ASSESSMENT PROCEEDINGS UNDER INCOME TAX ACT

ASSESSMENT PROCEEDINGS UNDER INCOME TAX ACT

CA MAHESH R PODDAR

AT CPE CIRCLE MEETING DATED 19^TH DECEMBER 2014

BRIEFLY DISCUSSING PROVISIONS OF SEC.143 AND THEN PRACTICAL ASPECTS OF SCRUTINY ASSESSMENTS

WHAT IS ASSESSMENT?

Ø  Procedure for determining tax liability and recovery of tax

Ø  Section 2(8): “Assessment” includes reassessment

Ø  “Assessment” is wide enough to include all types of assessments including penalty proceedings - C. A. Abraham v. ITO [41 ITR 25  SC)]

Ø  Quasi-judicial proceedings

Ø  Issue of notice

Ø  Sufficient opportunity of being heard

Ø  Speaking order

Ø  Rule of Evidence

Ø  Doctrine of res judicata

Types of Assessment

Ø  Inquiry before Assessment Section 142(1)

Ø  Summary Assessment Section 143(1)

Ø  Scrutiny Assessment Section 143(3)

Ø  Best Judgment Assessment Section 144

Ø  Reassessment Section 147

Ø  Search Assessment Section 153A

142(1) – Inquiry Before Assessment

A.O. can serve notice to the assessee for the following purposes:

·         Submit return of income

·         Produce such documents/accounts as may be required

·         Furnish information on required matters

If a person has not furnished his return of income within the due date given under section 139(1), the A.O. can serve a notice under section 142 (1)(i) at any time after the expiry of time limit given under section139(1)

143(1) – Summary Assessment

Adjustments allowed in the return of income filed only in case of:

Ø  Any arithmetical error; or

Ø  Incorrect claim apparent from the return Incorrect claim apparent from the return

If there is no refund, demand or adjustment, acknowledgment shall be deemed to be the intimation

No intimation after expiry of one year from the end of the financial year in which return is filed

Adjustments only through computerised processing

No intimation can be issued after issue of notice u/s 143(2)

- Gujarat Electricity Board 260 ITR 84 (SC)

Intimation u/s 143(1) is appealable under section 246A

Return can be revised even after return is processed u/s 143(1)

- S. R. Koshti v. CIT [276 ITR 165 (Guj)]

A.O. can make only such adjustments which are required as per the law on the face of the return -

- Circular No. 689 dated 24-08-1994

143(3) – Scrutiny Assessment

To ensure that the assessee has not

Ø  understated the income; or

Ø  computed excessive loss; or

Ø  underpaid the tax

A.O. shall issue notice to assess the income of the assessee

No notice can be served beyond 6 months from end of financial year in which return is furnished

Service of notice u/s 143(2) is a mandatory requirement for assessment u/s 143(3)

- DCIT v. Mahi Valley Hotels & Resorts [287 ITR 360 (Guj)]

If the notice is invalid for any reason the entire proceedings taken by him would become invalid/ void for want of Jurisdiction

- SC in 82 ITR 821

Objection as to non service of notice within specified time etc –to be taken before AO during asst. proceedings–as per section 292BB

Based on relevant material, A.O. shall determine tax payable or refund due

Order u/s 143 (3) to be passed within 21 months from end of relevant assessment year

Technical defect in notice or proceedings would not render proceedings invalid. However, jurisdictional defect cannot be cured

- CIT v. Norton Motors 275 ITR 595

A.O. cannot entertain any claim made otherwise than by way of revised return

- Goetze (India) Ltd. v. CIT 284 ITR 323

Notice u/s 143(2) can be issued even after summary assessment has been made

143(3) – Scrutiny Assessment

If revised return is filed during the assessment proceedings, a fresh notice is necessary

- Intracraft India v. CIT 154 ITR 662

Order u/s 143(3) should be passed within 21 months from the end of relevant assessment year. In case of reference to T.P.O., the time limit is extended to 33 assessment year.

A.O. should intimate the assessee in advance if he is unable to adhere to the schedule of hearing.

The information about cancellation or adjournment should also be displayed on the notice board

- [Instruction No. 1395 (F.No. 201/28/81-IT(A-II)) dated 15-05-1981]

A.O. should pass the order within 14 working days after the date of the last hearing

- [Letter no. 241/23/70 dated 23-10-1970]

Section 80A(5): Exemption under sections 10A, 10AA, 10B, 10BA and deductions under Heading-’C’ of Chapter VI-A such as sections 80-IA, 80-IB, 80-IAB, 80-IC, 80-ID, 80P, 80JJA, 80JJA, 80QQB and 80RRB, will be allowed only if the claim has been made in the return of income

144 – Best Judgement Assessment

Applicable cases:

·         Failure to file return of income

·         Failure to comply with notice u/s 142 ( 1 )

·         Failure  to comply with notice u/s 142 ( 1 )

·         Failure to comply with notice u/s 143(2)

·         A.O. not satisfied with correctness or completeness of accounts

Best judgment assessment only when there is cumulative failure of all the conditions - Mubarak Trading Company v. CIT [174 Taxmann 339 (Ker.)]

Assessment only after issuing show cause notice

No opportunity if notice u/s 142(1) was issued earlier

When income is estimated by applying net profit rate, there remains no scope for further disallowance of any expenditure

- [(2008) 301 ITR (AT) 171 (Kolkatta) (SB)]

A.O. is required to make the assessment to the best of his judgment. The estimate should be fair and honest and should have a reasonable nexus to the material and circumstances of the case – Brij Bhushan Kumar v. CIT 115 ITR

The question whether A.O. has committed any error in his judgment, can be decided only on the basis of the material gathered by him and not on the basis of any materials that are later produced by the assessee - CIT v. Rayala Corporation 215 ITR 883 (Mad)

A.O. should give his reasons for arriving at a particular figure of income so that the assessee may be enabled to appreciate the mental process leading to assessment and the figure assessed

- CIT v. Ranicherra Tea Co. Ltd. 207 ITR 979

Best judgment assessment under section 144 was valid when provisions of section 145(3) were attracted - Kachwala Gems v. JCIT 158 Taxmann 71 (SC)

PRACTICAL ASPECTS

SUBMISSION ON RECEIPT OF FIRST NOTICE

1.       COVERING LETTER

2.       PAPER RETURN

3.       COPY OF FINAL ACCOUNTS WITH SCHEDULES INCLUDING AUDIT REPORT IF ACCOUNTS ARE AUDITED

4.       LETTER OF AUTHORITY TO REPRESENT BEFORE THE ASSESSING OFFICER – REQUIRED EVERY YEAR SEPERATELY.

NEW CIRCULAR – LIMITED SCRUTINY/ DETAILED SCRUTINY

Central Board of Direr Taxes vide instruction no. 7/2014 dated 26.09.2014 (applicable for cases selected for scrutiny during f.y. 2014-15 via CASS) , has provided instructions regarding method of scrutiny in specific cases:

“2. Therefore, for proper administration of the lncome-tax Act, 1961 (‘Act’), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, here by directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.”

Thus the circular is mainly speaking about cases where scrutiny is called for on the basis of either AIR data or CIB information or non reconciliation with 26 AS.

But further in the same circular it is also provided that,

“4. In case, during the course of assessment proceedings it is found that there is potential escapement  of income exceeding Rs. 10 lakhs (for  non-metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.”

In any other case it would be thorough scrutiny where the A.O. can check and call for all the details as he may deem fit.

Generally A.O. receives a reason from CASS for which the case has been selected for scrutiny. In the same output file, it is also mentioned whether the case has to be assessed on limited basis of that reason or a comprehensive scrutiny has to be carried out.

RECEIPT OF QUESTIONNAIRE

On submission of above documents a questionnaire is raised by the assessing officer putting forth with the specific requirement of documents as he may require for completing the proceedings.

SUBMISSION ON RECEIPT OF QUESTIONNAIRE

1.       On receipt of questionnaire a detailed list of documents required from the assessee should be prepared.

2.       It should be immediately informed to the assessee so that the time limits and dates can be adhered to.

3.       While preparing reply, it should be done point wise as per the questionnaire received from the A.O. and a full reply with respect to question asked has to be prepared.

4.       A proper index of papers should be prepared and all the papers in the file should be numbered so as to help the assessing officer to locate the papers easily. This helps in completion of security assessment in cordial manner.

5.       Any document which are not being submitted at the time of hearing should be specifically noted and informed that those will be submitted in due time or those cannot be submitted.

6.       A proper covering letter should always accompany the submission.

7.       All supporting documents regarding the explanations given in the submission should be duly attached with reference page no.

Even if no documents are ready or able to be produced on the date of hearing, atleast a letter stating that should be submitted to the department informing the inability. If this is not done, a.o. is authorised to levy penalty.

               

MISTAKES IN ASSESSMENT OR NON ACCEPTANCE OF ADDITIONS MADE IN ASSESSMENT

There are two possibilities arising out of assessment

1.      Mistake apparent from record:

It can be made suo moto by the A.O. or can be done on the basis of application made by assessee

2.      Additions are made which are not acceptable

In such case appeal can be made to Commissioner of Income Tax appeals.

APPEAL AGAINST ASSESSMENT

I am only covering here the basic of filing of appeal.

1.      TO BE MADE WITHIN 30 DAYS OF RECEIPT OF ORDER

2.      SHOULD ATLEAST ACCOMPANY AT TIME OF SUBMISSION:

A.    APPEAL FORM DULY FILLED IN DUPLICATE (FORM 35)

B.      ORIGINAL NOTICE OF DEMAND

C.     SELF CERTIFIED COPY OF ORDER

D.    CHALLAN EVIDENCING PAYMENT OF APPEAL FILING FEES

E.      STATEMENT OF FACTS CAN BE SUBMITTED AT THE TIME OF HEARING

F.      GROUNDS OF APPEAL SHOULD BE VERY CLEAR CONTAINING THE DETAILS OF POINTS ON WHICH APPEAL IS SOUGHT LIKE ADDITIONS WHICH ARE NOT ACCEPTABLE

G.     A REQUEST SHOULD BE ADDED TO ADD, MODIFY OR DELETE ANY GROUNDS DURING THE APPEAL.

Care should be taken that all the evidences supporting to your grounds should be submitted along with the statement of facts. Further always try to submit all this evidences even during the time of assessment until and unless some addition is made without intimating during the assessment proceedings.