FAQs on Assessments under the Income-tax Law

What is the 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 undersection 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), i.e., Summary assessment without calling the assesseei.e.taxpayer.
• Assessment undersection 143(3),e., Scrutiny assessment.
• Assessment undersection 144,e., Best judgment assessment.
• Assessment undersection 147,e., Income escaping assessment.

What is assessment under section 143(1)

Scope of 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) ofsection 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 undersections 10AA,80-IA,80-IB,80-IC,80-IDorsection 80-IE, if the return is furnished beyond the due date specified under sub-section (1) ofsection 139; or

(vi) addition of income appearing inForm 26ASorForm 16AorForm 16which 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;

What is the procedure adopted for making the assessment under section 143(1)

Assessment undersection 143(1)is like preliminary checking of the return of income. At this stage, the total income or loss is computed after making the preliminary adjustments (as discussed in previous FAQ). The other procedures in this regard are as follows:

• After making the adjustments (if any) as discussed in previous FAQ, 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.

*As persection 234F(as inserted by Finance Act, 2017 with effect from Assessment Year 2018-19), a fee shall be levied where the return of income is not filed within the due dates prescribed undersection 139(1). The amount of fee is as follows:-

1. 5,000, if the return is furnished on or before the 31st day of December of the assessment year;
2. 10,000 in any other case:

Provided that if the total income of the person does not exceed Rs. 5,00,000, the amount of fee shall not exceed Rs. 1000.

What is the time limit for making the assessment under section 143(1)

Assessment undersection 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.

What is 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.

What is the scope of assessment under section 143(3) i.e. scrutiny assessment

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.

To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of income and will satisfy himself regarding various claims, deductions, etc., made by the taxpayer in the return of income.

What is the procedure adopted for making the assessment under section 143(3) i.e. scrutiny assessment

In case of Assessment undersection 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:

• If the Assessing Officer or prescribed income tax authority considers it necessary or expedient to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, then he will serve on the taxpayer a notice requiring him to attend his office or to produce or cause to be produced any evidence on which the taxpayer may rely on in support of the return.
• The provisions of notice are governed bysection 143(2). In other words, to carry out assessment undersection 143(3), the Assessing Officer should serve a notice undersection 143(2).
• Notice undersection 143(2) shall be served on the taxpayer within a period of six months from the end of the financial year in which the return is filed.
• The taxpayer or his representative (as the case may be) will appear before the Assessing Officer and will place his arguments, supporting, etc., on various matters/issues as required by the Assessing Officer.
• After hearing/verifying such evidence and taking into account such particulars as the taxpayer may produce and such other evidence as the Assessing Officer may require on specified points and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the taxpayer and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.

What is the time limit for making the assessment under section 143(3) i.e. scrutiny assessment

As persection 153, the time limit for making assessment undersection 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

What is assessment under section 144

Assessment undersection 144(called best judgment assessment) is an assessment carried out as per the best judgment of the Assessing Officer. Best judgment assessment is resorted due to certain failures (specified under section 144) on the part of the taxpayer (discussed in next FAQ).

Under what circumstances the Assessing Officer will proceed for making assessment under section 144 i.e. best judgment assessment

As persection 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 undersection 139(1)or a belated return undersection 139(4)or a revised return undersection 139(5).
• If the taxpayer fails to comply with all the terms of a notice issued undersection 142(1).

Note:section 142(1)deals with the general provisions relating to an inquiry before assessment. Undersection 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 undersection 142(2A).

Note:Section 142(2A)deals with special audit. As persection 142(2A), if the conditions justifying special audit as given insection 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 undersection 142(2A),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.

What is the procedure adopted for making the assessment under section 144 i.e. best judgment assessment

Assessment undersection 144(called best judgment assessment) is an assessment carried out as per the best judgment of the Assessing Officer. The other procedures in this regard are as follows:

• If the circumstances justifying best judgment assessment (discussed in previous FAQ) 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 undersection 142(1) has been issued prior to the making of an assessment undersection 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 as per best of his knowledge.
• If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant material 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 judgment and determine the sum payable by the taxpayer on the basis of such assessment.

What is 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.

What are the circumstances under which assessment under section 147 i.e. income escaping assessment can be carried out

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 undersection 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, undersection 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, undersection 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.

What is the procedure adopted for making the assessment under section 147 i.e. income escaping assessment

The procedures adopted for making the assessment undersection 147are as follows:

• For making an assessment undersection 147, the Assessing Officer has to issue notice undersection 148to the taxpayer and has to give him an opportunity of being heard. The time-limit for issuance of notice undersection 148 is discussed in later FAQ.
• If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, then he may 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 undersection 147. He is also empowered to re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.

Items which are the subject matters of any appeal, reference or revision cannot be covered by the Assessing Officer undersection 147.

What is the time limit for making the assessment under section 147 i.e. income escaping assessment

As persection 153, the time limit for making assessment undersection 147is:-

1. Within 9 months from the end of the financial year in which the notice undersection 148was served (if notice is served before 01-04-2019).
2. 12 months from the end of the financial year in which notice undersection 148is 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

What recourse is available to me if I am not satisfied with the order passed by my Assessing Officer | What is the fees of filing appeal and Which form is required to file an appeal

If you are not satisfied with the order passed by your Assessing Officer then you can file an appeal to the higher authority. The first appellate authority is the Commissioner (Appeals). Subsequently, the matter can be taken to the Income-tax Appellate Tribunal, then to the High Court and the Supreme Court.

Alternatively, instead of going for the appeal mechanism, you can make an application of revision to the Commissioner of Income-tax.

Form No. 35 .In case of appeals to Commissioner (Appeals) (irrespective of date of initiation of assessment proceedings) the following fee is payable :

Where assessed income is Rs. 1,00,000 or less – Rs. 250.

Where assessed income is more than Rs. 1,00,000 but not more than Rs. 2,00,000 – Rs. 500.

Where assessed income is more than Rs. 2,00,000 – Rs. 1,000.

Where subject-matter of appeal is not covered under any of the above – Rs. 250.

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