Assessment

Self-Assessment

Introduction
Self-assessment requires an assessee to compute taxable income and tax liability before filing the Income-tax return. Failure to discharge this obligation may result in being treated as an assessee-in-default.

Computation of Income and Tax

Self-assessment involves calculating total income under the five heads of income:

• Salary

• House Property

• Profits and Gains of Business or Profession

• Capital Gains

• Income from Other Sources

Total income is determined after setting off losses, clubbing income, and claiming deductions under Sections 80C to 80U. The computed tax liability includes:

• Tax at normal or special rates

• Rebate under section 87A (if applicable)

• Surcharge and Health & Education Cess

• Deductions for relief under Section 89, MAT/AMT credit, and foreign tax credit

Prepaid taxes such as TDS, TCS, and Advance Tax are deducted from the total tax liability. Interest under Sections 234A, 234B, and 234C and late filing fees under Section 234F are added, if applicable.

Payment of Self-Assessment Tax

• Self-assessment tax can be paid even after filing the return.

• Companies and assessees liable for tax audit (Section 44AB) must pay tax electronically.

Credit for Tax Paid

If the amount paid falls short of the liability, it is adjusted in the following order:

• Fees and interest

• Balance tax payable

Consequences of Non-Payment

• Non-payment of self-assessment tax results in being treated as an assessee-in-default.

• The tax authorities may initiate recovery proceedings.

• Penalties may be imposed for non-compliance.

Enquiry before Assessment

Introduction
The Assessing Officer (AO) is empowered to conduct an enquiry to obtain complete information regarding a taxpayer’s income or loss. The AO can issue notices, direct special audits, or refer matters to a Valuation Officer. These powers are exercised in a faceless manner.

Powers of the Assessing Officer

• Notice to File Return [Section 142(1)(i)]

o If a taxpayer fails to file a return within the due date, the AO may issue a notice requiring submission of the return within a specified time.

• Notice to Produce Documents or Accounts [Section 142(1)(ii)]

o The AO can ask a taxpayer to produce books of accounts or documents. However, books older than three years from the relevant previous year cannot be demanded, though documents can be required without any time restriction.

• Notice to Furnish Information [Section 142(1)(iii)]

o The AO may require the taxpayer to furnish a statement of all assets and liabilities, whether included in the accounts or not, with prior approval from the Joint Commissioner.

• Making Inquiries [Section 142(2)]

o The AO may gather information necessary for assessment. Before using such material against the assessee, an opportunity to be heard is provided, except in best judgment assessments under Section 144.

• Direction for Special Audit [Section 142(2A)]

o If books of accounts are complex or require further verification, the AO may direct:

🞍 A Chartered Accountant to audit the accounts.

🞍 A Cost Accountant to value inventory.

• Estimation of Asset Value by valuation officer [Section 142A]

o The AO may refer an asset, property, or investment for valuation by a Valuation Officer, irrespective of doubts about the correctness of the accounts.

• Faceless Proceedings

o Section 142B allows the government to implement a Faceless Inquiry or Valuation Scheme, ensuring automated allocation of cases using artificial intelligence and machine learning.

o The Faceless Inquiry or Valuation Scheme, 2022, was notified vide Notification No 19/2022 dated 30-03-2022 to conduct these proceedings digitally.

Special Audit and Inventory Valuation under Income-tax

Introduction
The Assessing Officer (AO) may direct an assessee to get accounts audited or inventory valued if the complexity of accounts, volume of transactions, or nature of business necessitates such action. This power is exercised in a faceless manner.

Conditions for Special Audit or Inventory Valuation

The AO can issue such a direction if:

• There are doubts about the correctness of accounts.

• The accounts involve complexity or a high volume of transactions.

• The business activity is specialised and requires further verification.

• The audit or valuation is necessary in the interest of revenue.

The Principal Chief Commissioner/Chief Commissioner or Principal Commissioner/Commissioner must approve the direction, and the assessee is given an opportunity to be heard.

Appointment of Auditor or Valuer

• A Chartered Accountant is appointed for auditing accounts.

• A Cost Accountant is appointed for inventory valuation.

• The appointment is made from a panel of Accountants and Cost Accountants maintained by the tax authorities.

Submission of Reports

• The audit report must be submitted in Form 6B , and the inventory valuation report in Form 6D .

• Reports must be filed electronically within the time prescribed by the AO, extendable up to 180 days.

Payment of Audit Expenses

• The Central Government bears the cost of the audit or valuation.

• As per Rule 14B , remuneration is fixed between ₹3,750 to ₹7,500 per hour, based on the time spent.

Consequences of Non-Compliance

Failure to comply may result in:

• Best Judgment Assessment by the AO.

• Penalty under Section 271 and prosecution under Section 276D.

Faceless Proceedings

• As per Section 142B, the Faceless Inquiry or Valuation Scheme, 2022, ensures that notices for special audits and valuations are issued electronically through an automated system.[Notification No 19/2022, dated 30-03-2022]

• Artificial intelligence and machine learning assist in random allocation of cases.

Estimation of Value of Assets by Valuation Officer

Introduction
The Assessing Officer (AO) may refer a case to a Valuation Officer to estimate the value or fair market value of any asset, property, or investment for assessment or reassessment. The Valuation Officer must submit the report within six months from the end of the month in which the reference was made.

When Can a Reference Be Made?

The AO may refer an asset, property, or investment for valuation irrespective of doubts about the correctness of accounts. The reference can be made under any provision, including but not limited to:

• Unexplained investments (Section 69)

• Unexplained money (Section 69A)

• Undisclosed investment in books (Section 69B)

• Unexplained expenditure (Section 69C)

• Fair market value determination under Section 56(2)

Process of Valuation

• The Valuation Officer considers evidence provided by the assessee and any other relevant material.

• The assessee is given an opportunity of being heard before any evidence is used.

• If the assessee does not cooperate, the Valuation Officer may estimate the value to the best of his judgment.

Time Limit for Valuation

• The valuation report must be submitted to the AO and the assessee within six months from the end of the month in which the reference was made.

• The AO may use the report for assessment or reassessment after granting the assessee an opportunity of being heard.

Powers of the Valuation Officer

The Valuation Officer can:

• Enter land, buildings, or premises related to the valuation.

• Inspect assets, books of accounts, and documents relevant to valuation.

• Require individuals in charge of the property to provide necessary facilities for valuation.

Prior notice of at least two days is required before entering any premises, and consent of the occupant must be obtained.

Faceless Proceedings

• Section 142B allows valuation to be conducted under the Faceless Inquiry or Valuation Scheme, 2022.

• References to Valuation Officers are made electronically through an automated allocation system using artificial intelligence and machine learning.[Notification No 19/2022, Dated 30-03-2022]

Faceless Inquiry or Valuation

Introduction
The Faceless Inquiry or Valuation Scheme, 2022, was introduced to eliminate direct interaction between taxpayers and Income-tax authorities. It applies to notices under Section 142, special audits, inventory valuation, and valuation by a Valuation Officer under Section 142A.

Scope of the Scheme

Under Section 142B, the scheme covers:

• Issuance of notices under Section 142(1) & 142(2) for return filing and inquiries.

• Directing special audits or inventory valuation under Section 142(2A).

• Valuation of assets, properties, or investments by a Valuation Officer under Section 142A.

Objectives
The scheme aims to enhance:

• Transparency and accountability by eliminating personal interactions.

• Efficient resource utilization using economies of scale.

• Team-based processing and dynamic jurisdiction through automation.

Faceless Inquiry or Valuation Scheme, 2022

• The Central Government notified the scheme via Notification No. 19/2022, dated 30-03-2022.

• As per scheme, the following shall be issued or made in a faceless manner through an automated allocation system as per the procedure prescribed in section 144B:

a. Notice under Section 142(1) to file return of Income,

b. Notice under Section 142(2) for making inquiry before assessment,

c. Notice under Section 142(2A) for directing the assessee to get his account audited or inventory valued, or

d. Reference for estimating the value of any asset, property or investment by a Valuation Officer under Section 142A,

• All proceedings are conducted digitally using automated case allocation.

• Artificial intelligence and machine learning assist in case selection and processing.

Government Directions

The Central Government may modify the applicability of provisions through notifications, which must be tabled before Parliament.

Summary Assessment

Introduction
A Summary Assessment is the automated processing of an Income-tax return by the Centralised Processing Centre (CPC). It verifies arithmetical accuracy, deductions, and tax payments without requiring the taxpayer’s presence or passing a detailed assessment order.

Scope and Process

• All Income-tax returns filed under Section 139 or in response to a notice under Section 142(1) are processed by CPC, Bengaluru.

• CPC checks for:

o Arithmetical errors and incorrect claims.

o Losses claimed beyond the due date.

o any such inconsistency in the return, with respect to the information in the return of any preceding previous year, as may be prescribed.

o Disallowance/Income indicated in audit reports but not reflected in returns.

o Disallowance of deductions under Section 10AA and Chapter VI-A (Part C) if the return is filed late.

Meaning of ‘Incorrect Claim’

A claim is considered incorrect if:

• It contradicts another entry in the return.

• Not furnished the required information to substantiate the claim.

• Deduction claimed exceeds the specified statutory limit.

Re-computation of Tax after Adjustments

• The total income is recalculated after necessary adjustments.

• Prepaid taxes, such as advance tax, TDS, TCS, and self-assessment tax, are deducted from the computed liability.

• Interest under Sections 234A, 234B, and 234C and late filing fees under Section 234F are added if applicable.

Opportunity to Respond

Before making any adjustments, the CPC notifies the assessee and allows 30 days to respond electronically. If no response is received, the adjustment is finalized.

Intimation to the Assessee

• If tax is payable, an intimation (deemed as a Notice of Demand) is issued, requiring payment within 30 days to avoid recovery proceedings.

• If a refund is due, it is processed and credited to the assessee.

• If no tax is payable or refundable, no intimation is issued, and the acknowledgement of the return is deemed as intimation.

Time Limit for Intimation

• CPC must issue an intimation within 9 months from the end of the financial year in which the return is filed.

Appeal Against Intimation

• If dissatisfied with adjustments, the assessee can file an appeal before CIT(A) or make an application for revision.

Scrutiny Assessment

Introduction
Scrutiny Assessment is a detailed examination of an Income-tax return to ensure that the assessee has correctly reported income and paid taxes. It may be Limited Scrutiny, focusing on specific issues, or Complete Scrutiny, covering the entire return. A notice must be served within 3 months from the end of the financial year in which the return is furnished.

Types of Scrutiny Assessments

• Limited Scrutiny – Examines only specified issues communicated to the assessee.

• Complete Scrutiny – Conducted in special cases where a thorough review of the return is necessary.

• Selection of Cases – Cases are selected through Computer-Aided Scrutiny Selection (CASS), using data analytics and 360-degree taxpayer profiling.

Faceless Scrutiny Assessment

• Section 144B mandates that Scrutiny Assessments (Section 143), Best Judgment Assessments (Section 144), and Reassessments (Section 147) be conducted electronically.

• The National Faceless Assessment Centre (NFAC) issues notices and coordinates assessments digitally.

Initiation of Scrutiny Assessment

• A notice under Section 143(2) is issued by NFAC or the jurisdictional AO within 3 months from the end of the financial year in which the return is furnished.

• Non-compliance may lead to Best Judgment Assessment under Section 144.

Deemed Validity of Notices

Under Section 292BB, an assessee cannot challenge the validity of a notice if:

• He has participated in the assessment, and

• He has not objected to the validity of the notice before the completion of the assessment.

No later objection allowed on:

• Non-service,

• Late service, or

• Improper service of notice.

Conclusion of Scrutiny Assessment

• If conducted facelessly, the process follows Section 144B guidelines.

• In the other case, the AO issues a written Assessment Order determining income, deductions, tax, and refunds.

• If additional income is assessed, the AO must issue a show-cause notice, giving the assessee an opportunity to respond before passing the final order.

Time Limit for Completion

• Updated returns can be assessed within 12 months from the end of the financial year in which they are filed.

• If a Transfer Pricing reference is made, the time limit is extended by 12 months.

Faceless Assessment

Introduction
Faceless Assessment ensures electronic processing of Scrutiny Assessments (Section 143(3)), Best Judgment Assessments (Section 144), and Reassessments (Section 147). This eliminates physical interaction between taxpayers and tax authorities, except for cases excluded from faceless assessment.

Scope of Faceless Assessment

All assessments, reassessments, or recomputations under Sections 143(3), 144, and 147 are conducted facelessly, except in cases:

• Assigned to Central Charges or International Taxation Units.

• Where pendency could not be created on ITBA because of technical reasons or cases not having a PAN, as the case may be;

Authorities Involved

• National Faceless Assessment Centre (NFAC) – It facilitates the conduct of faceless assessment proceedings in a centralised manner.

• Assessment Units (AU) – It shall conduct a faceless assessment by identifying issues, determining liability/refund, seeking clarifications, and analysing information.

• Verification Units (VU) – It shall verify through enquiry, cross-checks, examination of books, witnesses, and statements, or other required functions

• Technical Units (TU) – It shall provide technical assistance on legal, accounting, forensic, IT, valuation, transfer pricing, data analytics, management, or treaty matters as required.

• Review Units (RU) – It shall review the Income Determination Proposal by verifying evidence, facts, legal points, proposed additions/disallowances, arithmetic accuracy, and other required aspects.

Procedure for Faceless Assessment

• Case Assignment – NFAC assigns cases to an Assessment Unit.

• Notice Issuance – Notices under Section 143(2) or 142(1) are issued electronically.

• Taxpayer Response – Taxpayers file replies online.

• Verification and Technical Assistance – Requests for documents, inquiries, or expert opinions are handled digitally.

• Draft Assessment Order – If variations are proposed, a show-cause notice is issued.

• Review Process – Orders undergo review before finalization.

• Final Assessment – NFAC issues the order, along with demand/refund notices.

Communication and Personal Hearings

• All notices, responses, and orders are exchanged electronically.

• Taxpayers may request a virtual hearing if variations are proposed.

• The system uses video conferencing or telephony for hearings.

Special Audit or Inventory Valuation

• If required, NFAC refers cases to jurisdictional authorities for Special Audit (Section 142(2A)) or Inventory Valuation.

Transfer of Cases

NFAC may transfer cases to jurisdictional Assessing Officers if faceless processing is impractical.

Best Judgment Assessment

Introduction
Best Judgment Assessment is conducted when an assessee fails to file a return, does not cooperate in assessment proceedings, or maintains incomplete or inaccurate accounts. The Assessing Officer (AO) estimates taxable income based on available information and must pass a reasoned order.

Types of Best Judgment Assessments

• Compulsory Best Judgment Assessment – Mandatory in cases where:

o The assessee fails to file a return within the due date.

o An updated return (Section 139(8A)) is not filed.

o The assessee does not respond to a notice under Section 142.

o The assessee fails to comply with a special audit or inventory valuation order (Section 142(2A)).

o A defective return is not rectified within the allowed time.

• Discretionary Best Judgment Assessment – Conducted when:

o The AO is not satisfied with the correctness or completeness of accounts.

o If no regular accounting method or Accounting Standards are followed,

Manner of Conducting Assessment

• Faceless Assessment (Section 144B): Conducted through automated allocation and digital communication.

• Other assessment:

o The AO issues a show-cause notice, allowing the assessee to justify their position.

o The assessee is given an opportunity to be heard, except when a prior notice under Section 142(1) has already been issued.

Time Limit for Completion

• If Transfer Pricing reference is made, the time limit extends by 12 months.

• Updated returns (Section 139(8A)) can be assessed within 12 months from the financial year in which the return was filed.

Reference to Dispute Resolution Panel (DRP)

Introduction
The Dispute Resolution Panel (DRP) provides a fast-track mechanism for resolving disputes arising from draft assessment orders issued to non-residents, foreign companies, or assessee with Transfer Pricing Officer (TPO) adjustments. DRP proceedings are conducted in a faceless manner. It is a panel of three Principal Commissioners or Commissioners of Income-tax, constituted by the Board.

Who Can Approach the DRP?

• Non-residents (excluding companies) and foreign companies.

• Assessees facing transfer pricing adjustments (Section 92CA(3)).

• Not available for assessees subject to search/requisition under Sections 132 or 132A

Process for Filing Objections

• The Assessing Officer (AO) issues a draft assessment order to the assessee.

• Within 30 days, the assessee must:

o Accept the order, or

o File objections with DRP (Form 35A) and the AO.

• If the assessee accepts the order or does not object, the AO finalizes the assessment within one month.

DRP’s Role and Powers

• Reviews the draft order, objections, supporting evidence, and reports from AO, TPO, or other authorities.

• Can confirm, reduce, or enhance variations, but cannot set aside the assessment or order further inquiries.

• Issue directions within 9 months from the end of the month in which the draft order was forwarded to the assessee.

• The AO must complete the assessment within one month from the end of the month in which such directions are received.

Binding Nature of DRP Directions

• The AO must comply with DRP’s directions.

• If the directions prejudice the assessee, an opportunity for a hearing is provided.

Appeal Against DRP Orders

• The assessee can appeal before ITAT against the final order.

• No appeal to CIT(A) is allowed.

Faceless DRP Proceedings

• DRP directions are issued digitally, using automated case allocation and a dynamic jurisdiction system.

Alternative to DRP: Dispute Resolution Committee (DRC)

• Assessees with income up to ₹50 lakh and disputed additions up to ₹10 lakh may opt for DRC instead of DRP.

• An assessee may approach either the DRP or the DRC, but not both

• If admitted by the DRC, proof of DRP withdrawal or no pending proceedings must be given.

• No DRP reference is allowed against the AO’s modified order passed as per DRC resolution.

Income Escaping Assessment

Introduction
If any income chargeable to tax has escaped assessment, the Assessing Officer (AO) can reassess such income, recompute loss, or modify allowances as per Sections 148 to 153. Effective 01-09-2024, search and requisition cases are excluded from reassessment provisions and governed under Chapter XIV-B (Block Assessment).

Conditions for Reassessment (Section 147)

• The AO must have information suggesting that income has escaped assessment.

• The AO must follow the procedures in Sections 148 to 153.

When Is Income Deemed to Have Escaped Assessment?

• Information received through Risk Management Strategy (RMS).

• Audit objections indicating incorrect tax assessments.

• Information under Tax Information Exchange Agreements (TIEA) or DTAA.

• Tribunal or Court orders requiring tax adjustments.

• Survey findings under Section 133A (effective 01-09-2024), provided specific income-related information is obtained.

Issuance of Notice (Section 148A & 148)

• The AO must issue a show-cause notice (SCN) under Section 148A, along with information that suggests income escapement.

• The assessee is given time to respond before a final decision is made.

• If the AO decides to proceed, a notice under Section 148 is issued along with the SCN order.

Time Limits for Issuing Notices (Section 149)

• If reassessment arises from appeal/revision orders, no time limit applies (Section 150).

• No reassessment based on TDS/TCS-related surveys.

Faceless Reassessment (Section 151A)

• The e-Assessment of Income Escaping Assessment Scheme, 2022 ensures automated case allocation using artificial intelligence.

• AO actions, including SCNs, inquiries, and notices, are conducted electronically.

Completion of Reassessment (Section 153)

• The AO must finalize reassessment within 12 months from the end of the financial year in which the notice was served.

Penalties & Prosecution

• Penalty under Section 270A: 50% of tax for under-reporting, 200% for misreporting.

• Prosecution under Section 276C: For willful tax evasion.

Appeal Against Reassessment Order

• The assessee may file an appeal before CIT(A) or JCIT(A) or seek revision.

• Cases involving Dispute Resolution Panel (DRP) or GAAR can be directly appealed before ITAT.

Time Limits for Assessments

Introduction
The Income-tax Act prescribes specific time limits for completing Summary Assessments, Scrutiny Assessments, Best Judgment Assessments, and Reassessments. If an assessment is not completed within the prescribed time, it becomes time-barred.

Summary Assessment (Section 143(1))

• Returns are processed electronically by the Centralized Processing Centre (CPC), Bengaluru.

• The intimation must be issued within 9 months from the end of the financial year in which the return is filed.

• If no tax is payable or refundable and no intimation is issued, the return acknowledgement is deemed as intimation.

Scrutiny Assessment (Section 143(3))

• Notice issuance: The AO must issue a notice within 3 months from the end of the financial year in which the return is furnished.

• Completion deadlines:

• If the AO seeks cancellation of registration/exemption of an entity, the time from intimation to the final order is excluded from the limitation period.

• Updated returns or returns filed under condonation (Section 119(2)(b)) can be assessed within 12 months from the end of the financial year in which they are furnished.

Best Judgment Assessment (Section 144)

• Conducted when an assessee fails to file a return, does not comply with notices, or maintains incomplete books of accounts.

• Completion deadlines are the same as those for Scrutiny Assessments.

Reassessment (Income Escaping Assessment – Section 147)

• The AO can reassess income if he has information suggesting income has escaped assessment.

• Notice issuance deadlines (Section 148 & 148A):

• Completion deadline: 12 months from the end of the financial year in which the reassessment notice was served.

Time Extensions for Special Cases

• Search Cases:

o If a search is conducted under Section 132 or 132A, the time limit extends by 12 months if assessments were pending at the time of the search.

• Transfer Pricing Cases:

o If a reference is made to the Transfer Pricing Officer (TPO), the time limit extends by 12 months.

Time Limits for Special Assessments & Orders

Exclusions from Time Limits

Certain periods are excluded when computing assessment deadlines which includes:

• Time taken in reopening proceedings or rehearing, due to change in AO’s jurisdiction.

• Period of stay granted by court, till receipt of order vacating such stay by PCIT/CIT.

• Time taken in special audit or inventory valuation.

• Where the assessee approaches the Authority or Board for Advance Rulings, the limitation period shall exclude the time from the date of application to the date on which the rejection order or advance ruling is received by the Principal CIT or CIT.

• "Where a reference is made by the competent authority for exchange of information, the period excluded from limitation shall be from the date of such reference (or first reference) till the earlier of

o The date of last receipt of information by the Principal CIT/CIT, or

o One year.

Rectification of Mistake

Introduction
Income-tax authorities have the power to rectify mistakes in their orders if the error is apparent from the record. Rectification may be initiated by the authority itself or upon a request from the assessee, deductor, or collector.

Orders Eligible for Rectification

The Income-tax authority can rectify apparent mistakes in:

• Any order it passes

• Intimations after processing IT returns

• Intimations after processing TDS/TCS statements

Exceptions:

• Appeal/Revision cases: Cannot rectify parts already considered in appeal or revision proceedings (but can rectify other mistakes in the same order)

• Post-notice intimations: Cannot rectify intimation mistakes after issuing Section 143(2) scrutiny notice

Authorities Empowered to Rectify Mistakes

• Assessing Officer (AO) – For assessment orders.

• CIT(A) / JCIT(A) – For appeal orders.

• ITAT – For appellate orders.

• TPO – For arm’s length price determinations.

Time Limits for Rectification

If an assessee applies for rectification, the authority must pass an order within 6 months from the end of the month in which the application is received.

Procedure for Rectification

• If rectification increases tax liability or reduces a refund, the assessee must be given an opportunity of being heard.

• A written rectification order must be issued.

• If additional tax is payable, a demand notice is served.

• If tax liability reduces, a refund is issued.

Faceless Rectification, Amendments, and Notice of Demand

Introduction
Section 157A empowers the Central Government to implement a Faceless Scheme for conducting rectifications, amendments, demand notices, and intimation of loss in an automated and electronic manner.

Scope of the Scheme
The Faceless Scheme covers:

• Rectification of Mistakes (Section 154)

• Amendments (Section 155)

• Issuance of Demand Notices (Section 156)

• Intimation of Loss (Section 157)

Objectives
The scheme aims to enhance:

• Efficiency and transparency by eliminating direct interactions between taxpayers and tax authorities.

• Automation and resource optimization through economies of scale.

• Team-based rectifications and amendments under a dynamic jurisdiction system.

Government Directions

• The Central Government is authorized to issue modifications or exemptions to existing provisions for effective implementation.

• Any changes must be notified before 31-03-2022 and presented before both Houses of Parliament.

Amendments in Assessment Order

Introduction
Assessment orders may require modifications due to subsequent events, such as appellate orders, rectifications, or reassessment proceedings. These amendments ensure the correct computation of taxable income for the assessee or other connected taxpayers.

Key provisions of Section 155 are as follows:

• Rectification in assessment of partner (Section 155(1A))

o If the partner’s remuneration is later disallowed in the firm’s assessment, the partner’s income is adjusted.

o Time limit: Within 4 years from the end of the financial year in which the firm’s final order was passed.

• Rectification in assessment of members of AOP/BOI (Section 155(2))

o If a member’s share of AOP/BOI income is incorrectly assessed, the AO must correct it.

o Time limit: Within 4 years from the AOP/BOI’s final order.

• Rectification on re-computation of loss or depreciation (Section 155(4))

o If loss or depreciation is recomputed in reassessment, its impact on future years is corrected.

o Time limit: Within 4 years from the reassessment order.

• Rectification on conversion of capital asset into stock (Section 155(7B))

o If a parent-subsidiary transfer is eligible for a capital gains exemption but later fails to meet the conditions, the exemption is revoked.

o Time limit: Within 4 years from the financial year in which the conditions were breached.

• Rectification if investment made in extended period (Section 155(11))

o If a taxpayer invests capital gains in new assets within the extended period, the earlier tax liability is reversed.

o Time limit: Within 4 years from the financial year of receiving compensation.

• Rectification if exports proceeds received in foreign exchange (Section 155(11A))

o If export proceeds are later received in convertible foreign exchange, exemptions (10A, 10AA, 10B, 10BA) are granted retrospectively.

o Time limit: Within 4 years from the year of receipt.

• Rectification based on settlement of overseas tax dispute (Section 155(14A))

o If disputed foreign tax is later settled, the AO allows the credit upon submission of proof.

o Time limit: Within 6 months from document submission.

• Rectification where full value of consideration is changed (Section 155(15))

o If stamp valuation is reduced in appeal, the capital gains are recomputed accordingly.

o Time limit: Within 4 years from the revision order.

• Rectification where amount of compensation is changed (Section 155(16))

o In case of compulsory acquisition, enhanced compensation is taxed as capital gains on receipt basis. If compensation is later reduced by judicial authorities, the Assessing Officer shall amend the assessment by taking the reduced amount as full value of consideration.

o Time limit: Within 4 years from the reduction order.

• Rectification where amount of deduction is withdrawn (Section 155(17))

o If patent rights are revoked, deductions for royalty under Section 80RRB are reversed.

o Time limit: Within 4 years from the revocation order.

• Rectification due to disallowance of surcharge/cess (Section 155(18))

o Deduction for surcharge/cess is disallowed retrospectively from 01-04-2005.

o Time limit: Within 4 years from the financial year starting 01-04-2021.

• Rectification to allow a deduction for differential sugarcane price paid in subsequent years by the co-operative sugar factories (Section 155(19))

o Co-operative sugar factories can claim deductions for excess sugarcane purchase price disallowed in earlier years.

o Time limit: Within 4 years from 01-04-2022 (i.e., till 31-03-2027).

• Rectification of TDS credit in respect of the income disclosed in the return of income filed in earlier years (Section 155(20))

o If TDS is deposited late, credit is allowed in the correct year upon application in Form 71.

o Time limit: Within 4 years from the financial year of deduction.

• Recomputation of total income of 2 subsequent years in conformity with the ALP determined by TPO [Section 155(21)]

o The Assessing Officer shall proceed to recompute the total income of the assessee for the said two consecutive previous years, by amending the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143.

Time limit:

o If assessment, intimation or deemed intimation of Year 2 and Year 3 is done: The Assessing Officer is required to make an amendment within 3 months from the end of the month in which Year 1's assessment is completed.

o If assessment, intimation or deemed intimation of Year 2 and Year 3 is not done within the 3-month period: The Assessing Officer is required to make an amendment within 3 months from the end of the month in which assessment, intimation or deemed intimation for Year 2/3 is done.

Faceless Proceedings for Amendments (Section 157A)

• All rectifications are conducted electronically under a faceless system.

• Ensures automation, efficiency, and minimal taxpayer interaction.

Directions by Joint Commissioner

Introduction
If the assessment is pending, the Joint Commissioner of Income Tax (JCIT) may examine the records and issue directions to the Assessing Officer for the proper completion of the assessment.

Issuance of Directions

• The JCIT may examine assessment records:

o On his own motion.

o On a reference made by the AO.

o On an application filed by the assessee.

• If necessary or expedient, the Joint Commissioner may issue binding directions to the Assessing Officer for completing the assessment.

Binding Nature of Directions

• The AO must comply with the directions issued by the JCIT.

• If an assessment order based on such directions is later found to be erroneous and prejudicial to revenue, the Commissioner or Principal Commissioner may revise it under Section 263.

Opportunity of Being Heard

• If the directions are prejudicial to the assessee, an opportunity of being heard must be provided.

• No hearing is required if the directions relate to matters already investigated.

Reference to Authorities to Invoke GAAR

Introduction
The General Anti-Avoidance Rule (GAAR) allows tax authorities to declare an arrangement as an Impermissible Avoidance Arrangement (IAA). If the Assessing Officer (AO) identifies such an arrangement during assessment or reassessment, he may refer it to the Principal Commissioner (PCIT) or Commissioner (CIT). If the CIT is not satisfied with the assessee's objections, he refers the case to the Approving Panel for final determination.

Reference to PCIT/CIT

• If the AO suspects tax avoidance through an IAA, he may refer the case to the PCIT/CIT

• Upon receiving the reference, the PCIT/CIT must issue a notice to the assessee within 60 days, stating reasons for invoking GAAR and allowing the assessee to submit objections.

• If the PCIT/CIT is satisfied with the objections, GAAR is not applied, and an order is issued to the AO.

• If the PCIT/CIT is not satisfied, he refers the matter to the Approving Panel for final determination.

Role of Approving Panel

• The Approving Panel is constituted by the Central Government and consists of:

o A High Court Judge (Chairperson).

o An IRS officer (Principal CCIT or CCIT).

o An academic/scholar specialising in taxation, accounts, or trade practices.

• The Panel’s tenure is one year, extendable up to three years.

Decision by Approving Panel

• The Approving Panel reviews the case and issues directions on whether the arrangement is an Impermissible Avoidance Arrangement.

• It specifies the applicable assessment years for its decision.

• Binding Nature of Directions:

o The assessee, CIT, and AO must comply with the Panel’s directions.

o No appeal can be filed against these directions.

o If applicable to other assessment years, the AO must apply GAAR without requiring a fresh reference.

Time Limit for Panel's Directions

• The Approving Panel must issue its decision within 6 months from the end of the month in which the reference was received.

• Exclusions from the time limit:

o From the date the Approving Panel first directs the Principal CIT/CIT to conduct inquiries under Section 90/90A, until the information is last received or one year, whichever is earlier.

o From the date a court grants a stay on Approving Panel proceedings until the Panel receives the certified copy vacating the stay.

If the period remaining with the Approving Panel immediately after excluding the above period is less than 60 days then the same shall be extended to 60 days and the period of 6 months shall be deemed to be extended accordingly.

Powers of the Approving Panel

• The Panel has powers similar to the Authority for Advance Rulings (AAR).

• It can:

o Order further inquiries through the CIT.

o Examine records and summon documents.

o Seek evidence from the assessee.

• If members disagree, the decision is based on the majority opinion.

Notice of Demand

Introduction
A Notice of Demand is issued by the Assessing Officer (AO) when an assessee is liable to pay tax, interest, penalty, fine, or any other sum under the Income-tax Act.

When is a Notice of Demand Issued?

• A tax, interest, penalty, or other sum becomes due only when the Assessing Officer serves a notice of demand.

• Intimation of tax payable in return or TDS/TCS processing is deemed a notice of demand.

• If NCLT/NCLAT/Supreme Court reduces a tax demand raised under Section 156 in insolvency cases, Section 156A requires the AO to revise the demand accordingly.

Time Limits

• Issuance: No specific time limit, but the notice must be served within a reasonable time.

• Payment:

o General cases – Within 30 days unless a shorter period is specified.

o ESOP taxation (for eligible start-ups) – Within 14 days from the earliest of:

🞍 Expiry of 48 months from the end of the assessment year in which ESOPs were allotted.

🞍 At the date of sale of shares.

🞍 At the date the assessee ceases employment.

Format of Demand Notice

The notice of demand for the tax liability payable on assessment shall be issued in Form No. 7 and demand notice for payment of advance tax liability shall be issued in Form No. 28.

Is a Demand Notice Mandatory for Recovery?

• Yes, recovery proceedings can only begin after serving a demand notice.

• If no notice is issued, the assessee cannot be treated as a defaulter.

Consequences of Non-Payment

• The assessee is deemed an assessee-in-default.

• Interest under Section 220 and penalty under Section 221 may be imposed.

Faceless Issuance of Demand Notice

• Section 157A provides for a Faceless Scheme for issuing Notices of Demand electronically.

Payment of Taxes

Introduction
Under the Income-tax Act, 1961, taxpayers are required to pay taxes in various forms, including advance tax, self-assessment tax, TDS, TCS, and other levies. These payments can be made online or offline using prescribed challans.

Types of Tax Payments

Income Tax Payments

• Advance Tax: Paid using Challan No. ITNS 280 (Code 100) before the end of the financial year.

• Self-Assessment Tax: Paid under Section 140A using Challan No. ITNS 280 (Code 300).

• Tax on Updated Returns: Paid under Section 140B when filing an updated return.

• Tax on Regular Assessment: Paid upon receipt of a Notice of Demand using Challan No. ITNS 280 (Code 400).

Tax Deducted/Collected at Source (TDS/TCS)

• TDS Deposits: Paid using Challan No. ITNS 281 (Code 200 for voluntary payments, Code 400 for demand notices).

• TDS on Special Transactions:

• TCS Deposits: Paid using Challan No. ITNS 281 , selecting Code 200 or 400.

Modes of Payment

• Taxes can be paid online (electronic payment) or offline (through authorized banks).

• Mandatory e-payment applies to:

o Companies.

o Tax audit cases (Section 44AB) [Circular No. 5/2008, Dated 14-7-2008].

• Payment Channels:

o Net banking, debit cards, credit cards or UPI

o Payment from another person’s account is allowed, provided the assessee’s PAN is mentioned on the challan. [Circular No. 5/2008, Dated 14-7-2008.]

Document Identification Number (DIN)

Introduction
The Central Board of Direct Taxes (CBDT) has made it mandatory to quote a Document Identification Number (DIN) in all communications issued by Income-tax authorities from 01-10-2019. Taxpayers can verify the authenticity of such documents on the Income-tax e-filing portal. This initiative aims to enhance transparency and maintain an audit trail of communications.

Scope of DIN

• DIN must be quoted in all assessment orders, appeals, notices, exemptions, enquiries, penalties, prosecution orders, rectifications, and approvals. [Circular No. 19/ 2019, Dated 14-8-2019]

• As per CBDT Circular No. 19/2019, dated 14-08-2019, any communication without a DIN is deemed invalid.

Exceptions for Manual Communications

Manual communications may be issued only in exceptional cases with prior approval from the Chief Commissioner/Director General of Income-tax, such as:

• Technical difficulties in generating or allotting DIN.

• Field officers conducting on-site verification or enquiries.

• Delay in PAN migration, leading to incorrect jurisdiction.

• Absence of PAN, where proceedings are initiated (except under Sections 131 & 133).

• Unavailability of system functionality for issuing communication.

Each manual communication must:

• Clearly state that it is issued without a DIN.

• Mention the date of approval for manual issuance.

Regularisation of Manual Communications

Manually issued communications must be regularised within 15 working days by:

• Uploading the document on the Income Tax Business Application (ITBA) system.

• Generating a DIN electronically.

• Sending the DIN to the assessee using the system-generated format.

Consequences of Non-Compliance

• Any communication without a DIN and not meeting the prescribed exceptions is treated as never issued.

• Taxpayers can verify the authenticity of their notices/orders using the Income-tax e-filing portal at:
https://www1.incometaxindiaefiling.gov.in/e-FilingGS/Services/AUTHNoticeLink.html?lang=eng.

Guidelines for Compulsory Selection of Returns for Complete Scrutiny – FY 2024-25

Introduction
The Central Board of Direct Taxes (CBDT) issues annual guidelines for compulsory scrutiny selection. For FY 2024-25, the guidelines were issued via Circular F. No. 225/72/2024/ITA-II, dated 03-05-2024.

Parameters for Compulsory Scrutiny Selection

· Cases Pertaining to Survey (Section 133A)

o If the survey detects specific information or material indicating tax evasion, the case is selected for compulsory scrutiny.

o Surveys under Section 133A(2A) are not selected for scrutiny.

Procedure:

o AO issues a notice under Section 143(2) with prior approval from Principal CIT/DIT.

o Case transferred to Central Charges under Section 127 within 15 days.

· Cases Pertaining to Search & Seizure

Search conducted before 01-04-2021

o Such cases are automatically selected for compulsory scrutiny.

o AO issues notice under Section 143(2)/142(1) with prior approval and transfers the case to Central Charges within 15 days.

Search conducted on or after 01-04-2021

o AO issues notice under Section 143(2)/142(1) with prior approval and transfers the case to Central Charges within 15 days.

o CBDT clarified that if third-party information is found during a search, such cases are not transferred to Central Charges unless they meet the criteria outlined in CBDT Guidelines F. No. 299/107/2013-IT (Inv. III)/1568, dated 25-04-2014.

· Cases Where Notice is Issued for Filing Return

o If no return is furnished → Case handled by NaFAC for compulsory scrutiny.

o AO uploads supporting documents, and further action is conducted through NaFAC.

· Cases Where Notice is Issued Under Section 148

o All cases where a notice under Section 148 has been issued are selected for compulsory scrutiny, irrespective of whether a return is filed.

o AO uploads documents and NaFAC handles further proceedings.

o If search/survey was conducted on or after 01-04-2021, the case is transferred to Central Charges within 15 days.

o CBDT clarified that third-party cases found in a search are not transferred unless they meet specific guidelines.

· Cases Related to Registration/Approval (Sections 12A, 12AB, 35, 10(23C))

o If exemption/deduction is claimed despite denial or withdrawal of registration/approval, the case is selected for compulsory scrutiny.

o If the withdrawal order is reversed in appeal, the case will not be selected.

· Cases with Additions in Earlier Assessments

o If a recurring issue of law or fact (including transfer pricing) resulted in an addition of:

o ₹25 lakh or more in metro cities (Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, Pune).

o ₹10 lakh or more in other locations.

o The addition must have been upheld by appellate authorities in favor of the revenue.

· Cases Involving Tax-Evasion Reports

o Cases flagged by Law Enforcement Agencies, Investigation Wing, Intelligence Authorities, or Audit Reports.

· Other Cases

o Return filed in response to Section 142(1) notice due to information from NMS/AIS/SFT/CPC-TDS/IC&I → Not compulsory scrutiny; selected through CASS.

o Cases already selected by International Taxation & Central Circle continue under their jurisdiction.

Time Limits for Selection & Notices

Power to Call for Information by Income-tax Authorities

Introduction
Section 133 of the Income-tax Act empowers income-tax authorities to call for information for any inquiry or proceeding under the Act. This provision enables authorities to collect relevant data from various persons, including firms, HUFs, trustees, and financial institutions.

Types of Information That Can Be Called Under Section 133

Authorities Empowered to Call for Information

• All Clauses of Section 133:

o Assessing Officer (AO)

o Joint Commissioner (JCIT)

o Deputy Commissioner (Appeals)

o Joint Commissioner (Appeals)

o Commissioner (Appeals)

• Under Section 133(6) Only (Higher Authorities):

o Principal Director General (PDGIT) / Director General (DGIT)

o Principal Chief Commissioner (PCCIT) / Chief Commissioner (CCIT)

o Principal Commissioner (PCIT) / Commissioner (CIT)

o Joint Director, Deputy Director, Assistant Director, Director