Assessment: Different Types

Income tax assessment is the process through which the Income Tax Department evaluates and verifies
the correctness of the income declared, deductions claimed, and tax paid by a taxpayer. The Income
Tax Act, 1961 outlines various types of assessments, each serving different purposes depending on the
nature of the taxpayer’s return and the department’s objectives.
Types of income tax assessments:

1. Self-Assessment (Section 140A)

Definition:
Self-assessment is the process by which a taxpayer calculates their own tax liability and pays the due
amount before filing the Income Tax Return (ITR).
Key Features:
• The taxpayer computes the total income, applies deductions, and calculates the tax payable,
including interest (if any) under Sections 234A, 234B, and 234C.
• Any tax due after adjusting for advance tax and Tax Deducted at Source (TDS) must be paid
before filing the return.
• The ITR cannot be filed unless self-assessment tax is fully paid.
Importance:
• This is the first step in the assessment process, placing the onus on the taxpayer to accurately
report income and pay taxes.

Self-Assessment under Section 140A of the Income Tax Act

Self-Assessment is the process where a taxpayer calculates their total taxable income, computes
the tax payable, deducts any advance tax paid, TDS (Tax Deducted at Source), and other credits, and
pays the balance tax liability before filing the Income Tax Return (ITR).

Steps in the Self-Assessment Procedure:

1. Calculate Gross Total Income:
o Include income from all sources:
▪ Salary
▪ House Property
▪ Capital Gains
▪ Business/Profession
▪ Other Sources (interest, dividends, etc.)
2. Claim Deductions under Chapter VI-A:
 o Deduct eligible deductions like:
▪ Section 80C (LIC, PPF, ELSS, etc.)
▪ Section 80D (Health Insurance)
▪ Section 80G (Donations)
▪ Other deductions as applicable.
3. Compute Tax Liability:
o Apply the relevant tax slab rates to the net taxable income after deductions.
o Add applicable surcharge and cess (currently 4% Health and Education Cess).
4. Deduct Advance Tax and TDS:
o Subtract any advance tax paid during the financial year.
o Deduct TDS/TCS credits available from Form 26AS or Annual Information Statement
(AIS).
5. Pay Self-Assessment Tax (if applicable):
o If there’s any tax payable after the above deductions, pay it as Self-Assessment Tax
using Challan 280 (available on the TIN NSDL website or through net banking).
6. Interest on Late Payment (if applicable):
o If tax payments were delayed, calculate interest under:
▪ Section 234A: Delay in filing return.
▪ Section 234B: Shortfall in advance tax payment.
▪ Section 234C: Delay in payment of advance tax instalments.
7. File Income Tax Return (ITR):
o After paying the self-assessment tax, file your ITR and mention the challan details (BSR
code, date of payment, challan number) in the return.

Example of Self-Assessment:
Scenario:
• Mr. A is a salaried individual for FY 2022-23 (AY 2023-24).
• Salary Income: ₹10,00,000
• Interest from Savings Account: ₹20,000
• Investments under Section 80C: ₹1,50,000 (PPF, LIC, etc.)
• Health Insurance Premium (Section 80D): ₹25,000
• TDS deducted by employer: ₹80,000
• No advance tax paid.
Example: Self-Assessment Tax Calculation for FY 2022-23 (AY 2023-24)

Particulars Amount (₹) Explanation

1. Income from Salary 10,00,000 Annual salary received by Mr. A

2. Interest from Savings

20,000 Bank interest income
Account

3. Gross Total Income 10,20,000 (1) + (2)

4. Deductions under Chapter

VI-A:

- Section 80C (PPF, LIC, ELSS,

(1,50,000) Maximum allowed under 80C
etc.)

- Section 80D (Health

(25,000) Premium paid for health insurance
Insurance)

- Section 80TTA (Savings Deduction for interest on savings

(10,000)
Interest) account

Sum of deductions under Chapter VI-

5. Total Deductions (1,85,000)
A

6. Net Taxable Income 8,35,000 (3) – (5)

7. Tax Calculation (as per old

regime):

- 0 to ₹2,50,000 @ 0% 0 No tax for income up to ₹2.5 lakh

- ₹2,50,001 to ₹5,00,000 @ 5% 12,500 5% of ₹2,50,000

- ₹5,00,001 to ₹8,35,000 @ 20% 67,000 20% of ₹3,35,000

8. Total Tax Before Cess 79,500 Sum of tax from all slabs

9. Health & Education Cess @

3,180 4% of ₹79,500
4%

10. Total Tax Payable 82,680 (8) + (9)

11. Less: TDS Deducted by TDS already deducted by the

(80,000)
Employer employer

12. Balance Tax Payable 2,680 (10) – (11)

 Particulars Amount (₹) Explanation

13. Interest under Section 234B Interest for shortfall in advance tax
100
(if applicable) payment

14. Total Self-Assessment Tax

2,780 (12) + (13)
Payable

Paid via Challan Self-assessment tax paid online

15. Payment Method
280 through TIN-NSDL portal

ITR filed after payment, mentioning

16. Filing ITR Filed & Verified
challan details

Key Points from the Example:

1. Gross Income includes both salary and other income sources (e.g., interest).
2. Deductions like Section 80C, 80D, and 80TTA reduce the taxable income.
3. Tax Slabs are applied after deductions to calculate total tax liability.
4. TDS deducted by the employer is adjusted against the total tax.
5. The remaining balance tax is paid as self-assessment tax before filing the return.
6. Interest under Section 234B applies if there’s a shortfall in advance tax.
7. The ITR is filed only after paying the full self-assessment tax.

Conclusion:
Self-assessment is a vital part of the tax filing process, empowering taxpayers to calculate and pay
their taxes accurately before filing returns. By following the correct procedure, taxpayers can avoid
penalties, ensure compliance, and expedite the processing of refunds (if applicable). Always ensure
to verify deductions and TDS details to prevent any mismatches with the Income Tax Department’s
records.

2. Summary Assessment or Intimation under Section 143(1)

Summary Assessment (Section 143(1))
Summary Assessment is the initial automated check conducted by the Income Tax Department on
the return filed by a taxpayer. It is a computerized, automated process that ensures basic accuracy in
the tax return without any human intervention. This assessment is also known as Intimation under
Section 143(1).
Purpose of Summary Assessment:
The primary goal of a summary assessment is to:
• Verify arithmetic accuracy of the return.
 • Identify discrepancies between the income declared and data available with the department
(like TDS records).
• Ensure correctness in claims like deductions, exemptions, and credits.
Key Features of Summary Assessment:
1. Automated Processing:
o Returns are processed at the Centralized Processing Centre (CPC) in Bangalore using
automated systems, ensuring no manual intervention.
2. Intimation Under Section 143(1):
o The outcome of the summary assessment is communicated to the taxpayer through an
intimation which can show:
▪ No discrepancy: Return accepted as filed.
▪ Refund due: If excess tax was paid.
▪ Tax demand: If discrepancies or under-reporting are found.
3. Adjustments Made During Summary Assessment: The CPC can make the following
adjustments:
o Arithmetical errors in the return.
o Incorrect claims apparent from the return (e.g., deductions not allowed under the
law).
o Mismatch in income or tax credits based on:
▪ Form 26AS (TDS details),
▪ Annual Information Statement (AIS),
▪ Tax collected at source (TCS) records.
4. No Human Interaction:
o Unlike scrutiny assessments (Section 143(3)), the summary assessment doesn’t involve
direct interaction between the taxpayer and the tax officer.
Components of Intimation Under Section 143(1):
1. Part A – Details of the return as filed by the taxpayer.
2. Part B – Adjustments made by the CPC and the final calculation of tax/refund.
3. Outcome:
o Refund Payable,
o Demand Payable, or
o No Demand/Refund (Return accepted as filed).
Time Limit for Summary Assessment:
 • The intimation under Section 143(1) must be sent within 9 months from the end of the
financial year in which the return was filed.
• If the intimation is not sent within this time frame, the return is deemed to be accepted as
filed.

Example of Summary Assessment:

Scenario:
• Mr. A files his ITR for FY 2022-23 showing:
o Total Income: ₹8,00,000
o TDS Deducted: ₹60,000
o Tax Payable (after deductions): ₹70,000
o Self-Assessment Tax Paid: ₹10,000
Outcome in Different Scenarios:
1. If Everything Matches:
o The return is processed without any discrepancy.
o Intimation: "No demand, no refund."
2. If There's an Error (e.g., Missed TDS Claim):
o Suppose Mr. A forgot to claim TDS of ₹5,000 from a bank FD.
o The CPC identifies this via Form 26AS and adjusts it.
o Intimation: Refund of ₹5,000 is due to Mr. A.
3. If an Incorrect Deduction is Claimed:
o If Mr. A incorrectly claimed a deduction of ₹50,000 under Section 80C, but eligible only
for ₹1,00,000 (not ₹1,50,000 as claimed).
o CPC disallows the excess deduction and recalculates tax.
o Intimation: Additional tax demand raised for the disallowed deduction.

How to Respond to an Intimation Under Section 143(1):

1. If Intimation Shows No Discrepancy:
o No action required.
2. If Refund is Due:
o The refund will be credited to the bank account provided in the ITR.
3. If Additional Tax is Demanded:
 o The taxpayer must pay the outstanding tax within the due date to avoid penalty or
interest.
4. Disagree with Adjustments?
o You can file a rectification request under Section 154 if you believe the adjustments
are incorrect.
Conclusion:
Summary Assessment (Section 143(1)) is a preliminary, automated verification of your income tax
return, aimed at quickly identifying basic errors and discrepancies. It helps ensure the accuracy of
returns without deep scrutiny or manual intervention. Understanding this process helps taxpayers
stay compliant and swiftly address any issues identified by the department.

3. Scrutiny Assessment (Section 143(3))

A Scrutiny Assessment is a detailed and thorough examination of a taxpayer's Income Tax Return
(ITR) conducted by the Income Tax Department to ensure that the income declared, deductions
claimed, and taxes paid are accurate and comply with the Income Tax Act, 1961. This assessment is
conducted when the department suspects discrepancies, under-reporting of income, or incorrect
claims in the tax return.
Purpose of Scrutiny Assessment:
The primary objectives of a scrutiny assessment are:
• To ensure the accuracy of income declared and taxes paid.
• To detect tax evasion, concealment of income, or misreporting.
• To verify claims related to deductions, exemptions, or losses.
• To ensure compliance with reporting obligations for high-value transactions.
How Scrutiny Cases are Selected:
Scrutiny cases are generally selected based on the following methods:
1. Computer-Aided Scrutiny Selection (CASS):
o The CASS system uses data analytics and risk parameters to identify cases with
potential discrepancies.
o High-risk factors include:
▪ Mismatch between income declared and Form 26AS/TDS/AIS data.
▪ High-value transactions (property purchases, foreign travel, etc.).
▪ Unusual claims of deductions or losses.
2. Manual Selection:
o Some cases may be manually selected based on specific intelligence, surveys, or
search and seizure operations.
 3. Random Selection:
o Occasionally, cases are selected at random to maintain deterrence and encourage
voluntary compliance.
Procedure for Scrutiny Assessment:
1. Issuance of Notice (Section 143(2)):
o If your return is selected for scrutiny, the Assessing Officer (AO) will issue a notice
under Section 143(2).
o This notice must be issued within 3 months from the end of the financial year in which
the return was filed.
o Example: If you filed your return on July 31, 2023 for AY 2023-24, the scrutiny notice
must be issued by June 30, 2024.
2. Response to Notice:
o The taxpayer must acknowledge the notice and provide required documents such as:
▪ Bank statements
▪ Investment proofs
▪ Expense receipts
▪ Books of accounts (for businesses/professionals)
3. Detailed Examination:
o The AO will thoroughly examine:
▪ Sources of income and their validity.
▪ Claims for deductions and exemptions.
▪ High-value transactions and capital gains.
▪ Consistency between reported income and third-party data (like TDS or Form
26AS).
4. Personal Hearings (if applicable):
o The AO may require the taxpayer to appear for clarifications or cross-verification.
5. Faceless Scrutiny (New Process):
o Under the Faceless Assessment Scheme, scrutiny assessments are conducted
electronically without face-to-face interaction, ensuring transparency and efficiency.
6. Final Assessment Order:
o After reviewing all documents and explanations, the AO passes an order under Section
143(3):
▪ Accepting the return as filed.
▪ Making additions or disallowances, leading to additional tax liability.
 ▪ Determining refunds if excess tax was paid.
Possible Outcomes of Scrutiny Assessment:
1. No Changes:
o The return is accepted as filed if everything is in order.
2. Addition to Income:
o If discrepancies are found, income may be increased, leading to additional tax
liability.
3. Disallowance of Deductions/Exemptions:
o Improperly claimed deductions may be disallowed, increasing taxable income.
4. Refund Adjustment:
o If excess tax was paid, the taxpayer will receive a refund after adjustments.
5. Penalties and Interest:
o In cases of misreporting or concealment of income, penalties under Section 270A and
interest under Sections 234A, 234B, 234C may apply.
Rights and Responsibilities of the Taxpayer:
• Right to Be Heard:
The taxpayer has the right to provide explanations and evidence before any additions or
disallowances are made.
• Duty to Cooperate:
Timely submission of required documents and cooperation with the department is essential.
• Right to Appeal:
If the taxpayer disagrees with the assessment order, they can file an appeal with the
Commissioner of Income Tax (Appeals).
Example of Scrutiny Assessment:
Scenario:
• Mr. B files an ITR showing:
o Total Income: ₹12,00,000
o Deductions under Section 80C: ₹1,50,000
o Claimed HRA Exemption: ₹2,00,000
o TDS Deducted: ₹1,10,000
Scrutiny Trigger:
• The HRA claim seems high compared to the declared rent payments.
• The CASS system flags the return for scrutiny.
Procedure:
 1. Mr. B receives a notice under Section 143(2) asking for:
o Rent receipts, rental agreement, and landlord PAN details.
o Bank statements to verify rent payments.
2. Mr. B submits documents, but rent payments in the bank do not match the claimed amount.
Outcome:
• The Assessing Officer disallows ₹50,000 of the HRA claim.
• Additional tax liability, interest, and potential penalties are levied.
• Mr. B can either pay the additional tax or appeal the order.
Faceless Scrutiny Assessment (New Process):
To promote transparency and reduce harassment, the Faceless Assessment Scheme has been
introduced:
• No physical interaction with tax officials.
• Cases are assigned randomly to officers in different locations.
• Communication is through the Income Tax Portal.
• Final orders are reviewed by a reviewing officer before being issued.
Key Points to Remember:
1. Timely Response:
Respond promptly to notices under Section 143(2) to avoid penalties.
2. Accurate Documentation:
Keep all necessary documents related to income, expenses, and investments readily available.
3. Faceless Assessments:
Most scrutiny assessments are now faceless, reducing the chance of biased assessments.
4. Appeals Process:
If unsatisfied with the scrutiny assessment order, taxpayers can appeal the decision.
Conclusion:
A Scrutiny Assessment (Section 143(3)) is a thorough process designed to ensure that taxpayers
correctly report their income and pay the appropriate taxes. While being selected for scrutiny can be
intimidating, understanding the process and maintaining accurate records can help navigate it
smoothly. The introduction of the faceless assessment scheme has further enhanced transparency,
efficiency, and fairness in the system.

4. Best Judgment Assessment (Section 144)

Best Judgment Assessment (Section 144 of the Income Tax Act, 1961)
Best Judgment Assessment is an assessment carried out by the Assessing Officer (AO) when a
taxpayer fails to comply with certain provisions of the Income Tax Act. In such cases, the AO
estimates the taxpayer’s income based on the available information and passes an assessment order
using their best judgment.

When is Best Judgment Assessment Applied?

A Best Judgment Assessment is initiated under the following circumstances:
1. Failure to File Income Tax Return (ITR):
o The taxpayer does not file the ITR within the time specified under Section 139(1) or
even after receiving a notice under Section 142(1).
2. Non-Compliance with Notices:
o The taxpayer ignores:
▪ A notice under Section 142(1) (asking for specific information, accounts, or
documents).
▪ A notice under Section 143(2) (scrutiny notice to verify the correctness of the
return).
3. Failure to Maintain or Produce Books of Accounts:
o The taxpayer does not maintain proper books of accounts or supporting documents as
required under Section 44AA.
o Even if maintained, the taxpayer fails to produce them when requested by the AO.
4. Failure to Comply with Directions under Special Audit (Section 142(2A)):
o If the AO directs the taxpayer to get the accounts audited under Section 142(2A), and
the taxpayer fails to comply.

Key Features of Best Judgment Assessment:

1. Discretion of Assessing Officer:
o The AO uses available data, third-party information (like Form 26AS, AIS), and
personal judgment to estimate the taxpayer’s income.
o This can result in an unfavorable outcome for the taxpayer if they fail to provide
necessary explanations.
2. Opportunity to be Heard:
o Before passing the best judgment order, the AO must give the taxpayer an opportunity
of being heard (unless the taxpayer repeatedly ignores notices).
3. Based on Available Information:
o The AO may use:
 ▪ TDS records
▪ Bank transactions
▪ Property records
▪ Third-party information from other government agencies or financial
institutions.
4. No Assumptions in Favor of the Taxpayer:
o Since the taxpayer is non-cooperative, the AO will not assume any deductions or
exemptions unless clearly evident from the available records.
5. Higher Tax Liability:
o The assessed income is often higher than the actual income, leading to additional tax
liabilities, penalties, and interest.

Procedure for Best Judgment Assessment:

1. Non-Compliance Identified:
o The AO identifies that the taxpayer has not filed the return or ignored notices.
2. Collection of Available Information:
o The AO gathers all possible information from:
▪ Form 26AS (TDS data)
▪ Annual Information Statement (AIS)
▪ Bank and financial records
▪ Property registrations and investment transactions
3. Issuance of Final Notice:
o The AO issues a final show-cause notice giving the taxpayer an opportunity to explain
or provide documents.
4. Assessment Based on Best Judgment:
o If no satisfactory response is received, the AO completes the assessment using best
judgment based on available data.
5. Issuance of Assessment Order:
o The AO issues an order under Section 144 specifying:
▪ The assessed income.
▪ Tax liability.
▪ Interest (under Sections 234A, 234B, and 234C).
▪ Penalties for non-compliance (under Sections 270A, etc.).
Example of Best Judgment Assessment:
Scenario 1: Non-Filing of Return
• Mr. X is a self-employed consultant earning ₹15,00,000 annually.
• He receives TDS of ₹1,50,000 from various clients but fails to file his ITR for AY 2023-24.
Procedure:
1. The Income Tax Department identifies the non-filing from Form 26AS and AIS data.
2. A notice under Section 142(1) is issued, but Mr. X ignores it.
3. The AO issues a final notice, but Mr. X still doesn’t respond.
4. The AO conducts a Best Judgment Assessment based on:
o TDS data indicating earnings of ₹15,00,000.
o Possible estimation of additional income from bank records (e.g., interest income).
5. The AO passes an assessment order:
o Assessed income: ₹16,00,000 (including estimated interest income).
o Tax liability: ₹3,00,000 (after adjusting for TDS).
o Interest and penalties are added due to non-compliance.

Scenario 2: Non-Compliance with Scrutiny Notice

• Ms. Y files her ITR showing ₹10,00,000 income but claims deductions that seem unusual.
• The AO issues a scrutiny notice under Section 143(2), asking for documents.
• Ms. Y ignores the notice and fails to produce the necessary evidence.
Procedure:
1. The AO issues reminders and a final notice, but there is no response.
2. Based on available data, the AO disallows:
o Deductions for lack of supporting documents.
o Adds undisclosed income based on third-party reports.
3. A best judgment assessment order is passed with:
o Increased taxable income.
o Higher tax liability along with penalties.

Remedies Available to the Taxpayer:

1. Filing an Appeal:
 o If the taxpayer feels the assessment is unfair, they can file an appeal with the
Commissioner of Income Tax (Appeals).
2. Revision Application (Section 264):
o The taxpayer can file for revision before the Principal Commissioner of Income Tax
(PCIT) for relief.
3. Rectification Request (Section 154):
o In case of obvious mistakes in the order, a rectification can be requested.

Consequences of Best Judgment Assessment:

1. Higher Tax Liability:
o Since the AO estimates income conservatively, the assessed income is usually higher
than actual income.
2. Penalties for Non-Compliance:
o Penalties under Section 270A (for under-reporting or misreporting of income) may
apply.
o Interest under Sections 234A, 234B, and 234C is also charged.
3. Legal Proceedings:
o In cases of willful evasion, the department may initiate prosecution under relevant
sections.

Key Points to Remember:

• Always Respond to Notices: Ignoring notices from the Income Tax Department can lead to
unfavorable assessments.
• Maintain Proper Records: Ensure that you maintain accurate records of your income,
deductions, and financial transactions.
• File Returns on Time: Filing your ITR on time prevents the possibility of best judgment
assessments.
• Right to Be Heard: The AO must provide an opportunity to be heard before making an
assessment. Ensure you exercise this right.

Conclusion:
A Best Judgment Assessment under Section 144 is a powerful tool in the hands of the Income Tax
Department to deal with non-compliant taxpayers. To avoid such assessments, it is crucial to file
returns on time, respond to notices, and maintain proper documentation. If assessed under this
section, taxpayers still have legal remedies through appeals or revisions to rectify any unfair
outcomes.
5. Reassessment or Income Escaping Assessment (Sections 147-148)
Reassessment or Income Escaping Assessment (Sections 147–148 of the Income Tax Act, 1961)
Reassessment (also known as Income Escaping Assessment) is initiated when the Income Tax
Department believes that a taxpayer has understated income, failed to report certain income, or
claimed excessive deductions, resulting in income escaping assessment. The department reassesses
the income to rectify these discrepancies and collect the appropriate tax.

Purpose of Reassessment:
The primary objective of reassessment is to:
• Recover taxes on income that was under-reported or not disclosed in the original return.
• Correct errors in cases where new information comes to light after the original assessment.
• Detect tax evasion or fraudulent claims made by taxpayers.

Legal Framework for Reassessment:

1. Section 147 – Power to Reassess:
The Assessing Officer (AO) can reassess income if there is reason to believe that any income
chargeable to tax has escaped assessment.
2. Section 148 – Issuance of Notice:
The AO must issue a notice under Section 148, asking the taxpayer to file a revised return for
the relevant assessment year.
3. Section 148A – Procedure Before Issuing Notice (Introduced by the Finance Act, 2021): Before
issuing a notice under Section 148, the AO must:
o Conduct a preliminary inquiry.
o Give the taxpayer an opportunity to explain why reassessment shouldn’t be initiated.
o Pass an order under Section 148A(d) explaining the rationale for reassessment.

When Can Reassessment Be Initiated?

Reassessment can be initiated in the following cases:
1. Discovery of New Information:
o New facts or evidence suggest that income was under-reported.
o Information may come from:
▪ Third-party reports (e.g., banks, registrars, foreign authorities).
▪ Audit reports or surveys.
 ▪ Mismatch between income reported and information in Form 26AS or AIS.
2. High-Value Transactions Not Disclosed:
o Undisclosed property purchases, foreign assets, or large bank deposits trigger
reassessment.
3. Search and Seizure Cases:
o Information uncovered during a search operation (Section 132) or survey (Section
133A).
4. Failure to File Return:
o When a person with taxable income fails to file a return and the department identifies
this later.
5. Incorrect or Fraudulent Claims:
o False deductions or exemptions claimed intentionally to reduce taxable income.

Time Limits for Reassessment (Post-2021 Amendments):

1. Normal Cases:
Reassessment can be initiated within 3 years from the end of the relevant assessment year.
2. Serious Tax Evasion Cases:
If the escaped income exceeds ₹50 lakh, reassessment can be initiated up to 10 years from
the end of the relevant assessment year.
3. Special Cases (e.g., foreign income or assets):
Extended time limits may apply for undisclosed foreign assets under the Black Money Act.

Procedure for Reassessment:

1. Preliminary Inquiry (Section 148A):
o The AO conducts an inquiry and gathers evidence.
o The taxpayer is given a chance to explain before reassessment proceedings are
initiated.
2. Issuance of Notice (Section 148):
o If the AO is not satisfied with the taxpayer’s explanation, a notice under Section 148 is
issued, requiring the taxpayer to file a revised return.
3. Filing of Revised Return:
o The taxpayer must file the return within the time specified in the notice.
4. Detailed Scrutiny Assessment:
o The reassessment is conducted similar to a scrutiny assessment under Section 143(3).
o The AO examines the new return and other relevant documents.
 5. Passing of Reassessment Order:
o The AO passes a final reassessment order with:
▪ Additional tax liability (if income was under-reported).
▪ Penalties for under-reporting or misreporting income.
▪ Interest for delayed payment of taxes.

Example of Reassessment:
Scenario 1: Undisclosed Property Purchase
• Mr. A filed his ITR for AY 2020-21 declaring an income of ₹12,00,000.
• Later, the Income Tax Department received information from the Registrar’s Office about a
property purchase worth ₹1.5 crore by Mr. A, which was not reflected in his return.
Reassessment Procedure:
1. The AO conducts a preliminary inquiry and issues a notice under Section 148A asking Mr. A to
explain the source of funds.
2. Mr. A fails to respond or provides an unsatisfactory explanation.
3. The AO issues a notice under Section 148, requiring Mr. A to file a revised return.
4. Upon reassessment, the AO adds the unexplained income to Mr. A's taxable income.
5. Mr. A is required to pay additional tax, along with interest and penalties.

Scenario 2: Mismatch with Form 26AS

• Ms. B declared ₹8,00,000 as salary income in her ITR.
• However, Form 26AS showed TDS deductions corresponding to a salary of ₹10,00,000.
Reassessment Procedure:
1. The AO identifies this discrepancy and issues a notice under Section 148A.
2. Ms. B fails to justify the mismatch.
3. A notice under Section 148 is issued, and the reassessment adds ₹2,00,000 as unreported
income.
4. Ms. B must pay the tax difference, along with interest and penalty for under-reporting.

Rights of the Taxpayer in Reassessment:

1. Opportunity to be Heard (Section 148A(b)):
o The taxpayer has the right to explain why reassessment should not be initiated.
2. Filing an Appeal:
 o If dissatisfied with the reassessment order, the taxpayer can file an appeal with the
Commissioner of Income Tax (Appeals).
3. Rectification (Section 154):
o If there are obvious errors in the reassessment order, a rectification request can be
filed.
4. Challenging Validity of Reassessment:
o If the reassessment is initiated without valid reasons or beyond the time limits, the
taxpayer can challenge it in a court of law.

Consequences of Reassessment:
1. Increased Tax Liability:
o Any undisclosed income or wrong claims result in additional taxes.
2. Interest on Unpaid Tax:
o Interest under Sections 234A, 234B, and 234C is charged on the additional tax due.
3. Penalties:
o Penalties under Section 270A for under-reporting (50% of tax evaded) or misreporting
(200% of tax evaded) may be levied.
4. Prosecution in Severe Cases:
o In cases of willful tax evasion or fraud, prosecution may be initiated under Section
276C of the Income Tax Act.

Key Points to Remember:

• Reassessment is Not Routine:
It is initiated only when there is credible information suggesting that income has escaped
assessment.
• Time Limits Must Be Adhered To:
The AO cannot issue reassessment notices beyond the statutory limits unless the case falls
under exceptions.
• Taxpayer Rights:
Taxpayers must be given a fair opportunity to respond before reassessment is finalized.
• Maintain Accurate Records:
To avoid reassessment, ensure all income and high-value transactions are correctly reported
in the ITR.

Conclusion:
Reassessment under Sections 147–148 is a mechanism that allows the Income Tax Department to
correct instances of income escaping assessment due to non-disclosure, misreporting, or tax evasion.
While the department has broad powers to reassess, taxpayers are protected by procedural safeguards
such as opportunity of being heard, time limits, and the right to appeal. Being transparent in income
reporting and maintaining accurate documentation are the best defenses against reassessment
proceedings.

6. Faceless Assessment Procedure under the Income Tax Act, 1961

The Faceless Assessment Scheme was introduced by the Government of India to enhance
transparency, efficiency, and accountability in the Income Tax assessment process. Launched as part
of the "Transparent Taxation – Honoring the Honest" initiative in August 2020, this scheme eliminates
the need for physical interaction between taxpayers and tax officials, thereby reducing the scope for
corruption, bias, and harassment.

Objective of Faceless Assessment:

1. Transparency:
By eliminating face-to-face interactions, the scheme ensures objective and fair assessments.
2. Efficiency:
Leveraging technology and data analytics speeds up the assessment process.
3. Accountability:
Multiple levels of review reduce errors and promote accountability within the department.
4. Uniformity:
Uniform application of tax laws across the country, irrespective of the taxpayer's location.

Legal Framework:
• Introduced under Section 143(3A) to facilitate faceless scrutiny assessments.
• Administered by the National Faceless Assessment Centre (NFAC), with support from
Regional Faceless Assessment Centres (RFACs), Assessment Units, Verification Units,
Technical Units, and Review Units.

Key Features of the Faceless Assessment:

1. No Physical Interface:
All communications are conducted electronically through the Income Tax e-filing portal.
2. Random Case Allocation:
Cases are assigned randomly to officers across the country, ensuring anonymity for both
taxpayers and officers.
3. Multiple Review Layers:
The assessment process involves several layers of review, including assessment units, review
units, and technical units, to ensure accuracy.
 4. Centralized Communication:
All correspondence is routed through the National Faceless Assessment Centre (NFAC),
eliminating direct contact with local tax officers.
5. Use of Technology:
The scheme leverages artificial intelligence (AI), data analytics, and machine learning for case
selection and risk assessment.

Faceless Assessment Workflow:

Explanation of the Faceless Assessment Flowchart
This flowchart represents the step-by-step process of how the Faceless Assessment is conducted
under the Income Tax Act in India. Let’s go through each step in detail:

1. Selection of Case by CASS (Computer-Assisted Scrutiny Selection):

o The Income Tax Department uses the CASS system, an AI-driven tool, to identify cases
that need scrutiny.
o Cases are selected based on risk parameters like:
▪ High-value transactions (property, investments).
▪ Mismatches between income reported and Form 26AS/AIS.
▪ Suspicious or abnormal claims for deductions or refunds.

2. Notice under Section 143(2) from National Faceless Assessment Centre (NFAC):
o If your return is selected, you will receive a notice under Section 143(2) from the
NFAC.
o This notice informs you that your return is under scrutiny and specifies the issues (e.g.,
mismatched income, high deductions) that are being examined.

3. Taxpayer Submits Response Online:

o After receiving the notice, the taxpayer must log in to the Income Tax e-filing portal
and submit the required documents and clarifications electronically.
o This could include:
▪ Bank statements, investment proofs, rental agreements, etc.

4. Assignment to Assessment Unit (AU):

o Once your response is submitted, the case is randomly assigned to an Assessment
Unit (AU) located in a different region from the taxpayer.
 o The AU reviews the taxpayer’s submission to verify the accuracy of income,
deductions, and other claims.

5. Request for Additional Information (if needed):

o If the Assessment Unit needs more information, they can request it through the NFAC.
o The taxpayer receives this request via the e-filing portal and must submit additional
documents or clarifications.

6. Verification by Verification Unit (if required):

o If there is a need for on-ground verification (e.g., verifying the existence of a property
or business), the case is referred to a Verification Unit.
o The Verification Unit may:
▪ Cross-verify facts with banks, registrars, or other third parties.
▪ Check the authenticity of documents submitted by the taxpayer.

7. Technical Advice by Technical Unit (if required):

o For complex issues requiring specialized knowledge, the case is referred to a Technical
Unit.
o This unit provides expert advice on matters like:
▪ Valuation of property.
▪ Transfer pricing in international transactions.
▪ Legal interpretations of specific tax laws.

8. Draft Assessment Order Prepared by AU:

o After reviewing all the information, the Assessment Unit prepares a Draft Assessment
Order.
o This order outlines:
▪ Whether the return is accepted as filed.
▪ Any proposed additions to income.
▪ Disallowance of deductions or exemptions.

9. Review by Review Unit (RU):

o The Draft Assessment Order is sent to a Review Unit.
 o The Review Unit ensures that:
▪ All legal and factual aspects have been considered.
▪ There are no errors or omissions in the draft order.

10. Final Assessment Order Issued by NFAC:

o Based on the Review Unit's feedback, the Final Assessment Order is issued through
the NFAC.
o The order will:
▪ Confirm the return as filed.
▪ Raise additional tax demands if discrepancies are found.
▪ Sanction refunds if excess tax was paid.

11. Opportunity for Hearing (if adverse order):

o If the assessment results in adverse findings (e.g., additional tax demand, disallowance
of deductions), the taxpayer is given an opportunity for a hearing.
o Hearings are conducted through video conferencing if requested by the taxpayer.

12. Closure of Assessment:

o After completing all reviews and hearings, the assessment is closed.
o Any additional tax demands or refunds are processed accordingly.

Conclusion:
The Faceless Assessment Procedure is designed to make the assessment process transparent,
efficient, and objective. By removing physical interaction between taxpayers and tax officials, it
minimizes the potential for bias or corruption. The process leverages technology to ensure that cases
are handled consistently and fairly, with multiple layers of review for accuracy.

Flowchart of Faceless Assessment Procedure:

1. Selection of Case by CASS
↓
2. Notice under Section 143(2) from NFAC
↓
 3. Taxpayer Submits Response Online
↓
4. Assignment to Assessment Unit (AU)
↓
5. Request for Additional Information (if needed)
↓
6. Verification by Verification Unit (if required)
↓
7. Technical Advice by Technical Unit (if required)
↓
8. Draft Assessment Order Prepared by AU
↓
9. Review by Review Unit (RU)
↓
10. Final Assessment Order Issued by NFAC
↓
11. Opportunity for Hearing (if adverse order)
↓
12. Closure of Assessment

Example of Faceless Assessment:

Scenario:
• Mr. X, a salaried individual, files his ITR for AY 2023-24, declaring an income of ₹15,00,000.
• The CASS system flags Mr. X's return for scrutiny due to:
o A mismatch between reported income and Form 26AS data.
o High-value transactions in property purchases.
Procedure:
1. Mr. X receives a notice under Section 143(2) from NFAC.
2. He logs into the Income Tax Portal and submits supporting documents for his income and
property transactions.
3. The case is assigned to an Assessment Unit in a different region.
4. The Assessment Unit requests more details about the source of funds for the property.
5. Mr. X provides bank statements and loan documents to substantiate his claims.
6. After verification, the Assessment Unit drafts an order, which is reviewed by a Review Unit.
7. The final assessment order is issued, confirming no additional tax liability.
Advantages of Faceless Assessment:
1. Transparency:
Eliminates physical interaction, reducing the risk of corruption and bias.
2. Efficiency:
The use of technology speeds up the assessment process.
3. Uniform Application of Law:
Random allocation ensures that cases are handled uniformly, irrespective of location.
4. Reduced Litigation:
A transparent and fair process minimizes disputes between taxpayers and the department.
5. Convenience for Taxpayers:
Taxpayers can respond to notices and submit documents online from anywhere.

Challenges of Faceless Assessment:

1. Technical Glitches:
Dependence on technology can lead to system errors or portal downtime.
2. Complex Cases:
Complex tax issues may be challenging to explain without direct interaction.
3. Limited Personal Interaction:
Some taxpayers may prefer face-to-face explanations, especially in complicated matters.

Remedies for Taxpayers:

1. Right to Virtual Hearing:
Taxpayers can request a video conference hearing if they disagree with the assessment.
2. Appeal Against Assessment Order:
If dissatisfied with the final order, taxpayers can file an appeal with the Commissioner of
Income Tax (Appeals).
3. Rectification Request:
Errors in the assessment order can be corrected by filing a rectification request under Section
154.

Conclusion:
The Faceless Assessment Scheme marks a significant step towards a transparent, efficient, and
accountable tax administration system in India. By eliminating the scope for personal bias and
corruption, and leveraging technology for accuracy and efficiency, the scheme benefits both the
taxpayer and the Income Tax Department. While there are challenges, the system’s built-in
safeguards ensure fairness and provide ample opportunities for taxpayers to present their case.