Types of Income Tax Assessments

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The tax payer or the assessee has to make assessment of his or her income and tax thereupon to file the ITR (Income Tax Return). The role of Assessing Officers (AO) of Income Tax department starts after filing of ITR by the asessee.

Self-Assessment:- Assessee himself or herself should assess income and files the ITR. This is very first assessment of Income and Tax thereupon by the asessee is known as Self-Assessment u/s 140A.

Following are the types of assessment which are or can be performed by AO from Income tax department: –

  • Assessment under section 143(1), i.e., Summary assessment.
  • Assessment under section 143(3), i.e., Scrutiny assessment.
  • Assessment under section 144, i.e., Best judgment assessment.
  • Assessment under section 147, i.e., Income escaping assessment.
  1. Summary Assessment u/s 143(1):-

Summary assessment is done by assessing officer by taking into account following points-

  1. Arithmetical calculation verification for Income and tax thereon.
  2. Interest or penalty is also calculated and accordingly demand or refund of Tax is determined.
  3. Intimation is prepared and sent to assessee. Intimation will be sent even if there is no refund or tax or interest is due to or from the assessee.
  4. If demand is ascertained then recovery proceedings are initiated and in case refund in favour of assessee is ascertained then refund is granted and refund payment process is also initiated.
  5. In Summary Assessment detailed Scrutiny is not being done by Income Tax Assessing Officers.
  6. Assessment under section 143(1) can be made within a period of one year from the end of the financial year in which the return of income is filed.
  1. Scrutiny assessment u/s 143(3)-

This is a detailed type of assessment, which is done by assessing officer to ensure the correctness or genuineness of the claims of deductions or losses and other expenses. Assessing officer also makes sure that  income has not been understated and loss or expenses have not been excessively claimed.

  1. For scrutiny assessment u/s 143(3), i.e. assessing officer will serve a notice u/s 143(2) to the assessee, to attend his office in person or via an authorized representative, and produce evidences in support of return of income filed by him.
  2. Notice u/s 143(2) must be served within the 6 months from the end of financial year in which return is filed. If notice u/s 143(2) is not served within the prescribed time, then no assessment can be done u/s 143(3).
  3. Assessing Officer will do the assessment after hearing the taxpayer or his representative and considering the arguments, documents, information or evidences produced by the assessee.
  4. Assessing officer will issue the assessment order in writing mentioning the amount of addition made in income and with reason for the same. Calculation of the amount of tax, penalty, interest or refund after the assessment is also given in the assessment order.
  5. Assessment under section 143(3) should be made within a period of two years from the end of the relevant assessment year.
  1. Best Judgment Assessment u/s 144 (BJA)

In a best judgment assessment, as its name indicates, The assessing officer makes an assessment based on his best reasoning. It is normally made in the following circumstances –

  • When an assessee fails to file a return under section 139(1) of the Act or a belated return under section 139(4) or revised return u/s 139(5) of the Act;
  • When an assessee fails to comply with the terms and conditions laid down in the provisions relating to a notice under section 142 or fails to get his accounts audited as per section 142(2A) of the Act;
  • When an assessee after filing a return fails to comply with the terms of a notice as given in section 143(2) for production of evidence or documents. i.e. notice of scrutiny assessment.

So, we can say that if a taxpayer does not files his or her return of income, or does not cooperate in furnishing any information or evidences, or does not have correct, complete and reliable accounts , then an assessing officer has right to assess his or her income, after giving reasonable opportunity of being heard, according to best of his judgement as per his knowledge , or gathered facts and information from various sources.

– assessment under section 144 shall be made within a period of two years from the end of the relevant assessment year.

  1. Income Escaping assessment u/s 147 (Reassessment)

If the assessing officer has a reason to believe that some income of any assessee has escaped from being assessed to tax then the AO may initiate income escaping assessment u/s 147. Income has escaped assessment means that assessment has already been done. So this assessment is also called Reassessment.

Assessment u/s 147 may be assessment or reassessment i.e. assessment u/s 147 can be initiated even after the assessment under other sections of income tax i.e. 143(1), 143(3), 144 or even u/s 147etc. have been done, or not.  But it can’t be initiated if the assessment under any other section of income is going on in process.

-Unlike section 143(3), in income escaped assessment, assessing officer can’t reduce the income  or increase the loss. ‘

Reasons for believing of under assessment of income by assessing officer may include:-

  1. Retrospective change of law
  2. Evidences indicating escapement of income have come to the knowledge of assessing officer on scrutiny /Survey / search of other assesses.
  3. Proofs from AIR returns
  4. Mistakes apparent from records.etc.
  5. Assessing Officer has got some information which is sufficient to form an opinion that some income has escaped from being assessed.

-To initiate income escaping assessment assessing officer shall issue a notice in this regard u/s 148. Before issuing this notice AO must record the reasons to believe that income chargeable to income tax has escaped assessment and has to take prior permission from authority prescribed u/s 151.

Notice under section 148 can be issued:

  1. Within a period of 4 years from the end of the relevant assessment year.
  2. If the escaped income is Rs. 1,00,000/- or more and certain other conditions are satisfied, then notice can be issued up to 6 years from the end of the relevant assessment year.
  3. In case the escaped income relates to any asset (including financial interest in any entity)Ø located outside India, notice can be issued up to 16 years from the end of the relevant assessment year.

 Time Limit:- Assessment under section 147 shall be made within a period of one year from the end of the financial year in which notice under section 148 is served .

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