Assessment under the Income Tax laws

Every taxpayer is liable to furnish the particulars of his income before the Income Tax Department. Such details are required to be furnished by way of filing a return of income.

What is assessment?

When a return of income is filed, the department processes the return of income. The Department checks the return of income for confirming its genuineness. The process of examining the return of income by the Department is known as “Assessment”.

Kinds of assessments under the Income Tax Law:

Under the Laws relating to Income tax, there are four kinds of assessments which are stated below:

1. Assessment under section 143(1) – it is summary assessment without calling the assessee.
2. Assessment under section 143(3) – it is known as scrutiny assessment.
3. Assessment under section 144 – it is known as best judgment assessment.
4. Assessment under section 147- it is done in case of income escaping assessment.

Assessment under section 143(1):

Assessment under section 143(1) is done for the purpose of checking the correctness of the return of income. At this stage, no detailed scrutiny is done by the department. The total income or loss is computed after making adjustments, if any, such as –

(i) Any mathematical error in the return; or
(ii) An incorrect claim, if it is apparent from any information furnished in the return;
The expression “an incorrect claim” refers to a claim based on an entry, in the return:-
(a) of an item, which is inconsistent with other entries in such return;
(b) in respect of which any information required to be furnished to substantiate it has not been furnished; or
(c) in respect of a deduction which exceeds the statutory limit which has been provided.

The procedure for making assessment under section 143:

In making an assessment under section 143(1), examination of the return is done at the first instance. After correcting mathematical error or incorrect claim, the tax and interest, if any, is computed based on the adjusted income. Any sum payable by the taxpayer or refund due to the taxpayer is intimated to the tax payer.

Intimation is prepared and sent to the taxpayer stating the amount payable by him or the amount of refund due to him. Intimation is also sent to the taxpayer where the loss declared in the return is adjusted but no tax or interest is payable by him, or no refund is due to him.

However no intimation is sent in a case where no sum is payable or refundable. In such a case, the acknowledgement of the return is considered to be the intimation.
The processing of a return under section 143(1) shall not be necessary, where a notice is sent to the taxpayer under section 143(2)of the Act.

Time limit for making the assessment under section 143(1):

Assessment under section 143(1) can be done within one year from the end of the financial year in which the return is filed.

Assessment under section 143(3):

This assessment is referred to as scrutiny assessment. In this assessment, a detailed scrutiny of the return is carried out by the department. The scrutiny is done to examine the genuineness of the claims, deductions, etc., made by the taxpayer in his return.

The scope of assessment under section 143(3):

The objective of scrutiny assessment is to ensure that the taxpayer has not understated his income or has not stated excessive loss or has not evaded tax in any manner.

The Assessing Officer carries out a scrutiny of the return and satisfies himself regarding the claims, deductions, etc., made by the taxpayer in the return field by him.

The procedure adopted for making the assessment under section 143(3):

In case of Assessment under section 143(3), a scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income. The other procedures are as follows:

If the Assessing Officer thinks it necessary to ensure that the taxpayer has not understated his income or has not stated excessive loss or has not evaded tax in any manner, then he will sent a notice to the taxpayer asking him to appear before his office or to produce any evidence on which he may rely in support of his return.

To carry out assessment under section 143(3), a notice under section 143(2) is served. Such notice shall be served on the taxpayer within six months from the end of the financial year in which the return of income is filed by him.

The taxpayer or his representative may appear before the Assessing Officer and place his arguments and documents as required by the Assessing Officer.

After examining such evidence and taking into account all details and such other evidence as may be required, the Assessing Officer shall by a written order make an assessment of the total income or loss of the taxpayer and determine the amount of tax payable by him or the amount of refund due to him based on such assessment.

The time limit for making the assessment under section 143(3):

As per section 153, assessment under section 143(3) is required be made within two years from the end of the relevant assessment year.

Assessment under section 144:

Assessment under section 144 is also known as best judgment assessment. It is an assessment done as per the best judgment of the Assessing Officer. It is made in case of some failures stated in section 144on the part of the taxpayer.

Circumstances under which the Assessing Officer makes assessment under section 144:

According to section 144, best judgment assessment is done in case of the following failures on the part of the taxpayer:

1. If the taxpayer fails to file the return as required within the due date prescribed under section 139(1) or files a belated return under section 139(4) or files a revised return under section 139(5);
2. If the taxpayer fails to comply with the conditions of a notice served under section 142(1).

In other words, best judgment assessment is made in cases where the return is not filed by the taxpayer or there is no co-operation on his part relating to any issue.

The procedure adopted for making the assessment under section 144:

Assessment under section 144 is an assessment carried out to the best of the judgment of the Assessing Officer.

The procedures are as follows:

1. If all circumstances are satisfied, then the Assessing Officer will sent a notice to the taxpayer requiring him to show cause why the assessment should not be completed to the best of his judgment.
2. No notice is required where a notice under section 142(1)has been issued before making of an assessment under section 144.
3. If the Assessing Officer is not satisfied with the contentions of the taxpayer and has reason to believe that the case requires a best judgment, he will proceed to make the assessment as per best of his power of judgment.
4. If the conditions of the best judgment assessment are fulfilled, then after considering all relevant material and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall assess the total income or loss to the best of his judgment and thereafter determine the amount payable by the taxpayer based on such assessment.
5. A refund cannot be allowed under section 144.

The time limit for making the assessment under section 144:

As per section 153, assessment under section 144 is made within two years from the end of the relevant assessment year.

Assessment under section 147:

This is an assessment done if the Assessing Officer finds that any income has escaped assessment.

Circumstances under which assessment under section 147 is carried out:

This kind of assessment is made if any income has escaped from being taxed in the assessment made as per section 143(1) or 143(3) or 144 or 147 of the Act.
In the following cases it is considered that income chargeable to tax has escaped assessment:
1. Where no return of income has been filed by the taxpayer though his total income exceeds the maximum amount which is not chargeable to tax;
2. Where a return has been furnished but no assessment has been made and it has been noticed by the Assessing Officer that the taxpayer has understated his income or has claimed excessive loss in it;
3. Where the taxpayer has failed to furnish a report which he was required to file as per section 92E;
4. Where an assessment has been made but tax has been under assessed or excessive relief has been allowed;
5. Where a person is found to have any asset located outside the boundaries of India.

Procedure for making the assessment under section 147:

Assessment under section 147 is made to bring to tax any income which has escaped assessment.

For making such an assessment, the Assessing Officer has to issue notice under section 148 to the taxpayer. The tax payer should also be given an opportunity of being heard.

If the Assessing Officer believes that any income chargeable to tax has escaped assessment, he may assess such income which comes to his notice later on during the proceedings under section 147. He has the power to re-compute the loss or any allowance for the concerned assessment year.

Issues which are the subject matters of any appeal or revision are outside the power of the Assessing Officer under section 147.

The time limit for making the assessment under section 147:

According to section 153, assessment under section 147 is made within a year from the end of the year in which a notice under section 148 was served on the taxpayer.