At the end of each financial year, all individuals and units need filing an income tax return by calculating the amount of income earned and make payment of the tax due. Income tax assessment is the procedure to collect and check the information filed by an assessee in their income tax return. Therefore, an income tax assessment would take place following an income tax return filing.
This is an initial assessment and refers to as summary assessment without calling the assessee (taxpayer).
Scope of Summary Assessment under section 143(1)
Summary Assessment under section 143(1) is similar to initial checking of the return of income. At this phase, no thorough scrutiny of the return of income is performed and the total income or loss is calculated after performing the following adjustments (if any) :
(i) Any arithmetical mistake in the return or
(ii) An inaccurate claim - If such wrong claim is noticeable from any information exists in the return
(iii) Disallowance of loss claimed – In the case of return of the previous year for which set-off for loss is claimed was provided outside the due date mentioned under section 139(1) or
(iv) Disallowance of expenditure mentioned in the audit report but not included into account while calculating the total income in the return or
(v) Disallowance of deduction which is claimed u/s 10AA, 80IA to 80-IE, if the return is provided outside the due date mentioned under section 139(1) or
(vi) Adding the income appearing in Form 26AS or Form 16A or Form 16 that has not been added while calculating the total income in the return. Though, no such adjustment should be made corresponding to a return given for the assessment year 2018-19 and thereafter.
However, no such adjustment should be performed unless information is delivered to the assessee regarding such adjustment either in writing or in online mode. Besides, the response obtained from the assessee, if any, shall be taken into consideration before performing any adjustment and in the case where no response is obtained within 30 days of passing of such information, such adjustments should take place.
For the above purpose "an incorrect claim noticeable from any information in the return" denotes a claim on account of an entry in the return :
(i) Of an item that is contradictory with another entry of the same or some other item in such return
(ii) Regarding which the information needs to be furnished under the Act to authenticate such entry and has not been provided so far
(iii) Regarding a deduction, where such deduction crosses specific statutory limit that may have been stated as monetary amount or percentage or ratio or fraction
Process of assessment under section 143(1)
After rectifying arithmetical mistake or inaccurate claim (if any) as mentioned above, the tax and interest and fee, if any, should be calculated on account of the adjusted income.
Any sum payable by or refund because of the taxpayer shall be informed to him.
Information must be made or generated and sent to the taxpayer stating the sum calculated to be payable by or the amount of refund due to the taxpayer.
Information should be sent to the taxpayer in the case where the loss acknowledged in the return of income by the taxpayer is adjusted but no tax or interest is to be paid by or no refund is outstanding to him.
The acknowledgement of the return of income should be deemed to be the information in the case where no sum is to be paid or refunded to the assessee or where no adjustment is to be created for the returned income.
According to section 234F (as mentioned in Finance Act, 2017 with effect from Assessment Year 2018-19), a fee should be imposed where the return of income is not filed within the due dates recommended under section 139(1). The amount of fee is mentioned as follows :
(a) Rs. 5,000, when the return is provided on or before the 31st day of December of the assessment year
(b) Rs. 10,000 in any other case provided that in the case total income of the individual is not more than Rs. 5,00,000, the amount of fee should not be more than Rs. 1000.
Assessment under section 143(1) can be performed within a period of 1 year from the end of the financial year in which filing the return of income is done.
All individuals having taxable income need to file income tax return every year. While filing a tax return, the assessee calculates the income received and makes payment of tax according to the return filed by him/her. This procedure of self-computation of income and payment of tax is known as self-assessment. Self-assessment of income tax is dealt under section 140A of the Income Tax Act. Section 140A is explained below :
(1) Where a return has been provided under section 139 and the tax payable on that return as decreased by any tax paid already under any provision of this Act crosses Rs. 500, the assessee needs to pay the tax which is payable within 30 days of providing the return.
(2) Once a provisional assessment under section 141 or a regular assessment under section 143 or section 144 is performed, any payment made under sub-section (1) should be deemed to be paid just before the provisional assessment or regular assessment, as the case may happen.
(3) If any assessee cannot pay the tax or any part thereof consistent with the provisions of sub-section (1) unless a provisional assessment under section 141 or a regular assessment under section 143 or section 144 is performed before the expiry of 30 days stated in that sub-section, is likely, by means of penalty, for making payment of such amount as the Income-tax Officer may instruct, but the amount of penalty does not cross 50% of the amount of such tax or part as the case may be :
Given that before imposing any such penalty, the assessee shall be given a reasonable chance of being heard.
Once an income tax return is filed, a tax officer may be assigned by the Income Tax department randomly depending on specific conditions for undertaking an examination.
Scope of assessment under section 143(3)
The purpose of scrutiny assessment is to verify that the taxpayer does not realize the income or has not calculated extreme loss or has not underpaid the tax in any way.
For confirmation of the above, the Assessing Officer performs a thorough scrutiny of the return of income and will assure himself about different claims, deductions and others made by the taxpayer as the return of income.
Process of Assessment under section 143(3)
If the Assessing Officer thinks it compulsory to make sure that the taxpayer does not realize the income or has not calculated extreme loss or not underpaid the tax in any way, then he will deliver a notice to the taxpayer instructing to attend his office or to produce or reason to be produced any proof on which the taxpayer can depend, supporting the return.
In order to perform the assessment under section 143(3), the Assessing Officer should serve such notice along with provisions of section 143(2).
Notice under section 143(2) must be delivered within a period of 6 months from the end of the financial year in which the return is filed.
The assessee or his representative (as the case may be) needs to appear before the Assessing Officer and will put his arguments, supporting documents and others on different matters/issues as needed by the Assessing Officer.
After hearing/verifying such proof and taking into consideration such particulars as the taxpayer may provide and such other proof as the Assessing Officer may need on particular points. After taking into account all suitable materials that he has collected, the Assessing Officer needs, by an order in writing an assessment of the total income or loss of the taxpayer is created and the sum payable by him or refund of any amount outstanding to him is calculated depending on such assessment.
A new sub-section (3A) in Section 143 is added into the Finance Act, 2018 stating that the Central Govt. may make a system to make assessment so as to instruct enhanced efficiency, transparency and accountability by :
A. Removing the edge between the Assessing Officer and the assessee during proceeding to the level technologically possible
B. Optimization of utilization of the resources in the course of economies of scale and functional field
C. Initiating a team-based evaluation with active jurisdiction
According to the e-governance scheme to ease ways of assessment proceedings online, Income-tax Department has started 'E-Proceeding' feature. Under this scheme, Central Board of Direct Taxes has planned it compulsory for the tax officers for taking recourse of electronic communications for all partial and entire scrutiny. The Central Board of Direct Taxes had passed the instructions and notice formats for doing scrutiny assessments online. According to the instruction, apart from search related assessments, all scrutiny assessments must be conducted only through the 'E-Proceeding' feature presented at e-filing website of Income-tax Department.
According to Section 153, the time limit for creating assessment under section 143(3) includes :
1) Within 21 months since the end of the assessment year in which the income was assessable first. [For assessment year 2017-18 or before]
2) 18 months since the end of the assessment year in which the income was first computable. [For assessment year 2018-19]
3) 12 months since the end of the assessment year in which the income was first computable [Assessment year 2019-20 and onwards]
Note: - If reference has to be made to TPO (Transfer Pricing Officer), the period available for assessment shall be enhanced by 12 months.
Best judgement assessment denotes the calculation of income and tax payable depending on the best judgement of the income tax officer starting a scrutiny of the taxpayer. Best judgement assessments are accomplished when the assessee does not cooperate with the request of Income Tax officer for required information or does not do filing of a tax return or does not preserve the book of accounts. Therefore, the cases for which the best judgement assessment is accomplished by an Income Tax Officer are as follows :
Income tax return is not filed by the taxpayer.
The taxpayer does not follow an income tax notice issued to file income tax return or perform an audit of accounts.
The taxpayer does not follow the requests for information and documents when a scrutiny assessment is going on.
In the case the tax officer is not satisfied with the information or documents produced by the assessee.
Before completing and issuing order, the Income Tax Officer should give a chance to the taxpayer for being listened to.
Scope of assessment under section 144
According to section 144, the Assessing Officer is responsible to make an assessment to the best of his judgment for the following scenarios :
If the taxpayer cannot file the return needed within the due date recommended under section 139(1) or a delayed return under section 139(4) or an amended return under section 139(5).
In the case the taxpayer cannot follow all the terms of a notice issued under section 142(1).
If the taxpayer cannot follow the directions passed under section 142(2A).
In the case after filing the return of income, the taxpayer may fail to follow all the terms of a notice passed under section 143(2), i.e. notice of scrutiny assessment.
In the case the assessing officer is not satisfied about the accuracy or the entirety of the accounts of the assessee or if there is no method of accounting has been used by the taxpayer regularly.
Process of assessment under section 144
If the conditions offered above for best judgment assessment are satisfied, then the Assessing Officer will issue a notice on the taxpayer to show cause why the assessment should not be done to the best of his judgment.
No notice as stated above is needed in a case where a notice under section 142(1) has been served before making of an assessment under section 144.
If the Assessing Officer is not convinced by the point of view of the taxpayer and reason is there to think that the case requires a best judgment, then he will proceed to perform the assessment to the best of his knowledge.
If the conditions of the best judgment assessment are fulfilled, then after considering all pertinent materials that the Assessing Officer has collected, and after giving the taxpayer a chance of being listened to, the Assessing Officer shall make the assessment of the total income or loss to the best of his knowledge/judgment and calculate the sum payable by the taxpayer depending on such assessment.
According to Section 153, the time limit to make assessment under section 144 is :
1) Within 21 months since the end of the assessment year in which the income was calculable first. [For assessment year 2017-18 or before]
2) 18 months since the end of the assessment year in which the income was first computable. [For assessment year 2018-19]
3) 12 months since the end of the assessment year in which the income was first computable [Assessment year 2019-20 and after]
Note: - If reference is ready to TPO, the time obtainable for assessment should be enhanced by 12 months.
The Income Tax department reserves authority for opening an assessment up to 6 years. Therefore if a tax officer considers that the income of an assessment has been skipped assessment, he/she can reopen the assessment and perform that according to the newly available information and documents. To start an income escaping assessment, the tax officer must pass a notice to the taxpayer under Section 148.
Scope of assessment under section 147
The purpose to perform assessment under section 147 is to get under the tax net any income which has skipped assessment in original assessment.
Process of assessment under section 147
In order to make an assessment under section 147, the Assessing Officer requires issuing a notice under section 148 to the taxpayer and must give him a chance of being listened to.
If the Assessing Officer has grounds to consider that any income taxable has skipped assessment for any assessment year, then he may assess or reassess such income and also any other income taxable which has escaped assessment and comes to his notice afterwards in the way of the proceedings under this section. He has authority also to re-compute the loss or the depreciation allowance or any other allowance, as the case arises, for the associated assessment year.
Items that are the subject topics of any appeal, revision or reference cannot be covered by the Assessing Officer under section 147.
Time-limit to complete assessment under section 147
According to Section 153, the time limit for doing assessment under section 147 is :
1) Within 9 months since the end of the financial year in which the notice under section 148 was issued (in the case notice is issued before 01-04-2019).
2) 12 months since the completion of the financial year in which notice under section 148 is issued (if notice is issued on or after 01-04-2019).
Note - If reference is done to TPO, the period available for assessment shall be enhanced by 12 months.
Time-limit to issue notice under section 148
Notice under section 148 can be served within a period of 4 years since the end of the applicable assessment year. If the escaped income is Rs. 100000 or more and some other specific conditions are fulfilled, then notice can be issued up to 6 years since the end of the applicable assessment year.
If the escaped income is related to any asset (including financial interest in any unit) situated outside India, notice can be issued up to 16 years since the end of the applicable assessment year.
Notice under section 148 can be served by Assessing Officer only after obtaining prior approval from the recommended authority.