2(24) Income (enumerates certain receipts / items as) includes Profit & gains,

Dividend, Voluntary contributions of trust, Perquisite or profit in lieu of salary, other

Special allowance or benefit, Allowance granted to meet personal expenses at office,
Perquisite obtained from company, Compensation, Profit on sale of License, Cash
assistance received, Interest, salary, bonus, commission/remunerations, Profit/gain of
mutual or co-operative insurance co., Capital gain from transfer of capital, Keyman
Insurance : Features : In cash or kind, Arises on receipt or accrual basis, Even
temporary income is taxable, Lump sum or in installments taxable, Existence of source
necessary, Earned from Outside though earned legally or illegally. Exclude Gifts,
Revenue or Capital Receipt. Tax Treatment : i) Taxable Income from part of total
income i.e. salaries, rent, business profits, professional gains, capital gain, and
interest dividend and so on, ii) Exempted Income not from part of total income,
hence, not taxable, iii) Rebateable (Tax Free Incomes) Sripal 2013
2(22) Dividend Income : is payments made by corporation to shareholder, being
portion of corporate profits, resultant of company's earnings or profits. Types : i) Cash
dividends S-10 (34) paid in cash against stock holdings ii) Stock dividends are in
addition to existing shares. Purpose is to attract investors & increase the value of
stock. Important Dates are i) announcement date, ii) record date, iii) ex-dividend date
and iv) payment date. DI is taxable u/s 194 at slab rate of shareholder, i.e. TDS of
10%. DI is source of financial security that reaps high returns to investor and builds
company's intrinsic value. Navnitlal 1971, Jamnadas 1973
Causal Income receipt is accidental & without any stipulation, nature - unexpected
windfall, but is fully taxable i.e. lottery, race income are taxable at special rate of 30%,
CI cannot be set off against other CI or for setting off loss of other head. Vatika 2018
S-4 Every person whose total income of PY exceeds max income not chargeable to tax
is an assessee & chargeable to income tax @ prescribed by ITA 1961 for relevant AY.
2(7) Assessee : means 'a person by whom any tax or any other sum of money is
payable under ITA 1961 & includes a. Every person i) liable to pay any a) tax or b)
other sum of money (e.g. interest, penalty, etc) ii) against whom proceeding under ITA
has been taken for assessment of a) his own income ( normal assessee) or b) income
of any other person for which he is assessable / liable (assessee's representative) c)
loss sustained or d) refund due or b. Deemed Assessee : who is liable to pay tax on
income of any another person being legal representative, agent of non resident,
guardian or manager, trustees and administrators etc. c. Assessee in Default : who
fails to comply with it's statutory duties imposed under ITA
2(31) Person : includes - Individual (natural born persons / human beings only i.e.
male/female/minor/ unsound) - Hindu Undivided Family, Company (Domestic Indian
or Foreign companies), Partnership Firm (including LLP), Association of persons or
Body of individuals, Local authority like Municipalities, Panchayats, Boards, Port,
Trusts etc, Every artificial juridical person i.e. idols, deity, LIC, University etc.
2(8) Assessment (examination/ scrutiny/ processing of IT Returns by IT Department)
is a process of examining / assessing, correctness / validity of assessee’s claimed
income for computing and imposing the tax payable / liability. Types : 140A Self-Ass -
assessee itself determines income tax payable, 143(1) Intimation / Summary
Preliminary Ass / Refund Order or Demand Order, 143(3) Limited Scrutiny Ass /
Regular Ass based on evidence, 144 Best Judgments Ass,
147 Re-Assessment/Income escaping assessment/Re computation : AO has sufficient
reasons to believe that any income chargeable to tax has escaped assessment for any
AY, thus may reassess income, if loss/depreciation is allowed in following cases as : i)
No return of income has been furnished, though liable to file, ii) Assessee already
taken or claim for excessive loss, deduction etc., in return, iii) Income chargeable to
tax has been under assessed/at too low rate, iv) Excessive relief was taken in return, v)
Notice is issued by AO to assessee where income has escaped assessment (S148), vi)
Time limit for notice issued is within 4 years from end of A.Y. when escaped any
income is less than Rs. 1,00,000 otherwise within 6 years when escaped income is
more than Rs. 100000, vii) Within 30 days of giving notice assessee have to submit a
return of income & Assessing officer have to maintain record for reason of notice.
2(9) Assessment Year : financial year consisting of 12 months (starting from 1 April
to 31 March) in which income tax is to be paid, thus is also called ' tax year' as
assessee’s income from previous year is taxed @ as specified by ITA. AY is a FY which
immediately succeeds PY, thus Current AY is 2023-24. Financial year : consist of 12
months commences from 1 April and ends on 31 March every year. S-3 Previous Year
: FY in which income is earned, which would be subjected to tax in AY, thus is also
called 'income year' PY is a FY which immediately precedes AY, thus running PY is
2022-23. General Rule : Income earned in PY is taxable in next AY. Exceptions : -
Situations where income of PY taxable in the PY itself instead of AY, - Non-resident
shipping business (S-172), - Assessment of persons leaving India (S-174), - Association
of person /Body of Individuals or artificial judicial person formed for a - particular
event or purpose (S-174A), Assessment of person trying to dispose assets with a view
to avoid tax (S- 175), - Discontinued business (S-176)
Residential Status : C 2, S 5-9 is basis of taxation & is significant for accessing tax
liability in India - Tax incidence of assessee or its inclusion depends on it's RS not on
it's citizenship / status, thus even foreign nationals / entities in India or Indian
nationals earning foreign income are taxable - RS is determined / based on physical
stay of individual in relevant FY as well as preceding ten tax years. S- 6 Classification /
Determination of assessee on basis of RS : 6(1) Basic Conditions : B1 - Residing /
domicile in India in PY for more than 182 days or B2 - Stay in India in PY for more than
60 days and for more than 365 days during 4 years preceding the PY : 6(6) Additional
Conditions : A1 - Resident for at least 2 out of 10 years preceding the PY and A2 - has
been in India for more than 730 days during 7 years preceding the PY.: Explanations :
1. For counting days, both day of entry & departure are included. 2. Stay need not be
continuous, and also place and purpose of stay is immaterial. Exceptions: (only B1 -
stay more than 182 days in PY is required for Indian citizens leaving India during PY )
a) for purpose of job, b) as a crew of an Indian ship. c) person of Indian origin who
comes to India on a visit. Rule of Residence for Assessment : i) Resident & Ordinarily
Resident (R & OR) : Assessee must satisfy at least one of the basic conditions (B1or
B2) and both of additional conditions (plus A1 & A2) - ii) Resident but Not Ordinarily
Resident (R - NOR) : Assessee must satisfy at least one of the basic conditions
(B1orB2) and non of additional conditions (minus A1 or A2) - iii) Non Resident ( NR) :
Assessee is not satisfying any of conditions (neither B1- B2 nor A1 – A2)
a) For Individuals (human beings / natural persons)
R & OR R - NOR NR

Satisfies any one of Basic Condition Satisfies any one of Basic No Condition
and both Additional Conditions Condition is satisfied
b) For HUF/Companies/Firms/Associations (artificial persons/separate entity)
Status HUF Firm Other Companies

R Control & Mangement of as as i) Indian Co. or ii) Foregin

it's affairs is wholly / HUF HUF Co. having PoEM in India
partly is in India. (Place of Effective
Management means a place
R& Karta satisfies both where key management &
OR additional conditions commercial decision,
necessary for conduct of
R- Karta does not satisfies business of an entity as a
NOR any additional conditions whole are, in substance
made.)

NR Control & Mangement is as as Foregin Co., PoEM stituted

wholly out of India HUF HUF out of India
S- 5 Scope of Total Income of a person / assessee depends upon : i) it's RS for
relevant AY, thus incidence of tax depends upon RS alongwith, ii) place /
location of accrual or receipt of income (Indian income) and iii) point of time of
accrual (PY) as follows
R & OR R- NR
NOR

1. Income received / deemed to be received in India T T T

2. Income accruing/arising/ deemed to accrue in India T T T

3. Income accruing or a) Business controlled in India T T Not

arising outside India or profession set up in India T
from :
b) any other source T Not T "
S- 7 : Indian income : Income received, accrued or arise or deemed so, in wholly or
partly in India during PY is taxable for all R & OR, R – NOR and NR in India, thus any
income received in India by any assessee during PY is taxable in India, regardless of
assessee’s RS or location where income was earned.
S- 9 Income Deemed to Accrue or Arise in India : even though they may actually
accrue or arise outside India, directly or indirectly through or from a) any property,
asset or source of income in India, b) transfer of a capital asset situated in India, c)
income chargeable & payable under head “Salaries” for i) service rendered in India &
ii) rest or leave period forms part of contract of employment. d) salary paid by Govt to
citizen of India for services outside India. e) dividend paid by Indian Co. outside India.
f) any income through or from any business connection in India g) Interest, royalty and
fees for technical services paid by Govt or residents
Foreign income & it's taxability : Income (other than Indian income) received,
accrued or arise or deemed so, in wholly outside India during PY, is taxable only for
R & OR and R – NOR but not taxable for NR in India
Gross Total Income C 4, S 14 -59 means aggregate amount of taxable income
computed under five heads of income i.e. salaries, house property, business &
profession, capital gains and other sources. GTI means total income computed in
accordance with the provisions of ITA 1961 before making any deduction under S 80C
to 80U. GTI is aggregate amount of the following heads of income as : (i) Salaries (S
15 - 17 cash receipts & perquisites from employer), (ii) Income from House Property
(S 22 - 27 rental income), (iii) Profits an Gains of Business or Profession (S 28 – 44),
(iv) Capital Gains from transfer of movable and immovable assets (S 45 – 55), (v)
Income from other Sources i.e. interest, royalty, lottery etc. (S 56 – 59) Add (i)
Clubbing provisions (S 60-65), (ii)Deemed income (S 66-69), (iii)Set off & carried
fordward of losses (S 70-79) Less: C VIA deductions (80A to 80U) = Taxable income /
Net total income. aggregate amount of income computed under the above heads, after
making adjustments of set off and carry forward of losses and clubbing of income is
GTI. -
Total Income is ’taxable income of an assesses, thus Tax Liability is calculated on
such income. It is computed as per provisions and rules of ITA 1961, S- 2 (45) TI
means the total amount of income referred to in S-5, computed in the manner laid
down in ITA 1961 TI means amount left after making deductions u/s 80C to 80U from
GTI
Gross Total Income Total Income

Meaning :Aggregate of various heads of income After deducting deduction u/s 80C to 80U
salary, house property, business / profession, from GTI the remaining amount is TI
capital gains & other sources

Tax Calculation: not calculated on GTI Done on TI

 Scope :Includes TI, is equal to or more than TI Always less then GTI

Rounded off :Not applicable Applicable to nearest tens

Agricultural income : Not included Included only for tax purpose.

Income which do not form part of total Income : C -3 : S- 10 are exempted
income, not at all charged or considered for any taxes / mandates total deduction,
thus while calculating GTI these incomes are totally excluded / exempted, providing
tax relief on very basis of source / inception. - Tax exemption is a personal allowance
or specific monetary exemption which maybe claimed by an individual to reduce
taxable income. - EI for all assesses : Agricultural Income 10(1), Share of income
from partnership firm 10 (2A), Share of HUF Income 10(2), Scholarships 10(16),
Income as divided 10 (34 & 35), Capital gain on transfer u/s 64 10 (33), Allowance of
M.P./MLA 10 (17), Award / reward 10 (17A), Pension to gallantry award winner
10(18), Family Pension received by family of armed forces 10(19), Capital gain on
compulsory acquisition of urban Agriculture land 10(37), Interest on notified
Government Securities 10(15), Income of minor child which is clubbed 10(32),
Compensation under Bhopal Gas Leak Disaster 10(10BB), Income of subsidy from Tea
Board 10(30), Income of schedule Tribe members 10(26), Amount received under a
life Insurance Policy 10(10D), Income of subsidy from Rubber/Coffee /Spices or other
notified Board 10(31),Income from Sukanya Samriddhi Account 10(11)A : EI for
specified assesses : Exp for newly established industrial undertaking i) in free trade
zones 10 (A), ii) in SEZ 10 (AA), iii) 100% export oriented undertakings 10(B), iv)
Deduction for export of artistic hand made articles 10 (BA), v) Income of
charitable/religions trusts 11
S- 2(1A) Agricultural Income means & include - any income, rent, revenue or
receipt derived from : (a) land which is situated in India and used for agricultural
purposes, (b) land by agriculture or by process rendering produce marketable or sale
by cultivator or receiver of rent in kind, (c) building i) in immediate vicinity of
agriculture land, ii) occupied by cultivator, iii) used as a dwelling / store /out house, iv)
land assessed to land revenue. (d) any income derived from saplings/seedling grown in
a nursery Exclude though income is connected with land but not AI : profit on
purchasing standing crop, Income from mines, Income from self grown grass,
trees/bamboos, Divided from a company engaged in Agricultural, Income from
warehouses and godowns, Income from land used for brick making, Income from
supply of water for irrigation purposes, Remuneration for managing agricultural
property, Income from dairying, Interest accrued on promissory notes executed for
arrears of rent. Tax Liability of AI - though AI is exempt and it is not included in
computation of total income of assessee but from tax calculation point of view it is
added to total income. AI is integrated with non-AI in those cases where assessee has
both incomes. Such integration is done only in the case of individual, HUF, AOP/BOI
and artificial juridical person. Conditions for Integration (i) Non AI of assessee
exceeds maximum exemption limit (ii) Net agricultural income exceed Rs. 5,000
S– 10A : Special provisions / exemptions / deductions in respect of newly established
units in Free Trade Zone / Special Economic Zones : FTZ / SEZ are a specified,
delineated and duty-free geographical region having progressive taxation / economic
laws to encourage / promote growth, investment, industrialization, economy &
increase exports, earn foreign exchange, transfer latest technologies, stimulate direct
foreign investment and generate additional employment. : FTZ are free port or area
within which goods may be landed, handled, manufactured or reconfigured, and re-
exported without intervention of authorities. Eligibility Condition: i) assesse is
entrepreneur as per FTZ / SEZ, ii) units begin to manufacture or produce article /
things or provide services during previous AY, between year 2005 to 2021, iii) not
formed by the splitting up or reconstruction of existing business, iv) not formed by the
transfer of old machinery or plant, v) assesse should derive income from export of
articles or services, vi) assesse should be audited by CA in prescribed form - 56F
report enclosed with ITR
Benefits : Tax Holiday / Exemption / Deduction for 15 years. Amount of Deduction =
Profits of Business Unit x Export Turnover of Unit / Total Turnover of assessee Unit
(Export Turnover is amount received or brought into India by assessee in convertible
foreign exchange) : Period of Deduction available for 15 years : First 5 years : 100%
of profits and gains derived from export of articles or from services. - Next 5 years :
50% of such profits - Last 5 years : amount transferred to SEZ reinvestment reserve
account (SEZRARA) or 50% of profit provided that, such amount be utilized for (a)
acquiring /using new plant & machinery within 3 years from creation of reserve, (b) in
meantime, until above acquisition, amount can be used for purpose of business, (c)
subject to furnishing form 56FF - Carry forward of losses Loss u/s 72 - 74, is allowed in
any AY : Withdrawal of deduction : amount credited to SEZRARA is deemed as
taxable profit / income, if same has been: a) mis utilized or b) not utilized before expiry
of 3 years - Tata CIT 2008
Income from House Property : C 4, S 22 -27 S- 22 annual value (earning capacity)
of house property (complete building or land attached thereto), owned by assessee is
taxable / chargeable as IfHP, Conditions : i) there must be house property (only
complete building or land attached thereto, like residential house, office, go down,
showroom, commercial premises etc) ii) assessee must be owner of HP (inclusive of
legal and deemed owner like spouse / minor child, member of co-op society,
association, co-owners, co pacners, holder of un partitioned estate, in part
performance of contract or adverse possession), Exceptions (HP is not considered) i)
HP in self used by assessee for own taxable business or profession, ii) Letting out
(subletting/sub-tenancy) of HP is incidental to business (income from staff-quarters),
iii) HP Let out to Govt authorities for police, fire brigade, bank, insurance.
Exemptions: IF HP not taxable, if income is from : i) self-residential house (if many
house, only one house is exempted, ii) agri farm house 10(1A), iii) official residence of
former rulers 10(19), iv) social, educational & charitable institutions, trust (Hospitals
etc) 11, v) trade union, boards / local authority 10(20), vi) political party property 13A
Deductions u/s 24 : i) Standard deduction 30% of NAV, irrespective of actual
expenditure or even paid by others (repairs & collection charges), ii) Municipal / Local
taxes deducted on actual payment basis, iii) Interest on loan / borrowed capital
deducted on due basis (utilized for purchase, construction, renovation, repairing and
reconstruction of HP)
Computation of IFHP : Gross Annual value (earning capacity of HP, fair rent or
municipal value) (less) i) Municipal / local taxes, ii) Approved unrealized actual rent as
HP remained vacant in PY (=) Net Annual value (NAV) (Less) i) Deduction u/s 24 i.e.
Standard deduction 30% of NAV (repairs, municipal taxes & collection charges) and ii)
Interest on loan / borrowed capital (for purchase, construction, renovation, repairing
& reconstruction of HP) (=) Income from HP
Profit & Gains of Business or Profession : C 4, S 28 - 44
S-28 provides scope of income from B&P, which is called P&G, while calculating
income (PFoBP) certain expenses (specified 29-35 & general 36-37) are expressly
allowed as deductions while others expenses (40-43) are not allowed as exempted. :
2(13) Business includes any trade, commerce or manufacture or any adventure /
concern in nature thereto. : 2(36) Profession involves occupation based on controlled
skill including Vocation natural ability / talent to do particular work. Example :
Income of traders, manufactures, suppliers, banks, lawyers, doctors, engineers etc. is
PFoBP : Computation of PFoBP (29) - Turnover / income / P&F of BP include
(deemed income - profit from trading activities, compensation, receipts from
profession, profit from speculation business, brokerage, commission, import-export
incentives, income of trade associations, royalty etc.) exclude (business income not
taxable / inadmissible income - rental income of property dealer, dividend on shares,
winning from lottery, crossword puzzle, Betting, Gambling etc. minus expenses
(specified deductions 29-35 & general deductions 36-37) = taxable income of BF
Conditions: for allowing deduction, expenditure must be: i) in revenue nature,
(capital expense not allowed), ii) related to business / profession, iii) actually made
(reserve / provision made for any expenses is not allowed). iv) not personal / domestic,
v) paid / payable during AY.
Deductions : expressly allowed as expenses & allowances (30 – 37)
a) Specified Deductions (29-35) allowed for particular business : i) S-30 Rent, taxes,
insurance, repairs etc. of building, ii) S-31 Repairs & insurance of plant & machinery,
furniture, motor car, other assets etc, iii) S-32 Depreciation at prescribed rates
(residential building 5%, commercial building 10%, furniture 10%, motor vehicle 15%,
plant & machinery 15%, intangible assets like patent, copyright 25%, computer 60%,
professional books 100%), iv) Full deduction allowed for expenditures on (scientific
research 35, contribution to national laboratory 35A, patents, copyright, technical
know how, prospecting of minerals, family planning programs, rural development
program, security, transaction tax, v) for preliminary expenses @ 20% pa
b) General Deductions (36-37)allowed for all: i) S-36 Payment / Contribution
allowable as deduction (Insurance, Bonus, Bad Debts, Commission, Interest on capital,
Contri to PF / Gratuity fund) ii) S 37 expenditure allowable as deduction, expenditure
relating to (sale-purchase / manufacturing, for running business, for remuneration to
employees, paid as compensation/ damages, as legal expenses, indirect taxes, for
raising loans, on advertisement, other expenses are allowed as per business needs)
c) Deductible expenses (43) on actual payment basis as : Govt. dues- (tax/ duty etc.),
bonus, commission payable to employees, interest on loan, contri to provident fund
d) Allowable losses : loss of cash or stock due to (embezzlement by employees, theft
or robbery, war or natural calamity, lapse of advance) Varghese 2012, Bhandari 2015,
Income from Capital Gain : C 4, S 45-55
S-45 profit or gain arising from sale or transfer of capital asset is chargeable to tax as
'Capital Gains', 2(14) Capital Asset means any movable / immovable asset like land,
building, plot, gold, silver, jewellery, shares, securities etc. Profit/Loss arising from
transfer of such assets is computed as IfCG. Types : Short term CA : i) shares,
securities, bonds, units held for less than 12 months before transfer, ii) assets on
which deprecation has been allowed, iii) other capital asset which is held for less than
36 months before transfer by assessee : Long term CA : i) shares, securities, bonds,
units held for more than 36 months before transfer ii) other capital asset which is held
for more than 36 months before transfer :
Exception – property of any kind not include as CG - i)Stock in trade, ii) Personal
effect Assets (which is personally used by assessee and family member), iii)
Agricultural land in rural area, iv) Gold Bonds, v) Special Bearer Bonds, vi) Gold
deposit bonds Items included as CG : S- 45 : Profit from transfer of CA 45 (1),
Insurance Claim 45 (1A), Conversion of CA into stock in trade.45 (2), Assets
transferred to Firm /AOP 45 (3), Profit from distribution of CA on dissolution 45(4),
Profit arises from compulsory acquisition of CA 45 (5), CG on repurchase of units of
mutual fund 45 (6) : Exemption of CG (S-10) : i) CG on transfer of units u/s 64 - 10
(33), ii) exemption of long-term CG arising from sale of shares – 10(38), iii) CG on
compulsory acquisition of urban agri land 10(37) : CG exempt from tax u/s 54 - 54H
Income from Other Sources C 4, S 56-59 56 residual head of charge of income, an
income which does not specifically fall under any one of preceding heads of income
(viz Salaries. Income from house property, Profits and gains of business or profession
or Capital gains) is to be computed and brought to charge under : Income from : (1)
Sub-letting of House Property. (2) Director’s Sitting Fees (3) Family Pension. (4)
Income from Undisclosed Sources. (5) Remuneration of MP/MLA. (6) Examination
Fees from non-employer. (7)Rent from a vacant piece of Land. (8) Interest on URPF
on Employer’s Contribution. (9) Agriculture Income from land situated outside India.
(10) Guarantee Commission / Underwriting Commission to Directors. (11) Gratuity
received by a Director not as an employee.(12) Gift Tax: Money (Cash) received by
Individual/HUF without consideration from any person(s), if exceeds Rs.50,000 then
whole amount shall be taxable. (13) Award to Sportsman is Taxable. Award to Non-
Profession Sportsman is not Taxable (14) Composite Rent Separable: HP and PGBP,
Not separable: Whole in OS. (15)Lottery Prize: Books Maintain: Accrual Basis, No
Books: In the year of Receipt. In another case: Only on receipt basis.
S 11–13 Income from property held under Charitable or Religious purposes or 13A
Income of Political Parties or Electoral Trust are exempt from tax liability, their
following incomes are totally excluded / exempted, providing tax relief on very basis of
source / inception as - income from House Property - income from other sources -
voluntary contribution from any person - capital gains : Eligibility Condition :
exemption available, subject to i) proper maintenance of account books & audited
documents, to enable AO to deduce relevant information, ii) proper record / detailed
receipt for voluntary contribution above Rs.20,000, iii) accounts audited by CA, iv)
submit report u/s 29 RPA 1951 - Charitable purpose 2(15) means relief of poor,
education, medical relief, preservation of environment, historical monuments or
advancement general public utility not involving commercial activity or profit. Charity
of public character, thus trust / institution created for benefit of all not a particular
community or caste, Godrej CIT 2010, Harish CIT 2004, Tei Tech 2012, Sesa Goa 2013
Commissioner of Income Tax C-13, S 116-138 : 116 - IT Authorities (from AO to
CBDT) ensure effective tax administration, by securing assessment, collection &
recovery of tax :117 CIT appointed by Central Govt., to head IT administration of
specified jurisdiction ( 120 territorial area, class of persons or incomes )
131–138 Powers : CIT as head of administration is vested with both administrative,
supervisory & judicial powers : Administrative Powers / Functions : i) may exercise
all powers of assessing officer, ii) to transfer any case from one AO to another 127, iii)
grant approval for an order issued by AO, iv) grant prior approval for reopening of
assessment, v) revise order passed by AO
Judicial Powers to : * discovery, production of evidence etc. 131, * search & seizures
132, * requisition & retention of account books / documents / articles 132A, * seizure
of requisitioned assets 132B, * call for information 133 * inspect registers of
companies 134 * set off refunds against tax remaining payable * dispose of appeals. *
impose penalty. * rectify mistake or amend record or orders * receive evidence on
affidavit / examine witness * demand documents or attendant for investigation *
extend limitation period for filling a revision petition, * decide revision petitions *
direct to institute appeal * impose penalty for default * make best judgment
assessment * take steps for recovery of tax / amount * make inventory of articles found
during search * make provisional assessment for defaulting assessee * notice filing ITR
& pay tax * retain documents for prosecution * permit change method of accounting
Income Tax Appellate Tribunal (ITAT) C 10, S 252-255 - quasi-judicial appellate
authority to institute, hear & decide appeals against assessment & orders of inferior IT
authorities, both aggrieved assessee & CIT can institute appeal. * ITAT is final fact-
finding authority, thus it's decision is deemed final on factual matters.
Composition 252A : Central Govt constitute and appoint as i) President – Judge of
HC having 7 years experience but retiring age at 67 years, ii) Zonal Vice President –
District Judge having 10 years experience, iii) Members (Judicial & Accountant) –
having 10 years experience in legal, taxation or account field to deal with appellate
matters : Jurisdiction 253 : functions under Govt / Ministry of Law & Justice, through
zonal / regional benches having regional jurisdiction for different regions / zones, to
dispose of matters involving taxable income upto Rs 50 lakh * Bench constituted by
President, consisting of both Judicial & Account member) * Special Bench of 3 or more
Function (254-255) i) final fact-finding authority, ii) forum to institute, hear & decide
appeals against assessment & orders of inferior IT authorities & IRS orders, iii)
second appellate forum of appeal after CIT (Appeals). iv) is subordinate & functions
under supervision & jurisdiction of High Court. v) should follow precedent set (law
laid / case decided) by jurisdictional High & Supreme Court. Orders Appealable
before ITAT : as passed by * CIT, (Appeals), * Jurisdictional Commissioner, * AO under
order of Dispute Resolution Panel, * Assessing Officer, * Penalty imposed by CIT, * on
applications of stay of tax demands * on applications of recall orders
Appeal – C 20, S 246-250 : pursuit for justice, based on rule of law, is complaint to
superior court of injustice by inferior court, Right to appeal must be express Harihar
CIT 1971 : Appellate Hierarchy :
Appeal Appellate Authority Appealable order of authority against which Appellant

1st CIT (Appeals) Assessing Officer u/s 246 -250 Assessee

2nd IT Appellate Commissioner (Appeals) u/s 252-255 Both
Tribunal assessee
 3rd High Court 260 ITAT (for substantial question of law ) or
CIT
Final Supreme Court 261 High Court (fit case certified by HC )
Format : appeal in prescribed Form No. 35, duly verified u/s 140, accompanied by
documents i.e. appealable order, statement of facts, grounds of appeal, notice of
demand & challan, with in 30 days. Procedure : Admission by fixing date, hearing,
adjournment, inquiry, order, communication of orders.
Recovery of Tax C 17, S 122, 220-232 if assessee fails to pay any sum imposed by
way of interest, fine, penalty or any other sum payable under ITA 1961, then same
shall be recoverable as recovery of arrears of tax. Conditions : - assessee is in default
or is deemed to be so, - default making a payment of tax, interest, fine, penalty etc, -
Tax Recovery Officer (collector / Gazetted Officer) excising local jurisdiction, - may
draw up a certificate qua amount of arrears due, - then proceed to recover such
specified amount as arrears of tax, - through prescribed modes & rules provided in
Second Schedule : Modes 220-232 : i) attachment & sale of assessee’s a)
movable property or b) immovable property, ii) arrest & detention in prison of
assessee, iii) appointing a receiver for management of assessee’s properties, * other
Modes 226 : iv) Deduction from Salary, v) Collection from persons who owe money to
assesee (garnishee order), vi) Application to Court for payment of money in court’s
custody, vii) Restraint & Sale of Property, viii) Recovery through Government 227 ix)
Recovery by filing suit 232
Refund of Tax C 19, S 237-245 (return of excess tax paid over and above due
amount by assessee) Conditions : 237-239 - any person or assessee (right of
claimant), - within prescribed period / time limit of 1 year (239), - on filling & verified
by authorized person (238) as per Form No.30, - satisfies AO that tax paid amount, -
during any previous AY, - exceeds it's proper chargeable tax liability, - is entitled to
refund of excess amount of tax paid : - IT authorities after duly considering / verifying
facts & circumstances of case, - issue order for refund of excess tax paid, - if refund
arise on appeal, then no need to draw claim as it is duty of AO to refund excess
amount (240), - Interest on delayed RoIT @ 15% pa (243) ** Refund arise in cases,
when excess / higher tax is : i) deducted at source from salary, interest on securities,
debentures, dividend on higher rate -more than actual tax liability, ii) in advance tax
exceeds actual tax liability during regular assessment, iii) due to mistake, rectified
later on, iv) payment given to non-residents, v) due to double taxation, entitling relief
Penalties C-21, S 270-275) & Prosecutions for offenses (C-22, S 275A-280)
Default / failure / omission in complying with provisions of or with mandatory
conditions prescribed under ITA attract penalties / fines whereas in critical/willful
cases it invite prosecution / punishment. Modes to encouraging tax compliance : (a)
Charge of interest (compensatory in character), (b) imposition of monetary penalty
(strong deterrent) (c) launching of prosecution against tax delinquents (penal /
punitive) * Rule: Before imposing penalty, reasonable opportunity of being heard must
be granted.* Waiver : 273 CIT may reduce / waive, penalty imposed, if prescribed
conditions are satisfied i) assessee voluntarily & in good faith make full & true
disclosure prior to detection, ii) genuine hardship, iii) assessee has co-operated in
enquiry relating to the assessment and recovery of taxes. iv) waiver/reduction is
discretion, not to be claimed as matter of right Penalties (C-21, S 270-275)
Sec Defaults (Failure to /non furnish / not Penalty
pay)
271 return of income Rs. 5000
221 tax/interest Min-AO imposed /Max–arrears Tax
158 in time return in search cases Min – tax leviable/Max – upto 300%
221 tax with in time Min–imposed by AO /Max – arrears
T
271 present Account, document etc. Rs. 10,000 for each default
272 answer question / evidence “
272 sign statement / produce accounts “
271 concealment of particulars Min. – 100% /Max. – 300% of tax
271 wrong distribution of profit 150% of tax
271 maintain books of accounts Rs. 25,000
271 get account audited Min ½% of Sales /Max –Rs1,00,000
271 deduct tax at source Equal to tax amount
271 undisclosed income in search cases 10% of income
271 accepting & repaying loan w/o cheque upto amount of loan
272 non information Rs. 1000
206 comply provision of tax collection Rs. 10,000
272 comply with provision of PAN “
272 other defaults Rs. 100 per day
Prosecutions for offenses (C-22, S 275A-280D) : Imprisonment / punitive punishment
has more dreaded & deterrent consequence, imposed in more serious/willful defaults
for effective implementation of tax laws. Conditions for prosecuting: i) any person
(even other than assessee), ii) for artificial / juristic persons (Company/Firm) person
in charge / responsible for business, iii) is liable to be prosecuted & punished, iv)
refutable presumption of guilty mind, in case of willful omission 278
Sec Nature of offence (willful failure to) Period of imprisonment

275 dealing with seized assets, violating search order upto 2 yr & fine
275 ensure inspection of electronic records “
276 concealment /transfer of property, thwart tax “
recovery
276 comply with directions of liquidator at least 6 mt to 2 yr & fine
276 acquisition of property, thwart tax process “
276 deposit tax / PF in Govt. treasury at least 3 mt to 7 yr & fine
276 pay/deposit credit of Govt tax “
276 attempt to evade tax, exceeding Rs.1 lakh “
276 non filing of return u/s 139 or in response to “
notice u/s 142 (1) or 148, tax evaded Rs.1 lakh
 277 making false statement / account in verification “
278 abetment to make false statement or declaration.
276 attempt to evade payment tax, penalty or interest at least 3 mt to 3 yr & fine
276 non filing of return of total income u/s 158BC. “
276 produce books of account and documents u/s 142 upto 1 yr & fine @ 10 per day
278 repetitive / subsequent offences u/s 276 -278 at least 6 mt to 7 yr & fine
280 disclosure by public servants violation u/s 138 (2) upto 6 mt & fine
139(4) Belated Return : ITR filed after specified due date / prescribed period i.e. 31
July for individuals / HUF, however ITR can be filed at belated stage though subject to
penalty, limitations & additional interest on taxes. * Any person who has not furnished
a return * within time u/s-139(1) or * within the time allowed in notice issued by Tax
authority u/s-142 (1) * may furnish return for any PY * at any time before expiry of one
year from the end of A.Y. or before completion of A.Y. (which ever is earlier)
Belated ITR is mandatory for assessee having i) income more than 2.5 lakhs or ii)
bank deposit more than 1 crore. Consequences : Interest penalty u/s 234A at the rate
of 1% pm till filling, *-Late Filing Fees u/s 234F at the rate of Rs.5,000,
Limitations : *No losses are allowed to carry forward, *Deductions u/s 10, 80 not
allowed* Lose interest on refund u/s 244,*Cannot change to / choose a new tax regime
House Rent Allowance (HRA) C 3, S 10(13a) : * special allowance * specifically
granted to employee by employer * to meet expenditure actually incurred * on
payment of rent qua residential accommodation * actually occupied by assessee during
PY, * is exempt to extent of least of following: a) actual amount of allowance received
or b) rent paid over 10% of salary [rent paid – 10% of salary which is Basic Pay +
Dearness allowance + Commission (but excludes all other allowances and perquisites)
c) amount equal to one-half of salary due to assessee where such accommodation is
situated at Metro Cities otherwise /other place @ two-fifth

S- 2(8) Assessment is a process of examining / assessing the correctness / validity of

assessee’s claimed income & computing amount of tax payable by him, followed by
practice of imposing tax responsibility on individual. (examination/scrutiny/processing
of IT Returns by IT Department)
Types : 140A Self-Assessment : assessee himself determines IT payable while filing
return of income as it is his duty to find whether he is liable to pay any tax. : 143 (1)
Intimation / Summary Preliminary Assessment / Refund Order or Demand Order :
Assessment carried out without any human intervention or without calling assessee as
information submitted in ITR is cross-checked against the information of IT
department by automatically examining / verifying the reasonableness and correctness
of the return, thus ITR gets processed online, and adjustment for arithmetical errors,
incorrect claims, and disallowances are automatically done. After making the
aforementioned adjustments, if the assessee is required to pay tax, he will be sent an
intimation u/s 143(1). The assessee must respond to this intimation accordingly : 143
(3) Limited Scrutiny Assessment/Regular Assessment based on evidence : IT
Department has set certain parameters, based on which a taxpayer’s case gets picked
for a scrutiny assessment / conduct of assessment by AO with aim to ensure that the
assessee has neither understated his income or overstated any expense or loss or
underpaid any tax a. If an assessee is subject to a scrutiny assessment, the
Department will send a notice well in advance. However, such notice cannot be served
after the expiry of 6 months from the end of the Financial year, in which return is filed.
b. The assessee will be asked to produce the books of accounts, and other evidence to
validate the income he has stated in his return. After verifying all the details available,
the assessing officer passes an order either confirming the return of income filed or
makes additions. This raises an income tax demand, which the assessee must respond
to accordingly.
144 Best Judgments Assessment : If the assessee does not submit return of income
or does not furnish the accounts etc. then assessing officer is assess the tax without
any compliance by assessee on his notice and done by him on the basis of information
available with him about assessee, using the best of his judgement execute
compulsory BJA- in case of non co-operation of assessee or when assessee is in default
as regards supplying information like
• Fails to file my return u/s 139 (1)/belated/revisal return.
• Fails to comply with all the terms and conditions of notice issued by
assessing officer u/s 142.
• Falls to get the accounts audited by an accountant nominated by
commissioner/fails to submit a report within time.
• Having filed a return but fails to comply with all terms & conditions of
notice.
147 Re-assessment/Income escaping assessment/Re computation : AO has sufficient
reasons to believe that any income chargeable to tax has escaped assessment for any
assessment year. He may reassess the income/loss/depreciation allowed in following
cases-
(1) No return of income has been furnished, though liable to file.
(2) An assessee already taken or claim for excessive loss, deduction etc., in
return
(3) Income chargeable to tax has been under assessed/at too low rate.
(4) Excessive relief was taken in return.
(5) Notice is issued by assessing officer to an assessee where income has
escaped assessment (Sec.148).
(6) Time limit for notice issued is within 4 years from the end of A.Y. when
escaped any income is less than Rs. 1,00,000 otherwise within 6 years when escaped
income is more than Rs. 100000.
(7) Within 30 days of giving notice assessee have to submit a return of
income & Assessing officer have to maintain record for the reason of notice.

144B Faceless Assessment : means the assessment proceedings are conducted

electronically in the “e-proceeding”facility through the assessee’s registered account
in the designated portal.
Set Off and Carry Forward of Losses
Income tax is levied on the total income of any assessee of previous year, Gross total
income is calculated
by aggregation the income of the assessee under different sources of income falling
under one head of
income and then all the heads of income are put together to find out the net result in
the shape of cross
total income. It is not necessary that every source shall result into a profit every year.
The provisions
regarding set off and carry forward can be discussed under two categories below-
1. Set off of losses
2. Carry forward and set off of losses

Set off of losses

Computation of total income is to lump together all sums of income falling under one
head and then all
heads are pooled to find the net result in gross total income. It, therefore, follows that
where the net result
in respect of any source is a loss, it can be set off against profit in respect of another
source of income
under the same head. The provisions regarding set off and carry forward one
discussed below-
1. Set off under the same head (Sec-70) – Set off loss from one source against
income from other
sources under the same head of income is first step of set off of losses. It is called inter
source
adjustment. Inter source adjustment is allowed only in case of loss from income from
house property,
loss from normal business, loss in respect of interest income.
Exceptions- In the following cases loss from one source of income although it falls
under the same
headi.
Loss from speculation business
ii. Long term capital loss
iii. Loss from the activity of owing and maintaining race houses (sec 74 A)
iv. Loss cannot be set off against winnings from lotteries, cross word puzzles etc.
v. Loss from a source which is exempt.
2. Set off against income other heads (Sec. 71) – Set off loss from one head
against the income of
another head in the same assessment year. Inter-head adjustment is discussed under
sec -71. Where
the net result of the computation under any head of income in respect of nay
accounting year is a loss,
the assesee shall be entitled to have such amount of loss set off against his income
assessable for this
assessment year under any other head of income.

Exemptions- The following losses cannot be set off against the income of other heads
or a particular
head
i.Loss of normal business
ii. Loss in a speculation business
iii. Loss from the activity of owing and maintaining race horses.
iv. Loss under the head <capital Gain=

Carry forward and set off of losses

If it is not possible to set off the losses in the same assessment year in which they
accurred so much at the
loss as has not been so set off out of the following losses can be carried forward for
being set off against
his income in the succeeding years. All losses are not allowed to be carried forward.
The following losses
are only allowed to be carried forward and set off in the subsequent assessment years-
1. Loss under the head :income from house property= (Sec 71) B
2. Loss of non-speculation business or profession (Sec 72)
3. Loss of speculation business (Sec 73)
4. Short term capital loss/ long term capital loss. (Sec 74)
5. Loss from activity of owing and maintaining race horses. (sec 74 A)
6. Unabsorbed Depreciation (Sec 32 (2))

Tax Avoidance: means taking undue advantage of the loopholes, lacunae or drafting
mistakes for reducing tax liability and thus avoiding payment of tax which is lawfully
payable. Generally it is done by twisting or interpreting the provisions of law and
avoiding payment of tax. Tax avoidance takes into account the loopholes of law.
Though it has a legal sanction, it means following the provisions of law in letter but
killing the spirit of the law. Tax Evasion: means avoiding tax by illegal means.
Generally, it involves suppression of facts,falsifying records, fraud or collusion. It is an
attempt to evade tax liability with the help of unfair means. It is illegal and would
result in punishment by way of penalty, fines and sometimes prosecution. Tax
Planning : may be defined as an arrangement of one’s financial affairs in such a way
that without violating in any way the legal provisions of an Act, full advantage is taken
of all exemptions, deduction,rebates and reliefs permitted under the Act, so that the
burden of the taxation on an assessee, as far as possible, is the least. It is within the
framework of law.