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Income Tax Assessment

Filing income tax return is a yearly ritual. Once every year, everyone has to file an income tax return. Every taxpayer whose income is above the basic exemption limit has to file in details related to his income and deduction. This is done by self-calculation of the amount of income earned in the past financial year and paying tax accordingly.

Income Tax Assessment in India

After an assessee has filed his details, it goes into processing. The Income Tax Department analyses all the details that a taxpayer submits. This is Income Tax Assessment. In simpler words, the examination of the details submitted by a taxpayer (in their income tax return) is called Income Tax Assessment. Income Tax Assessment is a post filing procedure. Once a taxpayer has filed his income tax return, they go through each and every detail of it.

Self-Assessment under Section 140 A

The process of calculating the income and payment of tax, when done by the taxpayer himself, is called Self-Assessment. At the time of paying the tax, a taxpayer can calculate his income of the year and pay the tax accordingly. Self-Assessment is covered under Income Tax Act - Section 140A.

After a provisional assessment has already been done. Any amount unpaid should be paid towards the provisional assessment or regular assessment.

Section 140 A states that if a taxpayer has filed a return under Section 139, and the tax amount is reduced due to tax already paid, then the assess should pay the balance tax within 30 days of filing the return.

Scrutiny Assessment under Section 143(3)

In some cases, after filing an income tax return, an Income Tax Officer is assigned for assessment. He is appointed by the Income Tax Department and is done when a case does not satisfy certain criteria. When a tax assessment is undertaken by an Income Tax Officer, it is his duty to inform the taxpayer. This is done through an Income Tax Notice under Section 143(2). Thereafter, the Income Tax Officer may demand certain information, documents and account books for scrutiny assessment. Income Tax Officer conducts a thorough examination of the documents and then computes the income tax payable by the taxpayer. If there is a mismatch disparity between the income amount and the tax due to be paid, the taxpayer could agree to pay the extra amount, or accept the refunds.

If the taxpayer is not satisfied, he can apply for recitation under Section 154. Otherwise, a revision application can also be submitted under Section 263 or Section 264. If the order approved in Scrutiny Assessment is still considered invalid, the taxpayer can take things to the higher authorities. Like CIT (A), ITAT, High Court and The Supreme Court, in that particular order.

Best Judgement Assessment under Section 144

Best Judgement Assessment is issued for those individuals who fail to co-operate with the Income Tax Department. This simply means that the taxpayer does not respond to the multiple notices issued by the Income Tax Department. Or he fails to produce the requested information or does not maintain proper account books. In such cases Best Judgement Assessment is put into action.

The Best Judgement Assessment is made by an Income Tax Officer in the following cases:

  • There is no filing of Income Tax Return by the taxpayer

  • The taxpayer fails to carry out the written requests made by the Income Tax Department regarding the filing of Income Tax Return or maintain book of accounts

  • When a Scrutiny Assessment is put into action, the taxpayer fails to produce relevant documents

  • If the Income Tax Officer is not satisfied by the information or documents presented by the taxpayer

After the assessee’s argument is heard, the income tax officer passes an order and this is known as Best Judgement Assessment.

Income Escaping Assessment under Section 147

It is possible that a taxable income might have escaped assessment. In cases like this, the Income Tax Department can open an assessment. They can do it for cases as old as 6 years. If an Income Tax Officer has enough information to believe that an income has escaped assessment, he can assess or reassess the taxpayer’s income. To do this, he needs to issue a notice under Section 148.

Conditions under which Income Escaping Assessment is carried out are:

  • If the taxpayer has failed to file an income tax return for his taxable income

  • After filing the return, it is found that the taxpayer has deeply understated his income or requested excessive allowance or deduction

  • When the assessee has failed to produce reports on international transactions

The duration for which Income Escaping Assessment is carried out maybe variable. It is suggested that one should approach a Chartered Accountant if they need assessment with their case.

Summary Assessment under Section 143 (1)

This Assessment is carried out digitally. Once the taxpayer has submitted all the information regarding his income in his income tax return. All this information is cross-checked with the information which is available with the Income Tax Department. Everything is done online. During online Assessment of the Income Tax Return, arithmetical errors are corrected. Besides this, incorrect claims and disallowances are automatically corrected.

If, after all the corrections, the taxpayer is required to pay income tax, then he is informed via a notice under Section 143(1).

Regular Assessment

In order to assess the information which a taxpayer has mentioned in his income tax return file, an Assessing Officer is appointed. This appointment is done by the Income Tax office. It should also be noted that the officer appointed should be at or above the rank of an Income Tax Officer. An officer checks if the taxpayer has correctly stated his income, overstated his expenses or underpaid his tax.

egular Assessment is undertaken in the following conditions:

  • When the taxpayer is liable for scrutiny assessment. It is the duty of the Income Tax Department to inform the taxpayer beforehand, prior to the advancement of the case.

  • Certain documents like the book of accounts is asked to be produced by the taxpayer. On detailed examination, if the Assessing Officer feels that all details are legit, then he passes an order confirming the return filed. If that is not the case, then certain addition are made, according to need, by the Assessing Officer.

Protective Assessment

The assessments which are meant to protect the interest of the revenue are considered under Protective Assessment.

This is better understood with an example.

If there is a dispute on rental income between two individuals. Then, the assessing officer may add rental income to any one of them as per his own will. It should also be considered that the owner of the income has not denied the addition to his income.

During Protective Assessment, the assessing officer record all the assessment on paper until the matter is sorted out.

Assessment in case of search Under Section 153A

Section 153A allows the assessing officer to assess the income tax return of a person. The Assessing Officer can examine the income of past 6 years and draft his report. While making assessment under this section the additions or disallowances for which the preceding does not abate should be restricted.

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Frequently Asked Questions

What is Income Tax Assessment?

People now a days, file their income tax return online. It is an easy process to do, and saves a lot of time. It also saves them a trip to the municipal office. Once a taxpayer has filed his return and submitted all valid information. It is cross checked by the Income Tax Department, which is called Income Tax Assessment. This is done to ensure that a taxpayer has not understated his income or overstated the expenses. In some cases, an Assessing Officer is also appointed to look into the matter.

What is Self-Assessment?

These days people can file their own Income Tax returns as everything is online now. So, whenever a person files his income tax return, he calculates his income tax on his own. This means that a person estimates his own probable income tax return based on his income. This is called Self-Assessment. Self-assessment is allowed under Section 140A.

What is Scrutiny Assessment?

After filing an income tax return, an Income Tax Officer can be appointed by the Income Tax department to look into your case. If a particular case is selected for Scrutiny Assessment, the taxpayer needs to be informed via a notice under Section 143(2). During a Scrutiny Assessment, the Income Tax Officer asks the taxpayer to produce relevant documents. Once he has gone through all the documents, the Assessment Officer computes the income and determines the tax payable by the assessee.

How is an Income Tax notice issued for Scrutiny Assessment?

For Scrutiny Assessment, the Income Tax Officer has to inform the taxpayer via an Income Tax notice. This notice is issued under Section 143(2).

What is best judgement Assessment and under which Section is it covered?

Best Judgement Assessment is undertaken when the assesse fails to cooperate with the Income Tax Department. This may happen in multiple forms. For instance, when an assesse fails to file his tax return, or when he fails to maintain the documents which validate his income. Another condition where Best Judgement Assessment is put into play is when a taxpayer fails to comply by the notice issued by the Income Tax Department. It is possible that he has understated his income or overstated his expenses to get out of taxpaying and this can be another reason for issuing Best Judgement Assessment.

What is Income Escaping Assessment?

Income Escaping Assessment is carried out when an assessing officer realizes that there is a taxable amount which has escaped taxation. When an assessing officer has enough proof, he can start his investigation and look into tax returns as old as 6 years ago.

Under what conditions is Income Escaping Assessment taken under?

Income Escaping Assessment is done in the following cases:

  • When the assessing officer believes that the taxpayer has taxable income, yet has not filled the income tax return
  • While filing the tax return, he has largely understated his income or found to have overstated his expenses
  • When, on asking, the taxpayer is unable to produce documents mentioned in his income tax return. Income Escape Assessment is done in these cases. Almost in all cases, an assessing officer is appointed.

What is Summary Assessment?

Summary Assessment is an online mechanism of checking the information provided by a taxpayer. The information which an assessee uploads while filing a tax return is cross checked against the information which the Income Tax Department already has. Summary Assessment is 100% digital. It is carried out online and small changes are made wherever needed. These changes are mostly clerical and arithmetic errors.

What is Regular Assessment?

In Regular Assessment, an Assessing officer is appointed by the Income Tax Department to look into a certain matter. This is done to ensure that the information provided in the income tax return is appropriate. This makes sure that in no conditions, has a taxpayer has shown a lower income or overstated his expenses or missed any tax.

What is done under Regular Assessment?

Regular Assessment covers the following things:

  • The Income Tax Department needs to issue an Income Tax Notice prior to undertaking of a Scrutiny Assessment. The notice needs to be sent to the taxpayer and time should be given for him to respond. After the expiration of 6 months after the end of that particular financial year, his case cannot be taken under Scrutiny Assessment.
  • On being summoned, the taxpayer needs to produce important documents, like the book of accounts. All these documents go under review, and once the assessment officer is satisfied, he may pass the order stating his satisfaction. But if he does not find things legit, the income tax officer has the rights to charge you with tax. In that case, you need to pay the remaining tax amount.

These are some Income Tax Assessment types that are carried out in India. The main reason for these Assessments is the smooth functioning of Income Tax Department and maintaining a balance in the field of Income Tax Return.