Assessment Proceedings
ACAE Chartered Accountants' Study Circle-EIRC
Basant Gadhyan
6 February 2014
Contents *
• Overview
• Summary Assessment
• Scrutiny Assessment
• Best Judgment Assessment
• General principles for assessments
• Guidance for handling assessments
• Post assessment proceedings
• Some Recent Updates
*Excluding reassessment , search etc.
Overview
3
Overview
Assessment meaning:
•
Section 2(8) - assessment includes re-assessment
•
As per law lexicon - assessment means determining the share of tax
payable
•
Assessment is a procedure for determining tax liability and recovery of
taxes
•
Assessment is vide enough to include all types of assessments
including penalty proceedings
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Overview
Assessments generally understood under the Act
• Summary Assessment u/s 143(1)
• Regular assessment U/s 143(3)
• Best Judgment Assessment u/s 144
• Income escaping assessment under section 147
• Assessment under search cases
Related provisions
• Section 142
- Inquiry before assessment including audit
• Section 142A - Estimations of valuation officer
• Section 144C - Reference to Dispute Resolution Panel
• Section 154
- Rectification
• Section 156
- Notice of demand
• Section 131
- Power regarding discovery, production of evidence etc.
• Section 133(6) - Power to call for information
• Section 292BB - Notice deemed to be valid
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Overview
Assessment (Sec 2(8))
Summary
assessment
Scrutiny
assessment
u/s 143(3)
6
Regular
assessment
Reassessment
u/s 147
Best judgment
assessment
u/s 144
Summary assessment
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Summary Assessment
• Processing of returns filed u/s 139 or response to 142(1) notice.
Following adjustments permissible in intimation u/s 143(1):
•
Correct arithmetical errors
•
Correct an incorrect claim apparent from information in the return
• Explanation to sub section 1 defines “an incorrect claim apparent from
any information in the return” means a claim
(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;
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Intimation u/s 143(1)
• Time Limit
• Intimation to be sent within 1 year from the end of the FY in which
return filed
• ‘Acknowledgement’ of ROI is ‘intimation’ if no demand or refund.
Intimation not an order of ‘assessment’
• Rajesh Jhaveri Stock Brokers (P) Ltd. (291 ITR 500)(SC)
• Mahanagar Telephone Nigam Ltd. vs. CBDT (246 ITR 173)(Del)
• Tax payable as per intimation is deemed to be notice of demand – to
be paid within 30 days of receipt of intimation
Summary Assessment
• Issues:
•
When TDS credit / Advance tax not allowed / short allowed
•
When different tax rate charged i.e. general rate in place special
rate
•
Notice u/s 143(2) issued and processing not done
• Rectification/ Appeals
•
Rectification u/s 154 on the website
•
Appeal u/s 246 A
• A.O. cannot issue an order u/s 154 to rectify a notice u/s 143(1) after a
notice u/s 143(2) has been issued (P&H HC in Haryana State Handloom
and Handicrafts Corporation)
10
Scrutiny Assessment
11
Selection of scrutiny cases
• CBDT issues instructions on norms for selection of scrutiny
•
•
CASS selection – cases meeting prefixed parameters
Manual Selection
• Instruction No 10/2013, dated: August 5, 2013 pursuant to the direction
of the Delhi High Court in Joginder Pal Gulati vs. OSD – CPIO.
Following cases / returns shall be compulsorily scrutinized (FY 13 - 14):• International transaction exceeds Rs. 15 crores.
• Addition in an earlier AY on the TP issue in excess of Rs. 10 Cr.
which is confirmed in appeal/ pending before appellate authority.
• Addition in an earlier AY in excess of Rs. 10 lacs on a substantial
and recurring question of law/ fact which is confirmed in appeal or is
pending before an appellate authority.
• Assessment in search and seizure cases to be made under
sections 158B, 158BC, 158BD, 153A & 153C read with 143(3)
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Selection of scrutiny cases
•
•
•
•
•
Assessments pertaining to survey u/s 133A excluding certain cases.
All returns filed in response to notice u/s 147/148
Cases claiming exemption of income u/s 11 or u/s 10(23C) which
are hit by proviso(s) to Section 2(15)
Entities which received donations from countries abroad in excess
of Rs. 1 crore
Cases in respect of which information is received from other
Government Department(s) or other authorities pointing out taxevasion. AO to record reasons in such cases and take approval
from jurisdictional CCIT/DGIT before selecting such case for
scrutiny.
• Crystal Phosphates Ltd. v. ACIT (Delhi)(Trib.)
Assessment-CBDT-Guidelines-Assessment void if case picked up
contrary to CBDT’s Scrutiny Guidelines.
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Scrutiny assessments - process
DRP applicable to TP cases / foreign company
Filing of return139 or 142(1)
143(2) notice
Draft
order
Scrutiny
proceedings
DRP
Mandatory
directions
Appeals –
CIT(A), Stay &
Rectification
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Order –
u/s 143(3)
Scrutiny assessments : Notice u/s 143(2)
• Essential requirements
•
Served upon assessee
•
Served in time
•
Served in proper manner
• Notice u/s.143(2) must be ‘served’ and not merely ‘issued’ within
prescribed time
•
P. Abdul Kadar Hamza vs. CIT (246 ITR 14)(Ker)
• No requirement to record reasons in the notice (unlike assessment u/s
147/148)
• Service of notice after time limit – Assessment to be quashed
•
Aegis Chemicals vs. ITO (65 ITD 147)(Mum)
•
Bhagat Singh and Virendra Singh vs. ACIT (75 ITD 1)(Del)
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Section 282
Service of a notice or summon or requisition or order or any other
communication under this Act may be made by(a)
by post or by such courier services as may be approved; or
(b)
in such manner as provided under the Code of Civil Procedure,
1908 (5 of 1908) for the purposes of service of summons; or
(c)
in the form of any electronic record as provided in Chapter IV of
the Information Technology Act, 2000; or
(d)
by any other means of transmission of documents as provided by
rules made by the Board in this behalf.
Explanation.—For the purposes of this section, the expressions
“electronic mail” and “electronic mail message” shall have the meanings
as assigned to them in Explanation to section 66A of the Information
Technology Act, 2000
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Assessments :Powers and duties of the AO
•
Powers of AO
• Issuance of notice u/s 142(1) to call for books of accounts
• Issue of summons u/s 131 to the assessee/ other person
• Requiring information u/s 133(6)
• To make specific enquiries u/s 143(3)
•
Duties of AO
• Proceed without bias and provide sufficient opportunity of being
heard
• Draw attention to deduction/relief which the assessee is entitled
• Impartial evaluation of evidence
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Best judgment assessment
18
Best judgment assessment (Sec 144)
•
AO entitled to complete the assessment to the best of his judgment
where:
• Failure to make return u/s 139(1)/(4)/(5)
• Non compliance of notice u/s 142(1)
• Non compliance of direction u/s 142(2A)
• Non compliance of notice u/s 143(2)
• AO to provide an opportunity of being heard to the assessee by serving
a notice as to why assessment should not be completed on best
judgment basis. (Notice not required if 142(1) notice issued).
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Protective assessment
20
•
No provision under the Act. Concept applied in appropriate cases to
safeguard the interest of the Revenue.
•
Applied in cases generally where it is difficult to determine:
• the person in whose hands income should be taxed;
• the year for which it should be taxed; and
• the status in which a particular assessee should be assessed.
•
Assessments which in the opinion of the department is the correct, is
treated as substantive. The other is treated as protective.
•
Protective assessments become infructuous once the appellate
authorities confirm the substantive assessment. Alternatively,
protective assessments become substantive.
General principles for
assessments
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General Principles
• Notice – Section 282A and section 292BB
•
Proper issuance of valid notice and valid service of notice is
important
•
It is on the department to prove a valid service of notice (Bom HC in
Rasiklal Amritlal Doshi 42 ITR 35 )
• CBDT Circulars are binding on the Revenue
•
CBDT circulars are binding on all authorities employed in the
execution of the Act (Cal HC in Grindlays Bank (201 ITR 148)
•
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Effect of book entries in income – Accounting treatment is not decisive
of the true nature of transaction
• Poona Electric Supply Company (SC)
• CIT vs. Shoorji Vallabhdas & Co. (SC)
General Principles
• Principles of natural justice
• Opportunity to be heard
• Failure to follow principles of natural justice cannot be made good
in an appeal (SC in Tin Box Co (2001) 249 ITR 216 (SC)
• Violation of principles of natural justice at the stage of assumption
of jurisdiction would nullify the entire action of subsequent order
(Ker HC in Dr. C. Balakrishnan Nair (1999) 237 ITR 70 (Ker.)
• Principle of Res Judicata (Estoppel by record)
•
The principle of Res Judicata does not ordinarily apply to tax laws
•
The decision in one Assessment Year is not binding on parties for
subsequent AYs (SC in Murlidhar Bagwandas 52 ITR 335 (SC) and
Installment Supply P. Ltd AIR 1962 SC 53)
•
Each year is a distinct unit year (AP High Court in K. Sadasiva
Krishna Rao 144 ITR 270)
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Guidance for handling
assessments
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Guidance for handling assessments
•
Two questions that need to be always answered:
• What must the assessee prove to avoid disallowance/ taxability
• How to prove the above requirement
•
Understanding of the facts
•
Preparation of written submissions
• Analysis of facts to be reflected clearly
• Technical points - thorough research of databases – reference to
section, circulars, case laws
• Logical flow
• Annexures and numbering – preparation of index where required
• Prior approval from client before submission – especially factual
submissions
•
Adjournment
• Adjournment ought to be moved well in time
• Not to be repetitive as a matter of right
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Guidance for handling assessments
•
Noting in Order Sheet
•
Adverse case laws cited by the AO
• Distinguishing on facts
• Difference in legal provisions pertaining to the year concerned
• Reversal by higher authorities/ contrary view of other ITAT/Court
• Importance of jurisdictional HC/ ITAT
•
Prayer for opportunity of being heard
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Time limit
Section
Purpose
Time Limit
143(2)
Notice for scrutiny assessment
To be served within 6 months from the end of
FY in which return is furnished
149
Issue of notice u/s 148 for reopening
of assessments
•
•
•
153
154
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Completion
reassessment
of
4 years from end of the AY;
6 years from end of AY if income 1 lac or
more
16 years from end of AY for income in
relation to any asset located outside India
assessment/
•
Under section 143(3) or 144
•
•
•
Under section 147
1 year from the end of FY of serving notice u/s
148 (extended to 2 years for TP matters)
•
Exclusion in certain cases
•
•
•
Proceeding stayed by Court
Special Audit – 142(2A)
Settlement Commission/ AAR
Application for 154
•
4 years from the end of FY in which order
is passed
Passing of Order u/s 154
•
6 months from the end of the month in
which application received
2 years from the end of AY
In Transfer pricing matters, 3 years from
the end of AY
Post Assessment Proceedings
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Unfavorable Order – What next?
• Rectification u/s 154
• Appeal
• Stay of demand
• Penalty proceedings (if initiated) to be kept in abeyance
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Rectification
• Sec 154 – An income-tax authority may with a view to rectifying any
mistake apparent from the record:
• amend any order passed by it
• amend any intimation or deemed intimation u/s 143(1)
• Rectification may also be made on application by assessee
• Orders cannot be rectified after expiry of 4 years from the end of the
financial year in which order sought to be amended was passed
• Time limit - On rectification plea by assessee – Within 6 months from the
end of the month in which the application is received
• No form prescribed. No filing fee payable.
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Stay of demand
• Amount demanded u/s 156 payable within 30 days of service of notice
of demand
• Stay is not automatic on filing of an appeal
• No stay on the ground that appeal is pending
• CBDT instruction on recovery of outstanding tax demands – Instruction
No. 1914 dated 2 December 1993
• Rejection of stay application – to be moved to higher authorities
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Some recent updates
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Recent updates – TDS credit
• Instruction No. 5/2013 dated 8 July 2013 issued by CBDT
TDS certificate as an evidence against any mismatched amount to be
verified by AO as to whether the deductor has made the TDS
payment. If payment made by deductor, credit to be allowed to the
assessee
• TDS credit cannot be denied on the ground that the TDS is not
reflected in Form 26AS/ departments system.
‒ Citicorp Finance (India) Ltd. vs. Add.CIT (ITA No. 8532/Mum/2011)
‒ 3i Infotech Limited vs. DCIT (ITA No. 7786/Mum/2012)
• Order u/s 154: Department’s practice of not giving prompt & full credit
for TDS condemned. - Vaghjibhai S. Bishnoi v. ITO (Guj.)(HC)
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Recent updates – Fresh claim
34
•
Making a fresh claim during assessments – whether permissible?
•
Goetz India Ltd v. CIT (2006) 284 ITR 323 (SC) – AO can entertain a
new claim for deduction only where a revised return of income filed by
the assessee
•
However, fresh claim may be made during appeal proceedings
(without revised return):
• CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd.(2012) 208
Taxman 498 (Bom - HC)
• CIT vs. Arvind Mills Limited (Tax Appeal No 1407 of 2011) (Guj HC)
• Chicago Pneumatic India Ltd. v DCIT 15 SOT 252 (Mum).
• Apollo Tyres Ltd v. Dy.CIT ( 2013) 90 DTR 35 (Cochin)(Trib.)
• Emerson Network Power India (P.) Ltd. vs. ACIT 27 SOT 593
(Mum).
Recent updates
• Vodafone Mobile Service Ltd. v. UOI (2013) 86 DTR 332 (Delhi)(HC)
Assessment was completed on 29-12-2006. Notice for rectification
was issued on 2-3-2012 and order was passed on 23-3-2012.
Thereafter, demand was raised against assessee pursuant to order
passed under section 154. As per section 154(7), limitation period for
rectification is four years from end of FY in which assessment is
completed, i.e. 31-3-2011 in this case. Therefore demand raised
pursuant to order under section 154 was time barred. (AY. 2004-05)
•
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Prakash Ramji Gavali v. ITO (2012) 138 ITD 1 (Mum.)(Trib.)
Sending of notice on address, other than that given in return of income
and subsequently returned, not amount to either service or deemed
service of such notice.
Recent updates
• Green Power Realtors (P.) Ltd. v. DCIT (2013) 216 Taxman 169
(Mad)(HC)
Where notice under s. 143(2) was dispatched to assessee only after
date fixed for hearing, there was denial of reasonable opportunity of
hearing to assessee and, in such a case, impugned order passed by
revenue authority was not sustainable as it violated principles of
natural justice.
• Russian Technology Centre P. Ltd. v. DCIT (2013) 25 ITR 521/145 ITD
88 (Delhi) (Trib.)
Income-tax authorities must verify the records and decide the
allowability. If records are available with the Department and the
assessee points towards it, the authorities must verify that evidence
and decide allowability.
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Recent updates
•
Vijay Corporation v. ITO (2012) 50 SOT 33 (URO)(Mum.)(Trib)
Assessment order without Assessing Officer’s signature is void
•
E. K. K. and Co. v. ACIT (2012) 20 ITR 325 (Cochin)(Trib.)
Under ITR V regime : Date of filing relates back to date on which it is
electronically up loaded
• HDFC Bank Limited v. ACIT (2013) 354 ITR 77 (Bom) (HC)
Collection and recovery-Assessee deemed in default-Stay-Demand
should be stayed if strong prima facie case made out. Demand on
covered issues cannot be recovered by adjustment of refunds.
• DIC Asia Pacific Pte. Ltd. (22 taxmann.com 310 (Kol))
Rates under the DTAA are not subject to additional surcharge and
cess.
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Thank you
Basant Gadhyan
basantgadhyan@gmail.com
+91 90510 88559
+91 33 6612 1203
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