VARIOUS TYPES OF INCOME TAX ASSESSMENT IN INDIA
Added: (Tue Feb 22 2022)
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What is income tax assessment?
Every year, every person who is liable to pay tax to the government and other prescribed assessee, files Income Tax Return with the tax department. After filing of Income Tax Return, the tax department makes processing of such tax returns filed and verifies the returns for its accuracy.
This process of verification and examination of tax return filed is called as Income Tax Assessment in India.
Further, under the tax laws, Income tax assessment also includes reassessment and best judgment assessment.
Various types of Income Tax Assessment in India are as under:
1) Summary Assessment or assessment u/s 143(1).
This is done without calling the assessee on the basis of income tax return filed and Tax Audit report filed by the assessee. Here, there is no detailed scrutiny of Income Tax Return filed. Here, adjustments are made on account of following:
a) any arithmetical error in the return or incorrect claim apparent from any information in the return,
b) disallowance of any loss claimed in case tax return was filed late,
c) disallowance of any expenditure mentioned in tax audit report but not claimed in the tax return and
d) in case any income is appearing in form 26AS or Form 16A or Form 16 and such income is not shown in the Income Tax Return. However, finance act 2021 has removed this clause and therefore, not applicable from AY 2018-19.
Before making assessment u/s 143(1) proper notice and opportunity of being heard shall be given to the assessee.
2) Scrutiny Assessment i.e. assessment u/s 143(3)
Here, the scrutiny of tax return is done in detail to determine whether various deductions, claims etc. made by the assessee in his return are accurate and genuine. The idea is to determine whether genuine tax has been paid after correct computation of income by the assessee. This assessment is done after serving notice u/s 143(2) within a period of 6 months from end of the financial year in which tax return was filed. Here, assessing officer passes order for payment of additional taxes or refund any amount due to the assessee after thorough scrutiny of the tax return and additional documents asked from the assessee.
The time limit for making scrutiny assessment u/s 143(3) is before 9 months from end of the assessment year in which income was first assessable. In case of TP cases, time limit is 21 months from the end of the assessment year.
3) Best Judgment Assessment u/s 144
In this type of assessment, the AO conducts the assessment and passes order without calling the assesse i.e. in the absence of the assessee on the basis of all the relevant materials available with him.
Best Judgment assessment is done in following cases:
a) When assessee has defaulted in filing tax return within due date prescribed u/s 139(1) or u/s 139(4) i.e. belated return or u/s 139(5) i.e. revised return.
b) When assessee fails to comply with notice u/s 142(1)
c) When assessee fails to comply with the directions issued u/s 142(2A)
4) Reassessment or Income escaping Assessment u/s 147
Finance Act 2021 has introduced a new section 148A which has replaced the existing sections 147, 148 and 151. Also, there has been complete change in manner of conducting reassessment and search related cases.
Following process will be involved:
a) AO will serve notice u/s 148 to the assessee along with copy of the order u/s 148A(d) asking the assessee to file his return of income or return of income of any other person in respect of which he is assessable under this act during the relevant previous year in prescribed form. Also, provisions of the Income tax act will apply as if such return were a return required to be filed u/s 139.
5) AO can send such notice only with the prior approval of specified authority and only when AO has information that the income chargeable to tax has escaped assessment.
6) Such notices are issued when AO has flagged any information in the case of assessee as per the risk management strategy formulated by the CBDT from time to time or when CAG has made any objection that assessment in case of assessee has not been made as per the provisions of the Act.
7) AO shall follow the following procedures:
a) The AO shall conduct an enquiry with prior approval of the specified authority regarding some information in his possession which suggests that income has escaped assessment.
b) Before issuing such notice, AO shall provide an opportunity of being heard to the assessee asking him to reply within 7 days to 30 days as to why notice u/s 148 shall not be issued.
c) After receiving assesses reply and other material record in his possession, the AO shall decide whether to issue notice u/s 148 with prior approval of specified authority within 1 month of end of month in which reply of assessee is received or within one month of the end of the month in which time allowed to furnish reply is expired.
d) Notice u/s 148 cannot be issued after 3 years from the end of the relevant assessment year.
In case AO has evidence in his possession which states that income escaping assessment is likely to be Rs 50 lac or more, notice can be issued after 3 years but before 10 years from the end of the relevant assessment year.
8) Faceless Income Tax Assessment u/s 144B
Government has introduced a new scheme of income tax assessment by inserting section 144B which is called as faceless assessment scheme. Meaning of faceless Income tax assessment is that the assessment proceedings will be conducted electronically in e proceeding facility of Income tax portal.
For the purpose of conducting Income tax faceless assessment, the following centers or units have been set up by the board specifying their respective jurisdiction namely:
a) National Faceless Assessment Centre (NFAC)
b) Regional Faceless Assessment Centre (RFAC)
c) Assessment units(AU)
d) Verification units(VU)
e) Technical units(TU)
f) Review units(RU)
The purpose of NFAC is to facilitate the conduct of the faceless Income Tax Proceedings in a centralized manner. Accordingly, NFAC will be the single point of contact between the assessee and other units.
The time limit for making Income Tax Assessment u/s 144 is within 9 months from the end of the assessment year when income was first assessable applicable for AY 2021-22 and onwards. In those cases, where TP is applicable, time limit for making faceless Income Tax Assessment is 21 months from end of the assessment year when income was first assessable.
Thus, above are the various types of Income Tax Assessment in India and also with the introduction of faceless Income Tax Assessment, the entire process has become online with no physical interface between the assessee and the AO which brings more transparency to the entire process.