What are the major assessments under the Income tax Law


???????Meaning of Assessment:

Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing his return of income. Once the return of income is filed by the taxpayer, the next step is the processing of the return of income by the Income-tax Department. The Income-tax Department examines the return of income for confirming its correctness. The process of examining the return of income by the Income-tax Department is called ?Assessment?. Assessment also includes re-assessment or best judgment assessment under section 144?.?

What are the major assessments under the Income tax Law?

Under the Income-tax Law, there are four major assessments as given below:

Assessment under section 143(1)

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 following adjustments (if any), namely:-

(i) any arithmetical error in the return; or ?

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; ?

(iii) 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 sub-section (1) of section 139?

(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;?

(v) disallowance of deduction claimed under sections 10AA?, 80-IA, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139?; or?

(vi) addition of 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 adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode. Further, the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made. For the above purpose ?an incorrect claim apparent from any information in the return? means a claim on the basis of an entry in the return:-

(i) of an item which is inconsistent with another entry of the same or some other item in such return;

(ii) in respect of which the information is required to be furnished under the Act to substantiate such entry and has not been so furnished; or

(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

Procedure adopted for making the assessment under section 143(1)

At this stage, the total income or loss is computed after making the preliminary adjustments. The other procedures in this regard are as follows:

  • After making the adjustments the tax, interest, and fee if any, shall be computed on the basis of the adjusted income.
  • Any sum payable by the taxpayer or refund due to the taxpayer shall be intimated to him.
  • An intimation shall be prepared or generated and sent to the taxpayer specifying the sum determined to be payable by, or the amount of refund due to him.
  • An intimation shall also be sent to the taxpayer, in a case, where 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.
  • No intimation will be sent to the taxpayer in a case where no sum is payable or refundable or no adjustment is made to the returned income. In such a case, the acknowledgement of the return of income shall be deemed to be the intimation. ?

Time limit for making the assessment under section 143(1)

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)

This is a detailed assessment and is referred to as scrutiny assessment. At this stage, a detailed scrutiny of the return of income will be carried out. The scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.

The objective of scrutiny assessment is to confirm that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.

Procedure adopted for making the assessment under section 143(3)

In case of Assessment under section 143(3), a scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income. The other procedures in this regard are as follows:

Procedure adopted for making the assessment under section 143(3)
Procedure adopted for making the assessment under section 143(3)

Time limit for making the assessment under section 143(3)

As per section 153, the time limit for making assessment under section 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]

Note: If reference is made to TPO, the period available for assessment shall be extended by 12 months

Assessment under section 144

Assessment under section 144 (called best judgment assessment) is an assessment carried out as per the best judgment of the Assessing Officer.

??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 of income as 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).

Note: section 142(1) deals with the general provisions relating to an inquiry before assessment. Under section 142(1), the Assessing Officer can issue notice asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified 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.

If the taxpayer 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 Assessing Officer will direct the taxpayer to get his accounts audited from a chartered accountant nominated by the principal chief commissioner or Chief Commissioner or Principal Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.

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.

From the above criteria, it can be observed that best judgment assessment is resorted in cases where the return of income is not filed by the taxpayer or there is no co-operation by the taxpayer on various matters.?

Procedure adopted for making the assessment under section 144

Procedure adopted for making the assessment under section 144
Procedure adopted for making the assessment under section 144

Assessment under section 147

This is an income escaping assessment. This assessment is carried out if the Assessing Officer observes that any income has escaped assessment.

??In the following cases, it will be deemed that income chargeable to tax has escaped assessment:

Where no return of income has been furnished by the taxpayer, although his total income or the total income of any other person in respect of which he is assessable during the 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 was required to file under section 92E?.

Where an assessment has been made, but: (i) income chargeable to tax has been under assessed; or (ii) income has been assessed at low rate; or (iii) income has been made the subject of excessive relief; or (iv) 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 on the basis of information or document 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 on the basis of 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 adopted for making the assessment under section 147

Procedure adopted for making the assessment under section 147
Procedure adopted for making the assessment under section 147

Time limit for making the assessment under section 147

As per section 153, the time limit for making assessment under section 147 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).

Note: If reference is made to TPO, the period available for assessment shall be extended by 12 months


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