Assessment of Income

Introduction

Income-tax assessment is the process of verifying and reviewing the information furnished by the assessee in his Income-tax return. Various assessments have been prescribed under the Income-tax Act: Summary Assessment, Scrutiny Assessment, Best Judgment Assessment, and Re-assessment.

1. Types of Assessment

The term ‘Assessment’ has not been defined in the Income-tax Act. In general, it is the process of examining the return of income to determine the exact income of the assessee. ̉

The assessment under the Income-tax Act can be classified into the following categories.

1.1. Self-Assessment

Main article: Self-Assessment

‘Self-Assessment’ means calculation of total income and tax liability thereon by the assessee himself. When a taxpayer files an Income-tax return, it is presumed that the details of income and tax thereon have been computed and disclosed correctly by the assessee in the return. Self-assessment requires an assessee to comply with certain tax obligations before furnishing the return of income.

1.2. Summary Assessment

Main article: Summary-Assessment

‘Summary Assessment’ is a preliminary assessment based on the return submitted by the assessee. It is completed without calling the assessee and without passing a regular assessment order. It is done through computerised processing at the Centralised Processing Centre, Bengaluru. In this, all Income-tax returns are processed to verify and correct arithmetical and apparent errors, and to ensure correct tax calculations and tax payments. At this stage, no verification of the income is undertaken.

1.3. Scrutiny assessment

Main article: Scrutiny Assessment

‘Scrutiny Assessment’ is a detailed examination of the Income-tax return submitted by the assessee. After processing all Income-tax returns at CPC, Bengaluru, a certain percentage of tax returns are selected for scrutiny, during which the department verifies the correctness and completeness of income, claimed deductions, tax liability, etc. This assessment is done by passing an assessment order.

1.4. Best Judgment Assessment

Main article: Best Judgment Assessment

Best Judgment Assessment means estimation of the taxable income of an assessee by the Assessing Officer based on available information and resources. This assessment takes place if the assessee fails to file his return of income, or he does not cooperate in assessment proceedings, or the profit cannot be calculated based on the books of accounts maintained by the assessee. The Best Judgment Assessment can be classified into two categories: Compulsory Best Judgment Assessment or Discretionary Best Judgment Assessment.

1.5. Income Escaping Assessment

Main article: Income Escaping Assessment

If the Assessing Officer has information suggesting that any income chargeable to tax has escaped assessment for any tax year, he may assess/reassess such income. When an assessment has been reopened, any other income which has escaped assessment and which comes to the notice of the Assessing Officer subsequently in the course of the proceeding can also be included in the assessment.

2. Others

2.1. Direction by the Joint Commission

            Main article: Directions by Joint Commissioner

If an assessment is pending in any proceedings, the Joint Commissioner may call for and examine the records of such proceedings, either on his own or on a reference made by the Assessing Officer or on an application of the assessee. If he considers that it is necessary or expedient to do so, after having regard to the nature of the case or the amount involved or for any other reason, he may issue such directions as he thinks fit for the guidance of the Assessing Officer so that the Assessing Officer can complete the assessment.

2.2. Reference to Dispute Resolution Panel

            Main article: Reference to DRP

The Dispute Resolution Panel is an alternative mechanism for resolving disputes relating to foreign entities. When the Assessing Officer proposes to make any variation in the income or loss declared in the return of income, which is prejudicial to the interest of the assessee, the Assessing Officer shall forward a draft of the proposed assessment order to the eligible assessee. If the assessee does not agree with the variations, he can file an objection against such a variation with the DRP.

2.3. Faceless Proceedings

       Main article: ‘Faceless Proceedings’ under the Income-tax Act

Various provisions allow for the conduct of proceedings and assessments in a faceless manner. It covers, inter alia, faceless assessment, faceless inquiry or valuation, faceless appeal, faceless penalty proceedings, etc.

2.4. Time limit for issue of notice and completion of assessment

Main article: Time limit for Assessment

* For the purpose of completion of assessment in case of an updated return or return filed in consequence of a condonation order under Section 239(3)(b), the time limit of 1 year shall be counted from the end of the financial year in which such return is furnished.

2.5. Rectification of Mistake

Main article: Rectification of Mistake

If any mistake is apparent from the record, the Income-tax authority can rectify such mistake. The power to rectify the mistake may be exercised by the authority concerned on its own initiative or if a mistake has been brought to its notice by the assessee. An order of rectification is required to be passed within a period of 4 years from the end of the financial year in which the order (sought to be rectified) was passed.

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.