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Brief Understanding on Income Tax Assessment

Subsequent to the filing of Income Tax Return, the Income Tax Department examines the correctness of the return filed. This process, of examining and reviewing the ITR by the Income Tax Department is known as ‘Income Tax Assessment’.

The various forms of assessment under the Income Tax Act, 1961 are as follows:

Self Assessment u/s 140A

Every assessee, before filing his ITR, computes the tax liability on income earned along with liability for interest and penalty. The assessee arrives at his taxable income after claiming all the deductions, expenses and exemptions available to him. After arriving at the tax payable on such income, the assessee deducts the amount of TDS and advance tax already paid, if any. If after such deductions, Tax is still payable, it is called the Self-Assessment Tax. The assessee is required to pay the Self-Assessment Tax in Challan No./ ITNS 280 before filing his ITR. This act of calculation of taxable income and the tax payable by the taxpayer himself is known as Self-Assessment.

Summary Assessment u/s 143(1)

Summary Assessment is carried out digitally i.e. without any human intervention. After the assessee has furnished his ITR containing all the information regarding his income, it is then cross-verified by the Income Tax Department. The Department verifies the accuracy, correctness, and reasonableness of the return filed in relation to the information possessed by it. Summary Assessment can be referred to as a preliminary verification and no detailed scrutiny is carried out at this stage.

Scrutiny Assessment u/s 143(3)

Notice for Scrutiny Assessment is given u/s 143(2), requiring the assessee to produce certain information, documents and book of accounts. Such notice shall be served within a period of six months from the end of the relevant financial year in which the return is filed. In this type of assessment, the Income Tax Department authorizes an officer (not be below the rank of an Income Tax Officer), to conduct a detailed inquiry for the purpose of ensuring that the assessee has not –

  • Understated his income;
  • Overstated his expense or loss;
  • Underpaid any tax.

Best Judgment Assessment u/s 144 –

Best Judgment Assessment can be invoked by the Income Tax Officer under the following circumstances:

  • If the taxpayer fails to file his income tax return (including Belated and Revised Returns) within the due dates mentioned.
  • If the taxpayer fails to comply with the notice issued by the Income Tax Department for filing of return of income or maintenance of Books of Accounts (BOA).
  • If the taxpayer fails to produce the necessary information and documents as required by the Officer during Scrutiny Assessment.
  • The Income Tax Officer is not satisfied with the documents and information produced b the assessee.

The Income Tax Officer shall pass an order determining the amount of tax payable, based on his best judgement. However, an opportunity of being heard shall be given to the assessee before passing any order.

Income Escaping Assessment u/s 147 –

If an Assessing Officer has sufficient reasons to believe that income chargeable to tax has escaped assessment, for any assessment year, he may:

  • Assess or reassess such income;
  • Recompute the loss or depreciation allowance or any other allowance, if any, for the relevant assessment year.

Circumstances under which Income Escaping Assessment can be carried out:

  • When the taxpayer has failed to file his Income Tax Return.
  • In cases where the return is filed but no assessment is made, it is found that the taxpayer has understated income or excessive claim of loss, deduction, or allowance, etc.
  • In cases where the assessee fails to report International Transactions.
  • Where assessment u/s 143(3)/144 has been made but income chargeable to tax:

(i) Has been under assessed; or

(ii) Has been assessed at a low rate; or

(iii)Has been assessed with excessive relief; or

(iv) Excessive loss or depreciation or other allowance has been claimed.

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