Tuesday, 5 August 2014

Return of Income & Procedure of Assessment


Sec 139(1): submission of return of income
* Being a co. or a firm(even those co’s whose entire income is exempt u/s 10, etc)
* Being a person other than co, firm
          1) if his total income or
          2) total income of any other person in respect of which he is assessable exceeds max. amount not chargeable to tax.
NOTE : even a public ltd. Co. though incorporated but has not received certificate of commencement has to file return.
Sec 139(1B): Return may be filed on a specific computer readable media, same shall be deemed to be return furnished u/s 139(1)

Sec 139(1) Explanation 2: Due date of furnishing return
a)     Company
b)     Person whose a/s’s required to be audited under IT Act or any other act.
c)     Working partner of firm – if firm required to be audited
d)     1 by 6 scheme
e)     Any other case
For a) to d) 31st Octb (Now Sept)
For e) 31st July
Sec 139(3): Return of loss
The loss return to be furnished in time if such loss or any party thereof should be carried forward u/s 72/73/74 or 74A.
  • NA for Sec 71B ie. c/f and set off of loss of house property
  • Unabsorbed dep can also be c/f if loss return is not filed in time.
  • Although the loss cannot be c/f if return not filed in time, but losses of earlier year can be carried forward.
Sec 139(4): Belated Return
Max time limit-
a)     any time before expiry 1 yr from end of relevant AY
b)     before completion of assessment (ie. Sec 144, because in any other section assessment cannot be completed before filing of return)
NOTE: It the return of income is not filed u/s 139(1), AO can issue notice u/s 142(1), requiring him to file ITR. The return so filed shall be Belated Return, if the assessee was required to file return u/s 139(1) or Prov. To Sec 139(1)
Sec 139(4A): Return of Income of charitable trust and institutions
ITR to be filed if such income before allowing exemption u/s 11 & 12 exceeds the max. amt. not chargeable to tax.
  • If income of trust (before exemption u/s 11 & 12 exceeds max. amt chargeable to tax, a/c’s are required to be audit.
  • If no exemption is desired to be claimed due date = 31st July
Sec 272A(2): Penalty if return of charitable trust/ religious trust not filed in time – Rs. 5000. Here Sec 271F NA
Sec 139(4B): Return of income of political party
ITR to be furnished if total income (before allowing exemption u/s 13A) exceeds the max. amt chargeable to tax.
Due date – 31st Octb. (amendment applicable)
                   Audit compulsory
If no exemption is claimed, due date is 31st July
Sec 139(4C): Return of income of certain associations and institutions
ITR if income exceeds max. amt. not chargeable to tax:
a)     scientific research association – sec 10(21)
b)     news agency – sec 10(22B)
c)     association/inst. Referred u/s 10(23A) having object to control, supervise, regulate or encourage profession of law, medicine, accounts, engineering, architecture, other notified profession.
d)     Khadi or village indu u/s 10(23B)
e)     Funds, institution referred u/s 10(23C)
f)       Trade union u/s 10(24)
Sec 272A(2): Penalty for failure to file return u/s 139(4C) – Rs 100 for every day during which the default continues.
Sec 139(4D):
Every university, collage or other institution referred u/s 35(1) shall furnish compulsory ITR (irrespective of whatever)
Sec 139(5): Revised Return
When: after furnishing ITR u/s 139(1) or in pursuance to notice u/s 142(1) in case of discovery of any omission or any wrong statement. (should be bonafide inadvertence or mistake on part of assessee discovered by assessee not by AO)
Time limit:
* Before expiry of 1 year from end of relevant AY
* OR before completion of assessment (u/s 143(3)/144)
Whichever is earlier
Note: assessment here does not mean u/s 143(1) (SRKoshti v/s CIT (2005))
Belated return cannot be revised:
Because it is specifically provided that only return filed u/s 139(1) or in pursuance to notice u/s 142(1) can be revised.
  • If CBDT extends time to file return, than also such return can be revised
  • Can a revised return be revised further? Yes the prescribed time limit applies
  • Revised return shall substitute original return
  • Can a return be revised after receipt of notice u/s 143(2)/ showcause notice u/s 144? – Yes, because assessment is not yet completed.
But penalty u/s 271(1)(c) for concealment shall be levied on additional income disclosed in revised return.
  • Revised return after detection of concealed income offers no immunity from penalty.
Sec 139(6)/(6A): Particulars to be furnished with ITR.
Sec 139(9): Defective Return
AO intimate defect to assessee and give him an opportunity to rectify the defect within 15 days from date of intimation.
If not rectified, it shall be treated as INVALID RETURN and consequences of the same will be as if no return is filed.
  • AO can treat the return by assesee as valid return and make the assessment even if it contains any of the defect.
  • If a return is filed without a tax audit report and such failure is not on account of any fault of the assessee, the AO should condone the delay for removing the defect u/s 139(9)
  • Defects are prescribed
Sec 139A: PA No apply in form 49A
a)     if total income exceeds limit (apply before 31st May of AY)
b)     total sales, turnover, gross receipt are likely to exceed Rs. 500000/- in any PY (apply before end of Accounting Year)
c)     return u/s 139(4A) trust or charitable institution
d)     if he is employer and required to file FBT return
AO has powers to allot PA No having regard to nature of transactions as my be prescribed.
Sec 139A(1A): Compulsory PA No.
i)                    exporter and importer
ii)                  Assessee defined under rule 2(3) of Central Excise Rule 1944
iii)                 Traders, etc requiring registration under Central Excise
iv)                Those assessed to Service Tax (should have PA No. before making application for reg. under Service Tax)
v)                 Person registered under Sales Tax laws.
Sec 139A: CG (Central Govt.) may for the purpose of collecting any information which may be useful for or relevant to the purpose of Act, by way of notification specify any class or classes of persons and such person shall within prescribed period apply AO for PA No.
Sec 139A(5): Compulsory quoting of PA No.
  • Any person not allotted PA no., entering into prescribed transaction has to fill Form 60
  • Where a person making application for opening a/c (as prescribed) is minor, shall quote PA no. of father/mother/guardian
Form 61: Declaration by a person who have ‘agricultural income’ and no other income
Sec 139A(5A): Obligatory to intimate PA NO to person who deducts tax at source
Sec 139A(5B):
Obligatory on person who deducts TDS to quote PA No of deductee
Sec 139A(5C) & 139A(5D):
5C- obligation of buyer or licensee or lessee
5D obligation of seller
-         of alcoholic liquor, timber or any other forest products referred in Sec 260C to quote PA no. in relevant correspondence.
Sec 272B(1): Failure to comply
With provision of Sec 139A penalty of Rs. 10000/-
Sec 272B(2): Quoting false PA No. which he either knows or believes to be false or does not believe to be true, penalty Rs. 10000/-
-         opp of being heard to be given – Sec 272B(5)
Sec 139B -  Provision relating to Scheme of TAX RETURN PREPARERS
Sec 140 – Who should sign return
·         individual – himself/authorized person (POA) if he is mentally incapable then his parent/guardian
  • HUF – Karta
  • CO – MD (liquidator in case of winding up)
  • Firm – managing partner (or any other partner)
  • Local authority/ other association – Principal Officer
Return if not signed is an invalid return
Sec 140A – Self assessment
Mandatory for every assessee
If assessee fails to pay self assessment tax, he shall be deemed to be an assessee in default in respect of tax or interest or both – all prov. Of Act shall apply, penalty u/s 221
PROCEDURE OF ASSESSMENT:
Sec 143(1): on the basis of return of income
Sec 143(3): scrutiny assessment
Sec 142(1) – Service of notice
Sec 142(1)(i) – For making assessment AO require the assessee to furnish ITR, if he has not filed ITR within time allowed u/s 139(1) or before the end of relevant AY.
Notice u/s 142(1) shall be valid if it is issued after end of relevant AY to a person who has not made ITR before end of relevant AY
Sec 142(1)(ii) – Notice to any person who has filed ITR/ or return of fringe benefits.
Accounts of period more than 3 year prior to previous year cannot be called for.
Sec 142(1)(iii) - service of notice to a person who has filed ITR or in whose case time allowed u/s 139(1) is expired. Here AO can call for statement of assets and liab of any no. of pervious year with prior qpproval of Jt. Comm. of IT.
Time: Notice u/s 142(1)(i) to file return can be given only after the time allowed u/s 139(1) has expired.
  • It is not mandatory to issue notice u/s 142(1)(i) if AO wants to make Best Judgement Ass. 144
Sec 142(2) – Sec 142(1) empower AO to collect information from assessee himself, Sec 142(2) empowers him to collect info. Form sources other than assessee.
Sec 142(2A) to (2D):
At any stage of proceedings AO may direct the assessee to get the accounts audited by CA nominated by Chief Comm/Comm of IT
If i) having regard to nature and complexity of a/c
ii) interest of revenue.
  • direction of audit can be given even if accounts are audited
Sec 142(2C):
CA shall submit report in Form 6B
Max Period including extended period – 180 days from date on which direction of audit received by assessee.
Sec 142(2D): Audit exp. Shall be paid by assessee as decided by Chief comm.
  • No appeal is possible against the orders u/s 142(2A) for audit of accounts
  • Opp. Of being heard should be given before issue of direction
  • Approval of special audit cannot be given by Comm. mechanically.
Sec 142(3): Opportunity of being heard
No opp. Is case of assessment u/s 144
Consequence of non-compliance of notice u/s 142(1) & 142(2A)
  • Best judgement ass. 144
  • Penalty u/s 271(1)(b) – Rs. 10000/-
  • Prosecution u/s 276D (max.)
-         1yr. imprisonment OR
-         Fine not less than Rs. 4 or not more than Rs. 10 per day during which default continues
  • Search u/s 132
Sec 142A: Estimates by valuation officer in certain cases.
Where an estimate of value of any investment referred to in Sec 69/Sec 69B or value of bullion/jewellary or other valuable article u/s 69A/Sec69B, is required for purpose of making an assessment or re-assessment AO may require valuation officer to make estimate
Sec 143(1): Summary Ass.
  • Intimation of tax due u/s 143(1) shall be deemed to be notice of demand u/s 156. If he does not pay in 30 days, he shall be liable for interest (Sec220) & penalty (Sec221)
  • No intimation shall be send after 1 year form end of FY in which ITR filed
  • The said period of intimation is not applicable for issue of cheque for refund (strange)
  • NO NOTICE U/S 143(2) after expiry of 12 mths form the end of mnth in which return filed.
  • If no ITR furnished (not filed) by assessee, assessment u/s 143(3) cannot be done (meaning thereby 144 shall apply)
  • If AO feels that personal attendance of assessee is necessary, notice u/s 131 (summons) can be issued.
  • A fresh notice u/s 143(2) must be served if he furnish revised return
  • Burden on revenue to prove that notice u/s 143(2) was served to assessee within prescribed 12 months.
Sec 271(1)(b): Failure to comply with notice u/s 143(2) –
Rs. 10000 per failure.
  • Diff bet 142(1) & 143(2) – refer Bharat
  • Assessment u/s 143(3) of those institutions which is required to furnish ITR u/s 139(4C) cannot be made without giving effect of prov. of Sec 10 unless –
i)                    intimated to CG or prescribed authority
ii)                  notification or approval granted is withdrawn
  • assessment is completed only when tax is computed by AO under his signature
Protective Assessment: Taxing the same income in hands of two assessee, to protect the interest of revenue. This matter can be resolved at level of ITAT or High court (such should be expressed in order)
  • Under law, a protective order of assessment can be passed but not the protective order of penalty
  • Reference to wrong section in assessment order does not vitiate the assessment
  • Ass Order should be speaking order ie. It should give reasons in support of conclusions.
  • Assessment on the basis of invalid return shall remain in effect and continue to operate until its validity is declared by court.
  • LAW APPLICABLE : in case of ass. Of income and determination of tax liab. Relevant law to be applied is law as in force on first day of AY.
Sec 144: Best judgement assessment
i)                    where person fails to make the return u/s 139(1) or has not made return or revised return u/s 139(4) & 139(5)
ii)                  where person fails to comply with notices issued u/s 142(1)/ or direction u/s 142(2A)
iii)                 where any person, having made a return fails to comply with all terms of notice issued u/s 143(2)
  • an opp should be given before applying sec 144
  • AO cannot assess income u/s 144 for an assessment below returned income or cannot assess loss higher than returned loss
  • Best jusgement ass. Should accord with fair play and justice considering local knowledge, repute in regard to assessee’s circumstances, his own knowledge of previous returns, all other matters which he thinks will assist him in arriving at a fair and proper estimate.
Sec 145(3) – Assessment on Rejection of accounts:
If books are false, unreliable, incorrect or incomplete
a)     he is not satisfied about the correctness of accounts of assessee
b)     although a/c of assessee are complete and correct, to satisfaction of AO but method of accounting employed is such that in opinion of AO profit cannot be correctly arrived at
c)     where method of accounting has not been regularly followed
d)     where A/cing standards notified by CG form time to time has not been regularly followed by assessee
He can reject books for any assessment ie. 144/143(3)/147 etc
Sec 144A: Power of Jt Comm. to issued direction:
a)     on his own motion
b)     on reference by AO
c)     on application by Assessee
to call for and examine the record of any proceeding in which an assessment is pending if he considers that having regard to
a)     nature of case
b)     amt. involved
c)     for any other reason
it is necessary to expedient so to do, he may issue direction to AO as he thinks fit to enable him to complete assessment.
  • Power u/s 144A can be evoked only if, notice u/s 143(2) is issued and assessment proceedings are pending
Sec 147: Income escaping assessment (subject to prov of Sec 148 & 153)
If AO has reason to believe, that income chargeable to tax has escaped assessment he may
a)     assess or reassess such income
b)     recomputed loss or depreciation allowance or any other allowance as the case may be
  • belief must be reasonable and honest based on reasonable grounds. He cannot act based on suspicion.
  • During course of proceedings, if any other income chargeable to tax has also escaped assessment, he can assess or reassess that income also
DEEMED ESCAPEMENT:
a)     where no return filed despite income exceed max limit
b)     where ITR filed, no assessment (scrutiny/best judgement) made & it is noticed that income is understated or excessive loss claimed
c)     where assessment u/s 1434(3) or 144 made but
-         income under assessed
-         taxed at low rates
-         excess relief
-         excess dep. Or any other allowance claimed
Re-assessment proceedings can be taken more than once u/s 147
Sec 148: Issue of notice where income has escaped assessment (Sec147):
The return filed in response to notice u/s 148(1) shall be treated as if such return was a return required to be furnished under Sec 139 and therefore the AO shall have to issue notice u/s 143(2) within 12mth from end of month in which return is furnished by assessee u/s 147 rw Sec 143(3) (He has to file ITR again even if he has filed it once – he can write a letter that ITR filed u/s 139 may be treated as ITR for this notice)
Before issuing notice u/s 148, AO has to record his reasons for doing so.
1) Otherwise notice issued becomes illegal
2) reasons need not be mentioned in notice, but it should be on record 3) assessee can request for the reasons, if AO refuse, the notice can be quashed
4) on receipt of reasons the assessee can file his objections against the issuance of notice ie. Notice is challenged, n AO is bound to pass speaking order (called interim order) before he commence the proceedings.
5) Assessee can challenge the Interim order in a writ petition.
Assessee shall be liable to pay interest u/s 234A(3) for late filing of return or for not filing the return.
Separate notice to be issued for each AY in which income has escaped.
Where reasons recorded are not relevant to issues involved in reopening the assessment, proceedings were held to be invalid.
Reason to believe:
Eg: 1) where in a case chief mining officer has issued letter to ITO informing him that there was under reporting of income
2) Where ITO while examining one of the creditor of assessee, came to know that the advances were bogus.
Sec 149/151:
Sec 149(1) provide that notice u/s 148 can be issued only:
a)     within 4 yrs. from the end of relevant AY (wat eva may b da amount)
b)     within 6 yrs from end of relevant AY in cases where amount of income escaping assessment is likely to be Rs. 100000 or more for that yr.
(for detail c table pg. 1110)
Sanction to issue notice has to be obtained from higher authority.
Notice u/s 148 has to be issued n not served within the time period prescribed.
Where assessment u/s 143(3)/147 has already been made, no action u/s 147 is possible after 4 years from the end of relevant AY unless income chargeable to tax has escaped assessment by reason of failure on part of assessee to
a)      make return u/s 139 or in response to notice u/s 142(1)/148
b)      disclose fully and truly all material facts necessary for assessment.
After expiry of 4 years and if already assessed u/s 143(3)/147, AO in addition of “recording the reason” has to establish the fact that such escapement is on account of omission or commission attributable to the assessee concern.
Sec 149(9):
If a person on whom notice is served is an agent of a NR, no notice can be served after the expiry of period of 2 years form the end of relevant AY.
Sec 150(1):
No time limit for issuance of notice in pursuance of order on appeal, etc ie. Consequences of or to give effect to any finding or direction contained in an order passed
a)     by any authority in proceedings by way of appeal or revision u/s 250 (CIT)/254 (ITAT)/260A (High court)/262 /263 (revision of order prejudicial to revenue) /264 (revision of order in favour of assessee)
b)     by court in any proceeding under any other law.
Sec 150(1) relates to an AY in respect to which an assessment or reassessment could not have been made at the time the order which was the subject matter of appeal, reference or revision as the case may be.
Purpose of Sec 147 is to charge income which has escaped assessment and is only for the benefit of the revenue.
Proceedings u/s 147 can be dropped if the following conditions are satisfied
1)     assessee did not file any appeal to Comm. (appeals) or an application of revision u/s 264 to CIT against the original AO.
2)     Assessee can show that
a)     he has been already assessed on an amount not lower than what he would be rightly liable to even if the escaped amt is considered
b)     the original assessment of income has been properly made.
Sec 153: Time limit for completion of all assessment and reassessment:
1) 143/144/115WE/115WF – 21 mths from the end of relevant AY
2) 147/115WG – 9 mths from the end of FY in which notice u/s 148 was served
3) Fresh assessment where original assessment has been set aside or cancelled by appellate authority u/s 250/254/263/264 – 9 mths from end of FY in which such order of set aside etc issued.
NOTE – Demand note u/s 156 can be issued after the expiry of period but order should be passed within limit.
Sec 153(3): No time limit in following case-
a)     where assessment/reassessment, etc is made on the assessee or to give effect to any findings or directions contained in order u/s 250/254/260/262/263 and 264 or order of court under any other law and
b)    where in case of a firm an assessment is made on a partner of the firm in consequences of an assessment made on the firm u/s 147
IF in above case original assessment is set aside or cancelled the period for fresh assessment will be 9 months.
Period of limitation to exclude certain period:
i)        time taken in reopening the whole or any part of proceeding or in giving an opportunity to assessee to reheard u/s 129 relating to change of incumbent of an office
ii) period when order is stayed or injunction of any court.
iii) period of audit u/s 142(2A)
iv) in case where an application made before IT settlement commission u/s 245C is rejected, period from application to rejection.
v) period commencing from date on which application is made before Advance Ruling Authority.
If after the exclusion of the above said period, if the period of limitation available to AO for making order is less than 60 days, it may be extended to 60 days.
Sec 154: Rectification of mistake (apparent from records)
The concerned authority
i) On its own motion
ii) Or on application made by assessee.
Rectification can be done for any matter other than the matter considered and decided in appeal/revison.
Opp of being heard is necessary if rectification results into enhancement, or reduction of refund or otherwise liability of assessee is increased.
Time limit: only within 4 years from the end of FY in which the order sought to be amended was passed.
Order to be passed within 6 months from the end of month in which application is received
Rectification is possible even if matter is in appeal and not decided as yet.
Non consideration of order of High Court of Apex court would constitute mistake apparent form record regardless of the judgment being rendered prior to or subsequent to the order proposed to be rectified.
Sec 156: Notice of demand
Amount to be deposited within 30 days of service of notice
Notice u/s 156 is mandatory to initiate recovery proceedings.
Where demand is enhanced, an additional notice is mandatory.
Sec 157: Intimation of loss
Where in course of assessment of total income of any assessee, it is established that loss has taken place which the assessee is entitled to c/f, AO notify by an order in writing the amount of such loss computed by him.
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