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Assessment Procedure under IT Act

Assessment means checking, judging or in simple

words computing the income and tax on it. Under
Income Tax Act there are four types of Assessment:
1) Sec 140 A Self Assessment
2) Sec 143 (3) Regular / Scrutiny Assessment
3) Sec 144 Best Judgment Assessment
4) Sec 147 Assessment / Reassessment of
Income Escaping Assessment
Normal Procedure of Taxation
The usual process of Taxation is:
1) The assessee earns income
2) Assessee deposits tax based on self calculation
or as determined by his Tax Consultant
3) The assessee files Income Tax Return (ITR)
Income Tax Return (ITR)
l ITR can be called a self declaration of information
containing various sources of income earned and
tax paid. The Government requires ITR because, in
absence of that, it would not be able to understand
as to what amounts and from what sources the
assessee has earned in the year, and what taxes
has to been paid by the assessee. l ITR under
normal course should be filed u/s 139(1). This
section describes the normal time limit of filing the
ITR which is for non-audit cases is July 31 of the
Assessment year, and for audit cases September
30 of the Assessment year. l Generally, a person
who has income above the minimum exemption
limit (without giving effect of any sections of IT Act)
is obligated under law to file ITR. However
assessee eg a Company has to file ITR compulsorily
whether it earns profit or not. Also, a person, who
has income below the minimum exemption limit,
though not required by law, is not barred from filing
ITR. Often people having income below the
minimum exemption limit also file ITR and the
motivation for filing it varies it can be that
someone wants a Credit Card or a loan from some
Bank or NBFC, or has to produce the ITR for getting
some contract. Many of those who return such
income are genuine cases. However, there are
others who would try to manipulate law for their
ends. Also, sometimes, ITR is filed for the purpose
of getting refund of TDS. Had there been no TDS,
the person might not have required filing ITR.
1) Self Assessment u/s 140 A :
This simply means that the person is calculating
his own tax liability and thereafter filing ITR after
payment of self-calculated tax. Since assessee
himself calculates the tax and income returned it
is called self-assessment. The Assessing Officer
(AO) only checks the return of income on the face
of it and corrects the mistake, if any on it. If there
is any short of tax he call for it and if there is any
excess of tax paid he shall refund the same.
However, the system of self-assessment is only to
make the work of IT Dept easier it is not the end
of assessment. It is simply paying tax and filing of
Return by the assessee. The IT Dept only gives an
acknowledgement / intimation u/s 143(1). The
assessee can file ITR as Self assessment under the
different sections of 139 (Return within due date /
Belated Return / Return of Loss etc.) or in response
to notice u/s 142(1) or 148 or 153A There is no
assessment order by the Dept. under Self
Assessment simply because, the assessment is not
being done by the department. Since the
assessment is not being done by the IT
Department, for legal purpose the
acknowledgment / intimation by IT Department is
not considered as Assessment.
2) Regular / Scrutiny Assessment u/s 143(3):
On the basis of return of income filed, AO may
undertake deep examination of some return of
income roughly 2% to 3% of the total returns filed.
In scrutiny assessment the AO calls the assessee to
furnish the explanations and books of accounts. For
undertaking the scrutiny assessment the AO has to
issue a notice to the assessee under section
143(2). If Assessee produces the information and
explanations required by the Assessing Officer (AO)
the AO completes the assessment and determine
the Taxable income and income tax liability on the
basis of the information and explanations produced
before him. Assessment made under this section
would be final and the department cannot open the
case again unless there are valid reasons
(reasons to believe).
3) Best Judgement Assessment u/s 144 :
Best Judgment Assessment, as the name indicates
Best Judgment Assessment means the computation
of income and tax is undertaken by the AO himself,
on the basis of the best of his judgment. The Best
judgment Assessment can be made by an A.O.
under the following cases: -
1. Assessee does not file his regular return of
income u/s 139.
2. Assessee does not comply with instructions u/s
142 (1), i.e., notice requiring to file his return of
income or 142 (2A), i.e., notice requiring assessee
to conduct audit of his accounts.
3. Assessee does not comply with instructions u/s
143(2), i.e., notice of scrutiny assessment.
4. AO is not satisfied regarding completeness of
accounts Since in all of the above cases either
assess does not cooperate with the Assessing
Officer (AO) or does not file return of income or
does not have complete accounts. Thus, the
assessing officer cannot calculate the income and
therefore, he has to judge the income on the basis
of his best assumptions/judgments. The AO must
give a hearing to the assessee before completing
the assessment as per best of his judgment. No
refund can be granted under best judgment
assessment. U/s 144 A.O. cannot assess income
below returned income and cannot assess loss
higher than the returned loss. Even in case there is
no return for the year, the AO has to base his
calculation on certain logical/rational/ scientific and
reasonable ways viz . based on ratios, growth rate
of industry / sector. The assessment order should
therefore be a speaking order. Assessment u/s 144
can also be resorted to if AO is not satisfied with
the correctness / completeness of Books of
Accounts. Also the AO can reject Books of accounts
u/s 145 if assessment proceedings are in process
u/s 143(3) / 144 /
147 / 153A and in such case, the AO shall assess
the income and tax to the best of judgement (ie. as
per the requirements / procedure of sec 144) and
complete assessment proceedings under the
particular section under which the proceedings are
going on.
4) Assessment / Reassessment of Income
Escaping Assessment u/s 147 :
To undertake assessment u/s 147, notice has to be
issued u/s 148. Before issuing notice u/s 148 the
AO shall record his reasons for issuing the notice.
The notice has to be issued separately for each AY
for which proceedings are to be taken up u/s 147.
The assessee has to file Return in response to
notice u/s 148 even if he has filed the return
previously within due date. Also, the AO is duty
bound to provide the assessee the reasons
recorded by him if the assessee requests for it
after filing Return of Income in response to the
notice. If on request the reasons are not supplied
then the AO cannot proceed u/s 147
If there has been no previous assessment u/s
143(3) or 144, then proceedings u/s 147 is called
assessment, else it is called re-assessment. Also
assessment / re-assessment u/s 147 cannot be
undertaken for any AY, if assessment proceedings
are already underway under any other section of IT
Act. In this the most important thing is that the AO
should have reasons to believe that income
chargeable to tax has escaped assessment. In
proceeding under this sections, the AO can also
consider any other income under any head of
income that comes to his detection subsequent to
issue of notice u/s 148. However, u/s 147 can only
relate to issues of underassessment and unlike
assessment u/s 143(3), the AO cannot reduce
income or increase losses. This assessment can be
undertaken whether the Assessee has filed return
or not or whether any assessment has been
undertaken previously or not. This is because, the
section 147 speaks both of assessment and also
Reasons to believe includes:
1) There has been retrospective change of
law either by legislation or due to court order
(usually Supreme Court) and the AO finds that
the assessee needs to be re-assessed in light of the
new law / rule that is to be applied retrospectively.
2) Evidence that has come to notice of AO.
This evidence can be from any source including
any other assessment proceedings or information
received from revenue intelligence etc.
3) Mistake apparent from records
The interesting thing is that it is only necessary
that there is prima facie some material on basis of
which the case can be reopened. The sufficiency or
even correctness of material is not to be
considered at the stage of opening / reopening of
case u/s 147. However reasons to believe does not
include rumors, gossips, suspicion or change of
personal opinion of AO. Now, the assessment u/s
147 and 143(3) (and also 144) is sort of linked.
After all, any assessment can be done only on
scrutiny of records. Now to take up assessment u/s
143(3) notice u/s 143(2) has to be served on the
assessee within six months of expiry of financial
year in which the return was furnished