Income Tax Assessment
Income tax assessment is the process of collecting and reviewing the information filed by assessees in their income tax returns. At the end of each financial year, all persons and entities required to file an income tax return by self-computing the amount of income earned and pay the tax due. Hence, an income tax assessment would happen subsequent to the filing of an income tax return. In this article, we look at the different types of income tax assessment and their implications.
Section 140A – Self Assessment
All persons having taxable income are required to file an income tax return each year. While filing a tax return, the assess computes the income earned and pays tax as per the return filed by him/her. This process of self-calculation of income and payment of tax is called self-assessment. Section 140A of the Income Tax Act deals with self-assessment of income tax. Section 140A is reproduced below for reference:
"140A. (1) Where a return has been furnished under section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return. (2) After a provisional assessment under section 141 or a regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be. (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), he shall, unless a provisional assessment under section 141 or a regular assessment under section 143 or section 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, so however, that the amount of penalty does not exceed fifty per cent, of the amount of such tax or part, as the case may be : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard.".
Section 143(3) – Scrutiny Assessment
- After filing an income tax return, a tax officer may be assigned by the Income Tax department randomly based on certain criteria to undertake an examination. If a taxpayer is selected for scrutiny assessment, the Assessment Officer would issue an income tax notice to the taxpayer under Section 143(2) informing that the taxpayer has been selected for scrutiny assessment.
- Further, the tax officer would request certain information, documents and book of accounts for undertaking the scrutiny assessment. On producing the information and documents requested, the income tax officer would complete an assessment and compute the amount of income and tax payable by the taxpayer. If there is any mismatch in the amount of taxable income or taxes to be paid, the taxpayer could agree with the order passed by the Officer and pay the demand or accept any amount of refund, or loss as determined by the tax officer.
- The taxpayer can also apply for rectification of income tax return under Section 154 if any clerical error persists. Else, the assessee can also make a revision application to the Commissioner of Income Tax under Section 263 or Section 264. Finally, if the orders passed in a scrutiny assessment is not acceptable, the taxpayer can move an appeal to the CIT (A), after that to ITAT, thereafter to High Court and then the Supreme Court, if required.
Section 144 – Best Judgement Assessment
Best judgement refers to the computation of income and tax payable is based on the best judgement of the income tax officer undertaking an examination of the taxpayer. Best judgement assessments are performed when the assessee does not cooperate with the Income Tax officer’s request for information or does not file a tax return or does not maintain the necessary books of accounts. Hence, the best judgement proceedings are initiated by an Income Tax officer for the following reasons:
- The taxpayer does not file an income tax return.
- The taxpayer does not comply with an income tax notice issued for filing an income tax return or conduct of an audit of accounts.
- The taxpayer does not comply with the requests for information and documents during a scrutiny assessment.
- The Assessing Officer is not satisfied with the information or documents presented by the assessee.
Before completing and passing the order, the Income Tax Officer must provide an opportunity for the taxpayer to be heard.
Section 147 – Income Escaping Assessment
The Income Tax department has powers to open an assessment upto 6 years. Hence, if a tax officer believes that the income of an assessee has escaped assessment, it is possible to reopen the assessment and complete it as per the newly available information and documents. To begin an income escaping assessment, the tax officer must issue a notice under Section 148 to the taxpayer.