[FAQs] on Assessment Proceedings | Reassessment under the Income Tax Act

The kinds of assessment under Income-tax Act, 1961 are presently classified as

• Summary Assessment
• Scrutiny Assessment/Limited Scrutiny
• Faceless Assessment
• Best Judgment Assessment and
• Reassessment

Sub-section (1) of section 143 of Income-tax Act, provides for Summary Assessment based on the return of income submitted as per section 139 of Income-tax Act, 1961 to the Centralised Processing Centre on Electronic mode. The Centralised Processing Centre will process the return as per the scheme relating to such assessment framed by Central Board of Direct taxes from time to time.

For processing the return submitted, sub-clause (a) of sub-section (1) of section 143 speaks of computation of income or loss, by making necessary adjustments as specified therein. Any adjustment should be after duly intimating the assessee and calling for assessee’s objection or acceptance to such adjustment. In cases where no adjustment is proposed, the acknowledgement of return is deemed to be as intimation.

A revised return can also be filed within the statutorily stipulated time to correct any bona fide mistake in the original return submitted in which event the revised return alone will be processed by the Central Processing Centre. Such processed return after receipt of intimation shall also be eligible for rectification of any mistake as per the provisions of section 154 of Income-tax Act, 1961.

If a notice as per sub-section (2) of section 143 is issued the processing of the return is not necessary since the case is taken up for scrutiny. In summary assessment, debatable issue cannot be touched upon for any adjustment. The return of income submitted with details and with due verification by the assessee shall be treated as admission, which has the evidentiary value.

As per the circular of Central Board of Direct Taxes 14 (XL – 35) 1955 dated 11th April 1955, the mistake if any committed by assessee, it should be taken care properly by the revenue and ignorance of assessee cannot be the pointer, for silence on the part of revenue. The scope of the above circular is explained in CIT v. Ahmedabad Keiser-E-Hind Mills Co. Ltd [1981] 128 ITR 486 (Guj.) (HC) (492), Parekh Brothers v. CIT [1984] 150 ITR 105 (Ker.) (HC)/[1983] 15 Taxman 539 (Ker.) (118), Dattatraya Gopal Shette v. CIT (1984) 150 ITR 460 (Bom.)(HC)/[1984] 18 Taxman 434 (Bom.)(HC) (463-464), Rajeev Biswas v. UOI (2023) 459 ITR 36 (Cal.) (HC)/[2022] 143 taxmann.com 3 (Cal.).

A return submitted can be taken up for scrutiny depending upon the guidelines issued as per the scheme framed by the Central Board of Direct Taxes from time to time. The scrutiny assessment can be either

• limited scrutiny or
• complete scrutiny

Selection for scrutiny of the case is as per the guidelines prescribed by CBDT or via the CASS system. A notice shall be issued under sub-section (1) of section 142 which amounts to enquiry for making assessment.

Once a case has been taken up for scrutiny, a notice under sub-section (2) of section 143 shall be served indicating the issues on which evidence is to be submitted. Pursuant to the service of notice u/s 143(2), the assessment proceedings commence as per the provisions of Income-tax Act, 1961.

Sub-section (2) of section 142 provides, that Assessing Officer may make such enquiry he considers necessary for obtaining full information. Sub-section (3) of section 142 provides that in respect of material gathered on the basis of enquiry, opportunity should be given to the assessee to furnish evidence.

In the process of assessment, there is an inbuilt opportunity of hearing, which directs that:

The assessee to produce evidence in support of the return of income submitted.

The assessee should submit the evidence, that relates to the return of income submitted and on which he places reliance in support of the claims made in the return.

Assessing Officer, after considering the evidence submitted may direct the assessee to produce further evidence as he may require on the specific points at issue.

The completion of assessment and determination of income by the Assessing Officer should be on the basis of such evidence submitted by the assessee.

In the assessment proceedings the determination of income and the consequent tax liability depends upon the appreciation of evidence and relevant provisions of Income-tax Act, 1961. The issue therefore, confines to the verification in the return of income which presupposes that there is an admission by the assessee. Such admission was in respect of the applicability of the provisions of the Income-tax Act, and the allied Acts either in respect of taxability of the receipt or in respect of the claim as to non-taxability, and similarly in respect of the claim of deduction or rebate or for that matter any other aspect related to the taxability or specific claim made in the return of income submitted.

Limited scrutiny is confined to the specific issues mentioned in notice under section 142(1) of the Act. If limited scrutiny has to be converted into complete scrutiny, the permission of the jurisdictional principal Commissioner or commissioner which is mandatory has to be obtained.

Section 144 of Income-tax Act, 1961, deals with best judg- ment assessment. As per this section Assessing Officer is empowered to complete an assessment to the best of his judgment in the circumstances specified in the section. The circumstances are:

An assessee failed to submit a return of income u/s 139(1) or 139(4) and/or a belated return u/s 139(5).

Failure on the part of assessee to comply with notice issued u/s 142(1) of the Act.

Failure to get the accounts audited as per direction in terms of notice u/s 142A of the Act.

Failure to comply with notice issued u/s 143(2) of the Act.

The best judgment assessment can be completed only after giving an opportunity in terms of a specific show cause notice to the assessee specifying why the assessment should not be done to the best of the judgment of the Assessing Officer. The section also empowers the Assessing Officer to reject the books of account, if the Assessing Officer is not satisfied about the correctness or completeness of accounts of the assessee, and if the assessee has not followed the Income Computation and Disclosure standards, prescribed as per the provisions of sub-section (2) of section 145 of the Act.

In CIT Central and United Provinces v. Laxminarain Badridas [1973] 5 ITR 170 (PC) the Court held that Under section 23(4) of the Income-tax Act, the Officer is to make an assessment to the best of his judgment against a person who is in default. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take in to consideration, local knowledge and repute.

In regard, to the assessee’s circumstances and his own knowledge of previous returns and assessments of assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate, and though there must necessarily be guesswork. In the matter, it must be honest guesswork. In that sense too, the assessment must be some extent arbitrary.

The section places the officer in the position of a person whose decision as to amount to final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official.

In PCIT v. Rahul J. Jain (Bom.)(HC) (ITA No. 857 of 2016 dt. 11-12-2018) dismissing the appeal of the revenue the Court held that, best judgment assessment can be resorted by the AO in the absence of any record, but it cannot be arbitrary, when the assessee has filed supporting documents justifying the loss suffered.

As per the notification of Central Board of Direct Taxes, ‘E’ assessment scheme of 2019 has been amended to be termed as Faceless Assessment Scheme. This is governed by sub-sections (3A) and (3B) of section 143 of Income-tax Act, 1961. This scheme has been brought on statute with the following aim:

To eliminate the interface between the Assessing Officer and the assessee in the course of assessment proceedings. To achieve functional specialisation by optimising the utilisation of resources through economies of scale.

Team based assessment by introducing

• assessment unit
• technical unit
• review unit and
• verification unit

The assessment proceedings are conducted through assessee’s registered account in the designated portal, the web portal created by the concerned authority. Assessments, that relate to

• best judgment Assessment
• assessment pursuant to search action u/s 132, are outside the purview of faceless assessments.

The National Faceless Assessment Centre will be the Central Communication Centre for all notices and the other assessment proceedings.

The provision relating to reassessment is contained in section 147 of Income-tax Act, 1961. Section 147 of the Income-tax Act, 1961 starts with the phrase

“If any income chargeable to tax in the case of an assessee has escaped assessment”.

This provision aims at bringing such income to charge, that escaped assessment.

That the reopening of an assessment will now be based on

“Information with the Assessing Officer which suggests that income chargeable to tax has escaped assessment”.

The meaning of the phrase has been provided in Explanation 1 to section 148 of the Act. In the context of the provisions relating to reassessment, it can be of relevance to refer to the decision of Apex Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC)/[1993] 69 Taxmann 627 (SC).

The Court said one of the purposes of section 147 is to ensure that a party cannot get away by wilfully stating a false or improper statement, at the time of original assessment and when the falsity comes to notice, to turn around and say

“You accepted my lie, now your hands are tied and you can do nothing. It would be a travesty of justice to allow the assessee that latitude”.

The reassessment provisions are necessarily in favour of the revenue and in no event can be considered as may benefit the assessee.

The following are the provisions under Income-tax Act, 1961 that specifically confer power to collect evidence oral or documentary in the context of assessment proceedings:

Section 131 provides for the power regarding discovery, production of evidence. The authorities specified in the said section, for the purposes of this Act have the same powers as are vested in a court under the Code of Civil Procedure 1908, when trying a suit in respect of the following:

Discovery and inspection.

Enforcing the attendance of any person, including any officer of banking company and examining him on oath.

Compelling the production of books of account and other documents and Issuing commissions.

Section 131(1A) specifies that the authorities mentioned in the sub-section if have reason to suspect that any income has been concealed or likely to be concealed, by any person or class of persons, within their jurisdiction, for purposes of making an enquiry or investigation relating thereto, they can exercise the powers conferred under sub-section (1) of section 131.

Sub-section (4) of section 132 of Income-tax Act, 1961, during the course of search and seizure action, confers the power to examine and record a statement on oath, and such statement recorded, thereafter can be used in evidence in any proceedings under the Income-tax Act, 1961.

Sub-clause (iii) of sub-section (3) of section 133A of Income-tax Act, relating to the power of survey provides for the impounding of books of account and records, with the previous approval of the authorities mentioned in clause (b) of the proviso to the section.

Sub-section (5) of section 133A, provides for directing an assessee to furnish information about the expenditure incurred in connection with any function, ceremony or event, if it is expedient to do so and record a statement that can be used as evidence in any proceeding under the Income-tax Act, 1961.

Sub-section (6) of section 255 of Income-tax Act, 1961, confers power on the Income-tax Appellate Tribunal which is deemed to be a Civil Court with discovery and inspection as provided in section 131 of Income-tax Act, 1961.

Sub-section (2) of section 142 of Income-tax Act, 1961 provides for the power to the Assessing Officer to conduct enquiry and collect evidence in the matter of assessment.

Assessee should produce evidence to substantiate the claim on facts and justify that the claim is allowable as per the provisions of Income-tax Act, 1961 and has been claimed correctly.

Sub-section (2) of section 143 of Income-tax Act, 1961 provides that the Assessing Officer is duty bound to consider the evidence submitted by the assessee.

The Assessing Officer can use the power of enquiry as provided in section 131 of the Act by causing summons to the party, if he desires any further evidence.

As per sub-section (6) of section 133, Assessing Officer can cause enquiry from the third party also on such points or matters or to furnish statement of accounts and affairs verified in the manner specified, and that are useful or relevant to any enquiry or proceeding under the Act.

The evidence that can be submitted by the assessee can either be oral or documentary as the case may be depending upon the nature of claim made.

The principles relating to evidence as contained in the new enactment “The BSA 2023” can be invoked if such necessity arises, depending upon the facts at issue in respect of the assessment in question.

The consideration, of evaluation of the oral and documentary evidences, either submitted by the assessee or gathered by the Assessing Officer in the course of his enquiry and further duly considering under which of the provisions of the Act the claim is allowable, the Assessing Officer may either accept or reject the claim of the assessee.

Section 282 of Income-tax Act, 1961, provides for the service of notice. The provision states that the service of a notice, or summons or requisition or order or any other communication under the Act may be made by delivering or transmitting a copy there of to the person therein named:

By post or by such courier services as may be approved by the board, or In such manner as provided under the Code of Civil Procedure, 1908 for the purposes of service of summons, or

In the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000. (21 of 2000), or

By any other means of transmission of documents as provided by rules made by the board in this behalf.

The issue of notice must be as per statute and under the authority of law. The initiation of proceedings and conclusion of assessment rests on the proper service of notice. It the notice is not proper as per the requirements of law, and the proceedings are challenged, if may result in nullity of the proceedings.

In this context reference can be made to the decisions of Bombay High Court in the case of G.M. Breweries Ltd. v. UOI [2000] 241 ITR 446 (Bom.) (HC)/[2000] 108 Taxman 547 (Bom.) and Karnataka High Court in the case of Prakesh v. Sanghvi v. Ramesh G. DDIT (Inv.) [2013] 356 ITR 426 (Kar.) (HC)/[2013] 40 taxmann.com 16/219 Taxman 131 (Kar.)(Mag.).

The CPC Bangalore while processing the return of income submitted, is not justified in making addition by way of adjustment on debatable and controversial issues, since such kind of adjustments are beyond the scope of intimation/order under section 143(1) of Income-tax Act, 1961. Reliance can be placed on the decision of ITAT Jaipur Bench in the case of Himanshu Gupta v. ITO (ITA No. 253/JP/2021 AY 2017-18) decided on 01-05-2023.

A statement has been recorded by Assessing Officer from a third party behind the back of assessee. The Assessing Officer intends to consider the said statement against the assessee for addition in the assessment without putting the statement to the assessee for explanation. If it is not done so, the reliance if any placed by Assessing Officer for the purposes of addition is not justifiable and without any substance, since it has no evidentiary value. In Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC)/[1980] 4 Taxman 29 (SC) the Court held that the Authorities cannot use the statement as evidence without giving an opportunity of hearing or cross-examination.

The answer to the question is noticeable in the judgment of the Delhi High Court in the case of Venad Properties Private Limited v. CIT [2012] 340 ITR 463 (Delhi) (HC)/[2011] 16 taxmann.com 62/[2013] 212 Taxman 20 (Delhi) which held that it is a procedural requirement. The Court stated:

“Section 282 of the Income-tax Act, 1961, provides that a notice or requisition may be served on a person either by post or as if summons were issued a court under the Code of Civil Procedure, 1908. Order V of the Code of Civil Procedure prescribes for mode, procedure and manner of service of notices. The object and purpose of service of notice or summons is to inform and intimate the addressee about the proceedings and the date of hearing. If the notice is served or received by the party concerned and this is established/proved, then the manner and mode of service is not relevant. In the case of a procedural provision which is not of a mandatory character, the complaint of violation has to be examined from the standpoint of substantial compliance. Order passed in violation of such provision can be set aside only when such violation has occasioned prejudice to the subject. In matters of due service of notice/summons, a practical and pragmatic approach, rather than mere compliance or non-compliance with a formality is determinative”.

The statement so recorded has no evidentiary value. Once it has no evidentiary value the said statement cannot be used in the assessment proceedings or any other proceedings under the Income-tax Act, 1961. However, if the statement is recorded by a competent Authority and yet suffers from procedural irregularity, the statement still has evidentiary value.

Section 51 of the new enactment “The BSA 2023”, with the caption “facts judicially noticed need not be proved” prescribes that the facts judicially noticeable need not be proved. Section 52 of “The BSA 2023”, prescribes the necessary and requisite facts which courts must take judicial notice. The corresponding sections of Indian Evidence Act 1 of 1872 are sections 56 and 57 of the Act. The Assessing Officer is entitled to Act on materials which may not be accepted as evidence in a court of law. It does not mean that the assessment can be made without evidence or material. If an Assessing Officer is called upon by any person to take judicial notice of any fact, he can refuse to do so, until such person produces document or material which he may consider necessary to enable the Assessing Officer to do so.

Such a situation arises, in the cases where there is no evidence on either side or the evidence on both sides is equally balanced. In the process of appreciation of evidence adduced by an assessee, when the evidence was oral evidence and not documentary evidence, the possibility to draw inferences by the Assessing Officer cannot be ruled out. Assessment of income cannot rest on inferences. On the premise that the explanation was not satisfactory the burden on the assessee also cannot be carried too far by the Assessing Officer. In such circumstances considering the reasonableness of the evidence adduced, the element of discretion as to his satisfaction needs to be adopted by the Assessing Officer, in the facts and circumstances of the case.

There is a judicial concept in terms of an accepted doctrine by name RES JUDICATA. Section 11 of the Code of Civil Procedure, 1908, deals with the doctrine, which means that a matter concluded between the parties inter se by an earlier decision on the same matter cannot be considered for the second time by a court of law. This doctrine is not applicable to Income-tax proceedings.

Rule of consistency is no doubt accepted to be followed under Income-tax Act, 1961. However, if there are sufficient reasons to deviate from the position accepted from the earlier assessment proceedings based on the new facts coming in the subsequent assessment year the Assessing Officer is justified to change the decision more so based on such subsequent facts that have come to his knowledge.

The department is entitled to proceed with investigation, when certain facts relating to an assessee comes to its notice. Such facts once communicated to the Assessing Officer having jurisdiction over the assessee’s case, the Assessing Officer after due consideration of facts and law, can take a different view in subsequent assessment year. Apex Court in the case of M.M. Ipoh v. CIT [1968] 67 ITR 106 (SC) held so. The other decisions in the context of the question are:

Gujarat High Court in the case of Taraben Ramanbhai Patel v. ITO [1995] 215 ITR 323 (Guj.)(HC)/[1996] 84 Taxman 129 (Guj.) (HC) stated.

“The strict rule of doctrine of res judicata does not apply to proceedings under the Income-tax Act. At the same time, it is equally true that unless there is a change of circumstances the authorities will not depart from previous decisions at their sweet will in the absence of material circumstances or reasons for such departure”.

Kerala High Court in the case of Equity Intelligence India (P.) Ltd. v. Asstt. CIT [2015] 376 ITR 321 (Ker.) (HC)/[2015] 61 taxmann.com 256 (Ker.) (HC) stated.

“The decision arrived in previous year not binding in assessment for subsequent year”.

In substance the applicability of principle of Res Judicata will depend upon the nature and questions on which the rights of the parties to be taxed are based CIT v. P. Krishna Warrier [1994] 208 ITR 823 (Ker.) (HC). Rule of consistency must be followed, Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC)/[1992] 60 Taxman 248 (SC), Bharat Sanchar Nigam Ltd. v. UOI [2006] 282 ITR 273 (SC), CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC)/[2013] 38 taxmann. com 100/219 Taxman 379 (SC).