Module 5
•Income Tax Authorities
•Procedure for Assessment - appeal, References and Revisions
• Corporate Taxation and Planning
•Assessment of Individual and Firm
INCOME TAX
AUTHORITIES
Who are income tax authorities? (Sec 116)
(a) The Central Board of Direct Taxes.
(b) Directors-General of Income-tax.
(c)Directors of Income-tax or Commissioners of
Income-tax.
(d)Deputy Directors of Income-tax or Deputy
Commissioners of Income-tax.
(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.
(i) Additional Directors of Income tax.
(j) Joint Directors of Income tax and Joint Commissioners.
Appointment of Income Tax
Authorities
Assessing Officer
AO are those officers in the income tax office who are given
the power to assess the income of the assessee.
1. Plays a vital role in the organizational setup.
2. Primary authority who initiates proceedings and directly
connected with public.
3. Orders passed by him can be challenged only on appeal.
CENTRAL BOARD OF DIRECT
TAXES (CBDT)
 Since 1 January 1964 the Central Board of Direct Taxes
(CBDT) has been charged with all matters relating to
various direct taxes in India and it derives its authority
from Central Board of Revenue Act 1963.
Tax Administration
• Organizational hierarchy
–
Tax administration is the prerogative of Central Board of Direct Taxes
(CBDT)
–
CBDT authorized to formulate strategies, supervise and regulate
functions of Income Tax Department
–
Power to issue direction/instructions/orders/circulars
circumscribed so as to
to
be

extend the date specified under the code for completion of any
proceeding, taking any action etc

relax any requirement for grant of any deduction or relief under
DTC

admit any application for exemption, deduction etc. after expiry of
specified period

exempt any income liable to be taxed
Powers of Income Tax Authorities (Sec 119)
Director General/Chief Commissioner of Income tax
 Appointment:
By the central Govt.
 Jurisdiction:
Determined by CBDT.
 Functions:
CBDT assigns functions by general or special order.
 Powers of Director General / Chief Commissioner
 Exercise powers of an assessing officer.
 Appoint income tax authorities below the rank of assistant
commissioner.
 Make enquiries on investigations into concealment – Section
131 (1A)
 Giving instructions to income tax officers Section 119 (2)
 Power of Survey- Section 133A
 Power to make enquiry – Section 135
Commissioners/Directors of Income
Tax
 Appointment:
By central govt.
 Jurisdiction:
Determined by central board
of direct taxes.
 Functions :
The Board assigns functions
by general or special order.
 Powers:
 Commissioner may exercise powers of an assessing officer.
 Power to transfer any case from one or more assessing
officers to any other assessing officer.
 Grant approval for an order issued by the assessing officer.
 Prior approval is required for reopening of an assessment.
 Power to revise an order passed by an assessing officer.
Deputy Commissioner/Assistant
commissioners of income tax.
 Appointment:
By central govt.
 Jurisdiction:
Determined by central
board of direct taxes.
 Functions :
The Board assigns functions by general or special order.
 Powers:
 Empowered to accord to sanction to levy additional income tax.
 Power to exercise powers of an assessing officer.
 Cancel registration of a firm.
 Power to issue instructions to assessing officer.
Joint commissioner
 Functions:
 Detect tax evasions and supervise
subordinate officers.
 Powers:
 Accord approval to adopt fair market value as full
consideration – section 52.
 Instructions to income tax officers – section 119 (3)
 Exercise powers of income tax officers section 125 a.
 Power to call information section 133.
 Power to inspect registers of companies section 134.
 Power to make any enquiry section 135.
Assisstant Commissioner/ Income tax
officer
Jurisdiction:
 Determination of CBDT.
 Instructions by Director General.
 Concurrent jurisdiction .
 Disputes regarding jurisdiction.
 Jurisdiction not to be disputed.
Powers:
 Power of civil court.
 Powers of search and
seizure
 Power of assessment.
 Power to call information.
 Power of survey.
 Power to inspect registers of companies.
Income tax officers
 Class I service - appointed by central govt.
 Class II service - appointed by commissioner of income tax.
Appeal
Meaning of Appeal:
To make application for the removal of (a cause) from an inferior to a
superior judge or court for a rehearing or review on account of alleged
injustice or illegality in the trial below.
 It is based on the concept of equity and a recognition that every
authority is fallible.
 The mechanism of appeal provides safeguard against erroneous, unjust
or invalid orders.
 Under the scheme of the Income Tax Act, appeal can be preferred only
against orders specified under the relevant act.
 It is pertinent to note that the right to appeal is conferred by the statute
and that right to appeal cannot be assumed to be an inherent right.
 Therefore appeal against non-appeallable orders can be dismissed as
not maintainable.
Stages of Appeal
Period of Appeal
 An assessee aggrieved by an order of the Assessing Officer or
the Commissioner (Appeals) or the ITAT under the Code
may file an appeal to the higher authority within thirty days
of the date of the receipt of the order.
Why Appeal? What’s at Stake?
• Additional tax burden.
§ Recurring issues
§ Recovery Pressure
•Interest Liability
•Penalty proceedings.
Revision
Tax Administration
• Commissioner shall hold power to revise an order found to be
erroneous and prejudicial to the interest of the Revenue
• Revision order shall not be an order cancelling the assessment and
directing a fresh assessment
• An order passed by the income tax authority shall be deemed to be
erroneous
–
if it is passed without any verification or enquiry or allowing relief
without probing into the claim of the taxpayer, or
– if it is not in accordance with instructions issued by the Board, or
any decision of HC, SC, prejudicial to the assessee
• The Commissioner may revise an order of the Assessing Officer within
six months from the date of the order.
Procedure for Assessment
 It refers to procedure of imposing the liability upon the tax-payer to pay the
Income Tax.
 U/S 139 (1) every person, if his total income or total income of any other
person in respect of which he is assessable, has exceeded the exemptible limit,
shall on or before the due date, furnish return of income in the prescribed
form. It has to be submitted in ITO of the area.
 The usual process of Taxation is:
1) The assessee earns income
2) He/She deposits tax – based on self calculation or as determined by Tax
Consultant
3) The assessee fils Income Tax Return (ITR)
Time Period of Filling Return
Where the assessee is a Company
31 October
Where the assessee is other than the
31 October
Company (If Accounts are required to be
audited)
In any other case
31 July
Who has to file Return?
 A person who has income above the minimum exemption
limit (without giving effect of any sections of IT Act) is
obligated under law to file ITR.
 However assesses eg a Company has to file ITR compulsorily
whether it earns profit or not.
Types of Returns
 Sec 139(1) : Regular Return
Return filed before Due Date
 Sec 139(1) : Loss Return
Loss Return filed before Due
Date, to claim carry forward of loss for 8 yrs. Failing which the
benefits will be lost.
 Sec 139(4) : Belated Return
Return file after the due date.
 Sec 139(5) : Revised Return
new return filed by income
tax assesses which corrects the information filed earlier in the
regular return is called Revised return. Revised return to be
filed within 21 months from the end of financial year or
completion of assessment which ever is earlier.
Deduction of tax at source
 Under this scheme, persons responsible for making payment
of income covered by the scheme are responsible to deduct
tax at source and deposit the same to the government
treasury with in the stipulated time.
Assessment Procedure (IT dept)
•
Detailed instructions for processing of returns
•
Selection of cases on scrutiny on Risk Management Strategy
framed by CBDT
•
Best judgment assessment extended to failure to follow
method of accounting and non-satisfaction about correctness
of accounts
•
Income Escaping Assessment
– Notice can be issued
for
seven years preceding the
financial year
– Reassessment proceedings qua non reopened issues
– Check & Balances no longer in place: Change of Opinion and
Full Disclosure concept
Tax Planning
 Tax planning is not a one day show; rather it is a gradual





arrangement of one’s financial affairs in such a way that there
are no violations of the legal provisions of the Income Tax Act.
Though, it is a legal obligation of every citizen to pay the taxes
honestly under the law, the taxpayer is legitimately entitled to
plan his taxes in such a manner that his tax liability is reduced
to a minimum.
In other words it is judicious use of provisions of the Income
Tax Act to optimize tax liability
Basically Corporate Tax Planning is the strategies to reduce the
taxes.
Tax planning and management is a risky and complex issue.
It is very much at high priority to deal with the taxes efficiently
and effectively.
Concepts used in Tax Planning
 Tax Evasion
 In the tax evasion, facts are deliberately misrepresented and tax liability is
understated by employing the following means:
a) concealment of income;
b) Inflation of expenses;
c) Falsification of accounts
d) violation of rules
 These devices are unethical. Evasion, once proved, not only attracts heavy
penalties but may also lead to prosecution.
 Tax Avoidance
 Tax avoidance can be defined as the art of dodging tax without breaking the
law.
 Objective of tax avoidance is minimizing the incidence of tax by adjusting the
affairs in such a manner that although it is within the four corners of the
taxation laws but the advantage is taken by finding out loopholes in the laws.
 Main purpose is to defer, reduce or completely avoid the tax payable under
the law.
Concepts used in Tax Planning
 Tax Planning
 Tax Planning is an arrangement of one’s financial affairs in such a way
without violating the legal provisions of the Act. Full advantage is
taken of all exemptions, deductions, rebates, reliefs etc. permitted
under the Act, reducing the burden of taxation to the least.
 The aim of tax planning is to minimize the incidence of tax. It is a
guide in decision making. It looks at future benefits arising out of
present actions.
 Tax Management
 Tax management refers to the compliance with the statutory
provisions of law. Tax planning is optional, tax management is
mandatory.
 It covers a wider field like maintenance of accounts, filling of return,
payment of taxes, TDS, timely payment of advance tax, etc., poor tax
management may lead to levy of interest, penalty, prosecution, etc.
Tools of Tax Planning
Corporate Tax Planning
 Corporate Tax Planning is the arrangement of financial activities
in such a way that the maximum tax benefits are enjoyed by
making use of all beneficial provisions in the tax laws.
 It entitles the corporate assessee to avail certain exemptions,
deductions, rebates and reliefs, so as to minimize his tax
liability.
 The principal objectives of Corporate Tax Planning may be
stated as follows:
 Reduction of Tax Liability
 Minimization of Litigation
 Productive Investments
 Healthy Growth of Enterprise
 Economic Stability
Assessment of Individual and Firm
 Assessment and computation of individuals and firms require first




of all head wise calculation of income, which is then summed up in
the statement of income and tax.
After adding all the five heads of income the gross total income is
computed.
Various deductions are allowed from the computed gross total
income to find the total or taxable income.
After applying the tax rates to the total or taxable income the tax
on taxable income is arrived. This tax is added with surcharge and
education cess.
Finally the TDS and advance tax is subtracted from it to compute
the balance tax payable.
Computation of Taxable Income
Income Exempt from Tax
 Agricultural income
 Receipts by a member from a Hindu Undivided Family
 Share of profit from partnership firm
 Casual and Non-recurring income
 Leave travel concession
 Foreign Allowance
 Tax on perquisite paid by employer
 Amount paid on life insurance policies
 Educational, scholarships
 Daily allowances of members of parliament
 Family pension received by members of armed forces
 Income of minor
 Capital gain on Transfer of US64
 Dividends and Interest on Units
 Capital gain on compulsory acquisition of urban agricultural land
 Long-term capital gains on Transfer of equity shares/units in cases covered by Securities
Transaction Tax
DEDUCTIONS IN COMPUTING TOTAL INCOME
(CHAPTER VIA) A.Y 2019-20
SECTIONS
PARTICULARS
ASSESSEE
TO WHOM
ALLOWED
QUANTUM OF
DEDUCTION
80C
Deduction in respect of LIC
Premium, Contribution to PF, Interest
repayment on Housing Loan, Post
office 5year Time Deposit, NSC, 5yrs Bank FD,
Senior Citizen Savings Scheme etc. Sukanya
Samruddhi Scheme,
Individual
or HUF
Max. Rs. 1,50,000
80CCC
Deduction in respect of contribution to
pension funds
Individual
Max. Rs. 1,50,000
80D
Deduction in respect of Medical
Insurance Premium
Individual
or HUF
For Individual himself,
Spouse, Dependent
Children and his Parents
–Rs.25000
For Senior Citizen Rs.50,000
DEDUCTIONS IN COMPUTING TOTAL INCOME
(CHAPTER VIA) A.Y 2019-20
SEC
PARTICULARS
ASSESSEE
TO WHOM
ALLOWED
QUANTUM OF DEDUCTION
80DD
Deduction in respect of medical
treatment of Dependent
Individual
Disability - Rs.50,000
Severe Disability – Rs.75,000
(W.e.f A.Y. 2010-11 – Rs.1,00,000)
80DDB
Deduction in respect of treatment of
Specified Diseases
Individual
For Individual – Rs.40,000
For Senior Citizen – Rs.60,000
80E
Deduction in respect of interest paid
on loan taken for his higher education
or his relative
Individual
Actual Interest Paid
80G
Deduction in respect of Donations to
certain funds, Charitable Institutions
etc.,
All
Assessees
a) 100% or 50% of eligible donations
without applying qualifying limit
b) 100% or 50% of eligible donations
after applying qualifying limit of 10% of
Adjusted GTI
DEDUCTIONS IN COMPUTING TOTAL INCOME
(CHAPTER VIA) A.Y 2009-2010 AND 2010-2011
SEC
PARTICULARS
ASSESSEE
TO WHOM
ALLOWED
QUANTUM OF DEDUCTION
80GG
Deduction in respect of rent
paid
Individual
Max.Rs.2,000 p.m
80GGA
Deduction in respect of
contribution to scientific
research or rural development.
All Assessees
not having
Business
Income.
100% of sum donated.
80U
Deduction in respect of
Physical Disability of
Individual
Individual
Disability - Rs.50,000
Severe Disability – Rs.75,000
(W.e.f A.Y. 2010-11 – Rs.1,00,000)
Assessment of Firm
 Meaning of Partnership is defined in Sec 4 of the Indian




Partnership Act 1932.
Partnership firm is taxed as a separate entity.
There is no difference in calculation for registered firms and
unregistered firms.
A Partnership firm should submit its Partnership Deed in the
first year of its assessment and later on if there is any changes
in the Deed.
From AY 2010-11 all provisons are applicable to LLP also.
Assessment of Income of Firm
 Any salary, bonus, commission or remuneration to a partner is deductible
subject to certain rules and regulations.
 Payment of salary, bonus, commission or remuneration to any partner will
be allowed as deduction to the firm provided if the following conditions are
satisfied;
 The partners should be a working partner. Sleeping partner or financing
partner is not eligible for remuneration [ sec 40(b) (i)]
 The payment is as per the terms of partnership deed [ sec 40(b) (ii)]
 The payment should be after the date of partnership deed [ sec 40(b) (iii)]
 The share of partner in the income of the firm is not chargeable to tax in the
hands of partners
 Any interest paid by the firm to its partners can be claimed as deduction
Assessment of Income of Firm
conti……
 The maximum rate of deduction towards interest is 12% pa
 Income of the firm will be taxed at a flat rate of 30% + edu
cess & SHEC 3% on tax.
 Firm is liable to deduct any TDS on partners salary and
interest
 With Effect From AY 2006-07 all partnership firms will
have to file their return of income irrespective of whether
their income is liable to tax or not.
Computation of Book Profit
Net Profit/Loss as per P & L a/c
Add:
Expenses disallowed
Interest to partners above 12%
Expenses relating to other heads of Income
Remuneration to partners if shown in the account
Less:
Income relating to other heads
Book Profit
xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Remuneration Rules to Partners – w.e.f AY 2010-11
1
2
For the first 300000 of Book 150000 or 90% of Book
Profit or in case of loss
Profit – whichever is higher
Balance of Book Profit
60% of Book Profit
Income of the Firm
Book Profit
xxx
Less: Remuneration u/s 40(b)
Xxx
Income or Loss of Income from Firm
Xxx
Less: Deduction available u/s 80
80G: Donations
xxx
80GGA: Donation to scientific Research or rural development
xxx
80GGC: Donations to Political Parties
Xxx
80IA : In respect of Profits & Gains from Industrial Undertakings or enterprises
engaged in Infrastructure development
Xxx
80IAB: In respect of Profits & Gains from Industrial Undertakings or enterprises Xxx
engaged in development of SEZ
80IB: In respect of Profits & Gains from Industrial Undertakings other than
Infrastructure Development Undertakings.
Xxx
80IC: In respect of Profits & Gains from Industrial Undertakings or Enterprises Xxx
in the States of Himachal Pradesh, Uttranchal, Sikkim and Norther Eastern
States
Income of the Firm
Continued
xxx
80ID: In respect of Profits & Gains from Hotels and convention centres in a
“specified area”
xxx
80IE: In respect of Profits & Gains from specified undertakings in Northern
States
xxx
80 JJA: In respect of Profits & Gains from business of collecting and processing
of bio-degradable waste
xxx
Xxx
Income of Partners
PARTICULARS
P1
P2
P3
Share of Profit (exempted)
Nil
Nil
Nil
Allowed remuneration as per rules to be shared among working
partners in their remuneration ratio
Xxx
Xxx
Xxx
Interest to partners up to 12%
Xxx
Xxx
Xxx
Total Income of Partners
Xxx
Xxx
Xxx
Tax Rate for Firm
Income Tax : 30% of taxable income.
Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.
Assessment of Companies
A company means:
1.
2.
3.
4.
any Indian company, or
any body corporate incorporated under the law of a
foreign country, or
any institution, association or body which was assessable
or was assessed as a company for any assessment year up
to 1970-71, or
Any institution, association or body, whether incorporated
or not and whether Indian or non- Indian, which is
declared by general or special order of CBDT to be a
company.
1. Domestic Company
Domestic company means an Indian Company or any other
company which in respect of its income liable to tax under this
Act, has made the prescribed arrangements for the declaration and
payment, within India, of the dividends payable out of such
income.
2. Foreign Company
A foreign company is a company which is neither an Indian
Company nor has made the prescribed arrangements for the
declaration and payment of dividends within India.
Assessment of Companies
Particulars
Amount
Amount
Ascertain the income under the different heads HP+ Business
Income + Capital Gain + O. Sources
Add: Income of other persons (if any) u/sections 60&61)
xxx
Adjustment on account of:
Current losses (if any)
B/forward losses (if any)
(According to section 70 to 80)
xxx
Other G.T. Income
Less: Deductions under sections (if any)
 80G - 80-LA Offshore banking
Net Income
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
How to compute tax as
Provisions of MAT
MAT (see 115 JB): under this tax payable by a
company/firm for any A.Y. cannot be less than 18.5% of
book profit
(A) Find out Normal Tax Liability @ 30% + SHEC 3% (ignoring
MAT)
(B) MAT
1. Find out Book Profit
2. Find out MAT Tax at 18.5% + SHEC 3%
 If (A) is more MAT is not applicable
 If (B) is more MAT is applicable
Computation of Tax Liability of a Company
(A) Under Normal Circumstances/ or Provisions
Step1:Find out taxable Income
xx
Step II: Find out tax at 30% on taxable income (40% in case xx
of a foreign company)
xx
Step III: Les: Rebate U/s 88E (if any)
xx
xx
Tax
Add: surcharge at 10% (Income Likely to exceed Rs. 1 crore) xx
(2.5% for foreign company)
xx
Tax + surcharge
xx______
Add: education cess on Tax + surcharge (at 3%)
xx
Tax + Surcharge + Cess
xx
Less: tax Rebate or tax credit
xx
(A) Tax Liability
(B) Under MAT
Step I Find out book profit
xxx
Step II Ascertain 18.5 % of Book Profit
xxx
Add: Surcharge at 10% (income likely to exceed Rs.
1 crore (2.5% for foreign company)
xxx
Tax+ surcharge
Add: Ed Less at 3% on Tax + surcharge (Always
Tax Liability as per MAT
xxx
xxx
xxx
 Therefore tax liability of the company/firm is (A) or (B)
whichever is more