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Assessment

An income tax assessment letter is one of the nightmares that an assessee never wants, but most often ends up with the same. Let us have a look at the entire flow of activities that takes place after you have filed your tax return.

The income tax return is nothing but details of an assessee’s income for a relevant assessment year that are furnished to the income tax authorities. The next step is the processing of the returns by the tax department.

This brings us to section 143(1): Processing of returns (Intimation):- All returns(100%) shall be processed under section 143(1) & following adjustments are to be made in the returned income.

• an arithmetical error in the return can be rectified by the department.
• b Incorrect claims made by the assessee.( Eg;:- TDS mismatch with 26AS or deduction u/s 80C claimed more than Rs. 1,50,000)
• c Disallowance of loss if the return is filed after the due date.
• d Disallowance of certain expenses indicated in the tax audit report but claimed in the return.
• e Disallowance of various income-based deductions if the return is filed after the due date.

After processing, intimation shall be sent if there is a refund/ demand/ adjustment in losses. In practical life, intimation shall be sent in all cases. Intimation shall be issued within 1 year from the end of the financial year in which the return was filed.

Section 143(2) and Section 143(3):- Notice of scrutiny assessment and order of scrutiny assessment.

The notice for any scrutiny assessment will be served by the department within 6 months from the end of the financial year in which the return was filed. Notice under section 143(2) can be issued after issuing intimation u/s 143(1)

Based on the materials and evidence furnished by the assessee in response to the notice u/s 143(2) or gathered by A.O.(Assessing Officer), A.O. shall determine the income or losses of the assessee, by way of passing an order along with the determination of tax payable or refundable to the assessee under section 143(3).

The CG has also notified a scheme ( generally referred to as the faceless assessment scheme), so as to impart greater transparency, efficiency and accountability.

Another very common notice issued by the income tax authorities is the notice u/s 147 i.e. Assessment or Reassessment of income escaping assessment (Reopening of cases)

If any income chargeable to tax has escaped assessment for any A.Y. the assessing officer, subject to the provisions of sections 148 to 153, can assess or reassess such income or recompute the depreciation allowance or loss or any other deduction or allowance. Some of the cases where income has been deemed to escape assessment are-

- Income is more than the basic exemption limit but a return has not been filed.

- Taxes have been paid at a lower rate

- Where a person is holding assets outside India

- Assessee fails to furnish Transfer Pricing report u/s 92E, etc.

Notice for assessment u/s 147 is served u/s 148 subject to provision u/s 148A. The notice shall require the assessee to furnish the return within the specified time in the notice.

Generally, notice u/s 148 can be issued within 3 years from the end of the relevant assessment year, but if-

an Income escaped amounts to Rs 1 Lakhs or more, the notice can be issued up to 6 years, from the end of the relevant A.Y.

b If income relates to foreign assets, then notice can be issued up to 16 years from the date of the relevant assessment year.

(Applicable only till 31/03/2021)

Deemed information which suggests income chargeable to tax has escaped assessment for three AYs immediately preceding the AY(Applicable on or after 1/4/2021 only)

i) Search u/s 132

ii) Survey u/s 133A

iii) Asset is seized in case of any other person

iv) Books of accounts or documents, seized or requisitioned

Section 148A- The AO shall before issuing notice u/s 148-

a Conduct any enquiry

b Provide an opportunity of being heard, by serving a show-cause notice(within 7-30 days)

c Consider a reply from the assessee in response to the show-cause notice

Section 149- Time limit for issue of notice u/s 148 is as under-

a General case- 3 years from the end of the relevant AY

b Special cases- 10 years from the end of the relevant AY if the AO has in his possession books of accounts or other documents which reveal that income chargeable to tax represented in the form of assets which has or is likely to have escaped assessment amount to Rs 50 lacs or more for that year

Section 153(2) states the time limit to complete the assessment. The time limit is 12 months from the end of the F.Y. in which notice u/s 148 was served.

The CG has also notified a scheme ( generally referred to as the faceless assessment scheme), so as to impart greater transparency, efficiency and accountability.

Appeal

Appeal means lodging a complaint, it can only be lodged with a higher authority.

Appellate Hierarchy

a CIT(A)- within 30 days

b ITAT- within 60 days

c HC- within 120 days( only question of law)

d SC- within 90 days

No appeal can be filed in the following cases: order of interest u/s 234 A/B/C, order of settlement commission, the authority of advance ruling, order of ITAT on the question of fact.

Appeal to CIT(A)[Sec 246A to 251]

● Can be filed only by the assessee within 30 days of the receipt of the order from the department

● To be filed in form 35 along with the statement of facts, grounds of appeal, copy of the order of A.O., and filing fees.

● The CIT(A) shall give the judgement within 1 year from the end of the year in which the appeal was filed.[Advisory time limit]

The CG has also notified a scheme( generally referred to as the faceless scheme), so as to impart greater transparency, efficiency and accountability.

Section 263- under this section. CIT/PCIT can call for and examine the records of any proceeding in which order has been passed by A.O. which is

- Erroneous

- Prejudicial to the interest of Revenue then CIT/PCIT can pass any revisional order under this section, as he deems fit. He may cancel, modify or enhance the assessment and direct for a fresh assessment. The time limit to pass any such order by CIT/PCIT is 2 years from the end of the FY in which the original order of A.O. was passed.

Let us list down some of the important penalties given under the Act:-

Tax Planning

Tax planning refers to the method of reducing your tax liabilities for a FY while remaining under the legal boundaries. A tax expert can provide the assessee, based on his business scenarios, the best possible way of utilising the tax exemptions and deductions that are available under the law. However, one has to be careful to exercise tax avoidance and avoid tax evasion.

The deduction provided u/s 80C to 80U are the most common ways of reducing an individual assessee’s tax liability.

For corporate assessee, taking deductions for various business expenditures and the incomes which are exempt from tax can be used to bring down the tax liability.

As the assessee is staying within the gamut of the law while reducing the tax liability, tax planning is a smart business decision in the current scenario.

From time to time, the government also introduces some incentives like additional depreciation for purchase of new plant and machinery, setting up new manufacturing business in backward areas and many other. Also, India has seen a recent boom in the startup enterprises. The government has introduced various incentive schemes for such startups under Startup India Programme.

Such schemes include:-

a 3 Years tax holiday on block of seven years

b Exemption from Long term Capital Gains Tax

c Any investment made above the fair market value is exempt from tax

d In case of change in shareholding pattern, set-off and carry forward of losses are allowed.

Types of Tax Planning:-

a Purposive tax planning- Planning with an objective

b Permissive tax planning- Planning under the legal framework

c Long range and short range tax planning- done at the beginning and at the end of the FY.

Time to time tax compliance helps the assessee to reduce the chances of penalty and interest thereon. Hence, the need for proper tax planning is necessary for not only business houses but also for individual assessee.

Capital Gains

Any profit derived from the sale of capital assets shall be taxable under the head capital gains.

Tax Rates for Capital Gain

A Section 112A- LTCG on transfer of

- Equity shares, or

- Equity oriented units, or

- Units of business trust,

In excess of Rs. 100,000 shall be taxable at 10%

The concept of grandfather was introduced in the budget session of FY 2018-19 where the FMV of the share shall be the highest price quoted on 31/01/2018.

B Section 111A- STCG on transfer of equity shares or equity oriented units or units of business trust shall be taxable at 15% if STT paid on transfer of such assets.

C Capital Gains(other than referred in 112A and 111A above)

- LTCG:- 20% u/s 112

- STCG- Normal tax rate

The Income Tax Act also provides the assessee with various exemptions to income from capital gains. Some of the important ones are as follows:-

For any further enquiry on any such topic please contact our esteemed tax experts at helpmybiz.in.