the same to him.

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