assess pro 1

ASSESSMENT PROCEDURE

SEC. 139 onwards

byDr Vinay Kumar Singh

Additional Director (Faculty), NATIONAL ACADEMY OF DIRECT TAXES, NAGPUR

N.A.D.T., NagpurAPRIL, 2009

11

LAW Introduction to Income-tax Introduction to Income-tax ..

2

LEGISLATURE OF INDIA

POLICY LAWGOAL ADMINISTRATION

CITIZENS OF INDIA

Elections

Intension of legislature STATUTE

-Collection of revenue for PUBLIC GOODS-Redistribution of income-Behaviour modification

-EQUITY-NEUTRALITY-EFFICIENCY-PREDICTABILITY-ADEQUACY

-Standard text-Conveys intention of legislature to Administrators & compliers

-RULES-PROCEDURE-CONVENTIONS

M.O.F.

C.B.D.T.

C.C.s I.T.

C.s I.T.

Addl./Jt.C.s I.T.

Asstt/Dep. Cs I.T.

I.T.O.s

I.T.I.s

S.C. / H.C.Interpretation of intention of legislature

C.s I.T. (Appeal)

Voluntary compliance

CASE LAWS

ORDERS

I.T.A.T.

• Law is made by the representatives of the citizens

• All public servants work for the citizens of the country

• Executive has the responsibility of ensuring compliance of the Law

• Income tax authorities are QUASI-JUDICIAL in nature

• While exercising this responsibility, and while dealing with citizens, they must follow the basic principles of natural justice:– APPRECIATION OF EVIDENCE– OPPORTUNITY OF BEING HEARD– SPEAKING ORDER– APPLICATION OF MIND

3

PRINCIPLES OF NATURAL JUSTICEIntroduction to Income-tax Introduction to Income-tax ..

LEGISLATURE

JUDICIARY

EXECUTIVE

• LIMITATION OF POWER– No action can be taken by an executive that impinges

upon any of the rights of the citizens, unless the Law authorizes such action

– Action can only be taken by the authority to whom the power is delegated, ONLY within his JURISDICTION

– There must be application of mind by that authority– Action must be BONA-FIDE & NON-DISCRIMINATORY

(NEUTRALITY)

• LIMITATION OF TIME– Time limits often defined in the Act for certain actions– No action possible once BARRED BY TIME LIMITATION

• LIMITATION OF INTERPRETATION– Words (& phrases) defined in the statute – Case laws interpreting the meaning of certain terms– Common parlance (in keeping with overall objective)

4

LIMITATIONS ON AUTHORITY OF EXECUTIVEIntroduction to Income-tax Introduction to Income-tax ..

EXECUTIVE

5

INCOME-TAX AUTHORITIESIntroduction to Income-tax Introduction to Income-tax ..

Sec. 116. There shall be the following classes of income-tax authorities for the purposes of this Act, namely :

(a) the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963),

(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,

(c) Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals),

(cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals),

(cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax,

(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),

(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,

(f) Income-tax Officers,

(g) Tax Recovery Officers,

(h) Inspectors of Income-tax.

6

INCOME-TAX AUTHORITIESIntroduction to Income-tax Introduction to Income-tax ..

EXECUTIVE

Sec. 2 (28)

Sec. 2 (12)

Sec. 2 (15A)

Sec. 2 (16)

Sec. 2 (1C) / 2(1D) / 2(28C)/ 2(28D)

Sec. 2 (9A) / 2(9B) / 2(19A)/ 2(19C)

Sec. 2 (25)

Sec. 2 (7A)

Sec. 117 (1)

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ASSESSING OFFICERIntroduction to Income-tax Introduction to Income-tax ..

Sec. 2 (7A) Assessing Officer means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act,

and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;

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Sec. 120 Jurisdiction of income-tax authorities(1) Income-tax authorities shall exercise all or any of the powers and

perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.

Explanation. For the removal of doubts, it is hereby declared that any income-tax authority, being an authority higher in rank, may, if so directed by the Board, exercise the powers and perform the functions of the income-tax authority lower in rank and any such direction issued by the Board shall be deemed to be a direction issued under sub-section (1).

(2) The directions of the Board under sub-section (1) may authorise any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it.

Sec. 2 (7A) Assessing Officer

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Sec. 120 Jurisdiction of income-tax authorities4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by

general or special order, and subject to such conditions, restrictions or limitations as may be specified therein,

(a) authorise any Director General or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board;

(b) empower the Director General or Chief Commissioner or Commissioner to issue orders in writing that the powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons or classes of persons or incomes or classes of income or cases or classes of cases, shall be exercised or performed by an Additional Commissioner or an Additional Director or a Joint Commissioner or a Joint Director, and, where any order is made under this clause, references in any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such Additional Commissioner or Additional Director or Joint Commissioner or Joint Director by whom the powers and functions are to be exercised or performed under such order, and any provision of this Act requiring approval or sanction of the Joint Commissioner shall not apply.

Sec. 2 (7A) Assessing Officer

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ASSESSMENT OF INCOMEIntroduction to Income-tax Introduction to Income-tax ..

TAX

Sec. 2 (43)

Sec. 2 (7)

RETURN OF INCOMEfor the

ASSESSMENT YEAR / PREVIOUS YEAR

ASSESSEEASSESSMENT

of

INCOME

Sec. 2 (24)

Sec. 2 (9) Sec. 2 (34)

Sec. 2 (8)

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ASSESSEEIntroduction to Income-tax Introduction to Income-tax ..

Sec 2(7) assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act ;

(c) every person who is deemed to be an assessee in default under any provision of this Act ;

Not necessary to have actual proceedings inititiated and pending for being considered a assessee

ITO vs. DDA [200] 252 ITR 772 (SC)

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PERSONIntroduction to Income-tax Introduction to Income-tax ..

Sec(31) person includes (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of

individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within

any of the preceding sub-clauses. Explanation. For the purposes of this clause, an

association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

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PREVIOUS YEAR / ASSESSMENT YEARIntroduction to Income-tax Introduction to Income-tax ..

Sec 3 Previous year defined. 3. For the purposes of this Act, previous

year means the financial year immediately preceding the assessment year :

Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.

Sec 2 (34) Sec 3

Sec 2 (9) assessment year means the period of twelve months commencing on the 1st day of April every year ;

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PREVIOUS YEAR / ASSESSMENT YEARIntroduction to Income-tax Introduction to Income-tax ..

Sec 4 Charge of income-tax. (1) Where any Central Act enacts that income-tax shall be charged for any

assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.

Financial Act

e.g..Sec 158B, Sec 174(1)

Part 1 , First schedule of Finance

Act

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INCOMEIntroduction to Income-tax Introduction to Income-tax ..

Sec 14

HEADS OF INCOME

SALARIESSALARIES

HOUSE PROPERTYHOUSE PROPERTY

BUSINESS OR PROFESSIONBUSINESS OR PROFESSION

CAPITAL GAINSCAPITAL GAINS

OTHER SSOURCESOTHER SSOURCES

Sec 17

Sec 56

Sec 45

Sec 28

Sec 22

Sec 2 (24)

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INCOMEIntroduction to Income-tax Introduction to Income-tax ..

OPENING STOCK 100PURCHASES 200ELECTRICITY 100GROSS PROFIT 100

------500------

SALE RECEIPTS 300CLOSING STOCK 200

------500------

Rs. Rs.

SALARIES 30RENT 20TRAVELLING 10OFFICE EXPENSES 10NET PROFIT 40

------110

GROSS PROFIT 100INTEREST ON LATE PAYMENTS 10

-------110

Net profit as per accounting / books may be different from the ‘profit & gains’ referred in IT Act as certain expenses clamed may not be allowable as deduction.

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RETURN OF INCOMEIntroduction to Income-tax Introduction to Income-tax ..

Return of income

Section 139 (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

Rule 12 - Return of income and Return of Fringe benefits

ITR - 1 TO 8

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ASESSMENTIntroduction to Income-tax Introduction to Income-tax ..

Sec 139 (1)

Sec 2 (8)

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Sec 2 (8) assessment includes reassessment ;

Sec 143 (3)

(3) On the day specified in the notice -

(i) issued under clause (i) of sub-section (2), or as soon afterwards as may be, after hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and determine the sum payable by the assessee on the basis of such assessment. ................

Sec 2 (40) regular assessment means the assessment made under subsection (3) of section 143 or section 144 ;

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144. Best judgment assessment

Sec 144 (1) If any person- (a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under subsection (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under subsection (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or(c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, The Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment:

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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, subject to the provisions of sections 148 to 153, 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 (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): …………..

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Self-assessment Sec 140A (1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or, as the case may be, section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.

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Processing of Return

Sec 143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner namely :- (a)The total income or loss shall be computed after making the following adjustments namely:-

(i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any

information in the return;…………………

(d) An intimation shall be prepared or generated and sent to the assessee…(e) The amount of refund due to the assessee ….. shall be granted….

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TAX

RETURN OF INCOMEfor the

ASSESSMENT YEAR / PREVIOUS YEAR

ASSESSEE

ASSESSMENT of INCOME


LEGAL REPRESENTATIVE

PROCESSING OF RETURN

REASSESSMENT of INCOME

BOOKS OF ACCOUNTS

DOCUMENTS

SELF ASSESSMENT

Sec 2 (29)Sec 2 (29)

AUTHORISED REPRESENTATIVE

Sec 288 (2)

Sec 2 (22AA)

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Sec 2 (29) legal representative has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908)

Code of Civil Procedure, 1908Code of Civil Procedure, 1908Sec 2 (11) "legal representative" means a person who in law represents the estate of a

deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued;

Sec 2(12A) books or books of account includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device;

Sec 2 (22AA) document includes an electronic record as defined in clause (t)3 of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

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AUTHORISED REPRESENTATIVEIntroduction to Income-tax Introduction to Income-tax ..

Sec 288. (1) Any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal in connection with any proceeding under this Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may, subject to the other provisions of this section, attend by an authorised representative.

(2) For the purposes of this section, "authorised representative" means a person authorised by the assessee in writing to appear on his behalf, being-

(i) a person related to the assessee in any manner, or a person regularly employed by the assessee; or

(ii) any officer of a scheduled bank with which the assessee maintains a current account or has other regular dealings; or

(iii) any legal practitioner who is entitled to practise in any civil court in India; or (iv) an accountant; or

Explanation.-In this section, "accountant" means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

Chartered Accountants Act, 1949 Chartered Accountants Act, 1949 Section 2(1)(b) Section 2(1)(b) "chartered accountant" means a person who is a member of the Institute;"

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AUTHORISED REPRESENTATIVEIntroduction to Income-tax Introduction to Income-tax ..

Sec 288. (2) For the purposes of this section, "authorised representative" means..

(v) any person who has passed any accountancy examination recognised in this behalf by the Board-,' or

(vi) any person who has acquired such educational qualifications as the Board may prescribe for this purpose; or

(via)any person who, before the coming into force of this Act in the Union territory of Dadra and Nagar Haveli, Goa, Daman and Diu, or Pondicherry, attended before an income-tax authority in the said territory on behalf of any assessee otherwise than in the capacity of an employee or relative of that assessee; or]

(vii) any other person who, immediately before the commencement of this Act, was an income-tax practitioner within the meaning of clause (iv) of sub-section (2) of section 61 of the Indian Income-tax Act, 1922 (11 of 1922), and was actually practising as such.

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TAXIntroduction to Income-tax Introduction to Income-tax ..

29


30


31


ASSESSEE

ASSESSING OFFICER

XYZ

PAYMENTS

ADVANCE TAX

SELF ASSESSMENT

SELF ASSESSMENT TAX

T.D.S.

[ + INTEREST ]

ASSESSMENT

TAX DEMAND

32

AGRICULTURAL INCOMEIntroduction to Income-tax Introduction to Income-tax ..

CONDITIONS : (i) Person to whom Para A of Part I applies : Individual, HUF, AOP, BOI, AJP (ii) Total income > the max non-taxable income (iii) Agri income > Rs 5000

COMPUTE AGRI INCOME FROM EACH SOURCE SEPERATELY INCOME PARTIALLY AGRICULTURE, PARTIALLY BUSINESS

DEEMED AGRI INCOME – SHARE IN AOP [R-5]

ANY LOSS MAY BE ADJUSTED AGAINST OTHER AGRI INCOME EXCEPT THE LOSS ARISING FROM SHARE OF

AOP

+

+

+

+ +

UNABSORBED AGRI LOSS OF A PY OF EARLIER (8) AY

-NET AGRI

INCOME

IF IT IS A LOSS, DEEMED TO BE NILSUM OF AGRICULTURAL INCOME FROM ALL SOURCES

-

Carried forward

33


TOTAL INCOMESec 2 (45)

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TOTAL INCOMEIntroduction to Income-tax Introduction to Income-tax ..

Sec 2(45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act

Sec 5 (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or

(c) accrues or arises to him outside India during such year :

Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

35


Sec 2(45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act

Sec 5 (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1. Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2. For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

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GROSS TOTAL INCOMEIntroduction to Income-tax Introduction to Income-tax ..

CHAPTER VI A DEDUCTIONS IN RESPECT OF CERTAIN INCOME

Sec 80B In this chapter -

(5) "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter

GROSS TOTAL INCOME TOTAL INCOME

DEDUCTIONS UNDER

CHAPTER VI A- =

37


SALARY

HOUSE PROPERTY

BUSINESS & PROF

OTHER SOURCES

LTCG

STCG

+

+

+

+

+

INCOME OF OTHER PERSONS INCLUDED IN

TOTAL INCOME (CHAPTER V)

INCOME ON WHICH NO INCOME-TAX IS PAYABLE

UNDER CHAPTER VII

+

+

+CASH CREDITS,

UNEXPLAINED INVESTMENTS, EXPENDITURE ETC.

(Sec 68,69A,69B,69C,69D)

+

GROSS TOTAL INCOME TOTAL INCOME

DEDUCTIONS UNDER CHAPTER VI A- =

for adjustment of losses, CHAPTER VI

38

RESIDENTIntroduction to Income-tax Introduction to Income-tax ..

Sec 2 (42) resident means a person who is resident in India within the meaning of section 6

Sec 2 (30) non-resident means a person who is not a resident , and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6 ;

39

RESIDENTIntroduction to Income-tax Introduction to Income-tax ..

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008-09

1998

-99

≥ 182 DAYS

≥ 60 DAYS≥ 365 DAYS

NON-RESIDENT IN ≥ 9 YEARS

12345678910

≤ 729 DAYS

• CHAPTER XIV CHAPTER XIV ofof INCOME TAX ACT 1961 INCOME TAX ACT 1961

• ASSESSMENT ASSESSMENT PROCEDUREPROCEDURE

• Sec 139 to 158Sec 139 to 158

40

ASSESSMENT PROCEDUREAssessment Procedure Assessment Procedure . .

• PART IIIPART IIIofof INCOME TAX RULES 1962 INCOME TAX RULES 1962

• ASSESSMENT ASSESSMENT PROCEDUREPROCEDURE

• Rule 12 to 15Rule 12 to 15

FORMS NOTIFICATIONS

CIRCULARS

CASE LAWS

41

RETURN OF INCOMESec 139 (1) Every person, (a) being a company or a firm; or (b) being a person other than a company or a firm, if his total income or

the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :

Assessment Procedure Assessment Procedure . .

Sec 2 (33) prescribed means prescribed by rules made under this Act ;

42

RETURN OF INCOMERule 12. (1) The return of income required to be furnished under sub-section (1)

or sub-section (3) or sub-section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) of section 139 or clause (i) of sub-section (1) of section 142 or sub-section (1) of section 148 or section 153A or the return of fringe benefits required to be furnished under sub-section (1) or sub-section (2) of section 115WD relating to the assessment year commencing on the 1st day of April, 2008 shall,

(a) in the case of a person being an individual where the total income includes income chargeable to income-tax under the head Salaries or income in the nature of family pension as defined in the Explanation to clause (iia) of section 57 but does not include any other income except income by way of interest chargeable to income-tax under the head Income from other sources, be in Form No. ITR-1 and be verified in the manner indicated therein;

(b) in the case of a person being an individual not being an individual to whom clause (a) applies or a Hindu undivided family where the total income does not include any income chargeable to income-tax under the head Profits and gains of business or profession, be in Form No. ITR-2 and be verified in the manner indicated therein;


prescribed form

43

RETURN OF INCOMEAssessment Procedure Assessment Procedure . .

A snapshot from https://incometaxindiaefiling.gov.in/portal/individual_huf.do

prescribed form

https://incometaxindiaefiling.gov.in/portal/individual_huf.do

44


A snapshot from ITR-1

RULE 12 (1) (a) “...............................verified in the manner indicated therein”

prescribed form

45

RETURN OF INCOMESec 139 (1) Every person, (a) being a company or a firm; or

(b) being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :


Sec 2(7) assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes

(b) every person who is deemed to be an assessee under any provision of this Act

CHAPTER XV LIABILITY IN SPECIAL CASES

Sec 159 – LEGAL REPRESENTATIVE

Sec 160 – REPRESENTATIVE ASSESSEE

Sec 163 – AGENT

Sec 168 – EXECUTOR

Sec 170 – SUCCESSOR

(a)Agent of a non-resident

(b) Guardian / Manager of minor/lunatic/idiot

(c) Court of wards/ Administrator General/ Trustee appointed by court

(d) Trustee (trust with instrument)

(e) Trustee (oral trust)

46

RETURN OF INCOMESec 139 (1) Every person, (a) being a company or a firm; or (b) being a person other than a company or a firm, if his total income or the total income of any other

person in respect of which he is assessable under this Act during the previous year exceeded the

maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :


Explanation 2.In this sub-section, due date means,

(a) where the assessee is (i) a company; or (ii) a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or (iii) a working partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being in force, the 30th day of September of the assessment year;

(substituted by Finance Act 2008, w.e.f. 1.4.2008)

(b) …….

(c) in the case of any other assessee, the 31st day of July of the assessment year

47


Sec 139Sec 139

Sec 139 (1)Sec 139 (1)Who should file; when; how

PROVISO-1PROVISO-1

PROVISO-2PROVISO-2

PROVISO-3PROVISO-3

PROVISO-4PROVISO-4

One by six scheme ………...up to AY 2005-06

Every co. / firm to file return

Filing of return reqd, if TOTAL INCOME without giving effect to Exemptions u/s 10A, 10B, 10BA or deduction u/ Chap VI A exceeds amount not chargeable to tax

Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of section 10A or section 10B or section 10BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

48


(1A)(1A) Filing of return by salaried employees through employer

Scheme for bulk filing of returns by salaried

employees,2002

Scheme of filing of returns by salaried employees

through employer, 2004

(1B)(1B) E – filing of return Electronic furnishing of returns of income scheme 2007

(3)(3)Return to be filed for carrying forward a LOSS under ‘Profits & gains from business & profession’ or ‘capital gains’

Sec 80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub-section (3) of section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3)] of section 74 or sub-section (3) of section 74A.

Loss under ‘House property’ ??

u/s 71B ??

49


(1A)(1A) Filing of return by salaried employees through employer

Scheme for bulk filing of returns by salaried

employees,2002

Scheme of filing of returns by salaried employees

through employer, 2004

(1B)(1B) E – filing of return Electronic furnishing of returns of income scheme 2007

(3)(3)Return to be filed for carrying forward a LOSS under ‘Profits & gains from business & profession’ or ‘capital gains’

(4)(4) BELATED RETURN Up to one year from the end of relevant AY or assessment

C / F LOSS RETURN

(4A)(4A) CHARITABLE TRUST Filing of return reqd, if TOTAL INCOME without giving effect to Sec 11 & 12 exceeds max amount not taxable

(4B)(4B) POLITICAL PARTYFiling of return reqd, if TOTAL INCOME without giving effect to Sec 13A exceeds max amount not taxable

50


(4C)(4C)

(4D)(4D)

(5)(5)

(6)(6) Information to be furnished

income exempt, assets, bank account, credit card, expenditure, other outgoings s may be PRESCRIBED

REVISED RETURN

(6A)(6A) Audit report etc Audit return, principal place, branches, partners, members etc

(9)(9) DEFECTIVE RETURN If AO considers return defective – opportunity for rectify within 15 days / time allowed by AO

INSTITUTIONS U/S 10

For certain institutions / associations/trade unions - Filing of return reqd, if TOTAL INCOME without giving effect to clause 21 / 22B/ 23A / 23B / 23C of Sec 10 exceeds max amount not taxable

UNIVERSITY COLLEGE

Every University, college or educational institute referred in clause (ii) or (iii) of Sec 35 (1) not otherwise required to file return – REQD.

On discovery of omission / wrong statement – up to one year from the end of relevant AY or assessment

51

RETURN OF INCOME

Sec 139 (9) Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow;

and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :

Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.


52

RETURN OF INCOME

Sec139(9) Explanation. For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :

(a) the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in;

(b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return;

(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report;


53

RETURN OF INCOMESec139(9) Explanation. For the purposes of this sub-section, a return of income

shall be regarded as defective unless all the following conditions are fulfilled, namely :

(c) the return is accompanied by proof of (i) the tax, if any, claimed to have been deducted or collected at source and the

advance tax and tax on self-assessment, if any, claimed to have been paid Provided that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted or collected at source, the return of income shall not be regarded as defective if (a) a certificate for tax deducted or collected was not furnished under section 203 or section 206C to the person furnishing his return of income;(b) such certificate is produced within a period of two years specified under sub-section (14) of section 155;

(ii) the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974);


54

RETURN OF INCOMESec139(9) Explanation. For the purposes of this sub-section, a return of

income shall be regarded as defective unless all the following conditions are fulfilled, namely :

(d) where regular books of account are maintained by the assessee, the return is accompanied by copies of

(i) manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance sheet;

(ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals;


55

RETURN OF INCOME

Sec139(9) Explanation. For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :

(e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditors report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section;

(f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.


56


Who should file a return ?

57


A snapshot from ITR-1

WHO SHOULD SIGN ??

prescribed form

Sec 140

58

WHO SHOULD SIGN ?Introduction to Income-tax Introduction to Income-tax ..

INDIVUDUAL

H.U.F

COMPANY

FIRM

AOP / BOI

Art. Juridical PERSON

LOCAL AUTHORITY

INDIVIDUAL himself

Absent from India by PERSON DULY AUTHORISED

Mentally incapacitated GUARDIAN

Can NOT sign by PERSON DULY AUTHORISED

KARTA if absent from India / mentally incapacitated ANY ADULT MEMBER

MANAGING DIRECTOR if no MD / MD can’t sign DIRECTOR

Co being wound up by LIQUIDATOR [ sec 178 (1) ]

Management taken over by Governmant PRINCIPAL OFFICER

Co. NOT RESIDENT by PERSON HAVING P.O.A. (enclosed with return)

MANAGING PARTNER can’t sign / no Managing partner ANY PARTNER (major)

PRINCIPAL OFFICER

Any MEMBER / PRINCIPAL OFFICER

POLITICAL PARTY CHIEF EXECUTIVE OFFICER

THAT PERSON / PERSON COMPETENT TO ACT ON ITS BEHALFANY OTHER PERSON

59


How to file a return ?

What if the return filed is found by assessee to be defective

What if the return filed is found by A O to be defective

What if the return could not be filed by the DUE DATE

RULE 12RULE 12ITR 1 TO 8ITR 1 TO 8

60


Return not filed by DUE DATE


WHAT HAPPENS IF

Return not filed in prescribed form

Return not verified as prescribed

Up to one year from the end of relevant AY or assessment

Return invalid

NO RETURN

AFTER one year from the end of relevant AY or assessment

Return not rectified

SIGNED BY

WRONG PERSON

61



WHAT HAPPENS IF

NO RETURN

Notice u/s 142 (1)Penalty u/s 271 Fc/f losses u/s 80 not allowedProsecution u/s 276CC

Sec 271F. If a person who is required to furnish a return of his income, as required under sub-section (1) of section 139 or by the provisos to that sub-section, fails to furnish such return before the end of the relevant assessment year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of five thousand rupees.

62



WHAT HAPPENS IF

NO RETURN

Notice u/s 142 (1)Penalty u/s 271 Fc/f losses u/s 80 not allowedProsecution u/s 276CC

.

Penalty u/s 272A(2) Rs.100/-for every day during which the failure continues

63


Sec 276CC. If a person wilfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub-section (2) of the said section or section 115WH or the return of income which he is required to furnish under sub-section (1) of section 139 or by notice given under 37clause (i) of sub-section (1) of section 142 or section 148 38or section 153A, he shall be punishable,

(i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine:

Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of fringe benefits under sub-section (1) of section 115WD or return of income under sub-section (1) of section 139

(i) for any assessment year commencing prior to the 1st day of April, 1975; or(ii) for any assessment year commencing on or after the 1st day of April 1975, if(a) the return is furnished by him before the expiry of the assessment year; or(b) the tax payable by him on the total income determined on regular assessment, as

reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees.

64



WHAT HAPPENS IF

TDS certificates, Audit reports etc not attached with the return

4. Annexure-less FormNo document (including TDS certificate) should be attached to this form. Official receiving the return has been instructed to detach all documents enclosed with this form and return the same to the assessee.

65


Sec 139C Power of Board to dispense with furnishing documents, etc., with the return.

(1) The Board may make rules providing for a class or classes of persons who may not be required to furnish documents, statements, receipts, certificates, reports of audit or any other documents, which are otherwise under any other provisions of this Act, except section 139D, required to be furnished, along with the return but on demand to be produced before the Assessing Officerbut on demand to be produced before the Assessing Officer.

(2) Any rule made under the proviso to sub-section (9) of section 139 as it stood immediately before its omission by the Finance Act, 2007 shall be deemed to have been made under the provisions of this section.

Proviso to Sec 139 (9) [Omitted by the Finance Act, 2007, w.r.e.f. 1-6-2006] Provided that the Board may, by rules made by it,— (a) dispense, for a class or classes of persons, with any of the conditions specified in clauses (a) to (f); or (b) include any of the conditions specified in clauses (a) to (f) of this Explanation in the form of return prescribed under sub-section (1) or sub-section (6) of this section.”

66


Can two total incomes (e.g... of an individual & karta of HUF) be clubbed in a single return ? No ........................... 164 ITR 134 (SC)

Can an illegally constituted entity file a return of income (e.g.. A firm constituted in contravention of the provisions of law) ?

Madanmohan Pal vs CIT, (1994) 209 ITR 374, 379 (Allahabad) Is it mandatory to file a return in case of loss ?

No Can unabsorbed depreciation be carried forward ?

Yes ……………………………………….. Madanmohan Pal vs CIT, (1994) 209 ITR 374, 379 (Allahabad)

Which assessment is referred to in Sec 139 (4) ?Best judgement assessment u/s 144

Whether a return submitted after assessment completed but before the notice of demand is served would be valid ? No ………………..Balechand vs ITO (1969) 72 ITR 197 (SC)

Whether a return filed after cancellation of Best judgement assessment (within one year from the end of the relevant AY) is a valid return ? Yes ……………………………… Ram Bilas Kedarnath vs ITO (1963) 47 ITR 586 (All)

67


Can assessee revise his return whenever he wishes to do so ? No ; He can only revise if there was an omission or error in the original return and the same was due to a bonafide inadvertence or mistake on the part of the assessee …………………………………… Sunanda Ram Deka vs CIT (1994) 210 ITR 988, 990 (Gauh)

Can assessee file a revised return in case where his original return was based on his own books of accounts which he claims are correct ?

No …………………… CIT vs India’s Hobby Centre (P) Ltd [(1995) 78 Taxman 377, 384 (Cal) The circular no. 653 dated 15-6-1993 issued in connection with section 80D say: when

the Act permits the filing of revised return, it is expected to be considered by the assessing authority, if the same is filed before the assessment order is made by it; otherwise, the very purpose of giving such a right would be frustrated.

Is it mandatory to file a return in case of loss ? No

Can a revised return be filed in a case of return filed u/s 139(4) ? No ……………………………………….. Kumar Jagdish Chandra Sinha v. CIT [(1996) 220 ITR 67, 75, 74(SC) ?

Can a revised return be revised again ? YES ………………….. Niranjan Lal Ram Chandra v. CIT, (1982) 134 ITR 352 (All)

Can a revised return be filed in a case of return filed u/s 139 (4A) Yes ………………………..CIT v. Sri Baldeoji Maharaj Trust [(1983) 142 ITR 584 (All)

68


Can assessee file a return of income after assessment is completed ? No ; …………………………………… Balchand vs. ITO(1969) 72 ITR 197 (SC)

Can assessee file a return after a notice for reassessment of income has been issued to him ?

Yes …………………… CIT vs B v R Glucose Products Ltd (2001) 250 ITR 512 (AP) Can an assessee file a revised return u/s 139(5) to revise a return in which income was

willfully evaded or concealed ? No ……………………..Sunanda Ram Deka vs. CIT (1994) 210 ITR 988 (Gau)

Will an application to the AO disclosing some additional income amount to a revised return ? No ……………………..Gopaldas Parshottamdas vs. CIT (1941) 9 ITR 130 (All)

Can a revised return be filed to change the status ?Can a revised return be filed to change the accounting method ? No ……………………………………….. Deep Narain Nagu & Co. v. CIT [(1986) 157 ITR 37 (MP)

Can a return filed u/s 139(3) be revised ? YES ………………….. CIT v. Periyar Dist Coop Milk Producers Union Ltd (2004) 137 Taxman 364 (Mad)

Can a revised return be filed after an intimation is issued ? Yes ………………………..CIT v. Omprakash Bagaria HUF (2006) 155 taxman 427 (MP)

69


A return showing u/s 139 (1) filed by an individual with total income below taxable limit – is it a valid return? Yes ; …………………………………… CIT vs. Ranchhoddas Karsandas (1959) 36 ITR 569 (SC)

Return filed in a wrong form – will it be invalid? No …………………… Dhampur Sugar Mills Ltd vs. CIT (1973) 90 ITR 236 (All) Will a return (prior to AY 2007-08) submitted without necessary annexures be invalid ?

No …………………….. Dhampur Sugar Mills Ltd vs. CIT (1973) 90 ITR 236 (All) Can an unsigned return be treated as defective u/s 139 (9) ?

No . It is an INVALID return……………………..Khialdas & sons vs. CIT (1997) 227 ITR 960 (MP)

What will happen where on a return , in place of the signature of the assessee (an illetrate individual), his name was written on his behalf and on his request, by his son? INVALID return, since the statute requires a physical contact between the person verifying the return (whether a return of hos own income, or of another person in a representative capacity) and the signature or the mark put on the return ……………………………………….. CIT vs. Keshab Chandra Mandal (1950) 18 ITR 569 (SC)

What happens if a notice of scrutiny u/s 143 (3) is issued w.r.t. an unsigned return ? The return will still be an invalid return ………..Electrical Instrument Co v. CIT (2001) 250

ITR 734 (Delhi)

Sec 139(8) (a) Where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then whether or not the Assessing Officer has extended the date for furnishing the return under sub-section (1) or sub-section (2), the assessee shall be liable to pay simple interest at fifteen per cent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source : Provided that the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.…………………………………………………

*(c) The provisions of this sub-section shall apply in respect of the assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, and references therein to the other provisions of this Act shall be construed as references to the said provisions as they were applicable to the relevant assessment year. *[inserted by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1.4.89, along with Sec 234A,B,C which came into force w.e.f. 1.4.89]

Sec 139 (8)Assessment Procedure Assessment Procedure . .

Sec 139A. (1) Every person, (i) if his total income or the total income of any other

person in respect of which he is assessable under this Act during any previous year exceeded the maximum amount which is not chargeable to income-tax; or

(ii) carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to exceed five lakh rupees in any previous year; or

(iii) who is required to furnish a return of income under sub-section (4A) of section 139; or

(iv) being an employer, who is required to furnish a return of fringe benefits under section 115WD,

and who has not been allotted a permanent account number shall, within such time, as may be prescribed, apply to the Assessing Officer for the allotment of a permanent account number.

Rule 114Rule 114

31stMay31stMay

Before the end of Before the end of the accounting yearthe accounting year

Before the end of Before the end of the accounting yearthe accounting year

P.A.N.Assessment Procedure Assessment Procedure . .

Sec 139A. (1A) Notwithstanding anything contained in sub-section (1), the Central Government may, by notification in the Official Gazette, specify, any class or classes of persons by whom tax is payable under this Act or any tax or duty is payable under any other law for the time being in force including importers and exporters whether any tax is payable by them or not and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a permanent account number.


The Central Govt. by notification no. 11468, dated 29.8.2000 has notified the following class or classes of persons who shall apply to the A.O. for allotment of PAN

• Exporters and Importers as defined in section 2(20) and section 2(26) of the Customs Act, 1961, who are required to obtain an importer-exporter code under section 7 of the Foreign Trade (Development and Regulation)Act, 1992.

• Assessees as defined in rule 2(3) of Central Excise Rules, 1944.• Persons who issue invoices under rule 57AE i.e. traders, etc, requiring registration under

Central Excise Rules, 1944.• Persons who are assessees under service tax.

The above persons shall apply for allotment of PAN within 15 days of the date of publication of the notification in the Official Gazette. However, persons who may fall in the above category, after the date of the above notification, shall apply for allotment of PAN:

• (a) in case of (I) above, before making an import or export;• (b) in case of (ii) and (iii) above, before making am application for registration under

central excise;• (c) in case of (iv) above, before making an application for registration under service tax;


• The Central Govt. by notification no. 355/2001, dated 11-12-2001 has further notified the following class or classes of persons:

• Persons registered under the Central Sales Tax Act, 1956 or the general sales tax law of the appropriate State or Union Territory, as the case may be.

• As on the date of this notification, a person falling within a class or classes of persons referred to in paragraph I, shall apply for the allotment of PAN within thirty days of the date of publication of this notification in the Official Gazette.

• A person who may fall within such class or classes of persons after the date of this notification, as is referred to in paragraph (I), shall apply for the allotment of (PAN) before making any application for registration under the Central Sales Tax Act, 1956 or the general sales tax law of the appropriate State or Union Territory, as the case may be.


Sec 139A. (1A) Notwithstanding anything contained in sub-section (1), the Central Government may, by notification in the Official Gazette, specify, any class or classes of persons by whom tax is payable under this Act or any tax or duty is payable under any other law for the time being in force including importers and exporters whether any tax is payable by them or not and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a permanent account number.

(1B) Notwithstanding anything contained in sub-section (1), the Central Government may, for the purpose of collecting any information which may be useful for or relevant to the purposes of this Act, by notification in the Official Gazette, specify, any class or classes of persons who shall apply to the Assessing Officer for the allotment of the permanent account number and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a permanent account number.

(2) The Assessing Officer, having regard to the nature of the transactions as may be prescribed, may also allot a permanent account number, to any other person (whether any tax is payable by him or not), in the manner and in accordance with the procedure as may be prescribed.


Sec 139A. (3) Any person, not falling under sub-section (1) or sub-section (2), may apply to the Assessing Officer for the allotment of a permanent account number and, thereupon, the Assessing Officer shall allot a permanent account number to such person forthwith.

(4) For the purpose of allotment of permanent account numbers under the new series, the Board may, by notification in the Official Gazette, specify the date from which the persons referred to in sub-sections (1) and (2) and other persons who have been allotted permanent account numbers and residing in a place to be specified in such notification, shall, within such time as may be specified, apply to the Assessing Officer for the allotment of a permanent account number under the new series and upon allotment of such permanent account number to a person, the permanent account number, if any, allotted to him earlier shall cease to have effect :

Provided that the persons to whom permanent account number under the new series has already been allotted shall not apply for such number again.


PAN139A. (5) Every person shall (a) quote such number in all his returns to, or correspondence with, any

income-tax authority; (b) quote such number in all challans for the payment of any sum due under this

Act; (c) quote such number in all documents pertaining to such transactions as may

be prescribed by the Board in the interests of the revenue, and entered into by him:

Provided that the Board may prescribe different dates for different transactions or class of transactions or for different class of persons:

Provided further that a person shall quote General Index Register Number till such time Permanent Account Number is allotted to such person;

(d) intimate the Assessing Officer any change in his address or in the name and nature of his business on the basis of which the permanent account number was allotted to him.

Rule 114 BRule 114 B

PANRule-114B Categories of transactions and/or document where quoting of PAN made

compulsory • sale/purchase of any immovable property value at Rs.5 lakhs or more;• sale/purchase of motor vehicle (other than two wheeled vehicles) which requires

registration under Motor vehicles Act, 1988;• Time deposit exceeding Rs.50,000/- with a bank/banking company/banking institution;• Deposits exceeding Rs.50,000/- in Post Office Savings Bank.• Contract for sale/purchase of securities exceeding Rs.1,00,000/-• Opening an account with a bank/banking company/banking institution. Where the

person opening a bank account is a minor and does not have any income chargeable to income-tax, he shall quote the PAN/GIR number of his father or mother or guardian as the case may be.

• Application for installation of a telephone connection including cellular connection.• Payment to hotels/restaurants of bills exceeding Rs.25,000/- at any time.• Payment in cash for purchase of bank draft or pay orders or banker's cheques from a

banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) for an amount aggregating Rs.50,000/- or more during any one day;


PANRule-114B Categories of transactions and/or document where quoting of PAN made

compulsory -----------contd.• deposit in cash aggregating to Rs.50,000/- or more, with a banking company to which the

Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in sec. 51 of that Act) during any one day;

• payment in cash in connection with travel to any foreign country of an amount exceeding Rs.25,000/- at any one time. Such payment shall include payment in cash towards fare, or to a travel agent or a tour operator, or for the purchase of foreign currency. However, travel to any foreign country does not include travel to the neighbouring countries or to such places of pilgrimage as may be specified by the Board under Explanation 3 of section 139(1).

• Making an application to any banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution, for issue of a credit card;

• payment of an amount of Rs.50,000/- or more to a Mutual Fund for purchase of its units• payment of an amount of Rs.50,000/- or more to a company for acquiring shares issued by

it;• payment of an amount of Rs.50,000/- or more to a company or an institution for acquiring

debentures or bonds issued by it;• payment of an amount of Rs.50,000/- or more to the Reserve Bank of India, for acquiring

bonds issued by it.


Sec 139A. (5A) Every person receiving any sum or income or amount from which tax has been deducted under the provisions of Chapter XVIIB, shall intimate his permanent account number to the person responsible for deducting such tax under that Chapter :

Provided further that a person referred to in this sub-section shall intimate the General Index Register Number till such time permanent account number is allotted to such person.

(5B) Where any sum or income or amount has been paid after deducting tax under Chapter XVIIB, every person deducting tax under that Chapter shall quote the permanent account number of the person to whom such sum or income or amount has been paid by him

(i) in the statement furnished in accordance with the provisions of sub-section (2C) of section 192;

(ii) in all certificates furnished in accordance with the provisions of section 203; (iii) in all returns prepared and delivered or caused to be delivered in accordance

with the provisions of section 206 to any income-tax authority; (iv) in all quarterly statements prepared and delivered or caused to be delivered in

accordance with the provisions of sub-section (3) of section 200:


Sec 139A. (5B) Where any sum or income ...................

Provided that the Central Government may, by notification in the Official Gazette, specify different dates from which the provisions of this sub-section shall apply in respect of any class or classes of persons:

Provided further that nothing contained in sub-sections (5A) and (5B) shall apply in case of a person whose total income is not chargeable to income-tax or who is not required to obtain permanent account number under any provision of this Act ifif such person furnishes to the person responsible for deducting tax, a declaration referred to in section 197A in the form and manner prescribed thereunder to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

(5C) Every buyer or licensee or lessee referred to in section 206C shall intimate his permanent account number to the person responsible for collecting tax referred to in that section.


Sec 139A. (5D) Every person collecting tax in accordance with the provisions of section 206C shall quote the permanent account number of every buyer or licensee or lessee referred to in that section

(i) in all certificates furnished in accordance with the provisions of sub-section (5) of section 206C;

(ii) in all returns prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (5A) or sub-section (5B) of section 206C to an income-tax authority;]

(iii) in all quarterly statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 206C.

(6) Every person receiving any document relating to a transaction prescribed under clause (c) of sub-section (5) shall ensure that the Permanent Account Number or the General Index Register Number has been duly quoted in the document.

(7) No person who has already been allotted a permanent account number under the new series shall apply, obtain or possess another permanent account number.


Sec 139A. (7) No person who has already been allotted a permanent account number under the new series shall apply, obtain or possess another permanent account number.

Explanation. For the removal of doubts, it is hereby declared that any person, who has been allotted a permanent account number under any clause other than clause (iv) of sub-section (1), shall not be required to obtain another permanent account number and the permanent account number already allotted to him shall be deemed to be the permanent account number in relation to fringe benefit tax.

(8) The Board may make rules providing for (a) the form and the manner in which an application may be made for the

allotment of a permanent account number and the particulars which such application shall contain;

(b) the categories of transactions in relation to which Permanent Account Numbers or the General Index Register Number shall be quoted by every person in the documents pertaining to such transactions;

(c) the categories of documents pertaining to business or profession in which such numbers shall be quoted by every person;


Sec 139A. (8) The Board may make rules providing for (d) class or classes of persons to whom the provisions of this section shall not

apply;(e) the form and the manner in which the person who has not been allotted a

Permanent Account Number or who does not have General Index Register Number shall make his declaration;

(f) the manner in which the Permanent Account Number or the General Index Register Number shall be quoted in respect of the categories of transactions referred to in clause (c);

(g) the time and the manner in which the transactions referred to in clause (c) shall be intimated to the prescribed authority.

Explanation. For the purposes of this section,• Assessing Officer Assessing Officer includes an income-tax authority who is assigned the duty

of allotting permanent account numbers;(b) permanent account number means a number which the Assessing Officer

may allot to any person for the purpose of identification and includes a permanent account number allotted under the new series;


Sec 139A. Explanation. For the purposes of this section,

(a)(a) Assessing Officer Assessing Officer includes an income-tax authority who is assigned the duty of allotting permanent account numbers;

(b) permanent account number means a number which the Assessing Officer may allot to any person for the purpose of identification and includes a permanent account number allotted under the new series;

(c) permanent account number under the new series means a permanent account number having ten alphanumeric characters and issued in the form of a laminated card;

(d) General Index Register Number means a number given by an Assessing Officer to an assessee in the General Index Register maintained by him and containing the designation and particulars of the ward or circle or range of the Assessing Officer.


CONSEQUENCES OF FAILURE TO COMPLY WITH SEC 139 ACONSEQUENCES OF FAILURE TO COMPLY WITH SEC 139 APenalty

Sec 272B. (1) If a person fails to comply with the provisions of section 139A, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten thousand rupees.

(2) If a person who is required to quote his permanent account number in any document referred to in clause (c) of sub-section (5) of section 139A, or to intimate such number as required by sub-section (5A) or sub-section (5C) of that section, quotes or intimates a number which is false, and which he either knows or believes to be false or does not believe to be true, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten thousand rupees.

(3) No order under sub-section (1) or sub-section (2) shall be passed unless the person, on whom the penalty is proposed to be imposed, is given an opportunity of being heard in the matter


139B.(1) For the purpose of enabling any specified class or classes of persons in preparing and furnishing returns of income, the Board may, without prejudice to the provisions of section 139, frame a Scheme, by notification in the Official Gazette, providing that such persons may furnish their returns of income through a Tax Return Preparer authorised to act as such under the Scheme.

(2) Every Tax Return Preparer shall assist the persons furnishing the return of income in such manner as may be specified in the Scheme framed under this section and affix his signature on such return.

(3) For the purposes of this section,(a) Tax Return Preparer means any individual, not being a person referred to in

clause (ii) or clause (iii) or clause (iv) of sub-section (2) of section 288 or an employee of the specified class or classes of persons, who has been authorised to act as a Tax Return Preparer under the Scheme framed under this section;

(b) specified class or classes of persons means any person, other than a company or a person, whose accounts are required to be audited under section 44AB or under any other law for the time being in force, who is required to furnish a return of income under this Act.

TAX RETURN PREPARER SCHEMEAssessment Procedure Assessment Procedure . .

Sec 139B. (4) The Scheme framed by the Board under this section may provide for the following, namely:

(a) the manner in which and the period for which the Tax Return Preparers shall be authorised under sub-section (3);

(b) the educational and other qualifications to be possessed, and the training and other conditions required to be fulfilled, by a person to act as a Tax Return Preparer;

(c) the code of conduct for the Tax Return Preparers;(d) the duties and obligations of the Tax Return Preparers;(e) the circumstances under which the authorisation given to a Tax Return Preparer may

be withdrawn;(f) any other matter which is required to be, or may be, specified by the Scheme for the

purposes of this section.(5) The Scheme framed by the Board under this section shall be laid, as soon as may be

after it is framed, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the Scheme or both Houses agree that the Scheme should not be framed, the Scheme shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that Scheme.

TAX RETURN PREPARER SCHEMEAssessment Procedure Assessment Procedure . .

Filing of return in electronic form.Filing of return in electronic form.

Sec 139D. The Board may make rules providing for(a) the class or classes of persons who shall be required to furnish the return in

electronic form;(b) the form and the manner in which the return in electronic form may be

furnished;(c) the documents, statements, receipts, certificates or audited reports which

may not be furnished along with the return in electronic form but shall be produced before the Assessing Officer on demand;

(d) the computer resource or the electronic record to which the return in electronic form may be transmitted.

Sec 139 DAssessment Procedure Assessment Procedure . .

Sec 140A. (1) Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or, as the case may be, section 158BC, after taking into account,

(i) the amount of tax, if any, already paid under any provision of this Act;(ii) any tax deducted or collected at source;(iii)any relief of tax or deduction of tax claimed under section 90 or section 91 on

account of tax paid in a country outside India;(iv)any relief of tax claimed under section 90A on account of tax paid in any

specified territory outside India referred to in that section; and(v) any tax credit claimed to be set off in accordance with the provisions of

section 115JAA,the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.

SELF ASSESSMENTAssessment Procedure Assessment Procedure . .

Explanation. Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.

(1A) For the purposes of sub-section (1), interest payable,(i) under section 234A shall be computed on the amount of the tax on the total

income as declared in the return as reduced by the amount of,(a) advance tax, if any, paid;(b) any tax deducted or collected at source;(c) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;(d) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and(e) any tax credit claimed to be set off in accordance with the provisions of section 115JAA;

(ii) under section 115WK shall be computed on the amount of tax on the value of the fringe benefits as declared in the return as reduced by the advance tax, paid, if any.


Sec 140A (1B) For the purposes of sub-section (1), interest payable under section 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax.

Explanation. For the purposes of this sub-section, assessed taxassessed tax means the tax on the total income as declared in the return as reduced by the amount of,

(i) tax deducted or collected at source, in accordance with the provisions of Chapter XVII, on any income which is subject to such deduction or collection and which is taken into account in computing such total income;

(ii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;

(iii) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and

(iv) any tax credit claimed to be set off in accordance with the provisions of section 115JAA.

(2) After a regular assessment under section 115WE or section 115WF or section 143 or section 144 or an assessment under section 153A or section 158BC has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment or assessment, as the case may be.


Sec 140A (3) If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly.

(4) The provisions of this section as they stood immediately before their amend-ment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.


Even though the statute uses the word ‘shall’, since this is a taxing and penal provision, and so a reasonable opportunity of being heard should be given to assessee before application of 140A (3) and if the AO is satisfied with the explanation of he assessee, it may not be applied. In other words, AO has the discretion of applying or not applying the subsection.………….Ramchandra Pesticieds P Ltd v. CIT (2006) 155 Taxman 111 (Kar)

Inquiry before assessment.Inquiry before assessment.Sec 142. (1) For the purpose of making an assessment under this Act, the

Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice notice requiring him, on a date to be therein specified,

(i) where such person has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or :

Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section,

Sec 142Assessment Procedure Assessment Procedure . .

Sec 142. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,

(i) …………..

(ii) to produce, or cause to be produced, 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 :

Provided that(a) the previous approval of the Joint Commissioner shall be obtained before

requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts ;

(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.


Sec 142.(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.

(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require :

Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.

(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.

(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer :


Sec 142. (2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer :

Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit ; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.

(2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :

Provided that where any direction for audit under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the Chief Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government.


Rule 14 B

Guidelines for the purposes of determining expenses for audit.Rule 14B. (1) Every Chief Commissioner shall maintain a panel of accountants, out of the

persons referred to in the Explanation to sub-section (2) of section 288, for the purposes of sub-section (2A) of section 142.

(2) Where the Assessing Officer directs for audit under sub-section (2A) of section 142 on or after the 1st day of June, 2007, the expenses of, and incidental to, audit (including the remuneration of the Accountant, qualified Assistants, semi-qualified and other Assistants who may be engaged by such Accountant) shall not be less than rupees three thousand seven hundred and fifty and not more than rupees seven thousand and five hundred for every hour of the period as specified by the Assessing Officer under sub-section (2C) of section 142.

(3) The period referred to in sub-rule (2) shall be specified in terms of the number of hours required for completing the report.

(4) The Accountant referred to in sub-section (2A) of section 142 shall maintain a time-sheet and shall submit it to the Chief Commissioner or Commissioner, along with the bill.

(5) The Chief Commissioner or the Commissioner shall ensure that the number of hours claimed for billing purposes is commensurate with the size and quality of the report submitted by the Accountant

Sec 142 Rule 14BAssessment Procedure Assessment Procedure . .

Sec 142. (3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the purposes of the assessment.

(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.


GUIDELINES made by Board for selection of cases for Special Audit

Instruction No 1076 dated 12.7.1977Regarding Companies: Only those cases where-(i) Reports of gross neglect / breach of duty of Principal Officer/ Director(ii) Search & Seizure conducted under I T Act or FERA(iii)Co Having foreign collaboration(iv)Co’s principal is a foreign co. & deduction of expenses to Head Off claimed(v) Co has import-export business & t/o of > Rs one crore(vi)Allegation sof substantial tax evasion(vii)AO has any other information necessitating special auditRegarding non-Company assessees ……..

The actual selection should be confined for a few carefully selected cases. When a case is taken for special audit for a particular area, it is desirable that intervening years as well as latest AY should also be taken for special audit


SUMMARY OF JUDICIAL PRONOUNCEMENTS ON SPECIAL AUDIT

Pre-requisites for ordering a Special Audit u/s 142 (2A)

The AO should form an opinion that the nature of the accounts of the assessee is complex

The interest of the revenue will be adversely affected if the special audit is not directed

The opinion of the AO should be formed objectively on the basis of material before him and should be based on relevant considerations

The CIT / CCIT should grant approval for special audit after applying his mind to all he material considered by the AO and placed by the AO before him

The guidelines issued by the CBDT vide Instruction No 1076 dated 12.7.1976 are binding on the AO


102


(1)(1)

If a person required to file a return had failed to file it before the end of relevant AY

NOTICE

Sec 142

(i)(i) TO FILE RETURN

Accounts ONLY upto 3 years before relevant PY(ii)(ii)

To produce ACCOUNTS / DOCUMENTS

Statement of ASSETS & LIABILITIES only with prior permission of JCIT(iii)(iii)

To furnish INFORMATION

(2)(2) ENQUIRIES in respect of income or loss of any person

(2A)(2A)(2B)(2B)(2C)(2C)(2D)(2D)

GET ACCOUNTS AUDITED

prior permission of CIT/CCIT auditor nominated by CCITOnly after giving an opportunity to be heard to assesseeExpense borne by Central Govt after 1.6.07

Rule 14B Rs 3750 to 7500 /hourPeriod given/extended by AO upto 180 days

(3)(3) OPPORTUNITY OF BEING HEARD

(4)(4) Applicable to prior to 1987

103


Best Judgment Assessment u/s 144Penalty u/s 271(1)(b) Rs 10,000 for EACH failureProsecution u/s 276CC

Order for special audit becomes voidOrder for special audit becomes void

WHAT HAPPENS IF

By AO

Best Judgment Assessment u/s 144Penalty u/s 271(1)(b) Rs 10,000 for EACH failureProsecution u/s 276D

104


Can inquiry u/s 142 done after assessment? No . It pre-assessment enquiry.............. Amal Kr Ghatak v. ITO (1971) 79 ITR 452 (Cal)

Can a reference to t eh valuation cell u/s 55A be made u/s 142) ? No …………………………………………..Smt Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC) Where AO gathers material from records pertaining to an earlier year, is he bound to

give an opportunity to be heard ? Yes, as such material is covered u/s 142 (3)………….Ponkummam Traders v. Additional ITO (1972) 83 ITR 508 (Ker)

If the notice u/s 142 (1) is accompanied by a letter asking for information, whether non compliance of that letter amount to non-compliance u/s 142 (1) ? No …………………………………. Calcutta Chromotype P Ltd. V. ITO , (1971) 79 ITR 442 (All)

If the notice u/s 142 (1) called for information part of which was prior to three years from the relevant PY then will the whole notice become illegal ?No. only the part pertaining to information prior to 3 years will be illegal – if it is severable from the other parts ………Murlidhar Madanlal v. CIT (1954) 26 ITR 231 (Pat)

Is a combined notice asking for personal presence as well as production of records a legal notice ? Yes………… S. Sivasway Chettiar v. CIT 4 ITC 207 (Mad)

105


Who is to decide which books are required to be produced u/s 142 (1)? AO is the sole judge.............. Tejmal Bhojraj V. CIT (1952) 22 ITR 208 (Nag)

Can AO ask for special audit u/s 142 (2A) without looking at the accounts? No. An honest attempt must be made first to understand the accounts of the

assessee ………………………..Swadeshi Cotton Mills Co Ltd V. CIT (1988) 17 ITR 634 (All) Can special audit be asked for in a case where the accounts are already audited?

Yes………….Jagjit Sugar Mills Co Ltd. V. CIT (1994) 210 ITR 468 (Punj&Har) Can the Commissioner issue an order for the special audit u/s 142(2A)?

No . An order by CIT does not amount to approval as envisaged in the statute………………………. Peerless Gen Fin & Inv Co Ltd V. CIT (1999) 102 Taxman 654 (Cal)

If the AO makes a proposal to the CIT for appointing an auditor u/s 142 (2A) without sharing any other information related with the case, and if CIT nominates an auditor for the audit, does it amount to compliance of sec 142 ? Is the action valid ?No. Approval by the CIT must be specific and given after considering material on the basis of which AO has proposed the special audit……… Peerless Gen Fin & Inv Co Ltd V. CIT (1999) 236 ITR 671(Cal)

Is quantum of turnover or receipts relevant for special audit ? No………… Jt CIT V. ITC Ltd (1999) 239 ITC 921 (Cal)

106


Would an AO be justified in ordering special audit on the ground that there were many litigations going between the assessee and the RBI ? No . That is an irrelevant consideration.............. Peerless Gen Fin & Inv Co Ltd V. CIT (1999) 236 ITR 671(Cal)

Can a special audit be ordered on the ground that the stocks could not be reconciled by the auditors ?

No. ………………………..UP State Handloom CorpL td V. CIT (2000) 245 ITR 192 (All) Can special audit be asked by AO if the assessee did not respond to his queries regarding

accounts ? No That is not a reasonable ground envisaged in sec 142 (2A)………….Mothoottu Mini Kuries V. Dy CIT (2001) 250 ITR 455 (Ker)

The order u/s 142 (2A) did not disclose any reason for special audit, nor did records reveal any application of mind by AO. Subsequently th eorder u/s 142 (2A) was challenged as being bad in law and it was submitted by AO that special audit was ordered because of past history of assessee, the fact that he offered income under VDIS scheme and had not filed audited accounts as was required u/s 44AB. Was th eorder of AO ? No . Since the reasons / application of mind were not apparent in the order u/s 142 (2A) it is invalid………………………. HP States Forest Corp Ltd V. JCIT (2001) 252 ITR 833 (HP)

107


Is AO required to provide an opportunity to be heard to the assessee before ordering a special audit u/s 142 (2A) ? YES ……………….Proviso u/s 142 (2A) ……………………….inserted by Fin Act 2007, wef 1.6.2007 after the judgment in case of UP Fin Corp V. JCIT (2005) 147 Taxman 21 (All) which held that such an opportunity was not required as per the statute.

Can the AO issue a notice u/s 142 (1) calling for a return of income, after the due date provided in Sec 139 and before the end of the relevant assessment year?

Yes………………………..Departmental circular No. 572 dated 3rd August 1990 ………. What is the intention behind introduction of words or before the end of the

relevant assessment year by Finance Act 2006 ? Clarificatory amendment regarding the time limit for issue of notice under section 142The existing provisions contained in sub-section (1) of said section, inter-alia, provide that for

the purposes of making assessment in a case where a person has not made a return of his income within the time specified under sub-section (1) of section 139, the Assessing Officer may serve a notice under the said sub-section on such person requiring him to furnish the return of his income in the prescribed form and manner.

It is proposed to amend clause (i) of sub-section (1) so as to provide that in a case where a person has not made a return of his income before the end of the relevant assessment year, the Assessing Officer may serve a notice after the end of the relevant assessment year under said sub-section requiring such person to furnish his return of income.

[Memorandum to Finance Act 1 , explaining clause 35 which amended Sec 142 (1)(i)]

108


Would an AO be justified in ordering special audit on the ground that accounts or documents are voluminous ? No . That is not enough to make the accounts complex or justify special audit.............. Bajrang Textiles V. CIT (2004) 3 SOT 115 (Jodh)

Can the AO make a reference to an auditor to prepare books of accounts on the basis of records seized during a search ?

No. ……………………….. Bajrang Textiles V. CIT (2004) 3 SOT 115 (Jodh) Is the audit report u/s 142 (2A) binding on the AO? Can the AO reject the same without

assigning any reason ? No. It is NOT binding. However, the AO cannot reject the special audit report without assigning any reasons………….CIT Vs. Sahara India Fin Corp Ltd (2004) 135 Taxman 154 (Nag)

In case an assessee fails to file a return of income, is it mandatory for the AO to issue a notice u/s 142 (1) ? No

Can a best judgment u/s 144 be completed in a case of non-filing of return, without issuing a notice u/s 142 (1) for filing of a return u/s 142 (1) (i) ? Yes. It is not mandatory to issue a notice u/s 142(1) (i) in all cases of non-filers or a necessary part of assessment u/s 144, but then an opportunity of being heard will have to be given as per Sec 144.

Estimate by Valuation Officer in certain casesSec 142A.(1) For the purposes of making an assessment or reassessment 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.

(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3) 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 or reassessment:

Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.

Sec 142 AAssessment Procedure Assessment Procedure . .

Estimate by Valuation Officer in certain casesSec 142A ……………………Explanation. In this section, Valuation Officer has the same meaning as in clause

(r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

Sec 142AAssessment Procedure Assessment Procedure . .

Definition of Valuation Officer in Wealth Tax ActSec 2(r) Valuation Officer means a person appointed as a Valuation

Officer under section 12A, and includes a Regional Valuation Officer, a District Valuation Officer, and an Assistant Valuation Officer .

W T Act Appointment of Valuation Officers.Sec 12A. (1) The Central Government may appoint as many Valuation

Officers as it thinks fit.(2) Subject to the rules and orders of the Central Government regulating the

conditions of service of persons in public services and posts, a wealth-tax authority may appoint as many overseers, surveyors and assessors as may be necessary to assist the Valuation Officers in the performance of their functions.


Wealth Tax Act Powers of Valuation Officer, etc.Sec 38A.(1) For the purposes of this Act, a Valuation Officer or any overseer, surveyor or assessor authorised by him in this behalf may, subject to any rules made in this behalf and at such reasonable times as may be prescribed,(a) enter any land within the limits of the area assigned to the Valuation Officer, or(b) enter any land, building or other place belonging to or occupied by any person in connection with whose assessment a reference has been made under section 16A to the Valuation Officer, or(c) inspect any asset in respect of which a reference under section 16A has been made to the Valuation Officer, and require any person in charge of, or in occupation or possession of, such land, building or other place or asset to afford him the necessary facility to survey or inspect such land, building or other place or asset or estimate its value or inspect any books of account, document or record which may be relevant for the valuation of such land, building or other place or asset and gather other particulars relating to such land, building or other place or asset:


Wealth Tax Act Powers of Valuation Officer, etc.Sec 38A.(1)…….

Provided that no Valuation Officer, overseer, surveyor or assessor shall enter any building or place referred to in clause (b), or inspect any asset referred to in clause (c) (unless with the consent of the person in charge of, or in occupation or possession of, such building, place or asset) without previously giving to such person at least two days notice in writing of his intention to do so.(2) If a person who, under sub-section (1), is required to afford any facility to the Valuation Officer or the overseer, surveyor or assessor, either refuses or evades to afford such facility, the Valuation Officer shall have all the powers under sub-sections (1) and (2) of section 37 for enforcing compliance of the requirements made.


Wealth Tax Act Powers of Valuation Officer, etc.

Sec 37 (1) The Assessing Officer, Valuation Officer, Deputy Commissioner (Appeals), Commissioner (Appeals), Chief Commissioner or Commissioner and the Appellate Tribunal shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure,1908 (5 of 1908), when trying a suit in respect of the following matters, namely: (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions.

Sec 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:

(a) the total income or loss shall be computed after making the following adjustments, namely: (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(b) the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a);

(c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax and interest, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest;



(d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

(e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax or interest is payable by, or no refund is due to, him:

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.



Explanation. For the purposes of this sub-section, (a) an incorrect claim apparent from any information in the return shall mean a

claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

(b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).


Sec 143. (1A) For the purposes of processing of returns under sub-section (1), the Board may make a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required under the said sub-section.

(1B) Save as otherwise expressly provided, for the purpose of giving effect to the schemescheme made under sub-section (1A), the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, 2009.

(1C) Every notification issued under sub-section (1B), along with the scheme made under sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament.


Sec 143. (2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,

(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:

Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003;

(ii) notwithstanding anything contained in clause (i), 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, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:

Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.


Sec 143. (3) On the day specified in the notice, (i) issued under clause (i) of sub-section (2), or as soon afterwards as may be, after

hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and determine the sum payable by the assessee on the basis of such assessment;

(ii) issued under clause (ii) of sub-section (2), 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:


Sec 143. (3) ..........Provided that in the case of a (a) scientific research association referred to in clause (21) of

section 10; (b) news agency referred to in clause (22B) of section 10; (c) association or institution referred to in clause (23A) of section 10; (d) institution referred to in clause (23B) of section 10; (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10,

unless (i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and


Sec 143. (3) ..........Provided…………….

(ii) the approval granted to such scientific research association or other association or fund or trust or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded :

Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer.


Sec 143. (4) Where a regular assessment under sub-section (3) of this section or section 144 is made,

(a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment ;

(b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.


123


(1)(1)

ARITHMETIC ERRORSINCORRECT CLAIM APPARENT FROM INFORMATION IN RETURN

Sec 143

(a)(a) ADJUSTMENTS

TOTAL INCOME(b)(b) TAX & INTEREST

(c)(c) Sum payable by / Refund due to Assessee

(d)(d) INTIMATION

(e)(e) REFUNDSent to the assessee

PROVISO 1

PROVISO 2

INTIMATION SENT IN CASE OF ADJUSTMENT OF LOSS

NO INTIMATION AFTER THE END OF ONE YEAR FROM END OF F.Y. IN WHICH RETURN WAS FILED

(a)

(b)

(i) INCONSISTENT ENTRIES IN R/I(ii) INFORMATION REQUIRED NOT FURNISHED(iii) DEDUCTION EXCEEDS STATUTORY LIMIT

If no adjustment ACKNOWLEDGEMENT DEEMED INTIMATION

124


(1)(1)

Sec 143

(1A)(1A)(1B)(1B)((1C1C))

CENTRALISED PROCESSING OF RETURNS

Board Power for making a SCHEME for Centralised processing

Central Govt Notification IF any provisions of Act will Not apply

Notification to be laid before the parliament

125


(1)(1)

Sec 143

(2)(2) NOTICE

IF AO CONSIDERS IT NECESSARY / EXPEDIENT TO ENSURE THAT ASSESSEE HAS NOT UNDERSTATED HIS INCOME/ COMPUTED EXCESSIVE LOSSES / UNDERPAID TAXES

(3)(3) ASSESSMENT

(4)(4) TAXES DEDUCTED PAID TO BE TAKEN INTO ACCOUNT

TO ATTEND HIS OFFICE / PRODUCE / CAUSE TO BE PRODUCED ANY EVIDENCE ON WHICH HE MAY WISH TO RELY IN SUPPORT

OF TOTAL INCOME & DETERMINATION OF SUM PAYABLE or REFUND DUE TO ASSESSEE by ORDER IN WRITINGAfter HEARING EVIDENCE THAT ASSESSEE MAY PRODUCE / AO MAY REQUIRE & TAKING INTO ACCCOUNT ALL RELEVANT MATERIAL

126


What should the AO do if due to some reason he is not able to adhere to the schedule of hearing for which a notice is already issued ? The assessee should be informed in advance either through a letter or through telephone, wherever possible........ Instruction No. 1395 (F. No 201/28/81-ITA-II) dt 15.5.81 (114th Report (82-83) of the PAC, p-16-17)

Can an AO fix the hearing in case of many assessees at the same time? No. AO should give each assessee a different time …………………………………………

Circular No 230 dt 27.10.77 ( F No 225/109/77-ITA-II) If during the hearing the AO comes to observe a relief or claim or deduction that the

assessee was entitled to but has not claimed, can the AO advice the assessee to claim it? Yes. Officers of the Deptt must not take advantage of the ignorance of the assessee. Although the responsibility of claiming refunds or reliefs rest with the assessee, the officers of the Department should (i) draw their attention to any refund or relief to which they appear to be clearly entitled & (ii) freely advise, when approached by them, about their rights and liabilities, and as to the procedure to be adopted for claiming such refunds and reliefs.………….Circular No 14 (XL-35) dt 11.4.55

127


What is expected from the AO in an assessment? Except that he should give precedence to the cases which are likely to yield more revenue, the AO should not be obsessed with budget figures. He has certain judgments to complete in an year and his merit will be judged by the way in which he completes those cases and not by the extent to which he has collected his budget estimate......... Instruction No. 3 of 1942 dt 16.1.42The assessment has to be made in a reasonable & fair manner after taking into account all relevant circumstances of the case. Even when the assessment has to be made ex-parte, the information available should be reasonably weighed and a proper estimate made in the exercise of best judgment in the circumstances.……….Instruction No 574 dt 27.7.73 (193rd Report (83-84) of the PAC, p-26-27)

Can the AO call for an affidavit? Unless there is some material basis for suspicion, affidavits sworn or affirmed before

a magistrate should not be called for......... Instruction No. 3 of 1942 dt 16.1.42

Is a notice of demand of tax payable on the basis of assessment valid if not accompanied with a copy of the assessment order?

No. As per the Board’s circular No 10D, C No 9(22)-IT/47 dt 15.4.48 a copy of the assessment order should be supplied to the assessee in each case along with the demand notice …….Priyanka Metals P Ltd V. ACIT (2204) 270ITR 586, 587-88 (MP)

128


Can the assessee ask for an adjournment at the last minute ? Can the request of assessee for grant of an adjournment be refused by the AO? Where the assessee has already taken one adjournment but desires another adjournment, the assessee should make the request for adjournment well in advance so as to enable him, in case of a refusal, to be prepared to proceed on the appointed day......... CIT V. Laxmi Narayan Badridas (1937) 5 ITR 170 (PC)

Will every minor error vitiate the assessment proceeding?No. An assessment proceeding does not cease to be a proceeding under the Act merely by reason of a want of notice. It will be a proceeding liable to be challenged and corrected. ……………….Estate of Late Ranglal Jajodia V. CIT (1971) 79 ITR 505 (SC)

Will an error in the name of the assessee vitiate the assessment proceeding? No ……………….Estate of Late Ranglal Jajodia V. CIT (1971) 79 ITR 505 (SC)

What is the relevance of admission of addition by the assessee? Assessment is to be made not solely on the basis of admission of a person. A proper

order of assessment should be made on the basis of all facts a& circumstances and on a correct application of the relevant provision of law …….CIT V. APParukutty Moopilamma (1984) 149 ITR 131 (Ker)

129


Should the AO always “err on the side of the revenue”? The AO exercises quais-judicial powers and in doing do they must act in a fair manner and not in a partisan manner. Although it is their duty to ensure that no tax which is legitimately due remains uncovered, they must also not act in a manner that might indicate that the scales are weighed against the assessee. ........ CIT V. Simon Carves Ltd (1976) 105 ITR 212 (SC)

Can the AO reject the information provided in return or the evidence given in assessment?Yes. It is an inherent power of AO. ……………….Bombay Hardware Syndicate V. CIT (1973) 92 ITR 160 (Mad)

While exercising a power vested in him, if the AO refers to a wrong section, then will the action taken be void ?

No. Where the power to proceed is actually there, the mere reference to a wrong section will not vitiate the action taken ………….Isha Beevi V. TRO (1975) 101 ITR 449 (SC)

For a return of income for AY 2005-06, filed on 31.3.07 – if the law was amended w.e.f. 1.4.06, will the amended provisions apply ?

No. The law as it rules during the AY will apply…….Reliance Jute & Industries Ltd V. CIT (1979) 20 ITR 921 (SC)

130


Is an assessment u/s 143(3) valid if the return filed was not signed ? No. Assessment based on an invalid return is invalid & liable to be cancelled......... CIT V. Krishan Lal Goyal (1984) 148 ITR 283 (Punj & Har)

The AO made an addition during the assessment wherein he relied on a provision of the IT Act which was subsequently held as ultra-vires to the constitution. Will the assessment order is also null & void ?No. If the machinery provision used for assessment is valid ……………….Raleigh Investment Co. V. Governor General in Council (1947) 15 ITR 332 (PC)

The assessee is having a dispute with a third party on certain income. Should the AO necessarily wait till the litigation is decided before passing the assessment order ?

No. Income-tax assessment has to made every year and cannot be held up until the final result of a legal proceeding which may pass through several courts………….CIT V. H Hirjee (1953) 23 ITR 427 (SC)

What if the AO does not sign the assessment order? Invalid order …….Kalyan kumar Roy V. CIT (1996) 219 ITR 214 (SC) What if the AO does not state the computation of tax in the assessment order, but such

computation was given in the demand notice sent along with the assessment order? Valid order …….Shahadara (Delhi) Saharanpur Light Railways Co. Ltd. V. CIT (1994)

208 ITR 882(Kal)

131


Does the Evidence Act apply in case of assessment ? Though the provisions of the Evidence Act do not apply to assessment proceeding, when the authorities are called upon to consider the effects of a document, the general provisions embodied in Sec 91, 92 & 94 of Evidence Act will apply......... AVN Jagga Row V. CIT (1987) 166 ITR 862 (AP)

Evidence Act, 1872Evidence Act, 1872Sec 91. Evidence of terms of contracts, grant and other dispositions of property reduced to form of document - When the terms of a contract, or of a grant, or of any other disposition of property have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions herein before contained.

132


Evidence Act, 1872Evidence Act, 187292. Exclusion of evidence or oral agreement - When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying adding to, or subtracting from, its term:

Proviso (1) - Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto, such as fraud, intimidation, illegality, want for due execution, want of capacity in any contracting party, want or failure of consideration, or a mistake in fact or law.

Proviso (2) - The existence of any separate oral agreements to matter on which a document is silent, and which is not inconsistent with its terms, may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document.

Proviso (3) - The existence of any separate oral agreement, constituting, a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved.

133


Evidence Act, 1872Evidence Act, 187292. Exclusion of evidence or oral agreement

Proviso (4) - The existence of any separate oral agreement, constituting, a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property, is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents.

Proviso (5) - Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description may be proved.

Provided that the annexing of such incident would not be repugnant to, or inconsistent with, the express terms of the contract.

Proviso (6) - Any fact may be proved which shows in what manner the language of a document is related to existing facts.

Sec 94. Exclusion of evidence against application of document of existing facts - When language used in a document is plain in itself, and when it applies accurately to existing facts, evidence may not be given to show that it was not meant to apply to such facts.

134


Can the AO take circumstantial evidence into account ? In case of the circumstantial evidence, the totality of circumstances has got to be taken into account, and the combined effect of all the circumstances is determinative of the question as to whether or not a particular fact is proved......... CIT V. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All)

Can the AO reject affidavits filed by the Assessee ?It cannot be rejected straightaway on the ground that no material evidence is filed to prove. Rejection of an affidavit is not justified unless the assessee is either cross-examined or called upon to produce documentary evidence in support of the affidavit sworn by him ……………….L Sohan Lal Gupta V. CIT (1958) 33 ITR 786 (All)

Can the AO reject the documents filed by the assessee as evidence – on what ground ? Yes. The AO can look into the genuineness & validity of documents filed by assessee

and reject them if not found to be not genuine or valid ………….ITO V. K Jayaraman (1987) 168 ITR 757 (Mad)

The taxing authorities are not required to put up blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out th ereality of the recitals made in those documents. ………….CIT V. Durga Prasad More (1971) 82 ITR 540 (SC)

135


Assessee objected to the use of some material by the AO on the ground that it was an evidence not admissible in the court of law and the AO has powers of a civil court Is the objection valid? Proceedings under the IT Act are not judicial proceedings. AO is NOT fettered with or bound by technical rules about evidence contained in the Indian Evidence Act, and he is entitled to act onmaterial which may not be acceptable as evidence in a court of law......... Dhankesari Cotton Mills V. CIT (1954) 26 ITR 775 (SC) This does not mean that when the taxing authorities are desirous of invoking the provisions of Evidence Act, they are prevented from doing so ........ Chuharmal V. CIT 172 ITR 250,255 (SC) The assessment of income is made on the basis of inference on evidence which in criminal or civil justice may be insufficient........ Debi Burman V. CIT Tax LR 452, 456-57 (Cal)

Assessee filed an affidavit from a third party confirming that a particular transaction challenged my AO did take place. Can the AO reject the affidavit ? A declaration in an affidavit cannot be rejected in the absence of any evidence to show that the declaration was bogus and unreliable ……………….Lakshmi Narayan Gadodia & Co (1943) 91 ITR 18 (SC) Onus on AO to show that it is unreliable Material to support preferable The revenue cannot challenge unless CROSS-EXAMINATION … Mehta Parikh & Co. (1956) 30 ITR 181 (SC); Can be held unreliable on basis of other material…………………. Smt Gunawati Bai V. CIT (1983) 12 Taxman 86 (MP)

136


On whom lies the burden of proof in the assessment proceedings ? For establishing that statement or information filed in return is not correct ?

On AO. He can establish this by showing that (e.g…) information given by assessee in return is not consistent with other information, documents,

accounts, explanations, evidence provided by him Information given by assessee is false as established from other material on record which

assessee was confronted with, but could not explain satisfactorily Failure of the assessee to provide any documentary support of claims made by him & failure to

offer any acceptable explanation for such a failure Information or explanation provided by assessee proves that his returned income is not

computed as per law Circumstantial evidence on record, after taking explanation or objections of assessee into

consideration establishes that his returned income is not correct The income returned is not in conformity with the books of accounts, and no acceptable

explanation is offered by the assessee The books of accounts are rejected after taking into consideration whatever the assesee has to

offer as explanation or evidence By establishing that the documents submitted by assessee are not genuine or are fraudulent in

nature, and no satisfactory explanation is offered by assessee By showing that the certain relevant facts were not disclosed by the assessee nor any

explanation is offered in this regard

137


On whom lies the burden of proof in the assessment proceedings ? For establishing that statement or information filed in return is correct ?

On assessee. He can establish this by (e.g…) Providing details, documents, information required by AO Confirmation of certain transactions from third parties Explanations about missing information / documents Showing link between income returned and books of acounts

For establishing that an explanation submitted by the assessee is not acceptable? On AO. He can establish this by (e.g…)

SPEAKING ORDER detailing the reasons , i.e.. Material and logic because of which the explanation submitted by the assessee is not acceptable

For establishing that a document submitted by the assessee is not reliable? On AO. He can establish this by (e.g…)

SPEAKING ORDER detailing the reasons , i.e.. Material and logic because of which the document submitted by the assessee is not reliable

By showing that the document is not genuine By pointing out inconsistencies in the document with other materials or explanations

submitted by assessee, after giving the assessee an opportunity to be heard

138


Can the AO take into account the statement of a third party? Yes. But only after giving the assessee an opportunity of cross examining the third party . The cross-examination of the third party by the assessee should be recorded and kept on record, and due consideration must be given to any inconsistencies arising out of such cross-examination. ……………….State of Kerala V. KT Shaduli Yusuf (1977) 39 ST 478 (SC)

If the AO does not mention the reasons for making an addition, is the order valid ?It is INVALID liable to be quashed……………….Mahindra & Mahindra V. UOI (AIR) (1979) SC 798, 823; CIT V. Sunderlal (1974) 96 ITR 310

Can the AO rely on evidence that has never been brought to the notice of the assessee? No. It will violate the principles of natural justice. …………. MO Thomakutty V. CIT

(1958) 34 IR 501 (Ker) Opportunity to assessee to rebut material is essential………….Ponkunnam Traders V.

Addl ITO (1972) 83 ITR 508 (Ker)

Can the AO make an addition on the ground that the assessee has been evading taxes in earlier years?

No. Assessment should not be based on irrelevant material. …………. Dhirajlal Girdharlal V. CIT (1954) 26 ITR 736 (SC)

Time limit for completion of assessments and reassessments. Time limit for completion of assessments and reassessments. Sec 153. (1) No order of assessment shall be made under section 143 or section 144

at any time after the expiry of (a) two years from the end of the assessment year in which the income was first assessable ; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or sub-section (5) of section 139, whichever is later :

Provided that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2004 or any subsequent assessment year, the provisions of clause (a) shall have effect as if for the words two years, the words twenty-one months had been substituted :

Provided further that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2005 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words two years, the words thirty-three months had been substituted.


REFERENCE TO TRANSFER PRICING OFFICER

140


FILING OF RETURN

1.4.09 31.3.10

1.4.10 31.3.11

1.4.11 31.3.12

139 (1) 139 (4) / (5)

31.7.09

Notice u/s 143 (2)

30.9.10 30.9.11

ORDER u/s 143 (3) / 144

AY 2009-10

31.12.11

TIME

LIMIT

AY 2009-10FY 2010-11 FY 2010-11

Notice u/s 142 (1) (ii)/ (iii)

Best judgment assessmentBest judgment assessmentSec 144 (1) If any person(a) fails to make the return required under sub-section (1) of section 139 and has

not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or

(b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or

(c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143,

the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment :


Best judgment assessmentBest judgment assessmentSec 144 ………. Provided that such opportunity shall be given by the Assessing Officer by serving

a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment :

Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.

(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.


143


When the assessee does not comply with notices u/s 142(1) & / or 143(2) and there is very little information available what should the AO do? Should he go for over assessment to protect the interest of revenue ? Can overassessment give rise to any problem ? Difficult choice between protecting interest of revenue & creating uncollectible demand Over pitched assessments should be avoided.They throw up a host of problems like inflation of demand and generation of unnecessary and unproductive work. The necessity of curbing the tendency on the part of AOs to make high pitched assessments and raise heavy uncollectibel demands has been emphasised by the Board from time to time. Despite these instructions, the tendency has not been checkmated. The Board therefore desires that such AOs Should avoid making such type of assessments......... Instruction No. 767, dated 4.10.74

Can an order u/s 144 be passed in a case where fails to comply with summons issued to him?No. There has a specific non-compliance as provided in Sec 144 (1) clause (a), 9b) or (c)……………….Mohini Debi Malpani V. ITO [1970]77 itr 674 (Cal)

144


Can an order u/s 144 be passed where the assessee has filed a return with all columns blank ? yes. In such a case assessee will be treated as having failed to file a return of income. Hence order u/s 144 can be passed......... Ramchand Dhunichand of Guru Bazar V. CIT 3 ITC 69 (Lahore)

Can the AO resort to Sec 144 where the assessee has filed a return on the basis of approximate figures without any further details?Yes. . ……………….A R A N Chettiar Firm V. CIT 2 ITC 477 (Rangoon)

If the AO wants to apply comparable ratios for passing an order u/s 144, is he required to give a further opportunity to the assessee of being heard in this matter ?

Yes………….K Baliah V. CIT (1965) 56 ITR 182 (Mys)

What are the precautions to take while making order u/s 144? rely on available material to the extent possible …………..State of Kerala V C

Velakutty (1966) 60 ITR 239 (SC) estimate must be honest and fair ……………..Brij Bhushan Lal Parduman Kumar V. CIT (1978) 115 ITR 524 (SC) action must not be dishonest, vindictive or capricious……….CIT V. Laxminanrayan Badridas (1937) 5 ITR 170 (PC)

Power ofPower of Joint Commissioner to issue directions in certain casesJoint Commissioner to issue directions in certain casesSec 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.

Explanation. For the purposes of this section no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.


Income escaping assessmentIncome escaping assessmentSec 147. If the Assessing Officer has reason to believe that any income

chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, 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 (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 143 or this section 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 in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:


Sec 147.Provided further that the Assessing Officer may assess or reassess such income,

other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;


Sec 147.(b) where a return of income has been furnished by the assessee but no

assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;

(c) where an assessment has been made, but(i) income chargeable to tax has been underassessed ; or(ii) such income has been assessed at too low a rate ; or(iii) such income has been made the subject of excessive relief under this Act; or(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.


Sec 148.(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 such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, 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 :

Provided that in a case(a) where a return has been furnished during the period commencing on the 1st day

of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and

(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:


Sec 148…..Provided further that in a case(a) where a return has been furnished during the period commencing on the 1st

day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and

(b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.

Explanation. For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.


Time limit for noticeTime limit for notice

Sec 149. (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 escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.

Explanation. In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.

Sec 149 Assessment Procedure Assessment Procedure . .

Time limit for noticeTime limit for notice

Sec 149. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.

Sec 149 Assessment Procedure Assessment Procedure . .

Provision for cases where assessment is in pursuance of an order on appeal, etc.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 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.


Sanction for issue of noticeSanction for issue of noticeSec 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.

Explanation. For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.


Sec 152. (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 than 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 order under section 154, 155, 260, 262, or 263.


Sec 153 (2) No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of one year from the end of the financial year in which the notice under section 148 was served :

Provided that where the notice under section 148 was served on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such assessment, reassessment or recomputation may be made at any time up to the 31st day of March, 2002 :

Provided further that where the notice under section 148 was served on or after the 1st day of April, 2005, the provisions of this sub-section shall have effect as if for the words one year, the words nine months had been substituted :

Provided also that where the notice under section 148 was served on or after the 1st day of April, 2006 and and during the course of the proceedings for the assessment or reassessment or recomputation of total income, a reference under sub-section (1) of section 92CA (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words one year, the words twenty-one months had been substituted.


Sec 153 (2A) Notwithstanding anything contained in sub-sections (1) , (1A), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Chief Commissioner or Commissioner:

Provided that where the order under section 250 or section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Chief Commissioner or Commissioner, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such an order of fresh assessment may be made at any time up to the 31st day of March, 2002 :

Provided further that where the order under section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Commissioner on or after the 1st day of April, 2005, the provisions of this sub-section shall have effect as if for the words one year, the words nine months had been substituted:

Sec 153 (2A)Assessment Procedure Assessment Procedure . .

Sec 153 (2A) ………

Provided also that where the order under section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Commissioner on or after the 1st day of April, 2006, and during the course of the proceedings for the fresh assessment of total income, a reference under sub-section (1) of section 92CA (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words one year, the words twenty-one months had been substituted.

Sec 153 (2A)Assessment Procedure Assessment Procedure . .

Sec 153 (3) The provisions of sub-sections (1) , (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time

(i) (ii) where the assessment, reassessment or recomputation is made on the

assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263, or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act ;

(iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147.


Explanation 1. In computing the period of limitation for the purposes of this section …. following shall be excluded

(i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under the proviso to section 129, or

(ii) the period during which the assessment proceeding is stayed by an order or injunction of any court, or

(iia) the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, under clause (i) of the proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the notification, as the case may be, under those clauses is received by the Assessing Officer;

(iii) the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section, or

(iv)



(iva) the period (not exceeding sixty days) commencing from the date on which the Assessing Officer received the declaration under sub-section (1) of section 158A and ending with the date on which the order under sub-section (3) of that section is made by him, or

(v) in a case where an application made before the Income-tax Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, or

(vi) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Commissioner under sub-section (3) of section 245R, or (vii) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Commissioner under sub-section (7) of section 245R,

.



Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-sections (1), (1A), (1B), (2), (2A) and (4) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:

Provided further that where a proceeding before the Settlement Commission abates under section 245HA, the period of limitation available under this section to the Assessing Officer for making an order of assessment, reassessment or re-computation, as the case may be, shall, after the exclusion of the period under sub-section (4) of section 245HA, be not less than one year; and where such period of limitation is less than one year, it shall be deemed to have been extended to one year; and for the purposes of determining the period of limitation under sections 149, 153B, 154, 155, 158BE and 231 and for the purposes of payment of interest under section 243 or section 244 or, as the case may be, section 244A, this proviso shall also apply accordingly.


Explanation 2. Where, by an order referred to in clause (ii) of sub-section (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.

Explanation 3. Where, by an order referred to in clause (ii) of sub-section (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.


section 250, 254, 260, 262, 263, or 264

REOPENING OF ASESSEMENTAssessment Procedure Assessment Procedure . .

UPTO 4 YEARS 4 TO 6 YEARS AFTER 6 YEARS

ITO

AC/DC

JC

Sanction by JC Sanction by CITSanction by JC

Sanction by JC

Any amount Rs. 1,00,000 or more

REQUIRED

CONDITIONS

Escaped income

Assessee’s failure

Assessed u/s 143 (3)

Not assessed earlier


Not assessed earlier

NO Sanction

NO Sanction NO Sanction

NO Sanction NO Sanction NO Sanction


Not assessed

REQUIRED

Any amount

AO must have Reason to believe that income has escaped assessment

AO must record reasons before issuing notice under Sec 148 Issue notice under Sec 148 within time limit

PRE REQUISITES

TIME-LIMIT

Time limit for issue of notice u/s 148 calculated from the end of the relevant AYTime limit for completion of reassessment nine months from the end of FY in which notice under is 148 is served

Sanction by CIT

Sanction by CIT

Sanction by CIT

Sanction by JC

Sanction by JC

Sanction by CIT

Sanction by CIT

NO Sanction

ONLY ON FINDING OR DIRECTION IN APPEAL, REVISION

OR COURT’S ORDER

F.Y.A.Y.P.Y.

ASESSEMENT: A SUMMARYAssessment Procedure Assessment Procedure . .

INCOME

RETURN

SELF ASSESSMENT

TDS

ADVANCE TAX SELF ASSESSMENT TAX ( + INTEREST)

DUE DATE

139 (1)

Upto 1 year after AY

139 (4) / (5)

Notice u/s 142 (1) (i)

Notice u/s 148

F.Y. F.Y. F.Y. F.Y. F.Y. F.Y. F.Y.

Notice u/s148 r.w.150

NOTICE TO FILE A RETURN

F.Y.

F.Y.A.Y.P.Y.


RETURN

DUE DATE

139 (1)


139 (4) / (5)


PROCESSING & INTIMATION

F.Y.

F.Y.A.Y.P.Y.


RETURN

DUE DATE

139 (1)


139 (4) / (5)

ASSESSMENT


NOTICE U/S 143(2)

F.Y.

NOTICE U/S 142(1)

ORDER U/S 143(3) / 144

F.Y.A.Y.P.Y.

REASESSEMENT: A SUMMARYAssessment Procedure Assessment Procedure . .

RETURN

DUE DATE

139 (1)

F.Y. F.Y. F.Y. F.Y. F.Y. F.Y. F.Y. F.Y.

NOTICE U/S 148

REASSESSMENT

ORDER U/S 143(3) / 144

for ACITfor ACIT

Upto 4 years 4-6 years

NOTICE U/S 142(1)

F.Y.A.Y.P.Y.

REASESSEMENT: A SUMMARYAssessment Procedure Assessment Procedure . .

RETURN

DUE DATE

139 (1) IN RESPONSE TO NOTICE U/S 148

ORDER U/S 147 r.w. 143 (3)

NOTICE U/S 148

REASSESSMENT

ORDER U/S 143(3) / 144

for ACITfor ACIT

NOTICE U/S 143(2)

F.Y.

170

REASSESSMENTAssessment Procedure Assessment Procedure . .

Can the AO leave certain investigations for a subsequent re-assessment ? AO should NOT make any piecemeal assessment, or make any observations in the course of assessment proceedings that some assessable income, the existence of which is in their knowledge, will be subject to assessment subsequently u/s 147........ Circular : F No. 45A/180/52-IT dt 6.12.55

Can the assessee challenge the reopening of assessment by Writ Petition?Yes. It can even though it was open for him to challenge it bfore AO / CIT. ……………….Calcutta Discount Co Ltd V ITO (1961) 41 ITR 191

Is a reassessment done on the direction of the supervisory officer valid ? Yes, so fa as the statutory provisions are satisfied, i.e.. The AO has applied his own mind

and had reasons to believe that income has escaped assessment (there must be nothing on record to show that the AO himself believed otherwise) ………….CIT V. Abdul Khader Ahmed (2006) 156 Taxman 206 (Ker)

Can the assessee request for reassessment ? No. Sec 147 is only for the benefit of the revenue

……………..CIT V. Sun Engineering Works (P) Ltd (1992) 198 ITR 297 (SC) Can the assessee make new claims of deduction in reassessment? Only deductions with reference to income that has escaped assessment and is

sought to be assessed in reassessment (can not open issues already decided)……………..CIT V. Caixa Economica de God (1994) 119 CTR (Bom)

171


Can the AO issue notice u/s 148 on the basis of suspicion ? No. It has to be on the basis of reasons to believe, not suspect........ ITO V. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)

Can the AO assess income other than that which he believed to have escaped assessment at the time of reopening?Yes. Once valid proceedings are started u/s 147 the AO not only has jurisdiction but it is duty to levy tax on the entire income that has escaped assessment during that year……………….V Jagan Mohan Rao V. CIT (1970) 75 ITR 73 (SC)

In the light of V Jagan Mohan Rao V. CIT (1970) 75 ITR 73 (SC) should the assessee repeat the whole exercise of assessment once again ?

No. He should restrict assessment to underassessed income in view of the SC judgement………….Metal Imports P Ltd V. CIT (1994) 72 Taxman 375 (Cal)

Should the AO give an opportunity to the assessee of being heard before issuing notice u/s 148 ?

Not required. ……………..CIT V. MahaliRam Ramjidas (1940) 8 ITR 442 (PC)

If the successive AO differ in opinion from his predecessor (facts being the same) can it be the ground for reopening case for reassesment?

No, not sufficient……………..CIT V. Bhanji Lavji (1971) 79 ITR 582(SC)

172


Can the AO who realises that he made a mistake during an assessment later reopen the case for reassessment u/s 147 ? No. Ignorance of law is not an excuse for reopening ........ Century Enka Ltd V. ITO (1983) 143 ITR 629 (Cal)

Can the AO reopen the case u/s 147 later if a particular point of law is clarified by SC?No. not if the facts have remained unchanged……………….Indra Co Ltd. V. ITO (1971) 80 ITR 559 (Cal)

Can the AO reopen the case u/s 147 if he at the time of original assessment he was not aware of a Board circular ?

No. ………….Dr H Habicht V. Makhija (1985) 54 ITR 552 (Bom) If the AO passed the initial order without making a particular addition, in spite of the

assessee having supplied the facts, as it was getting time barred, can he later reassess that income u/s 147 ?

No. Not if the facts before the AO have not changed……………..G P Agarwal V ACIT (1994) 208 ITR 795 (All)

Can the assessee claim a loss (not originally claimed in the return) and seek to carry it forward on the basis of the reassessment?

No……………..CIT V State Agro Development Corp (2001) 248 487 (J&K)

173


Can the AO reassess the income in a case where the intimation u/s 143 (1) was issued without any addition and no new facts are there ? Is it a change of opinion ? Yes, till other prerquisites for reassessment are satisfied. {This is not a change of opinion because 143 (1) is not assessment}........ ACIT V Rajesh Jhaweri Stock Brokers P Ltd (2007) 291 ITR 500 (SC)

If the AO accepted the returned income u/s 143 (3), can he later issue notice u/s 148 for reassessment on the basis of material that comes to his notice during the assessment of the next year ?Yes. He can……………….Ess Ess Kay Engineering Co P Ltd V CIT (2001) 247 ITR 818 (SC)

Can the AO have reasons to believe on the basis of rumours or gossip? No. reason to believe can be based on circumstantial evidence but not on basis of

rumours, gossip or suspicion………….Sheo Nath Singh V AAC (1971) 82 ITR 147 (SC) Can the assessee be said to have disclosed all facts fully when the transaction under

question itself is bogus? No. It cannot be said to be true disclosure

……………..Phhol Chand Bajrang Lal V ITO (1993) 203 ITR 456 (SC) Can the AO resort to reassessment, without any new evidence, on an issue which was

not a part of the original assessment order? Yes. If was considered in original assessment……………..Consolidated Photos & Finvest

Ltd V ACIT (2006) 151 Taxman 41 (Delhi)

174


In a case of non-filing of return, what is the earliest point of time for issue of notice u/s 148 ? As soon as the AY is over and no return is filed by the assessee, nor any notice is issued to him u/s 142 (1) (i), income would have escaped assessment. By the mere fact that assessee can file a return u/s 139 (4) it does not follow that noe income can be said to have escaped assessment until period prescribed u/s 139 (4) is over. However, if an assessee voluntarily files return u/s 139(4) the AO cannot proceed u/s 148 {for failure to file a return- explanation 2 (a) of Sec 147}........ Motorola Onc. V CIT (2005) 147 Taxman 39

Can an AO reopen an assessment u/s 147 to investigate a matter that was not investigated during the original assessment ?Yes. There I s nothing in Sec 147 to suggest that the AO cannot do so { however the conditions for reassessment need to be satisfied} ……………….Ram Prasad V ITO (1995) 82 Taxman 199 (All)

If the assessee disclosed all facts but claimed benefit on the basis of a wrong interpretation of law, does it amount to failure in disclosing all facts?

No. not till he voluntarily disclosed all facts relevant to assessment………….Simplex Concrete Piles Ltd (2004) 134 Taxman 74 (Cal)

Will Obtaining relief by an incorrect ratio of a HC / SC decision amount to failure to truly disclose all material?

No. ……………..Kuberdas Hargovandas Modi V ITO (1972) 83 ITR 783 (Guj)

175


RECORDING OF REASONS & COMMUNICATING THEM TO ASSESSEERECORDING OF REASONS & COMMUNICATING THEM TO ASSESSEE Can the assessee challenge the ‘belief’ of the AO?

The existence of belief can be challenged by the assessee, but whether these grounds (for reasons) are adequate or not is not a matter for the court to investigate........ S Narayanappa V CIT (1967) 63 ITR 219 (SC)While judging the validity of notice u/s 148 the court has to restrict itself to the record ........ Tadikonda Ramulu V ITO (1990) 86 ITR 148 (AP)The court is required to examine whether some material existed on record , but…sufficiency of grounds are not justiciable ........ United Electric Co P Ltd V CIT (2002) 258 ITR 317 (Del)The assessee cannot challenge sufficiency of belief........ ITO V Lakhmani Mewal Dad (1976) 103 ITR 437 (SC) Whether there is prima facie material on record … The sufficiency or correctness is not a thing to be considered at this stage........ Raymond Woollen Mills V ITO (1999) 236 ITR 34 (SC)

Is there a limit on the number of times a reassessment can be done ?No, there is no limit . AO has powe to do any number of reassessments.

……………….CIT V. SSRG Arthanariswamy (1982) 136 ITR 147 (Mad) Can a second notice u/s 148 be issued when a reassessment is pending completion? No. ………….ASSP & Co V CIT (1988) 172 ITR 274 (Mad)

176


When can a court take the view that Ao had no reasons? Whenever assessee challenges the validity of notice u/s 148 the court should call for the records ........if there are no reasons on record, the notice is bad in law......... Communidado of Chicalin V ITO (2000) (SC)

Can the assessee ask for supply of reasons ?Yes. He can. AO and assessee should follow the following procedure:

In response to the notice u/s 148, the assess can either file a fresh return of income OR request that his return filed u/s 139 may be treated as his return filed in response to notice u/s148.

Simultaneously with filing of return, assessee should request AO to provide the reasons for reopening assessment.

Then assessee may file his objections against reopening of assessment, and the AO MUST dispose his objections by way of a speaking order, and if AO rejects it, he should not proceed with reassessment till four weeks …..(HDFC V CIT (2007) 165 Taxman 8 (Bom)

If AO does not dispose his objections and goes ahead with assessment, assessee should file u/s 144A with the JCIT, and if his application is rejected by JCIT, he should file a Writ petition.

……………….GKN Drive Shafts India Ltd V ITO (2003) 259 ITR 19 (SC)

177


Whether sanction given by CIT in a case falling u/s 151 (2) is valid ? No, Where JC is empoered to give sanction, sanction by CIT would be invalid........ R P Gupta & Sons(HUF) V ITO (2006) 157 Taxman 158 (Del)

What will happen if the notice u/s 148 is invalid ?The entire reassessment proceedings will be invalid……………….CIT V Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC)

What happens if the there are two entities by the same name and addres and it is not clear as to which one of them is addresed ?The notice would be invalid ………….ITO V Chandi Prasad Modi ( 1979) 119 ITR 340 (Cal)

What happens if the notice is returned by postal department with noting that addressee refused to accept it?

It is presumptive proof of service ……………..CIT V Hari Prasad (1989) 178 ITR 591 (P&H)

Is the CIT (or JCIT) required to give the assessee an opportunity of being heard? Yes ……………..Kamala Properties V IAC 1994 Tax LR 468 (Cal)????????????????????

178

RES JUDICATAAssessment Procedure Assessment Procedure . .

Does the concept of ‘Res Judicata’ apply in case of assessments? No ... An AY is a self contained asseesment period and a decision in one AY does not ordinarily operate as res judicata in respect of a matter decided in any subsequent year, for the AO is not a Court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year......... Jt family of Udayan Chinubhai V CIT (1967) 63 ITR 416 (SC) ; Dwarkadas Kesardeo Murarka V CIT (1962) 44 ITR 529 (SC) Though the principles of res judicata do not apply to income-tax proceedings, when a question of law or fact was decided in the assessee’s own case for an earlier assessment year and an identical question comes up consideration for a later year, Tribunal will be justified in placing reliance on the earlier decision.......... CIT V Velimalai Rubber CO Ltd (1990) 48 Taxman 3656 (Ker) In matter relating to properties and rights ( which do not vary from year to year) res judicata will apply. …………….CIT V P Krishna Warrior (1994) 208 ITR 823 (Ker) Though res judicata does not apply ………….judicial propriety requires consistency……………CIT V National Bearing Co ltd (1994) 208 ITR 872 (Raj)

179

ESTOPPELAssessment Procedure Assessment Procedure . .

Does the concept of ‘ESTOPPEL’ apply in case of assessments? No ... Where the practice adopted by the assessee and accepted by the Tax authorities in earlier years are found to be strictly not in accordance with law, then the tax authorities are bound to take the view which is in accordance with law and they are not estopped by their conduct from insisting on a different practice consistent with law......... CIT V Thanti Trust (1982) 137 ITR 735 (Mad)

Documents

assess pro 1