Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing up his return of income. Once the return of income is filed up 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 its correctness. The process of examining the return of income by the Income Tax department is called as “Assessment”. Assessment also includes re-assessment and best judgment assessment under section 144. Under the Income-tax Law,
there are four major assessments given below:
Assessment under section 143(1), i.e., Summary assessment without calling the assessee.
Assessment under section 143(3), i.e., Scrutiny assessment.
Assessment under section 144, i.e., Best judgment assessment.
Assessment under section 147, i.e., Income escaping assessment.
This is a preliminary assessment and is referred to as summary assessment without calling the assessee (i.e., taxpayer).
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 section 139(1); or
(iv)(disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; or
(v)disallowance of deduction claimed u/s 10AA, 80IA to 80-IE, if the return is furnished beyond the due date specified under section 139(1); 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 adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter. However, no such adjustment shall be made unless an intimation is given to the assessee of such adjustment 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 case where no response is received within 30 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 of assessment under section 143(1)
*After correcting arithmetical error or incorrect claim (if any) as discussed above, the tax and interest and fee*, if any, shall be computed on the basis of the adjusted income.
*Any sum payable by 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 the taxpayer.
*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.
*The acknowledgement of the return of income shall be deemed to be the intimation in a case where no sum is payable by or refundable to the assessee or where no adjustment is made to the returned income.
**As per section 234F, a fee shall be levied where the return of income is not filed within the due dates prescribed under section 139(1). Fee for default in furnishing return of income shall be Rs. 5,000 if return has been furnished after the due date prescribed under section 139(1). However, it shall be Rs. 1,000 if the total income of an assessee does not exceed Rs. 5 lakh.
Assessment under section 143(1) can be made within a period of 9 months from the end of the financial year in which the return of income is filed.
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 is to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.
Scope of assessment under section 143(3)
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.
Procedure of assessment under section 143(3)
*If the Assessing Officer 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, in support of the return.
*To carry out assessment under section 143(3), the Assessing Officer shall serve such notice in accordance with provisions of section 143(2).
*Notice under section 143(2) should be served 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 evidences, 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 materials 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.
Faceless Assessment [Section 144B]
Faceless assessment means the assessment proceedings conducted electronically in “eproceeding” facility through assessee’s registered account in the designated portal. Designated portal means the web portal designated as such by the Principal Chief Commissioner or Principal Director General, in charge of the National Faceless Assessment Centre.
The CBDT had issued the instructions, guidelines and notice formats for conducting scrutiny assessments electronically.
Scope of faceless assessment
Section 144B provides that the assessment of total income or loss of the assessee under Section 143(3) or Section 144 shall be made in a faceless manner in respect of the specified territorial areas or persons or class of persons or income or class of income or cases or class of cases.
Authorities to conduct the faceless assessment
For the purpose of faceless assessment, the following centres and units have been set-up by the Board by specifying their respective jurisdiction:
(a) National Faceless Assessment Centre (NFAC);
(b) Regional Faceless Assessment Centres (RFAC);
(c) Assessment Units (AU);
(d) Verification Units (VU);
(e) Technical Units (TU); and
(f) Review Units (RU).
National Faceless Assessment Centre
The purpose of this centre is to facilitate the conduct of faceless assessment proceedings in a centralized manner, which shall be vested with the jurisdiction to make the faceless assessment.
All communication among the other units or with the assessee or any other person with respect to the information or documents or evidence or any other details, as may be necessary for making a faceless assessment shall be through the National Faceless Assessment Centre.
Regional Faceless Assessment Centres
Its major function is to facilitate the conduct of faceless assessment proceedings in the cadre controlling region of a Principal Chief Commissioner, which shall be vested with the jurisdiction to make a faceless assessment.
Assessment Units It shall perform the function of making the assessment, which includes identification of points or issuing material for the determination of any liability (including refund) under the Act, seeking information or clarification on points or issues so identified, analysis of the material furnished by the assessee or any other person, and such other functions as may be required for making the faceless assessment.
It shall perform the function of verification, which includes enquiry, cross verification, examination of books of accounts, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification.
The function of verification unit under this section may also be performed by a verification unit located in any other faceless centre set up under the provisions of this Act or under any scheme notified under the provisions of this Act. The request for verification may also be assigned by the National Faceless assessment centre to such verification unit.
It shall perform the function of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter which may be required in a particular case or a class of cases, under this section.
It shall perform the function of review of the draft assessment order, which includes checking the following:
(a) Whether the relevant and material evidence has been brought on record;
(b) Whether the relevant points of fact and law have been duly incorporated in the draft order;
(c) Whether the issues on which addition or disallowance should be made have been discussed in the draft order;
(d) Whether the applicable judicial decisions have been considered and dealt with in the draft order;
(e) Arithmetical correctness of modifications proposed, if any; and
(f) Any other functions required for the purposes of review.
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 [Applicable for assessment year 2019-20 and assessment year 2020- 21]
4) Within 9 months from end of the assessment year in which income was first assessable. [Applicable for assessment year 2021-22 and onwards]
Note:- If reference is made to TPO, the period available for assessment shall be extended by 12 months.
This is an assessment carried out as per the best judgment of the Assessing Officer on the basis of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.
Scope of assessment under section 144
As per section 144, the Assessing Officer is under an obligation to make an assessment to the best of his judgment in the following case
If the taxpayer fails to file the return 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: The Assessing Officer can issue notice under section 142(1) 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.
If the assessing officer is not satisfied about the correctness or the completeness of the accounts of the taxpayer or if no method of accounting has been regularly employed by the taxpayer.
From the above criteria, it can be observed that best judgment assessment is resorted to in cases where the return of income is not filed by the taxpayer or if there is no cooperation by the taxpayer in terms of furnishing information / explanation related to his tax assessment or if books of accounts of taxpayer are not reliable or are incomplete.
Procedure of assessment under section 144
If the conditions given above calling for best judgment 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 under section 142(1) has been issued prior to the making of an assessment under section 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 to the best of his knowledge.
If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant materials 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 knowledge/judgment and determine the sum payable by the taxpayer on the basis of such assessment.
Income Escaping Assessment under section 147 is the assessment which is done by the Assessing Officer if there is a reason for him to believe that income chargeable to tax has escaped assessment for any assessment year. It gives power to him to re-assess or re-compute income, turnover etc. which has escaped assessment.
Notice for Income Escaping Assessment issued under section 148
If the Assessing Officer has a reason to believe that any income has escaped assessment for any assessment year which was chargeable to tax, then the notice may be issued under section 148:
Case 1: Within 4 years from the end of the relevant assessment, if the escaped income is less than Rs. 1,00,000.
Case 2: If the income which is escaped is equal to or more than Rs. 1, 00,000 then notice can be issued for up to 6 years from the end of the relevant assessment year.
Case 3: If escaped income is associated with any assets located outside India, and then notice can be issued up to 16 years from the end of the relevant assessment year.It includes financial interest in any entity.
It may be noted that the notice u/s 148 can be issued by AO only after getting prior approval from the prescribed authority mentioned in section 151.
Cases where Income chargeable to tax has deemed to Escaped assessment
(a) When the total income of any assessee during the previous year exceeded the maximum amount which is not chargeable to income-tax and no return has been furnished by him.
(b) When Assessing Officer has noticed that the assessee has understated the income or has claimed an excessive loss, deduction, allowance or relief in the return and no assessment has been made.
(c) When an assessee is required to furnish a return under section 92E about any international transaction and he failed to do so.
(d) In the case where an assessment has been made, but
*Income chargeable to tax has been under assessed.
*The income which is assessed is being assessed at a rate which is too low.
*Excessive loss or depreciation allowance or any other allowance under this Act has been computed.
*Where a person is found to have any asset located outside India.It includes the financial interest in any entity.
Submission of return after order in section 148
The assessee shall submit the return within the time period prescribed in the Notice of Income Escaping Assessment. Assessee may demand reasons of proceeding u/s 147 from AO. If such reasons are not demanded by the assessee, the AO can proceed to complete assessment. If the assessee demands reasons, the AO must provide reasons to the assessee. Assessing officer is duty bound to provide the copy of reason recorded within the reasonable time as per guidelines of Hon’ble Supreme Court.