Assessment Procedures in Income Tax

In the context of the Income Tax Act, 1961, assessment is the comprehensive process of examining the Return of Income filed by a taxpayer (assessee) to ascertain the correctness of the income declared and the corresponding tax liability. It is a fundamental procedure undertaken by the Income Tax Department to ensure that the assessee has paid the correct amount of tax.

The primary objectives of an assessment are:

• To verify the total income of the assessee for a particular assessment year.

• To calculate the amount of tax payable by the assessee or the refund due to them.

• To impose penalties or interest, if any, for non-compliance with tax laws.

The assessment is carried out by an Assessing Officer (AO), who is empowered by the Act to scrutinize the financial records and claims of the taxpayer. The evolution of tax administration has introduced faceless assessment, which automates and anonymizes this process to a large extent.

Types of Assessment

The Income Tax Act, 1961 provides for several types of assessments, each applicable under different circumstances.

1. Self-Assessment (Section 140A)

This is the foundational assessment performed by the taxpayer themselves before filing their return. It is a mandatory step for every assessee.

• Applicability: Triggered when a taxpayer has a net tax liability after accounting for Advance Tax, TDS (Tax Deducted at Source), and TCS (Tax Collected at Source).

• Procedure:

  1. Compute total income as per the provisions of the Act.

  2. Calculate the tax payable on such total income.

  3. Deduct reliefs, TDS, TCS, and Advance Tax paid.

  4. Pay the balance tax due, known as self-assessment tax, along with any applicable interest for late filing (u/s234A) or defaults in tax payment (u/s234B,234C).

• Timelines: There is no concept of a notice or order timeline from the department's side. The tax must be paid before the filing of the income tax return.

2. Summary Assessment / Intimation (Section 143(1))

This is an automated, preliminary scrutiny of the return, conducted by the Centralised Processing Centre (CPC).

• Applicability: Applies to every return filed.

• Procedure: The system processes the return to check for:

  • Arithmetical errors.

  • Incorrect claims, if such incorrectness is apparent from the information in the return.

  • Disallowance of specified losses or deductions if the return is filed beyond the due date.

• Outcome: An Intimation under Section 143(1) is generated. It can result in a tax demand, a refund, or a confirmation that the taxpayer's computation matches the department's.

• Notice/Intimation Timeline: The intimation must be sent to the assessee within nine months from the end of the financial year in which the return was filed. For example, for a return filed for AY 2024-25 (FY 2023-24), the intimation can be sent up to December 31, 2025.

• Order Timeline: The intimation itself is treated as the assessment in this case.

3. Scrutiny Assessment (Section 143(3))

This is a detailed manual or faceless examination to confirm the correctness and genuineness of the claims made in the return.

• Applicability: Initiated when a case is selected for scrutiny, typically through Computer Assisted Scrutiny Selection (CASS).

• Procedure:

  1. The AO serves a notice to the assessee.

  2. The assessee is required to produce evidence, books of accounts, and other details to substantiate their claims.

  3. The AO examines all evidence and may make inquiries.

  4. A final assessment order is passed.

• Notice Timeline (u/s143(2)): A notice must be served on the assessee within three months from the end of the financial year in which the return was furnished. For a return filed on July 31, 2024 (for FY 2023-24), the financial year ends on March 31, 2025. The notice can be served up to June 30, 2025.

• Order Timeline (u/s153): The assessment order must be passed within nine months from the end of the relevant assessment year. For AY 2024-25, the order must be passed by December 31, 2025.

4. Best Judgment Assessment (Section 144)

This is an ex-parte assessment where the AO uses their best judgment to determine the income due to the assessee's non-cooperation.

• Applicability: Invoked when an assessee fails to:

  • File their return within the due date.

  • Comply with a notice requiring them to produce books of accounts (u/s142(1)).

  • Comply with the terms of a scrutiny notice (u/s143(2)).

• Procedure: The AO must first give the assessee an opportunity to be heard by issuing a show-cause notice. If there is still no compliance, the AO assesses the income based on all available relevant material and information.

• Notice Timeline: The show-cause notice must be issued before making the assessment.

• Order Timeline (u/s153): The time limit is the same as for a scrutiny assessment: nine months from the end of the relevant assessment year.

5. Income Escaping Assessment / Reassessment (Section 147)

This is initiated when the AO has information suggesting that income chargeable to tax has not been assessed.

• Applicability: The AO has "information which suggests that the income chargeable to tax has escaped assessment."

• Procedure (Post-April 1, 2021):

  1. The AO must first conduct an inquiry, if required, and issue a notice under Section 148A(b), providing the assessee with the information and an opportunity to explain why a reassessment notice should not be issued.

  2. After considering the assessee's reply, the AO passes an order under Section 148A(d) deciding whether it is a fit case to issue a reassessment notice.

  3. If approved, a notice under Section 148 is formally issued.

  4. The assessment is then completed.

• Notice Timeline (u/s149):

  • Up to 3 years from the end of the relevant assessment year in all cases.

  • Beyond 3 years but up to 10 years from the end of the relevant assessment year, only if the escaped income, represented in the form of an asset, is likely to be ₹50 lakh or more.

• Order Timeline (u/s153): The assessment order must be passed within twelve months from the end of the financial year in which the notice under Section 148 was served on the assessee.

Faceless Assessment (Section 144B)

This is not a separate type of assessment but a mode of conducting scrutiny (u/s143(3)) and income escaping assessments (u/s147). Its goal is to achieve transparency and efficiency by eliminating the physical interface.

• Mechanism: The process is managed by a central National Faceless Assessment Centre (NaFAC), which assigns tasks anonymously to various units across the country:

  • Assessment Units (AU): Perform the core assessment functions.

  • Verification Units (VU): Conduct inquiries and verifications.

  • Technical Units (TU): Provide technical guidance.

  • Review Units (RU): Review the draft assessment order to check for correctness.

• Procedure: All communication, from notices to submissions and the final order, is done electronically through the designated portal. This dynamic, team-based assessment ensures objectivity and consistency.

• Timelines: The timelines for notices and completion of assessment are the same as those applicable to the underlying assessment type (i.e., Section 143(3) or Section 147).