assessment proceedings acae chartered accountants' study circle-eirc
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Assessment Proceedings ACAE Chartered Accountants' Study Circle-EIRC. Basant Gadhyan 6 February 2014. Contents *. Overview Summary Assessment Scrutiny Assessment Best Judgment Assessment General principles for assessments Guidance for handling assessments Post assessment proceedings - PowerPoint PPT PresentationTRANSCRIPT
Assessment Proceedings
ACAE Chartered Accountants' Study Circle-EIRC
Basant Gadhyan
6 February 2014
Contents *
• Overview• Summary Assessment• Scrutiny Assessment• Best Judgment Assessment• General principles for assessments• Guidance for handling assessments• Post assessment proceedings• Some Recent Updates
*Excluding reassessment , search etc.
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Overview
Overview
Assessment meaning:
• Section 2(8) - assessment includes re-assessment
• As per law lexicon - assessment means determining the share of tax payable
• Assessment is a procedure for determining tax liability and recovery of taxes
• Assessment is vide enough to include all types of assessments including penalty proceedings
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Overview
Assessments generally understood under the Act• Summary Assessment u/s 143(1)• Regular assessment U/s 143(3)• Best Judgment Assessment u/s 144• Income escaping assessment under section 147• Assessment under search cases
Related provisions • Section 142 - Inquiry before assessment including audit • Section 142A - Estimations of valuation officer• Section 144C - Reference to Dispute Resolution Panel• Section 154 - Rectification• Section 156 - Notice of demand• Section 131 - Power regarding discovery, production of evidence
etc.• Section 133(6) - Power to call for information• Section 292BB - Notice deemed to be valid5
Overview
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Assessment (Sec 2(8))
Regular assessment
Scrutiny assessment u/s 143(3)
Best judgment assessment
u/s 144
Reassessment u/s 147
Summaryassessment
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Summary assessment
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Summary Assessment
• Processing of returns filed u/s 139 or response to 142(1) notice. Following adjustments permissible in intimation u/s 143(1):• Correct arithmetical errors• Correct an incorrect claim apparent from information in the return
• Explanation to sub section 1 defines “an incorrect claim apparent from any information in the return” means a claim (i) of an item, which is inconsistent with another entry of the same or some other item in such return;(ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or(iii) in respect of a deduction, where such deduction exceeds specified
statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;
• Time Limit• Intimation to be sent within 1 year from the end of the FY in which
return filed
• ‘Acknowledgement’ of ROI is ‘intimation’ if no demand or refund. Intimation not an order of ‘assessment’• Rajesh Jhaveri Stock Brokers (P) Ltd. (291 ITR 500)(SC)• Mahanagar Telephone Nigam Ltd. vs. CBDT (246 ITR 173)(Del)
• Tax payable as per intimation is deemed to be notice of demand – to be paid within 30 days of receipt of intimation
Intimation u/s 143(1)
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Summary Assessment
• Issues:• When TDS credit / Advance tax not allowed / short allowed• When different tax rate charged i.e. general rate in place special
rate• Notice u/s 143(2) issued and processing not done
• Rectification/ Appeals• Rectification u/s 154 on the website• Appeal u/s 246 A
• A.O. cannot issue an order u/s 154 to rectify a notice u/s 143(1) after a notice u/s 143(2) has been issued (P&H HC in Haryana State Handloom and Handicrafts Corporation)
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Scrutiny Assessment
• CBDT issues instructions on norms for selection of scrutiny • CASS selection – cases meeting prefixed parameters• Manual Selection
• Instruction No 10/2013, dated: August 5, 2013 pursuant to the direction of the Delhi High Court in Joginder Pal Gulati vs. OSD – CPIO. Following cases / returns shall be compulsorily scrutinized (FY 13 - 14):-• International transaction exceeds Rs. 15 crores.• Addition in an earlier AY on the TP issue in excess of Rs. 10 Cr.
which is confirmed in appeal/ pending before appellate authority.• Addition in an earlier AY in excess of Rs. 10 lacs on a substantial
and recurring question of law/ fact which is confirmed in appeal or is pending before an appellate authority.
• Assessment in search and seizure cases to be made under sections 158B, 158BC, 158BD, 153A & 153C read with 143(3)
Selection of scrutiny cases
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• Assessments pertaining to survey u/s 133A excluding certain cases.
• All returns filed in response to notice u/s 147/148• Cases claiming exemption of income u/s 11 or u/s 10(23C) which
are hit by proviso(s) to Section 2(15) • Entities which received donations from countries abroad in excess
of Rs. 1 crore • Cases in respect of which information is received from other
Government Department(s) or other authorities pointing out tax-evasion. AO to record reasons in such cases and take approval from jurisdictional CCIT/DGIT before selecting such case for scrutiny.
• Crystal Phosphates Ltd. v. ACIT (Delhi)(Trib.) Assessment-CBDT-Guidelines-Assessment void if case picked up contrary to CBDT’s Scrutiny Guidelines.
Selection of scrutiny cases
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Scrutiny assessments - process
DRP applicable to TP cases / foreign company
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Filing of return- 139 or 142(1)
143(2) notice
Scrutiny proceedings
DRP
Order – u/s 143(3)
Appeals – CIT(A), Stay & Rectification
Draft order
Mandatory directions
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Scrutiny assessments : Notice u/s 143(2)
• Essential requirements • Served upon assessee• Served in time• Served in proper manner
• Notice u/s.143(2) must be ‘served’ and not merely ‘issued’ within prescribed time• P. Abdul Kadar Hamza vs. CIT (246 ITR 14)(Ker)
• No requirement to record reasons in the notice (unlike assessment u/s 147/148)
• Service of notice after time limit – Assessment to be quashed• Aegis Chemicals vs. ITO (65 ITD 147)(Mum)• Bhagat Singh and Virendra Singh vs. ACIT (75 ITD 1)(Del)
Service of a notice or summon or requisition or order or any other communication under this Act may be made by-(a) by post or by such courier services as may be approved; or(b) in such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or(c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000; or(d) by any other means of transmission of documents as provided by
rules made by the Board in this behalf.
Explanation.—For the purposes of this section, the expressions “electronic mail” and “electronic mail message” shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act, 2000
Section 282
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Assessments :Powers and duties of the AO
• Powers of AO • Issuance of notice u/s 142(1) to call for books of accounts• Issue of summons u/s 131 to the assessee/ other person• Requiring information u/s 133(6)• To make specific enquiries u/s 143(3)
• Duties of AO • Proceed without bias and provide sufficient opportunity of being
heard• Draw attention to deduction/relief which the assessee is entitled• Impartial evaluation of evidence
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Best judgment assessment
Best judgment assessment (Sec 144)
• AO entitled to complete the assessment to the best of his judgment where: • Failure to make return u/s 139(1)/(4)/(5)• Non compliance of notice u/s 142(1)• Non compliance of direction u/s 142(2A)• Non compliance of notice u/s 143(2)
• AO to provide an opportunity of being heard to the assessee by serving a notice as to why assessment should not be completed on best judgment basis. (Notice not required if 142(1) notice issued).
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• No provision under the Act. Concept applied in appropriate cases to safeguard the interest of the Revenue.
• Applied in cases generally where it is difficult to determine:• the person in whose hands income should be taxed; • the year for which it should be taxed; and • the status in which a particular assessee should be assessed.
• Assessments which in the opinion of the department is the correct, is treated as substantive. The other is treated as protective.
• Protective assessments become infructuous once the appellate authorities confirm the substantive assessment. Alternatively, protective assessments become substantive.
Protective assessment
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General principles for assessments
General Principles
• Notice – Section 282A and section 292BB• Proper issuance of valid notice and valid service of notice is
important• It is on the department to prove a valid service of notice (Bom HC
in Rasiklal Amritlal Doshi 42 ITR 35 )
• CBDT Circulars are binding on the Revenue• CBDT circulars are binding on all authorities employed in the
execution of the Act (Cal HC in Grindlays Bank (201 ITR 148)
• Effect of book entries in income – Accounting treatment is not decisive of the true nature of transaction • Poona Electric Supply Company (SC) • CIT vs. Shoorji Vallabhdas & Co. (SC)
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General Principles
• Principles of natural justice• Opportunity to be heard• Failure to follow principles of natural justice cannot be made good
in an appeal (SC in Tin Box Co (2001) 249 ITR 216 (SC)• Violation of principles of natural justice at the stage of assumption
of jurisdiction would nullify the entire action of subsequent order(Ker HC in Dr. C. Balakrishnan Nair (1999) 237 ITR 70 (Ker.)
• Principle of Res Judicata (Estoppel by record) • The principle of Res Judicata does not ordinarily apply to tax laws• The decision in one Assessment Year is not binding on parties for
subsequent AYs (SC in Murlidhar Bagwandas 52 ITR 335 (SC) and Installment Supply P. Ltd AIR 1962 SC 53)
• Each year is a distinct unit year (AP High Court in K. Sadasiva Krishna Rao 144 ITR 270)
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Guidance for handling assessments
Guidance for handling assessments
• Two questions that need to be always answered: • What must the assessee prove to avoid disallowance/ taxability • How to prove the above requirement
• Understanding of the facts
• Preparation of written submissions • Analysis of facts to be reflected clearly • Technical points - thorough research of databases – reference to
section, circulars, case laws• Logical flow • Annexures and numbering – preparation of index where required• Prior approval from client before submission – especially factual
submissions
• Adjournment • Adjournment ought to be moved well in time• Not to be repetitive as a matter of right
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Guidance for handling assessments
• Noting in Order Sheet
• Adverse case laws cited by the AO • Distinguishing on facts• Difference in legal provisions pertaining to the year concerned• Reversal by higher authorities/ contrary view of other ITAT/Court• Importance of jurisdictional HC/ ITAT
• Prayer for opportunity of being heard
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Section Purpose Time Limit143(2) Notice for scrutiny assessment To be served within 6 months from the end of
FY in which return is furnished
149 Issue of notice u/s 148 for reopening of assessments
• 4 years from end of the AY; • 6 years from end of AY if income 1 lac or
more• 16 years from end of AY for income in
relation to any asset located outside India
153 Completion of assessment/ reassessment
• Under section 143(3) or 144 • 2 years from the end of AY• In Transfer pricing matters, 3 years from
the end of AY
• Under section 147 1 year from the end of FY of serving notice u/s 148 (extended to 2 years for TP matters)
• Exclusion in certain cases • Proceeding stayed by Court• Special Audit – 142(2A)• Settlement Commission/ AAR
154 Application for 154 • 4 years from the end of FY in which order is passed
Passing of Order u/s 154 • 6 months from the end of the month in which application received
Time limit
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Post Assessment Proceedings
• Rectification u/s 154
• Appeal
• Stay of demand
• Penalty proceedings (if initiated) to be kept in abeyance
Unfavorable Order – What next?
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• Sec 154 – An income-tax authority may with a view to rectifying any mistake apparent from the record:
• amend any order passed by it• amend any intimation or deemed intimation u/s 143(1)
• Rectification may also be made on application by assessee
• Orders cannot be rectified after expiry of 4 years from the end of the financial year in which order sought to be amended was passed
• Time limit - On rectification plea by assessee – Within 6 months from the end of the month in which the application is received
• No form prescribed. No filing fee payable.
Rectification
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• Amount demanded u/s 156 payable within 30 days of service of notice of demand
• Stay is not automatic on filing of an appeal
• No stay on the ground that appeal is pending
• CBDT instruction on recovery of outstanding tax demands – Instruction No. 1914 dated 2 December 1993
• Rejection of stay application – to be moved to higher authorities
Stay of demand
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Some recent updates
• Instruction No. 5/2013 dated 8 July 2013 issued by CBDT
TDS certificate as an evidence against any mismatched amount to be verified by AO as to whether the deductor has made the TDS payment. If payment made by deductor, credit to be allowed to the assessee
• TDS credit cannot be denied on the ground that the TDS is not reflected in Form 26AS/ departments system.‒ Citicorp Finance (India) Ltd. vs. Add.CIT (ITA No. 8532/Mum/2011)‒ 3i Infotech Limited vs. DCIT (ITA No. 7786/Mum/2012)
• Order u/s 154: Department’s practice of not giving prompt & full credit for TDS condemned. - Vaghjibhai S. Bishnoi v. ITO (Guj.)(HC)
Recent updates – TDS credit
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• Making a fresh claim during assessments – whether permissible?
• Goetz India Ltd v. CIT (2006) 284 ITR 323 (SC) – AO can entertain a new claim for deduction only where a revised return of income filed by the assessee
• However, fresh claim may be made during appeal proceedings (without revised return): • CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd.(2012) 208
Taxman 498 (Bom - HC)• CIT vs. Arvind Mills Limited (Tax Appeal No 1407 of 2011) (Guj -
HC)• Chicago Pneumatic India Ltd. v DCIT 15 SOT 252 (Mum). • Apollo Tyres Ltd v. Dy.CIT ( 2013) 90 DTR 35 (Cochin)(Trib.)• Emerson Network Power India (P.) Ltd. vs. ACIT 27 SOT 593
(Mum).
Recent updates – Fresh claim
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• Vodafone Mobile Service Ltd. v. UOI (2013) 86 DTR 332 (Delhi)(HC)Assessment was completed on 29-12-2006. Notice for rectification was issued on 2-3-2012 and order was passed on 23-3-2012. Thereafter, demand was raised against assessee pursuant to order passed under section 154. As per section 154(7), limitation period for rectification is four years from end of FY in which assessment is completed, i.e. 31-3-2011 in this case. Therefore demand raised pursuant to order under section 154 was time barred. (AY. 2004-05)
• Prakash Ramji Gavali v. ITO (2012) 138 ITD 1 (Mum.)(Trib.)Sending of notice on address, other than that given in return of income and subsequently returned, not amount to either service or deemed service of such notice.
Recent updates
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• Green Power Realtors (P.) Ltd. v. DCIT (2013) 216 Taxman 169 (Mad)(HC)Where notice under s. 143(2) was dispatched to assessee only after date fixed for hearing, there was denial of reasonable opportunity of hearing to assessee and, in such a case, impugned order passed by revenue authority was not sustainable as it violated principles of natural justice.
• Russian Technology Centre P. Ltd. v. DCIT (2013) 25 ITR 521/145 ITD 88 (Delhi) (Trib.)Income-tax authorities must verify the records and decide the allowability. If records are available with the Department and the assessee points towards it, the authorities must verify that evidence and decide allowability.
Recent updates
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• Vijay Corporation v. ITO (2012) 50 SOT 33 (URO)(Mum.)(Trib)Assessment order without Assessing Officer’s signature is void
• E. K. K. and Co. v. ACIT (2012) 20 ITR 325 (Cochin)(Trib.)Under ITR V regime : Date of filing relates back to date on which it is electronically up loaded
• HDFC Bank Limited v. ACIT (2013) 354 ITR 77 (Bom) (HC)Collection and recovery-Assessee deemed in default-Stay-Demand should be stayed if strong prima facie case made out. Demand on covered issues cannot be recovered by adjustment of refunds.
• DIC Asia Pacific Pte. Ltd. (22 taxmann.com 310 (Kol))Rates under the DTAA are not subject to additional surcharge and cess.
Recent updates
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