An Overview of Various Assessments under the Income Tax Law

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An Overview of Various Assessments under the Income Tax Law

“Assessment” is one of the most common terminologies which is encountered during the course of various income tax proceedings. Normally, the process of examining & verifying the income tax return by the income tax authorities is referred to as the “Assessment”. There are around 6 types of Assessment which is referred in the Income Tax Act-1961 as under:

  1. Self Assessment – Section 140A
  2. Summary Assessment – Section 143(1).
  3. Scrutiny Assessment – Section 143(3)
  4. Best Judgement Assessment – Section 144
  5. Reassessment – Section 147
  6. Faceless Assessment – Section 144B

 

Let us know more about all the above assessments as are presently there in the Income Tax Law.

  1. Self-Assessment under section 140A:
    This is an assessment not by the income tax department but voluntarily by the taxpayers themselves for paying the tax at the time of filing income tax return (ITR). Every taxpayer has to determine the tax liability & pay the same on or before the filing of the ITR. This is termed as “self Assessment”. This assessment is technically a mode of calculating the tax liability by the taxpayers on their own.
  2. Summary Assessment:
    Every return filed by the taxpayers is instantly processed by the income tax department U/s 143(1) and the intimation of processing is issued which is titled as “Intimation U/s 143(1)(a)”. This is technically not an assessment but a mere processing of ITR by the department. This processing has to be carried out within 9 months from the end of the financial year in which return is filed. It is normally done without calling for any information/documents from the taxpayers. Here, the idea is just to process the return with few general adjustments which may be as under:
    (i)  any arithmetical error in the return;
    (ii)  an incorrect claim, if such incorrect claim is apparent from any information in the return;
    (iii) disallowance of loss claimed
    (iv)  disallowance of expenditure/deduction or increase in income indicated in the audit report
    (vi) addition of income appearing in Form 26AS

Before making any adjustment, an opportunity is given to the taxpayers and the adjustment is done only after considering the response of the taxpayers. Refund or demand or nil intimation is issued as a result of this summary assessment.

 

  1. Scrutiny Assessment – Section 143(3)
    Though all the returns are processed under summary assessment as discussed above, few returns are selected by the income tax department for detailed verification and examination. This procedure is referred to as “Scrutiny Assessment”. The case for the scrutiny assessment can be selected within 3 months from the end of the financial year in which the return is filed. The case for scrutiny assessment is selected according to various parameters set out every year by the income tax department. The criteria may include the factors such as high amount of cash deposit/ withdrawals, remarkable increase in the amount of unsecured loans/creditors/Stock, low gross profit ratio, etc. In this assessment, the detailed verification & examination of the return of income is carried out by the officers.
    The scrutiny assessment is further categorized as either limited scrutiny or complete scrutiny. In limited scrutiny, the power of income tax authorities is restricted to the examination of the specific or limited issues(s) for which the case is selected. The purpose of the scrutiny assessment is to ascertain the fact that the taxpayer has not concealed the income by any means whatsoever & has paid the legitimate share of taxes. This assessment is carried out by calling for various documents, records, statements, evidence, etc. After conclusion, the Assessment Order is thereafter passed U/s 143(3). From AY 2021-22 onwards, the Assessment order has to be passed within a period of 9 months from the end of the relevant assessment year for which the case is selected for assessment.
  2. Best Judgement Assessment – Section 144:
    There is a possibility that the taxpayers may not respond to the notices issued by the department for making the assessment. In such a case, the income tax authorities are empowered to carry out the assessment on the basis of all relevant material & records available with them. This assessment carried out by the income tax authorities without the submission & co-operation of the taxpayer is termed as “Best Judgement Assessment”. Section 144 elaborates the situation wherein the Officers can carry out Best Judgement Assessment. Before making the best judgment assessment, Authorities are duty bound to issue the prior show cause notice to the taxpayers and give the final opportunity of being heard.
  3. Reassessment – Section 147:
    Case for Scrutiny assessment can be selected within a period of 3 months from the end of the relevant assessment year. However, if the income tax officers have information in their possession that any income has escaped assessment for any assessment year then the case can be opened for reassessment u/s 147. The case can be opened within a maximum period of 3 assessment years. However, if the amount of income escaping assessment is likely to be Rs. 50 Lakh or more then the reassessment can be stretched up to earlier 10 assessment years.There are various checks and controls which have been given in the income tax law so as to avoid the harassment to the taxpayers by misuse of the power by the authorities. Before doing the reassessment, notice is required to be issued giving the details of the information and giving opportunity to the taxpayers for making the submission against reopening. It’s only in appropriate cases, after considering the reply of the taxpayers, that the case can be selected for reopening. Prior approval of specified authority is mandated for various actions of the assessing officer. All cases wherein income tax raids are carried out are also subject to the reassessment U/s 147.
  4. Faceless Assessment – Section 144B:
    Faceless assessment is of recent origin only. Now, barring a few exceptions, all the assessment proceedings as discussed above are required to be carried out in electronic mode without physical interaction. This mode of assessment is termed as “Faceless Assessment” wherein no personal physical connect between the taxpayers and tax authorities exists. It is carried out by the National Faceless Assessment Center. This assessment is carried out through the income tax portal wherein “e-proceeding”   option has been incorporated. Notices are issued electronically at the portal only and reply is required to be submitted at e-portal with all the documents & records. The CBDT has issued the instructions, guidelines, and notice formats for conducting scrutiny assessments electronically. For smooth working of the faceless assessment, the CBDT has set up verification unit, technical unit & review unit in support of the assessment unit.

 

Conclusion:

Above is just an overview of the various assessments proceeding incorporated in the Income Tax Law. Assessment is the backbone of the income tax department and acts as a strong deterrence against tax evasions & tax avoidance. The taxpayers must make the habit of checking the assessment proceeding at the income tax portal on a regular basis and must respond to the notices/processing in a time bound manner. There are instances wherein heavy demand is raised on the taxpayers due to the ignorance or non awareness about the proceeding.

 

 

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