Assessment Procedure

Inquiry before assessment. [ Section 142]

Inquiry :
(1) The Assessing Officer has power to make inquiry from any person (a) who has made a return under section 139 or (b) in whose case the time allowed under section 139(1) for furnishing the return has expired. For the purpose a notice can be issued for :

(i) where such person has not made a return within the time allowed under section 139(1), to furnish a return of his income or
(ii) to produce such accounts or documents as the Assessing Officer may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters including a statement of all assets and liabilities of the assessee, whether included in the accounts or not, as the Assessing Officer may require:

(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.

Audit :

If the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, opines that it is necessary so to do, he may, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below section 288(2) and to furnish an audit report, within such period as may be specified, in the prescribed form. The expenses of such audit shall be paid by the assessee
These provisions of audit shall have effect notwithstanding that the accounts of the assessee have been already audited.

Opportunity to Assessee :

The assessee shall be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry or any audit and proposed to be utilised for the purposes of the  assessment. Such opportunity need not be given where the assessment is made under section 144.
Estimate by Valuation Officer in certain cases [Sec. 142A]
For the purposes of making an assessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.
On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the  assessee an opportunity of being heard, take into account such report in making such assessment.

ASSESSMENT [Section 143]
Intimation [Section 143(1)]
Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, on the basis of such a return —
(i) if any tax or interest is found due, after reducing TDS, TCS, advance tax, any self-assessment tax or any other
amount paid, then an intimation shall be sent to the assessee specifying the sum so payable, and
(ii) if any refund is due to the assessee, it shall be granted to him and an intimation to this effect shall be sent to
him
In all other cases i.e. where tax paid is equal to tax payable, acknowledgement of the return shall be deemed to be an intimation.
Intimation shall not be sent after the expiry of one year from the end of the financial year in which the return is
made.

Power under section 143(1B) extended by one year due to delay in Centralized Processing of Returns.
The Income-tax department is in the process of setting up a Centralised Processing Centre (CPC) at Bengaluru for centralised processing of Income tax and Fringe benefits tax returns. For this purpose the Board had been empowered to relax, modify or adapt any provision of law relating to processing of returns subject to the condition that the notification for such relaxation, modification or adaptation is issued on or before 31-3-2009 and the said notification is laid on the table of the House. Since the centre has still not been operationalised, it is necessary to allow the Board a further period of one year i.e. up to 31-3-2010 to relax, modify or adapt any provision of law relating to processing of returns.

Regular Assessment [Section 143(3)]
Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, either to attend his office or to produce, any evidence on which the assessee may rely in support of the return. However, no notice shall be served after the expiry of twelve months from the end of the month in which the return is furnished.

On the day specified in the notice issued or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.

Tax has to be determined and such determination is to be made in the Asst. order or computation sheet to be
annexed with the Asst. order. [ Kalyan Kumar Ray vs. CIT The assessed income may be lower than the returned income. The boards circular no 549 para 5.12 dt. 31.10.1989 has been held to be ultra-vires Gujarat Gas Co Ltd v JCIT(A)

Best Judgement Assessment [Section 144]
Best judgement assessment that is popularly known as ex-parte assessment can be made if the assessee fails to comply with the requirement of law as following :-
(1) The assessee fails to file a return U/s 139 or
(2) He fails to comply with the terms of the notice issued U/s 142(1) or fails to comply with a direction
issued U/s 142(2A).
(3) After filing a return he fails to comply with all the terms of the notice issued u/s 143(2).

The non-compliances are independent and not cumulative. A single non compliance can lead to best judgement u/ s 144. In such a situation the A.O. after taking into account all relevant materials which he has gathered and after giving the assessee an opportunity of being heard shall make an assessment of income or loss to the best of his judgement and determine the sum payable by him. There is no provision for granting refund u/s 144. Provision for granting refund has been withdrawn with effect from 1.4.88. However, where a notice u/s 142(1) has already been issued to the assessee it will not be necessary to give him such opportunity of being heard.

Power of Joint Commissioner to issue directions in certain cases [Sec. 144A]

A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer :
Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.

Provision for constitution of alternate dispute resolution mechanism for order of the Transfer Pricing Officer,
and foreign company (Section 144C) (W.e.f. 1-10-2009]

The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained only after a long drawn litigation till Supreme Court. Flow of foreign investment is extremely sensitive to prolonged uncertainty in tax related matter. Therefore, the Act has amended the Income-tax Act to provide for an alternate dispute resolution mechanism, which will facilitate expeditious resolution of disputes in a fast track basis.
The salient features of the alternate dispute resolution mechanism are as under:—
1. The Assessing Officer shall, forward a draft of the proposed order of assessment (hereinafter in this section
referred to as the draft order) to the eligible assessee if he proposes to make, on or after 1-10-2009, any variation
in the income or loss returned which is prejudicial to the interest of such assessee.

2. On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,
(a) File his acceptance of the variations to the Assessing Officer; or
(b) File his objections, if any, to such variation with,—
(i) The Dispute Resolution Panel; and
(ii) The Assessing Officer.

3. The Assessing Officer shall complete the assessment on the basis of the draft order, if—
(a) The assessee intimates to the Assessing Officer the acceptance of the variation; or
(b) No objections are received within the period specified in sub-section (2) i.e. 30 days of the receipts of draft
order by the eligible assessee.
4. The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under
section 144C(3) within one month from the end of the month in which,—
(a) The acceptance is received; or
(b) The period of filing of objections under sub-section (2) expires.
5. The Dispute Resolution Panel shall, in a case where any objections are received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment.
6. The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the
following, namely:—
(a) Draft order;
(b) Objections filed by the assessee;
(c) Evidence furnished by the assessee;
(d) Report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;
(e) Records relating to the draft order;
(f) Evidence collected by, or caused to be collected by, it; and (g) Result of any enquiry made by, or caused to
be made by it.
7. The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),—
(a) Make such further enquiry, as it thinks fit; or
(b) Cause any further enquiry to be made by any income tax authority and report the result of the same to it.
8. The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so,
however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further
enquiry and passing of the assessment order.
9. If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.
10. Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.
11. No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assesses and the Assessing Officer on such directions which are prejudicial to the interest of the assessce or the interest of the revenue, respectively.
12. No direction under sub-section (5) shall be issued after nine months from the end of the month in which the
draft order is forwarded to the eligible assessee.
13. Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the
directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without
providing any further opportunity of being heard to the assessee, within one month from the end of the month
in which the direction is received.
14. The Board may make rules for the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed, under subsection (2), by the eligible assessee.
15. For the purposes of this section,—
(a) “Dispute Resolution Panel” means a collegium comprising of 3 Commissioners of Income tax constituted
by the Board for this purpose;
(b) “eligible assessee” means,—
(i) Any person in whose case the variation referred to in sub-section (1) arises as a consequence of the
order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and
(ii) any foreign company. Further, the following consequential amendments have been made —-

(i) Section 131(1) so as to provide that “Dispute Resolution Panel” shall have the same powers as are vested in
a Court under the Code of Civil Procedure, 1908;
(ii) Section 246(1 )(a) has been amended so as to exclude the order of assessment passed under sectio.i 143(3) or order of re-assessment under section 147 in pursuance of directions of “Dispute Resolution Panel” as an
appealable order.
(iii) Section 253(1) has been amended to insert clause (d) so as to include an order of assessment passed under section 143(3) or order of re-assessment under section 147 in pursuance of directions of “Dispute Resolution Panel” as an appealable order.
An order passed under section 154 rectifying such order shall also be appealable to IT AT.

Income Escaping Assessment [Sec. 147]

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any
assessment year, he may, following the prescribed process, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.

Where an assessment under section 143(3) or section 147 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

Sec. 148 : Issue of notice where income has escaped assessment.

(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within specified period, a return of his income.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

Sec. 149 : Time limit for notice.

(1) No notice under section 148 shall be issued for the relevant assessment year —
(a) if four years have elapsed from the end of the relevant assessment year, unless he case falls under clause (b);

(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.
• Time-limit applies for ‘Issue’ and not for service – R.K. Upadhyaya v. Shanabhai P Patel [1987] 166 ITR 163 (SC).
• Amended law will apply only if limitation has not already expired – Chandiram v. ITO [1996] 87 Taxman 418 (Raj.).

Section 153: Time limit for completion of assessment and reassessment.

Regular assessment U/s 143 or 144 must be made within twenty-one months of the relevant assessment year or one year end of the Financial Year in which the return was filed whichever is later.
Assessment in case of search or requisition [Section 153A]

Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall—
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the
return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
The Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:

It is provided that assessment or reassessment, if any, relating to any assessment year falling within the period of
six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
Except as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall
apply to the assessment made under this section; In an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.

Prior approval necessary for assessment in cases of search or requisition[Sec. 153D]

No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner.”

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