Understanding Assessment Procedure in Income Tax System

1. What is Assessment Procedure ? • Every Person, who is earning, which is chargeable to tax, has to furnish his return of income to the  Income Tax Department. ... The process of examination of the return by the Income Tax Department Is called "Assessment" • Assessment simply means determination of Tax • It is Procedure for determining of Tax Liability and Recovery of Tax • This is determined as per Taxation law existing in that particular Assessment Year File your ROI Checking your ITR by Dept How Much did you earn ?

2. 139 (1) - Normal Return 139 (3) – Return of Loss 139 (4) – Belated Return 139 (5) – Revised Return Various Sections under which ITR is filled 142(1) – Directions by AO to file the ROI 148 – Re-assessment of Income U/s 147 153 A/C – Block Assessment in case of Action U/s 132

3. Various Sections of Assessment under Income Tax Act 140 (A) - Self Assessment 143 (1)- Summary Assessment Limited Scrutiny 143 (3) - Regular Assessment Complete Scrutiny 144 – Best Judgement 147 - Re- Assessment 153 (A)/(C) Block Assessment

4. 140 (A) Self Assessment • In this Kind of assessment the Income Tax Department had given the Opportunity to the assessee to disclose his income truthfully • The department assumes the income declared by the assesse to be true but also keeps an eye on the transactions that the assesse is making • Since the assesse himself computes his income and tax liability therefore it is called self assessment

5. Summary Assessment U/s 143(1) In this type of assessment, the information submitted by the assessee in his return of income is cross-checked against the information that the income tax department has access to It is a type of assessment carried out without any human intervention If there arises tax liability/Refund on summary assessment an intimation U/s 143(1) will be sent to assessee through e-mail. These intimation should be treated as Demand Notice U/s 156(1) or refund order. No separate demand notice will be issued The acknowledgement of return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee and where no adjustment is required Time limit- Within 6 months from the end of the financial year in which return of income was filed

6. 143 (3) Regular Assessment - Scrutiny Return has been Filed Not Filed Yes - Filed Time limit for issue of notice U/s 143(2) Notice should be Served on the Asseesssee within SIX months from the end of the Financial year in which Return U/s 139(1) Or U/s 142(1) has been filed Issue of Notice U/s 142(1)(i) Issue of Notice U/s 143(2) Issue of Notice U/s 143(2)

7. Mandatory issue of Notice U/s 143(2) Shri Rishav Prakash Jain, New ... vs Ito, New Delhi on 18 February, 2019 Income Tax Appellate Tribunal - Delhi The ld. counsel for the assessee, referring to various decisions including the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT reported in 229 ITR 383 (SC), submitted that the above ground is purely a legal ground and goes to the root of the matter and does not require fresh facts to be investigated and therefore, should be admitted. Referring to the information received under RTI Act, the ld. counsel for the assessee submitted that in the instant case, no notice u/s 143(2) of the Act was issued subsequent to filing of the return by the assessee in response to notice u/s 148 of the IT Act. Only notice u/s 142(1) of the Act was issued and served on the assessee. Therefore, in view of the various decisions including the decision of jurisdictional High Court in the following cases the assessment order has to be quashed:-

8. Mandatory issue of Notice U/s 143(2) Shri Rishav Prakash Jain, New ... vs Ito, New Delhi on 18 February, 2019 Since, in the instant case, admittedly, no notice u/s 143(2) of the Act was issued and served on the assessee after the return in response to notice u/s 148 of the Act was filed by stating that the original return filed may be treated as return filed in response to notice u/s 148, therefore, the reassessment order passed by the Assessing Officer is not sustainable in law. We, therefore, accept the additional ground raised by the ITA No.2061/Del/2012 assessee and quash the order passed u/s 143(3)/147 for non-issuance of notice u/s 143(2) of the Act which is mandatorily required. The additional ground raised by the assessee is accordingly allowed. Since the assessee succeeds on this legal ground, the other grounds being academic in nature are not being adjudicated.

9. Section 292BB – Effect of Assessment Where an Assessee has appeared in any Proceeding or co-operated in any inquiry relating to an assessment or re-assessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such Assessee shall be Precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- • Not served upon him; or • Not served upon in time; or • Served upon him in an improper manner; Provided that nothing contained in this section shall apply where the Assessee has raised such objection before the Completion of such assessment or reassessment.

10. Limited Scrutiny U/s 143(3) CASS- Computer Assisted Scrutiny Selection The Central Board of Direct Taxes (‘CBDT’),Vide Instruction No.7/2014 Dated 26-9-2014 had clarified the Extent of enquiry in certain category of cases Specified there in, Which are selected for Scrutiny through CASS. Reasons for selection of case under CASS are – mismatch of ITR Data with AIR information/CIB/26AS Recent Circulars and Notifications – Instruction No. 20/2015 Dated 29/12/2015 AO Should communicate the Reasons/issues for which the file has been selected in CASS The Questionnaire under section 142(1)(ii) of the act in ‘Limited Scrutiny’ Cases shall remain confined only To the specific reasons/ issues for which case has been picked up for scrutiny. Further, the scope of enquiry Shall be restricted to the ‘Limited Scrutiny’ issues.

11. Limited Scrutiny Complete Scrutiny CONVERT During the course assessment proceedings in ‘limited Scrutiny’ cases, if: • It comes to the notice of the Assessing officer that there is potential escapement of income exceeding Rs.5 Lac/10 Lac ( for metro cities ) requiring substantial verification on any other issue (S), then, the case may be taken up for ‘Complete Scrutiny ‘ with the approval of the Pr. CIT/CIT Concerned. • The AO has to take approval of Pr. CIT/CIT in writing after being satisfied about merits of the issue [ S ] necessitating ‘complete Scrutiny ‘ in that particular case. ‘Metro cities ‘ would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad.

12. Procedure for Assessment Proceedings under section 143(3) Section 133 - Power of AO to call information from any person for completing the assessment Referral to Valuation Officer (142A) or Direction for audit u/s. 142(2A)if required Issue of Notice U/s 142(1) (ii) calling for information required to complete the assessment Mandatory issue and service of Notice U/s 143(2) Issue of Show cause notice if AO intends to make certain additions/disallowance to the income of the Assessee Issue of Assessment order U/s 143(3) within time limit prescribed U/s 153(1) • The Assessing officer shall not require the production of any accounts relating to a period more than 3 years prior to the previous year

13. Referral by AO to Valuation Officer U/s. 142A for valuation • AO may make a reference to a valuation officer to estimate the value including fair market value of any asset, Property or Investment. • Valuation Officer shall estimate the value after taking into account such evidences as Assessee may produce and any other evidence in his possession. • Valuation officer shall send a copy of report of the estimation of value to the AO and Assessee within a period of Six Months from the end of the month in which reference is made. • AO after giving the Assessee an opportunity of being heard, take into account the report of Valuation officer in making the assessment or reassessment.

14. Direction by AO U/s. 142 (2A) to get the accounts audited. • AO if at any stage of proceedings before him having regard to 1. Nature and Complexity of the accounts 2. Volume of the accounts 3. Specialized nature of business activity of the Assessee. 4. doubts about the correctness of the accounts And in the interests of the revenue, is of the opinion to get the accounts audited then he will direct the Assessee to do so. • Prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is required to obtain by AO. • AO shall not Direct the Assessee to get the accountants so audited unless the Assessee has been given a reasonable opportunity of being heard • Assessee Shall obtain the Audit report from a Chartered Accountant in such Form as may be prescribed, within a period of Maximum 180 days.

15. Best Judgment Assessment U/s. 144 • AO Can make Best Judgment Assessment in the following cases: - 1. Assessee has not filed return of income u/s. 139 (1) or has not made return or a revised return u/s. 139(4) or 139 (5). 2. Assessee fails to comply with all the terms of a notice issued u/s. 142(1) or fails to comply with direction issued u/s. 142(2A). 3. Assessee fails to comply with all the terms of notice issued u/s. 143(2). • AO will determine the total income or loss to the best of his judgement and determine the sum payable by the Assessee after taking into Account all relevant material which AO has gathered. Cont….

16. AO shall give Assessee an opportunity of being heard before making the best judgment assessment. • Opportunity of being heard shall be given by AO by serving a notice calling upon the Assessee on the specified date and time to explain the cause. • Opportunity of being heard is not necessary if notice u/s. 142(1) is issued prior to best judgment assessment.

17. Time limit for completion of assessment U/s 143(3) & 144 Section 153(1) prescribes time limit for completion of assessment U/s 143(3), 144, 148 • Up to AY 2017-18 , Assessment shall be completed before expiry of 21 months from the end of financial year in which return was filed • For AY 2018-19 it will be Eighteen Months from end of Assessment year (30-Sept- 2020) • For AY 2019-20 it will be Twelve Months from end of Assessment year (31-March- 2021)

18. Assessment By Assessee By Department Self Assessment U/s 140(A) Regular Assessment Summary Assessment U/s 143(1) Power of AO • 142(1)(i) • 142(1)(ii) • 142(2A) • 142A • 133 Scrutiny Assessment U/s 143(3) Best Judgement U/s 144 Income Escaping Assessment U/s 147

19. Income Escaping Assessment U/s. 147 • Basic condition for the assessment under this section is ; ‘ Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may, subject to provision of section 148 to 153, assess or reassess such income • and also any other income chargeable to tax which has escaped assessment which comes to his notice subsequently in the course of proceedings under this section.’ • Meaning of Reason to believe: - It Means some tangible material should have on record either from assessment or any other source which comes to the notice of Assessing Officer while opening the case.

20. Judicial Pronouncement on ‘Reason to Believe’ for Income escaping assessment M/s. Kargwal Products Pvt. Ltd. Vs. DCIT (ITAT Mumbai) : - Assessee filed the ROI for AY 2009-10 on 31.03.2010 and the assessment was processed u/s 143 (1). However, assessment was reopened u/s 147 on 29th March, 2014 and accordingly notice u/s 148 was issued on 29th March, 2014. Assessee contended that the reasons recorded by the AO were not valid to invoke section 148. The reopening is without tangible material available with Assessing Officer for doubting the receipt of share application money. There was no evidence before the Assessing Officer at the time of recording the reasons which could prove that some income had escape assessment. Unless any tangible evidence is referred and relied upon while recording the reasons, the Assessing Officer have no jurisdiction to reopen the assessment Held – We have noted that the Assessing Officer nowhere mentioned in the reasons recorded that any tangible material either from assessment record or from other source has come in the notice of Assessing Officer for his reason to believe that any income has escape assessment. Therefore, the basic requirement of reopening of the assessment i.e. reason to believe was not fulfilled at the time of recording the reasons of reopening. Accordingly case was quash.

21. Khubchandani Healthparks Pvt. Ltd. Vs. ITO (Bombay High Court) : - Also in the above case dated 10th of February, 2016 Bombay High Court has held that thenotice issued under section 148 would be without jurisdiction for absence of reason to believe that income had escaped assessment even in case where assessment has been completed earlier by intimation under section 143(1). Absent

22. Time Limit for issue of Notice Under section 148 ( Section 149): -

23. Procedure for Assessment Proceedings U/s. 147 Assessing Officer should have ‘Reason to Believe’ and record it to assess or re-assess income escaping assessment Assessing Officer should have ‘Reason to Believe’ and record it to assess or re-assess the income escaping assessment Time Limit for issue of notice under section 148 is specified under section 149 Issue of notice under section 148 for income escaping assessment within the time limit Assessee is required to file return of income in pursuance to notice under section 148 Assessee should seek for the reasons recorded by the Assessing Officer Assessing officer should issue notice under section 143(2)

24. Assessing Officer Should issue notice under section 142(1)(ii) Assessing Officer Should complete and pass the final assessment order under section 147 r. w. s. 143(3) within the time limit Time limit for passing the assessment order is specified under section 153 (1) i.e within 12 months from the end of the Financial year in which notice U/s 148 was issued

25. Explanation 2 to section 147 : - Income Escaping Assessment For the purpose of Sec. 147, the following shall be deemed to be cases where income chargeable to tax has escaped assessment: - • No Return of Income is furnished during the previous year in which income exceeded the Basic exemption limit. • Return of Income is furnished but no assessment has been made and it is noticed by AO that Assessee has understated the income or claimed excessive loss, deduction, allowance or relief. • Assessee has failed to furnish a report from accountant in respect of any international transaction under section 92E of Income Tax Act, 1961. • An Assessment has been made, but- i) Income has been underassessed or ii) income has been assessed at low rate or iii) excessive relief granted or iv) excessive loss or depreciation or any other allowance has been computed e) Person is found to have any asset located outside India (Includes Financial Interest in any entity).

26. Assessee Return Filed Return Not Filed Notice U/s 142(1)(i) 143(1) Return Filed 143(2) No Return Filed 148 142(1)(ii) & other Best Judgement - 144 No Response Response Re-assessment - 147 143(3)

27. Assessment Under Search and Seizure (Section 132) Assessee Department (Investigation)

28. Assessment in case of Search and Seizure :- (Sec 153A to 153C) Also known as ‘Block Assessment’ Procedure of Assessment under Section 153A Search is initiated under section 132 Books of accounts, any document or any asset requisitioned under section 132A YES

29. Issue of notice under section 153A(1) for filling of Return of Income for 6 Assessment years Assessee is require to file Return of Income for relevant assessment year and 6 previous assessment year as if return is under section 139(1) – Return to be filed U/s 153A U/s 153A -No notice for assessment or reassessment if income escaped likely to amount to be less than Rs. 50 Lakhs in relevant AY or in aggregate. Assess or Reassess the total income of relevant assessment year and 6 previous assessment years after filling Return of Income Tax is calculated at the rate applicable for the respective assessment year 153A – All the proceeding of assessment or re-assement (relating to 6 AY) as on the date of initiating 132 shall abate

30. Assessment of Income of other person ( sec. 153C):- • IF AO found any money, bullion, Jewellery or other Valuable article or any books of accounts or documents during the course of search and AO is satisfied that it belongs to other person other than on whom search is initiated, then AO should handover the documents to Assessing Officer having jurisdiction over Such Other Person. • Such Other Person Should file Return of Income for the relevant assessment year and last 6 assessment years relevant to the previous years in which search is conducted. • AO shall conduct assessment of such other person in line with Sec. 153A.

31. Time Limit for Completion of Assessment Under Section 153A (Sec. 153B):- Authorization for Search Under Section 132 or Requisition under Section 132A Executed During FY Commencing on 1St April, 2019 Before 1st April, 2018 During FY Commencing on 1St April, 2018 Within a period of 21 Months from the end of FY in which Authorization for Search is initiated Within a period of 18 Months from the end of FY in which Authorization for Search is initiated Within a period of 12 Months from the end of FY in which Authorization for Search is initiated

32. Time Limit for Completion of Assessment Under Section 153C (Sec. 153B):- Authorization for Search Under Section 132 or Requisition under Section 132A Executed During FY Commencing on 1St April, 2019 Before 1st April, 2018 During FY Commencing on 1St April, 2018 Within a period of 21 Months from the end of FY in which Authorization for Search is initiated OR 9 Months from the end of FY in which books of accounts are handed over to AO Whichever is LATER Within a period of 12 Months from the end of FY in which Authorization for Search is initiated OR 12 Months from the end of FY in which books of accounts are handed over to AO Whichever is LATER Within a period of 18 Months from the end of FY in which Authorization for Search is initiated OR 12 Months from the end of FY in which books of accounts are handed over to AO Whichever is LATER Section 153D- No order of Assessment or Re-Assesssment shall be passed by an Assessing Officer below the rank of Joint Commissioner

33. Substantial Assessment and Protective Assessment This is a type of assessments that focus on those assessments which are made to ‘protect’  the interest of the revenue CIT Vs. Latha Chandy(2003)260ITR385(Kerala); according to the provisions of the Income Tax Act, 1961, the same income cannot be taxed in two hands, but Protective Assessment is temporarily justified, when there is disputes in whose hand the income is to be taxed to safeguard the interest of the revenue. When an assessee declares his income in his returned and Assessing Officers is of the view that the income should be assessed in the hands of another person and there is disputes in the assessment, then Protective Assessment shall be valid till final order received from the Appellate Authorities in whose hands the said income will be assessed.

34. Section 264 – Revision of Order The Principal Commissioner or Commissioner, on his own or on application made by the aseesee can revise any order (other than order passed U/s 263) passed by his subordinate The order of revision can not be prejudicial to the assessee The Principal Commissioner or Commissioner, can not revise the order on his own after the 12 months of the original order Assessee should make application under this section with in one year from the date of the receipt of original order Order under this section can not be revised if any appeal is pending before any appellate Authority

35. CMA Arun Agrawal (Practising Cost Accountant) JALNA

36. Procedure of E-assessment Scheme 2019 Central Government has initiated faceless assessment whereby the Assessee or Authorized Representative need not to visit Income Tax Office. This will be possible through E-assessment. All notices will be served through emails and through self login on income tax portal and all replies has to be submitted on Income Tax Portal. Following is the procedure of E-assessment Scheme 2019.