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Assessment generally understood

District Centre Janak Puri Study Circle of NIRC OF ICAI Assessment procedure for Scrutiny cases under Income Tax Act. Assessment generally understood. Regular assessment U/s 143(3) Income escaping assessment under section 147 Assessment under search cases.

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Assessment generally understood

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  1. District Centre Janak Puri Study Circle of NIRC OF ICAI Assessment procedure for Scrutiny cases under Income Tax Act Baldev Raj CA - 9312235173 S.P.PURI & CO.

  2. Assessment generally understood • Regular assessment U/s 143(3) • Income escaping assessment under section 147 • Assessment under search cases Baldev Raj CA - 9312235173 S.P.PURI & CO.

  3. Assessment procedure under Chapter XIV of the Income Tax Act • Procedure of self assessment : • Section 139 and 140 - Filling of return , PAN, singing of return, deposit of self assessment tax • Procedure of assessment • Section 143 - Intimation and regular assessment • Section 144 - Best judgment assessment • Section 147 - Income escaping assessment • Section 153A – Assessment in search cases Baldev Raj CA - 9312235173 S.P.PURI & CO.

  4. Related and supported provisions • Section 142 - Inquiry before assessment including audit • Section 142A- Estimations of valuation officer • Section 145 - Method of Accounting • Section 154 – Rectification • Section 156 - Notice of demand • Section 157 - Intimation of loss Baldev Raj CA - 9312235173 S.P.PURI & CO.

  5. Other important provisions relating to assessment under Income Tax Act • Section 131 -Power regarding discovery, production of evidence etc. • Section 133 (6) - Power to call for information • Section 292BB - Notice deemed to be valid Baldev Raj CA - 9312235173 S.P.PURI & CO.

  6. Self Assessment • Return – voluntarily or in response to notice • Assessee is required to make his own assessment • Compute his income and deposit all tax along with interest • Interest and Penalty Baldev Raj CA - 9312235173 S.P.PURI & CO.

  7. ASSESSMENT DEPARTMENT Two stages 1) Processed to correct arithmetical mistakes, internal inconsistency, tax calculation and verification of tax payment 2) % of tax returns selected for scrutiny- verification of the income Baldev Raj CA - 9312235173 S.P.PURI & CO.

  8. Processing u/s 143(1) • Total income/ loss after Adjustments: Arithmetical errors: Incorrect claim apparent from records : Inconsistent with any other entry – tax audit report vs computation i.e depreciation personal expenses Information required not furnished Deduction exceeds specified statutory Limit – 80C Rs. 1,00,000 • Tax and interest- • Intimation to be send : refund due / tax payable / loss reduce  Period : one year from the end of the financial year Baldev Raj CA - 9312235173 S.P.PURI & CO.

  9. ISSUES If no intimation and time lapse and refund due When TDS credit / Advance tax not allowed / short allowed When different tax rate charged i.e general rate in place special rate Notice u/s 143(2) issued and processing not done Alternative : Rectification/Appeal Baldev Raj CA - 9312235173 S.P.PURI & CO.

  10. Notice u/s 143(2) Whether notice ? Served upon assessee Served in time Served in proper manner If invalid notice – objection (Section 292BB) Valid notice Response at first hearing : Filing of documents ? POA • Reasons for selection ? • Board guidelines on selection of cases Baldev Raj CA - 9312235173 S.P.PURI & CO.

  11. Notice u/s 142(1) Notice to call for ROI/ books ofAccounts/other information By issuing notice u/s 142(ii) alone, assessment is not possible Notice can be issued even if the assessee has not filed the ROI No time limit prescribed in law for issue of this notice Books of accounts can be asked for a limited period (3 years) Notice u/s 143(2) Notice for making assessment u/s143(3) Assessment u/s 143(3) is possible only if the notice u/s 143(2) has been issued. Notice can be issued only if the assessee has filed ROI Time limit of 12 months prescribed for service of notice. No such restriction Comparison of Notice U/s 142(1) Vs. Section 143(2) Baldev Raj CA - 9312235173 S.P.PURI & CO.

  12. Regular assessment under section 143(3) • Enquires and investigation ; • Calling for books of accounts or other relevant documents • Calling for information in such form and on such point or matters • Requiring to furnish a statement of all assets and liabilities • Examining the assessee or other parties as witness under section 131 to verify any accounts or transaction Baldev Raj CA - 9312235173 S.P.PURI & CO.

  13. continuation • Gathering information from banks, financial institutions and such other person with whom assessee has had transaction during the year- section 133(6)/131 • Directing to get account audited u/s 142 (2A) • Reference to Valuation officer u/s 142A- determine the value of any investment, bullion, jewellery or other articles • Gather all relevant and requisite evidence, properly scrutinizing, Baldev Raj CA - 9312235173 S.P.PURI & CO.

  14. Allowing reasonable opportunity , to explain the discrepancies , inaccuracies and omissions • Rule of evidence : Adverse inference - if assessee fail to answer or produce evidence to contradict the data/ information gathered by assessing officer • Determine the total income , compute tax and interest Baldev Raj CA - 9312235173 S.P.PURI & CO.

  15. ISSUES FOR DISCUSSION • Fact of assessee and its business • Strength and weakness • Assessment of self code cases In case of returned U/S 139 4A , 4B , 4C etc Trust , Political parties, educations trust etc • AIR Information's • Reconciliations –income with TDS certificates • Rejection of books of accounts – 145 (3) Baldev Raj CA - 9312235173 S.P.PURI & CO.

  16. In case of non-resident cases and TP issues order- New provision w.e.f 01.10.09 DRP ( Dispute Resolution Panel ) • New Claim in assessment proceedings GOETZE (INDIA) LTD. Vs. CIT (2006) 284 ITR 323(SC) Baldev Raj CA - 9312235173 S.P.PURI & CO.

  17. Show cause notice Revenue / capital expenses , business vs capital gain, business vs income from other sources etc Facts, provisions, Case laws Section 40A(2)specified persons Three criteria Fair mkt value, legitimate needs of business , benefit to the assessee (cumulative or alternative) 2009 314 ITR 1 (Guj) Baldev Raj CA - 9312235173 S.P.PURI & CO.

  18. Information u/s 133(6)- Not received received with difference or Notice un served or Stock statement submit with bank/stock audit conducted by bank confrontation during the assessment proceedings • Summons issued : Un served not attended by the parties Absence of personnel presence – default? Use of affidavit Baldev Raj CA - 9312235173 S.P.PURI & CO.

  19. Assessee duty in case • Confirmations - in case of creditors, debtors • Matter send for valuation u/s 142 A Baldev Raj CA - 9312235173 S.P.PURI & CO.

  20. Section 68 to 69D • Objective – an effort to curb the all pervading evil of generation and proliferation of black money • Section are clarificatory and addition may be made otherwise • ‘May’ word used – discretion of assessing officer • Cash credit : Ø      The existence of books of accounts maintained by assessee himself Ø      A credit entry in the books of accounts Ø      Absence of satisfactory explanation by the assessee about the nature and source Burdon of proof on assessee Ø      The identity of the creditors Ø      The capacity of the creditors Ø      The genuineness of the transaction •  The assessee has adduced evidence to establish prima facie the aforesaid, than onus shift to department Baldev Raj CA - 9312235173 S.P.PURI & CO.

  21. other issues ? Baldev Raj CA - 9312235173 S.P.PURI & CO.

  22. Assessment is void-ab-initio • Assessment without serving a notice u/s 143(2) • Notice served after expiry of period Assessment is invalid. • After the expiry of 23 months from the relevant year • Fresh assessment on set-aside or cancelled order or on order made under section 263/ 264 made after expiry of 9 months from the financial year Baldev Raj CA - 9312235173 S.P.PURI & CO.

  23. Best judgment assessment-u/s 144 • Defaults : • Fail to submit return • Fail to complied with terms of the notice u/s 142(1)/ 143(2) • Fail to comply with direction u/s 142(2A) • Show cause notice -best judgement • Reasonable opportunity • On the basis of all relevant material gathers – compute the income or loss to the best of his judgement , determine the tax payable • Cannot assess the income below return income/ loss more than return loss Baldev Raj CA - 9312235173 S.P.PURI & CO.

  24. C/O of best judgment assessment-u/s 144 • Assessment : Ø Not be arbitrary or on adhoc basis Ø Based on material Ø  On rational and scientific basis Ø Order must speaking order Baldev Raj CA - 9312235173 S.P.PURI & CO.

  25. Directions u/s 144A • Objective ü      Improve the quality of assessment ü      Eliminate avoidable litigation • Joint commissioner •    On his own motion •      On reference made by assessing officer •      On application of the assessee • Call for and examine the record of the pending proceeding • Reasonable opportunity to assessee before issue direction being prejudicial to the assessee • Investigation not an prejudicial to the assessee • Issue direction • Binding on assessing officer Baldev Raj CA - 9312235173 S.P.PURI & CO.

  26. Directions u/s 144A • No appeal against direction • In practice: No seriousness for the intended purpose of the legislature The responsibility cast on supervisory officers not discharged Baldev Raj CA - 9312235173 S.P.PURI & CO.

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