SEPTEMBER 22, 2018

By Ashish Mittal, CA

ASSESSMENT of income and its tax liability is undertaken both by the assesse as well as the Income tax department. The assessment done by assesse is called self assessment whereas when it is done by Income tax office then it may be termed as regular assessment. In this article we shall cover the basic understanding on both the self assessment and regular assessment. Let us discuss each of the above assessments in detail:

Self assessment

Assessing one's own taxable income and its related tax liability is nothing but self assessment. Every assesse before filing its income tax return has to assess its income tax liability for filing the tax return. Based on the assessed tax computation, assesse is required to pay its self assessment tax u/s 140A along with applicable interest. Below is the summary of the self assessment tax computation:

Based on the above if any amount is payable then as per the provisions of Section 140A the amount so paid shall be adjusted against interest payable first and then balance amount to be adjusted toward tax payable.

Regular assessment

Once the return is filed by the assesse, the same is assessed by Income Tax office. Following are some of the major types of assessments undertaken by Income tax Office:

U/s 143(1) - Summary assessment

U/s 143(2) - Scrutiny assessment

U/s 144 - Best Judgement assessment

U/s 148 - Re assessment

Let us discuss each one of the above assessments in details:

1.  U/s 143(1) - Summary assessment

When a return if filed by any assesse, the same is processed u/s 143(1) in the following manner:

A)  The total income is computed after making the following adjustments:

a)  Any arithmetical error in the return

b)  Any incorrect claims, if such incorrect claim is apparent from any information in the return

c)  Disallowance of expenditure indicated in the audit report but has not been considered in the return of income. This is applicable in cases where tax audit report is furnished.

d)  Disallowance of deductions u/s 10AA, 80IA,80IAB etc where the return is furnished beyond the due date

The above adjustments are first intimated to the assesse inviting response and post analyzing the response from the assesse the adjustment is made in the return of income.

B.  Post the above adjustments, the tax/ interest/ fee, as applicable is computed as per the provisions of the Income Tax Act 1961 (Act)

C.  Post above computation, the amount of refund or tax payable is determined. In case of refund the same is issued to the assessee and in case of demand the same is intimated to the assessee by way of issuing the intimation u/s 143(1).

Thus, from the above it can be inferred that the assessment u/s 143(1) is a summary assessment of the return filed by the assessee basis which the demand/ refund is determined and issued. This assessment does not involve any detailed verification of claims made by the assessee in return and the same is undertaken in other types of assessments.

The time limit for issuing the intimation u/s 143(1) is within one year from the end of the financial year in which the return is filed by the assessee.

2.  U/s 143(2) - Scrutiny assessment

When the return is filed by the assessee, the income tax Assessing Officer (AO) if considered to be necessary to ensure that the assessee has not understated the income or has not computed the excessive loss or has under paid the tax in any manner then he will serve a notice requiring the assessee on a particular date to furnish information which assessee wish to place reliance in support of its return of income.

The time limit for serving the aforesaid notice is within 6 months from the expiry of financial year in which return of income is filed. The assessment under this section is carried for examining in detail the claims made by the assessee.

Based on the submissions filed by the assessee, the assessing officer can ask for any additional information and post obtaining all the required information, the assessing officer determines the taxable income along with the assessable tax or refund, as applicable. In case of demand, a demand notice u/s 156 is issued for remittance of tax by the assessee and in case of refund the same is issued along with the assessment order.

Further the time limit for issuing the order u/s 143(3) is within 18 months¹ from the end of the financial year in which income was first assessable. However, in case where the assessment is refereed for transfer pricing assessment then the above period is increased by 12 months.

3.  U/s 144 - Best judgement assessment

The provisions of Section 144 are applicable only in following cases:

i. Where an assessee fails to file the return of income

ii. Where an assessee fails to respond on the information asked by the assessing officer u/s 142(1). Notice under section 142(1) is issued by the AO either asking the assessee to file the return of income or incase if the return is furnished then asking for certain information for undertaking the assessment.

iii. Where an assessee on having filed the return of income, fails to respond on the information asked by the assessing officer u/s 143(2)

In above cases, the assessing officer after taking into account all the material which it has gathered and after giving an opportunity to the assessee of being heard shall determine the assessed income and tax liability based on his best judgement.

Further the time limit for issuing the order u/s 144 is same as section 143(2) assessment i.e. within 18 months² from the end of the financial year in which income was first assessable. However, in case where the assessment is refereed for transfer pricing assessment then the above period is increased by 12 months.

Thus, from the above it can be inferred that the assessment u/s 144 is primarily reported when the assessee has not filed the return of income or has not responded to the assessing officer on the information asked.

4.  U/s 148 - Re assessment

If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment then he may subject to provisions of section 147 read with 148, assess or reassess the income.

However, the criteria for assessing officer to have reason to belief is impediment to proceed with assessment under this section. Reason to believe cannot be a reason to suspect merely. There must be a direct nexus between the material coming to the notice of the assessing officer and the formation of the belief that there has been escapement of income of the assessee from assessment in a particular year. The material for formation of belief must be relevant and not vague. The assessing officer must record reasons in writing before issuing notice under section 148.

The time limit for issuing notice u/s 148 is within 4 years from the end of relevant assessment year if the income escaped is less than one lakh. If the income escaped is one lakh or more then the notice u/s 148 can be issued within 6 years from the end of relevant assessment year subject to the provisions of section 151. Further, the notice u/s 148 can be issued within 16 years from the end of the relevant assessment year if the income which has escaped assessment is related to assets (including financial interest in entity) is located outside India.

Further if the assessment has been completed u/s 143(3) or u/s 147 no action can be taken u/s 147 after the expiry of 4 years from the end of 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 in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

Thus, from the above it can be inferred that the assessing officer has wide powers u/s 148 read with 147 to assess or reassess the income of the assessee, however there are certain criteria like formation of reason to belief based on new information is important to undertake assessment under this section.

Conclusion

Given the above summary of assessment procedure, it is worthwhile to mention that if one is able to assess his taxable income as per the provisions of the Act and discharge the tax liability within the respective due date and on filing the return on time, the stand before the assessing officer will be strong. This will also help in mitigating the tax litigation.

(The views expressed are strictly personal)

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¹. For assessment years beginning from 1 April 2018, prior to that it is 21 months

². For assessment years beginning from 1 April 2018, prior to that it is 21 months