All About Assessment Proceedings Under Income Tax Act, 1961

Every Person, who is earning income, which is chargeable to tax, is required to furnish his return of income to the
Income Tax Department. The next step after return filing is the processing of income tax return by the Income Tax
Department. The Income Tax Department examines the return of income for its correctness. The process of
examination of the return of the Income Tax Department is called "Assessment". Assessment includes re-
assessment and best judgment assessment under section 147 and 144 respectively. Such Assessment proceedings
under the Income Tax Act, 1961 refer to the process for determining the tax liability of a taxpayer by the tax
department for a particular financial year.
Under the Income-tax Law, there are five major assessments:
 Assessment under section 140(A), i.e., Self-assessment.
 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.

 Assessment under section 140(A): Self-Assessment

In Self-Assessment under section 140(A), it is duty of the assesse to determine the income tax payable while filing
the return of income. In case any tax is payable on the basis of any return required to be furnished under section
139 or section 142 or section 148 or section 153A, after deducting:
(i) Advance tax Paid,
(ii) TDS/TCS,
(iii) Relief,
(iv) MAT credit,
then the assessee shall be liable to pay tax & interest before furnishing return and proof of such payment shall be
accompanied with return of income.

 Assessment under section 143(1): Summary Assessment

Section 143(1) of the Income Tax Act, 1961 is related to the processing of income tax returns filed by taxpayers.
According to this section, when a taxpayer files their income tax return, the tax department will process it and
issue an intimation to the taxpayer under sub-section (1). The intimation sent by the tax department under Section
143(1) will typically include information on the amount of tax calculated by the department based on the return
filed by the taxpayer, any tax that may be payable or refundable, and any adjustments made to the return by the
department.
If the taxpayer agrees with the intimation, they can simply accept it and no further action is required. However, if
they disagree with the intimation, they can file a rectification request under Section 154 of the Income Tax Act,
1961.
It is important to note that the intimation issued under Section 143(1) is not a notice of assessment, and therefore,
it cannot be considered as an assessment order. Rather, it is simply a communication of the computation of tax
based on the return filed by the taxpayer.
  Assessment under section 143(3): Scrutiny Assessment
A thorough review of an income tax return that has been filed by a taxpayer is a scrutiny assessment under Section
143(3). Scrutiny assessment is the examination of a return of income by giving opportunity to the assessee to
substantiate the income declared and the expenses, deduction, losses, exemptions, etc. When a taxpayer files their
income tax return, the tax authorities scrutinize the return to ensure that it is complete and accurate. If the tax
authorities have any doubts or discrepancies in the return, they can issue a notice to the taxpayer under Section
143(2) of the Income Tax Act, 1961, asking them to provide an explanation or clarification.
After examining the taxpayer's response, if the tax authorities are still not satisfied, they may conduct an
assessment under Section 143(3) of the Income Tax Act, 1961. The assessment may include an audit of the
taxpayer's accounts and an examination of the evidence submitted by the taxpayer. The purpose of the assessment
is to ensure that the taxpayer has correctly disclosed their income and paid the correct amount of tax. If any
discrepancies are found during the assessment, the tax authorities may make adjustments to the taxpayer's income
and tax liability, and may also levy penalties or interest for any underpayment of tax.
Therefore, Section 143(3) of the Income Tax Act, 1961 is a crucial provision that allows tax authorities to
scrutinize taxpayers' returns and ensure that they are complying with the tax laws.
 Assessment under section 144: Best Judgement Assessment
The "best judgment assessment" is a provision under the Income Tax Act, 1961, that empowers the Assessing
Officer (AO) to make an assessment of income to the best of his judgment if the taxpayer fails to file the return of
income or does not cooperate with the tax authorities during the assessment proceedings.
 The AO must have reason to believe that the taxpayer has failed to file the return of income or has not
cooperated with the tax authorities.
 Before making the best judgment assessment, the AO must provide the taxpayer with an opportunity to
explain his position and provide evidence to support his case.
 The AO must consider all the relevant material available on record, including any information gathered by
the tax authorities during the assessment proceedings.
 The assessment made by the AO under the best judgment provision should be based on the facts and
circumstances of the case and should not be arbitrary or capricious.
 If the taxpayer is aggrieved by the assessment made by the AO under the best judgment provision, he can
file an appeal with the Commissioner of Income Tax (Appeals) or with the Income Tax Appellate
Tribunal.

The best judgment assessment is an important tool for tax authorities to ensure compliance with tax laws. This
assessment is carried out in cases where requirements specified in section 144 are not being complied by the
taxpayer.

 Assessment under section 147: Income Escaping Assessment

Under the Income Tax Act, 1961, income escaping assessment refers to a process by which the income tax
authorities can assess and tax the income that has escaped assessment in the original assessment proceedings.
When a taxpayer files his/her income tax return, the assessing officer (AO) scrutinizes the return to determine
whether it is complete and accurate.
The taxpayer is then required to file a return of income for that assessment year, and the AO will proceed to assess
the income that has escaped assessment. The AO can also impose interest and penalty on the tax liability arising
from the income that has escaped assessment. It is important to note that income escaping assessment can only be
initiated if the AO has reason to believe that income has escaped assessment. The reason must be based on
tangible material or information, and cannot be based on mere suspicion or conjecture. Additionally, the AO must
give the taxpayer an opportunity to be heard before making the assessment. Overall, income escaping assessment
is a mechanism through which the income tax authorities can ensure that taxpayers pay the correct amount of tax
on their income, and prevent tax evasion.

Note : This article is written by the author as per Finance Act 2022.