Assessments under the income tax ACT, of 1961

Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing the return of income. Once the return of income is filed by the taxpayer, the next step is the processing of the return of income by the Income Tax Department. The Income Tax Department examines the return of income for its correctness. The process of examining the return of income by the Income Tax department is called an “Assessment. The assessment also includes re-assessment and best judgment assessment. Various kinds of assessment under the Income Tax Act, of 1961 are discussed below.

Types of Assessment

  • Self-Assessment.
  • Summary Assessment.
  • Regular Assessment
  • Scrutiny Assessment.
  • Best Judgment Assessment.
  • Re-assessment/income escaping assessment

Self Assessment under Section 140 A

Before submitting the return assessee is supposed to find whether he is liable for any tax or interest. For this purpose, section 140(A) has been introduced in the Income Tax Act, where any tax is payable based on any return required to be furnished under sec 139, or sec 142 or 148 or Sec 153A after deducting

  • Advance tax if any payable
  • Relief u/s 90,91,90A
  • MAT credit under 115JAA or 115JD

The assessee shall pay tax & interest before furnishing a return and proof of such payment will be accompanied under the return of income. In short, we can say that the assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax returns. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions, if any, available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS and Advance tax from that amount to determine the tax payable on such income. Tax if still payable by him, is called self-assessment tax and must be paid by him before he files his return of income. This process is known as Self-Assessment.

Summary Assessments under Section 143(1)

In this type of assessment, the information submitted by the assessee in the return of income is cross-checked against the information that the income tax department has access to, it is a type of assessment carried out without any human intervention, if any tax liability/refund arises on summary assessment, intimation u/s 143(1) will be sent to assessee through e-mail. This intimation should be treated u/s 156(1) or a refund order. No separate demand notice will be issued. In this process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustments for arithmetical errors, incorrect claims, and disallowances are automatically done.

Regular Assessment

The income tax department authorizes the assessing officer or income tax authority, not below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure that the assessee has neither understated his income nor overstated any expense or loss or underpaid any tax.

Scrutiny Assessment under Section 143(3)

Scrutiny Assessment is one of the assessments of the Income Tax Return under the Income Tax Act. As the name suggests, the Assessing Officer (AO) critically and thoroughly inspects and examines all the details of the Income Tax Return of the assessee to check that such details filed by the assessee are correct and genuine. The AO tries to ensure that the assessee is not using any illegal practice to avoid tax liability in any manner. The AO also gives the opportunity of being heard to the Assessee and thus assessee can produce and substantiate all the details filled in the ITR with evidence. In case any discrepancy, disparity, or inconsistency is found in the ITR then the AO is empowered to charge penalties from the assessee.

Best Judgment Assessment under Section 144

This type of assessment is made when the assessee is not complying with the tax provisions. The A.O., in the absence of sufficient information of the assessee, according to the best of his ability, knowledge, and experience makes such judgment. In short, Best judgment assessment refers to a situation where the officer computes the tax payable as the assessee does not comply to provide or maintain necessary source documents or book of accounts to support the claim when requested to submit.

In this scenario, the officer computes the tax liability based on his best judgment. The income tax act specifies certain situations under which the income tax officer can compute tax liability based on best judgment,

  • When the assessee does not file an income tax return
  • When the assessee does not respond to the notice requesting the submission of documents
  • The response of the assessee has crossed the limit permitted by the central board of direct taxes (CBDT)
  • When the officer is not satisfied with the documents provided.

Income Escaping Assessment under Section 177

Income escaping assessment refers to income that has been omitted from the Income Tax assessment of a particular taxpayer. The proceedings which govern a case of income escaping assessment can be initiated by the income tax department if certain incomes have escaped assessment or income has been assessed at a lower rate or excessive loss or allowances have been allowed. In such a scenario, the assessing officer is entitled to reassess the assessment of the relevant assessment year. An assessing officer should not merely act on rumor or suspicion but rely on substantial evidence before initiating procedures. The assessing officer must conduct his operations in good faith.

Every assessee, who earns income beyond the basic exemption limit in a financial year must file a statement containing details of his income, deductions, and other related information. This is called the income tax return (ITR). Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are occasions where the return of an assessee gets picked for an assessment. The assessment plays an important role in the examination of the details submitted by a taxpayer by the Income Tax Department.

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