Assessment Procedure (20)

STUDY NOTE - 20 ASSESSMENT PROCEDURE This Study Note includes •

Different Provisions relating to Assessment Procedure

20.1 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, Applied Direct taxation

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Assessment Procedure 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: Case Law: Assessing Officer can look into documents other than books of account for issuing directions Submission of audited accounts per se would not oust the jurisdiction of the Assessing Officer to pass a direction for special audit. While applying his mind, the Assessing Officer need not confine himself only to the books of account submitted by the assessee, but can take into consideration such other documents related thereto which would be part of the assessment proceedings - Rajesh Kumar Ors. v. Dy. CIT.287 ITR 91. 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 selfassessment 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. Regular Assessment [Section 143(3)] Where a return has been furnished under section 139, or in response to a notice under subsection (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. 274

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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. Best judgement asst. is mandatory for any one of the defaults u/s 144 - CIT vs Segn. Buchiah Sethy [1970] 77 ITR 539 (SC). Where Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee’s books of account and resorted to best judgment assessment under section 144, it was held that since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view - Kachwala Gems v. Jt. CIT 158 Taxman 71 . The assessments made or the basis of the assessee’s accounts and those made on ‘best judgment’ basis are totally different types of assessments - CST v. H.M. Esufali H.M. Abdulai 90 ITR 271 .

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Assessment Procedure The mere fact that the material placed by the assessee before the assessing officer is unreliable does not empower the officer to make an arbitrary order. The power to make a best judgment assessment is not an arbitrary power - State of Orissa v. Maharaja Shri B.P. Singh Deo 76 ITR 690. The authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such an estimate, the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case - Brij Bhushan Lal Parduman Kumar v. CIT 115 ITR 524 . 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. 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. Case Law: A writ petition challenging reassessment, cannot be thrown out at the threshold on the ground that it is not maintainable - Techspan India (P.) Ltd. v. ITO 283 ITR 212 . If the direction by the Commissioner is to reopen the assessment under section 147 bypassing the statutory formalities, that would probably amount to dictating his subordinate to act in a particular way thereby taking away the discretion vested in the subordinate - CIT v. Abdul Khader Ahamed 156 Taxman 206. Disclosure in wealth-tax proceedings will not suffice - Arun Kumar Maheshwari v. ITO 144 Taxman 651. 276

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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. Legal Notes • Notice under this section is to be mandatorily served by the Assessing Officer be fore initiating proceedings u/s 147. The notice is served on the assessee when it is received by him. • Notice is to be issued within the time limits prescribed by section 149. Section 149(2) states that issue of such notice is subject to the provisions of section 151. Thus, approval for the issue of such notice is to be taken u/s 151 before its issue. • Such notice can be issued by the Assessing Officer only after he records his reasons for doing so. • The return to be furnished in response to such notice is treated as a return required to be furnished u/s 139 and the provisions of this Act, so far as may be, apply accordingly. • Return in response to a notice under this section is to be furnished even if a return has been furnished earlier by the assessee under other provisions of the Act. • Notice under this section can be issued even where an assessment u/s 143(3) has not been made but related intimations have been sent Ranchi Club Ltd. v. CIT214 ITR 643 Case Law: If reasons are supplied along with the notice under section 148(2), it shall obviate unnecessary harassment to the assessee as well as to the revenue by avoiding unnecessary litigation which will save courts also from being involved in unproductive litigation. Above all, it shall be in consonance with the principles of natural justice - Mitilesh Kumar Tripathi v. CIT 280 ITR 16 The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void - Y. Narayana Chetty v. ITO [1959] 35 ITR 388; CIT v. Thayaballi Mulla Jeevaji Kapasi 66 ITR 147 ; CIT v. Kurban Hussain Ibrahimji Mithiborwala 82 ITR 821 Where the AAC set aside the reassessment on the only ground that the assessee was not afforded opportunity to put forward his case, but did not hold that the notice issued under section 148 was invalid, there would be no need for the ITO to issue a fresh notice to the assessee - CIT v.T.S.PL.P. Chidambaram Chettiar 80 ITR 467 .

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Assessment Procedure Notice cannot be issued unless the return which has already been filed has been disposed of CIT v. M.K.K.R. Muthukaruppan Chettiar 78 ITR 69 ; Bhagwan Das Sita Ram (HUF) v. CIT 146 ITR 563.

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 the 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 es caped 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).

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Amended law will apply only if limitation has not already expired - Chandiram v. ITO [1996] 87 Taxman 418 (Raj.).

The word ‘issued’ in section 149 should be given its natural meaning and not the strained wider meaning of ‘served’. Consequently, where the notice was issued within time but was served on the assessee after the expiry of the time-limit, it could not be held to be invalid - R.K. Upadhyaya v. Shanabhai P. Patel 166 ITR 163 (SC); CIT v. Sheo Kumari Debi 157 ITR 13 and Jai Hanuman Trading Co. (P.) Ltd. v. CIT 110 ITR 36 Provision for cases where assessment is in pursuance of an order on appeal, etc. [Sec. 150] (1)

Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give an effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law.

(2)

The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.

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This section prescribes the time limit for issuance of notice u/s 148 in a special case. This section overrides the provisions of section 149. Section 149 vide sub-section (2) provides that issue of notice u/s 148 is subject to the provisions of section 151. Thus, approval u/s 151 for issue of notice u/s 148(1) is not required in a case covered by section 150 {Sukhdayal Pahwa v. CIT [1983] 140 ITR 206 (MP)}. 278

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Notwithstanding the time limits prescribed by section 149, notice u/s 148 can be issued at any time for making assessment, etc., to give effect to any finding or direction referred to in sub-section (1). The order referred to therein may be an order u/s 250, 254, 260, 262, 263 or 264.

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The power conferred by sub-section (1) to the revenue for making assessment, etc., is withdrawn in a special case covered by sub-section (2). This covers a case where the order for an assessment year is made such order being the subject matter of an appeal, reference or revision, the finding or direction of which results in an assessment , etc., referred to in sub-section (1). However, at the time such order is made, the assessment etc, in respect of that a.y. is itself time barred by virtue of any other provision of this Act. Sub-section (2) applies to such cases.

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Also see Explanations 2 and 3 to section 153.

Sanction for issue of notice. [ Sec. 151] (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice: Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2)

In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. •

Reasons need not be communicated to assessee

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Commissioner must not accord sanction mechanically

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Ascent must be commissioners own hand

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Commissioner must give fair hearing to assessee

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Whether a mere yes or no endorsement will suffice.

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Assessment Procedure Case Law: There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 147 must also be communicated to the assessee S. Narayanappa v. CIT 63 ITR 219 . Sec. 152 : Other provisions. (1)

In an assessment, reassessment or recomputation made under section 147, the tax shall be chargeable at the rate or rates at which it would have been charged had the income not escaped assessment.

(2)

Where an assessment is reopened under section 147, the assessee may, if he has not impugned any part of the original assessment order for that year either under sections 246 to 248 or under section 264, claim that the proceedings under section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower that what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made :

Provided that in so doing he shall not be entitled to reopen matters concluded by an orderunder section 154, 155, 260, 262 or 263. 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:

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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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