Income tax-return-of-income-and-assessment-procedures

Return of Income and Assessment Procedures
Kanakaraj
M/s SBS and Company LLP
kanakaraj@sbsandco.com
By
SBS Hyderabad
15th December, 2018

kanakaraj@sbsandco.com www.sbsandco.com +91 961 860 81652
Introduction:
Income tax act 1961 contains provisions for filing the return of Income (ROI), the format in which
the ROI is to be file shall be notified by the CBDT. It includes particulars of Income earned under
different heads, deductions under chapter VIA, total Income and tax payable by assessee are
generally included in ROI.
Return of Income

3
Persons
mandatorily
required to
file the ROI
under sec.
139(1)
Companies and Firms – Return of Income or loss on or before due date
Other than company or a firm, ROI is mandatory if total Income exceeds Basic exemption
limit
Person being a “Resident” and “ordinarily resident” having
(i) Any assets located outside India (or)
(ii) Signing authority in any account located outside India
[ROI is mandatory, whether the such assessee has income chargeable to tax or not]
Charitable Trust and Institutions under section 139(4A)
Political party’s U/s 139(4B)
Scientific Research Association, news agency, Trade unions etc. U/s 139(4C)
Universities, collages etc U/s 139(4D)
Return of Income

ITR Forms Description
ITR 1 For individuals being a resident other than not ordinarily resident having Income from Salaries,
one house property, other sources (Interest etc.) and having total income up to Rs.50 lakh
ITR 2 For Individuals and HUFs not having income from profits and gains of business or profession
ITR 3 For individuals and HUFs having income from profits and gains of business or profession
ITR 4 For presumptive income from Business & Profession
ITR 5 For persons other than:-
(i) Individual
(ii) HUF
(iii) Company and
(iv) Person filing Form ITR-7
ITR 6 For Companies other than companies claiming exemption under section 11
ITR 7 For persons including companies required to furnish return under sections 139(4A) or 139(4B)
or 139(4C) or 139(4D) or 139(4E) or 139(4F)
Income tax return – ITR Forms

November 30th
• Assessee required to furnish the report in Form 3CEB under section 92E pertaining to
international/specified domestic transactions
September 30th
• Where an assessee is a company
• Where an assessee is a person other than company and
• Such assessee is required to get its accounts audit under any law
• Assessee is a working partner in a firm whose accounts are required to audit under any law
July 31st
• In any other case
Time for filing the ROI

 A loss return can be filed within the prescribed form and time allowed under section 139(1)
 The following losses cannot be carried forward if loss return not submitted within time.
 Business loss (speculative or non-speculative)
 Capital loss and
 Loss from the activities of owning and maintaining of horse race
However, loss under the heads ‘Income from house property’ and ‘unabsorbed depreciation’
under section 32 of the act can be carried forward, even if the assessee has not filed the return
before the due date.
Return of loss – sec. 139(3)

 Return not furnished within the time allowed under section 139(1) or Section 142(1), can do so
within the time allowed under this section i.e.
 Within one year from the end of relevant Assessment Year or the completion of Assessment
whichever is earlier (up to AY 2016-17)
 By end of relevant assessment year or completion of assessment whichever is earlier
(applicable from AY 2017-18)
[Assessment means - Assessment made under section 143(3) or 144]
Belated return – Sec. 139(4)
Assessment Year (AY) Due date for filing the ROI
For the AY 2016-17 31st March 2018
For the AY 2017-18 (Amendment) 31st March 2018
For the AY 2018-19 31st March 2019

 Consequences of late submission:
 Liable for interest under section 234A
 Liable for late filing fee under section 234F
 Losses cannot be carried forward
 Deduction under section 10AA, 10B, 80IA, 80IAB, 80IB, 80IC, 80ID and 80IE are not available
 Belated return cannot be revised (Case)
Belated return – Sec. 139(4)

The following conditions need to be satisfied to furnish the revised return;
A person filed a return, knowing it to be false cannot claim the benefit of filing a revised return. It
should be a bona fide, inadvertence or mistake on part of the assessee.
Omission or wrong statement filed in original return is discovered by department during the
enquiry and thereafter filing the revised return does not amounts to a revised return.
Revised return – Sec. 139(5)
Assessment Year Conditions to be satisfied
Up to AY 2016-17 a return can be revised, if filed under section 139(1) or 142(1), a belated
return filed under section 139(4) cannot be revised
From AY 2017-18 return filed under section 139(1) or 139(4), where it discovers any omission
or any wrong statement in the returned filed, assessee can revise the
return. That means even a belated return can be revised.

Time limit for filing the revised return:
 Assessee who is required to file Auditors report, but does not file the same with original return,
he can do so with the revised return.
 Return can be revised more than once, i.e. within the stipulated time and the assessee discovers
any omission or wrongs statement therein.
 Even if the original return filed get processed and intimation under section 143(1) generated, a
revised return can be taken as valid revised return.
Revised return – Sec. 139(5)
Asst. Year Description
Up to AY 2017-18 at any time before the expiry of one year from the end of relevant assessment year
or before completion of assessment whichever is earlier
Form AY 2018-19 before the end of relevant AY or before completion of assessment whichever is
earlier

 ROI is said to be defective if
 the return has not been duly filed and
 Return filed with income tax due (Payable)
Defective - Sec. 139(9)
Invalid return-
if not rectified
in the given
period of time
Opportunity
to rectify the
defect in 15
days
Intimate such
defective to
Assessee
AO consider
ROI as
defective

 Generally, tax administrations across countries adopt two stages
procedures of assessment as part of risk management strategy.
Intimation – Sec. 143(1)
Generation of intimation through
computerised processing
Certain percentage of tax returns are
selected for scrutiny based on
probability of detecting tax evasion

 Total income shall be computed under section 143(1)(a) after making the
following adjustment;
i. Arithmetical error’s in the return
ii. Incorrect claim – if such incorrect claim is apparent from any information in the
return
iii. disallowance of loss claimed, if return of the previous year for which set off of
loss is claimed was furnished beyond the due date
iv. Disallowance of expenditure indicated in the audit report but not claimed or
taken into computing the total income
v. Disallowance of deduction claimed under section 10AA, 80IA, 80IAB, 80IB, 80IC
etc if the return is furnished after the due date u/s 139(1)
vi. Addition of income appearing in Form 26AS, to the extent not included in total
income

 An opportunity was given to assessee before making adjustment, to
explain and rectify the same within 30 days of issuance of such intimation
and the response so received shall be considered before making such
adjustment.

 The purpose of notice under section 142(1) is to inquire the details of
assessee before making an assessment under the Act. It can also said to
be a preliminary investigation;
• If assessee has not filed a return of income within the time allowed under section
139(1), the AO may require him to submit the return of income within the time
allotted by AO.
• AO may assessee to furnish in writing any information any matter relating to
statement of assets and liabilities not included in accounts on a particular date.
• AO cannot require the assessee to produce the books for the period of more than 3
years prior to previous year.
Inquiry before assessment – sec 142:

 Dealing with the notice:
 Return has to be filed and the required documents in support of return filed therein is
required to submit to the AO.
 Assessee was given an opportunity of being heard for any material that may be gathered on
the basis of such inquiry.
 AO may direct the assessee to get his accounts audited by a chartered accountant
under section 142(2A) to 142(2D), the condition for the audit are as below;
 At the stage of proceedings, but not after completion of proceedings
 Considering the nature and complexity of the accounts and in the interest of revenue
 After obtaining necessary approval from the chief commissioner or commissioner and
 After giving a opportunity of being heard
 Section 142(2A) is applicable, even if the assessee have been audited under any other law

 Consequences for non-compliance of notice under this section;
 Result in best judgement under section 144 of the Act
 Impose penalty under section 147 271(1)(b) of the Act i.e. Rs. 10,000/-
 Prosecution under section 276D which may extend to 1 year with or without fine

Types of notices U/s
143(2)
Limited scrutiny
(CASS)
Complete scrutiny
(CASS)
Manual Scrutiny
Scrutiny notice - section 143(2):

 As per section 292BB, the scrutiny Assessment notice served will be valid
if no objection raised for
 Notice not served
 Improper issuance of notice
 Invalid service
 However, the objection must be raised before the start of proceedings,
that means no objection can be raised once after proceedings completed.

 CBDT vide notification No. 7/2014 dated 26-09-2014 has clarified extent
of enquiry in certain category of cases specific.
 For proper administration of Income tax act, CBDT hereby direct that the
cases selected for scrutiny during the FY 2014-15 on the basis of AIR data
or CIB information or for non reconciliation with Form 26AS.
 The scope of enquiry should be limited to verification of these particular
aspects only, and reasons for selection under CASS will be displayed.
 It is expected to complete the proceedings are completed in minimum
possible number of hearings.
 Where the escapement of income exceeds 10 L (Metro) and 5 L in (non-
metro) apart from CASS, the case is taken up for comprehensive scrutiny.

 Notice can be served up to the expiry of 6 months from the end of
Financial Year in which the return is filed.
 AO Cannot issue notice under section 143(2), if the assessee has not filed
the ROI.
 Notice under this section may ask you to produce the documents in
support of deduction, exemptions, allowances, reliefs, claim of loss made
in the ROI
 The objective of the scrutiny is to check that the assessee;
 Has not understated the income
 not claimed excessive loss
 no under payment of taxes in any manner

Steps involved in the scrutiny process:
 A notice under section 143(2) will served on the assessee
 Assessee himself or authorised representative of the assessee will appear before the
AO to place your arguments and evidences as required by AO
 After considering all the evidences, a final order under section 143(3) is issued for
tax payable or refundable.
 Validity of notice:
 As per section 292BB, the scrutiny Assessment notice served will be valid if no
objection raised for
 Notice not served
 Improper issuance of notice
 Invalid service
 However, the objection must be raised before the start of proceedings, that means no
objection can be raised once after proceedings completed.

A new scheme for scrutiny assessment was introduced by Central Government
for making assessment of total income or loss under section 143(3), so as to
impart greater efficiency, transparency and accountability by;
 eliminating the interface between the assessing officer and the assessee in
the course of proceedings to the extent technologically feasible
 optimising utilisation of the resources through economics of scale and
functional specialisation
 Introducing a team-based assessment with dynamic jurisdiction
 Applicable from the AY 2018-19
New scheme for scrutiny assessment – Sec 143(3A)

After considering all relevant documents gather during the assessment, AO
has an obligation to make an assessment of the total income or loss to the
best of judgement in the following cases;
 Fails to furnish return under section 139(1) or 139(4) or 139(5)
 Fail to comply with terms of notice given under section 142(1) or fail to comply with
directors required him to get the accounts audited under section 142(2A)
 After filing a return, fail to comply with terms of notice under section 143(2), like
presence or production of evidence and documents
 AO not satisfying about the correctness or the completeness of the accounts of the
assessee or the method of accounting has been regularly employed by assessee
Best judgement assessment – Sec 144

 Estimation must be honest and fair, that means best judgment must have a nexus to
the available material.
 Case law relating to HSPL AY 2013-14
 In the case of Health Superhiway Private Limited, during the AY 2013-14, Company
declared a loss of Rs. 2,99,69,062/-, in the proceedings AO has observed employee
benefit expenditure recorded of Rs. 3,29,01,722/- as against the TO of Rs. 2,05,53,729/-
 Upon submission of relevant document relating to employee benefit, AO was in an
opinion that expenses incurred are not incurred purely for the purpose of business of
assessee, hence an estimate of 10% revenue on the turnover. Finally, net profit arrived
Rs. 20,55,373/-, ignoring loss claimed in the ROI.
 However, assessee went for appeal, it was held that “Assessee has complied with all the
requirement raised by AO, therefore there was no basis for rejection of books and
thereby estimating the income. It was also said that AO cannot get into the shoes of
assessee as to how to run the business, as the assessee is one of the first starter of this
space, hence order passed by the AO was incorrect”.
Best judgement assessment – Sec 144

If the AO has reason to believe that any income chargeable to tax has
escaped assessment for any AY subject to provision 148 to 153, assess or
reassess such income. Section 147 and 148 of the Act are the like weapon
for the income tax department which empowers it to assess, reassess or
recompute income turnover etc which has escaped assessment.
The AO must have “reason to believe” that the income chargeable to tax
had escaped assessment, however reason to believe does not mean a
purely subjective satisfaction on part of AO. The believe must be held in
good faith and not mere pretence.
Income escaping assessment– Sec 147

In the following instances, it is deemed income chargeable to tax has
escaped assessment;
Income escaping assessment– Sec 147
ROI not filed,
even if the total
income was
exceeded the
maximum limit
chargeable to
tax
ROI submitted
and no
assessment
made, but AO
has observed
that income
understated or
claimed excess
loss
Assessee has
filed the
required but
failed to submit
the report
required to be
filed U/s 92E
On the basis of
information
received u/s
133C from which
it was notice
that Income
exceeded the
limit or income
under stated
Assessee was
found to have
assets including
financial interest
in any entity
outside India.

 Before making assessment or reassessment or re-computation under
section 147, a notice must be served on the assessee requiring him to file
the return within the period allowed by AO in the notice. The assessing
officer is required to note/record the reasons for issuing of notice under
this section.
Issue of notice – sec 148

 If the amount involved in income escaped is Rs. 1.00 Lakh or more, the
time limit available is 6 years from the end of AY.
 If income escaped assessment includes income in relation to any asset
located outside India chargeable to tax, the time limit available is
16 years from end of AY
 In any other case (not falling in above 2) 4 years from the end of relevant
AY
 If a person who acting as an agent to a non-resident as mentioned in
section 163, the time limit for serving notice under section 148 is 6 years
Time limit for issue of notice – Sec 149

 No assessment order can be passed under section 143 and 144 of the Act
after the time allowed under the section 153(1) of the Act.
 Within 21 months from the end of the relevant AY
 W.r.t AY commencing on the 01-04-2018, the limit has been revised to 18
months only
 Further the same has changed to 12 months for the AY commencing from
01-04-2019
Time limit for completion of assessment
Asst. Year Time limit (in months) Date of closing
AY 2016-17 21 months 31st December 2018
AY 2017-18 21 months 31st December 2019
AY 2018-19 (Amendment) 18 months 30th September 2020
AY 2019-20 (Amendment) 12 months 31st March 2021

Section 271 deals with failure to furnish the return, comply with notices and
concealment of income etc.
• In the course of proceedings under the Act, if the AO, commissioner
(appeals) or Principal commissioner satisfy that any person;
• Failure to comply with provisions of section 142(1), 143(2) or fail to comply
with directions under section 142(2A)-Penalty of Rs. 10,000/- Sec 271(1)(b)
• Has concealed particulars of income or furnish inaccurate particulars of
income-Penalty shall not be less than, but which shall not exceed 3 times the
amount of tax sought due to concealment of income – Sec 271(1)(c)
Penalty – Sec. 271

Notice of demand shall served on the Assessee if any tax, interest, penalty or
any other sum payable in consequence of order passed under this Act.
Further if any demand raised in the intimation u/s 143(1), Interest or fee o on
TDS and TCS U/s 200A(1) and 206CB(1) respectively.
Notice of Demand – Sec 156

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M/s. SBS and Company LLP
+91 961 860 8165
Venue: SBS - Hyderabad
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