Assessment procedure

Assessment of income

Assessment of income means ascertaining the taxable income of an assessee as per the
provisions of the Income Tax Act, 1961, Income Tax Rules 1962 and Finance Acts for the
respective assessment years.

Return of income

The statement in which the assessee discloses the details of his income during the previous
year is called a return of income. The income tax department has prescribed specific forms
for returns to be submitted by different categories of assesses. It is the duty of an assessee to
prepare and submit the return of income before the due date for furnishing the same, in the
prescribed manner.

Types of returns

(1) Voluntary return

Every person having income exceeding the non-taxable limit is liable to file a return of
income on or before the due date, in the prescribed form and manner. According to the
Income Tax Act, every assessee shall voluntarily prepare and submit the return as prescribed.
If an assessee submits a return without compulsion from any authority, it is called a voluntary
return.

(2) Compulsory return

If a person fails to submit the voluntary return of income before the due date, the assessing
officer may serve a notice on such person requiring him to furnish the return within the time
allowed in the notice. The return so submitted or required to be submitted is called a
compulsory return. An assessee submitting a compulsory return is liable to pay interest for
late submission of return from the due date till the return is furnished.

(3) Belated return

Where an assessee fails to furnish the voluntary return or compulsory return of income within
the time specified, he may furnish the same at any time before the expiry of one year from the
end of the relevant assessment year or before the completion of assessment, whichever is
earlier. Such a delayed return is called belated return. An assessee submitting a belated return
is liable to pay interest for late submission of return from the due date till the return is
furnished.

(4) Return of loss

If a person who has sustained a loss in any previous year under the head profits and gains of
business or profession or capital gains or on account of maintenance of race horses, claims
that the loss should be carried forward, he should furnish a return of loss in the prescribed
form and manner. Otherwise the loss cannot be carried forward.

(5) Revised return

After submitting a voluntary return of income, if any person discovers any omission or any
wrong statement therein, he may furnish a revised return at any time before the end of the
relevant assessment year or before the completion of the assessment, whichever is earlier.
The revised return will be considered as the final return for assessment purposes.

(6) Defective return

A return of income submitted by an assessee shall be considered as defective under the

following situations.

(a) Where the annexures, statements and columns in the return of income have not been
duly filled in.
(b) The return is not accompanied by a statement showing the computation of tax
payable.
(c) The return is not accompanied by the audit report (only in cases where audit is
compulsory).
(d) The return is not accompanied by proof of tax, if any, claimed to have been deducted
at source.
(e) The return is not accompanied by proper books of accounts or statements showing the
details of transactions during the previous year.

Due date of filing return

The following are the due dates applicable for different categories of assessees.
 (a) In the case of a company or any other person where accounts are required to be
compulsorily audited – on or before 30th September of the assessment year.
(b) In other cases – on or before 31st July of the assessment year.
(c) In the case of companies which are required to furnish report from a chartered
accountant regarding international transactions – on or before 30th November of the
assessment year.

Procedure for online submission of income tax return

The following procedure is required to submit the income tax return, online.

(1) Register the PAN

To e-file the income tax return, the assessee will have to register on the Income Tax
Department’s online tax filing site. The assessee has to provide his PAN, name, date of birth,
residential status, email id, residential address, bank account details, Aadhaar number, etc.

(2) Select the requisite form

After login, the assessee can select the required ITR form. For salaried assesses, ITR 1 is
specified. While filing the return online, it is advisable to keep Form 16, interest statements,
TDS certificates, details of investments, insurance, home loan details, etc. for accurate
submission of information.

(3) Download Form 26AS

Download form 26 AS, which is a statement showing the summary of tax already paid by the
assessee against the PAN. The assessee can cross check the tax return with form 26 AS to
check the outstanding tax liability.

(4) Fill the form and upload the same

After filling all the fields correctly, the ITR should be uploaded.

(5) Download ITR V (Acknowledgement of online submission of ITR)

On submitting the ITR form, an acknowledgement number is generated and a form called
ITR V is sent to the registered email id of the assessee. It should be either verified
electronically or sent to the Income Tax Department Return Processing Centre.
Permanent Account Number (PAN)

PAN is nothing but the identity card issued by the income tax department. The purpose of
PAN is to identify each assessee regarding the tax matters. PAN has 10 alphanumeric
characters and it is issued in the form of a laminated card. PAN is allotted to a person on the
basis of an application submitted in the prescribed form.

The following persons are liable to submit the application for PAN.

(a) Persons whose income for the previous year exceeds the non-taxable limit
(b) Persons carrying on a business or profession whose total sales turnover is likely to
exceed Rs.5,00,000 during the previous year.
(c) Trusts for charitable or religious purposes whose income exceeds the non-taxable
limit.
(d) Employers who are required to file return of income.

Situations where PAN is compulsory

PAN is compulsory in the following situations.

(a) Sale or purchase of immovable property valued at Rs. 10 lakhs or more.

(b) Sale or purchase of a motor vehicle which requires registration under Motor Vehicles
Act, 1988.
(c) Time deposit exceeding Rs.50,000 in a bank, post office or a non-banking financial
institution.
(d) Time deposits aggregating Rs.5,00,000 during a year.
(e) Contracts for sale or purchase of securities exceeding Rs. 1,00,000.
(f) Opening an account in a bank.
(g) Payments exceeding Rs.50,000 during a day.
(h) Deposit in cash aggregating Rs.50,000 during any one day.
(i) Application for the issue of credit cards.
(j) Opening a demat account, etc. etc.

Types of assessment

The following are the different types of assessments specified in the Act.

(1) Self-assessment
(2) Assessment on the basis of return

(3) Regular assessment

(i) Assessment on the basis of evidence

(ii) Best judgement assessment

(a) Compulsory best judgement assessment

(b) Discretionary best judgement assessment

(4) Income escaping assessment (Re-assessment)

(5) Precautionary assessment / protective assessment

(1) Self-assessment

The assessment of income done by the assessee himself is called self-assessment. It is the
duty of every assessee to compute his income and tax thereon, prepare and submit the return
in the prescribed form and remit any unpaid balance of tax, interest or penalty, within the
prescribed time limit. If an assessee himself fulfils the above legal requirements, it is called a
self-assessment.

(2) Assessment on the basis of return

The assessment done by the assessing officer on the basis of voluntary or compulsory return
filed by the assessee is called assessment on the basis of return. If any tax or interest is found
due on the basis of such return, he will require the assessee to pay it. On the other hand, if
any refund is due on the basis of such return, it shall be granted to the assessee.

(3) Regular assessment

Regular assessment may be of two types, assessment made on the basis of evidence and best
judgement assessment.

(i) Assessment on the basis of evidence

In order to ensure the correctness or completeness of the return or to ensure that the income
has not been understated or the loss declared is not excessive or the tax has not been
underpaid, the assessing officer shall serve a notice to produce evidences in support of the
return. Sometimes he may require the assessee to submit a statement of his assets and
liabilities or to get his accounts audited and to submit the audit report also in support of the
claim. Based on the evidences submitted by the assessee, the assessing officer will make an
assessment.

(ii) Best judgement assessment

Where the assessee fails to submit the voluntary return or compulsory return, or where the
return submitted is found to be incorrect or incomplete, the assessing officer has the power to
make a best judgement assessment. Under best judgement assessment, the total income and
tax liability of the assessee is estimated by the assessing officer unilaterally, on the basis of
circumstantial evidences and other details obtained.

In making such an assessment, the assessing officer must make a fair and genuine estimate of
the income particulars of the assessee. It is also called ex-parte assessment.

Best judgement assessment may be compulsory or discretionary.

(a) Compulsory best judgement assessment

It is done in the following three cases.
● Where the assessee has failed to make voluntary or even belated return
● Where the assessee fails to produce accounts or other documents or information or
fails to get the accounts audited as demanded in the notice.
● Where the return is incorrect or incomplete.
(b) Discretionary best judgement assessment
Where the assessing officer is not satisfied about the correctness of the accounts of the
assessee or where no method of accounting has been regularly employed by the
assessee, the assessing officer may, in his discretion, make the best judgement
assessment and it is called discretionary best judgement assessment. The assessee can
file an appeal against such an assessment as in the case of compulsory best judgement
assessment.

(4) Income escaping assessment (Re-assessment)

If the assessing officer has sufficient reasons to believe that any income chargeable to tax has
escaped assessment for any assessment year, he may assess or re-assess such income which is
called income escaping assessment. The tax on escaped income shall be chargeable at the
rates at which it would have been charged had the income not escaped the assessment.

Income escaping assessment happens in the following circumstances also.

(i) Where no return of income has been furnished by the assessee although total
income exceeded the maximum non-taxable limit.
(ii) Where a return has been furnished, but no assessment has been made and the
assessee is found to have understated his income or claimed excessive loss or
deduction.
(iii) Where an assessment has been made, but income chargeable to tax has been under
assessed or assessed at a lower rate or any excessive loss or deduction has been
allowed.

(5) Precautionary / Protective assessment

If it is practically difficult to determine as to whom the income pertains, the assessing officer
can assess the person who is found to be the prima facie recipient of the income. This is
called precautionary assessment because such an assessment is done as a precaution to
protect the revenue.

Income Tax authorities and their powers

Proper execution of Income Tax Act is a very difficult task, particularly in a vast country like
India. With the purpose of administering the income tax affairs, the Government of India has
constituted an apex authority known as the Central Board of Direct Taxes (CBDT). The
Board is responsible for the formulation, evaluation and proper implementation of policies
relating to direct taxes administration. The Board consists of a chairman and six members.

The following is the hierarchical set up of income tax authorities India.

(1) Central Board of Direct Taxes

(2) Director General of Income Tax or Chief Commissioners of Income Tax
(3) Director of Income Tax or Commissioners of Income Tax or Commissioners of
Income Tax (Appeals)
(4) Additional Directors of Income Tax or Additional Commissioners of Income Tax or
Additional Commissioners of Income Tax (Appeals)
(5) Joint Directors of Income Tax or Joint Commissioners of Income Tax
 (6) Deputy Directors of Income Tax or Deputy Commissioners of Income Tax
(7) Assistant Directors of Income Tax or Assistant Commissioners of Income Tax
(8) Income Tax Officers
(9) Tax Recovery Officers
(10) Inspectors of Income Tax

General powers of the income tax authorities

The following are the general powers of the income tax authorities.

(1) Power regarding discovery, production of evidence, etc.

Income tax authorities have same powers as are vested in a court under the Code of Civil
Procedure, 1908, while trying a suit in respect of the following matters.

(a) Discovery and inspection

(b) Enforcing the attendance of any person and examining him on oath
(c) Compelling the production of books of accounts and other documents
(d) Issuing commissions.

(2) Power of search and seizure

Searches and seizures can be authorised by an income tax authority specially empowered by
the Board for the purpose.

The following are the situations in which search and seizure may be ordered.

(a) Failure to produce books of accounts or other documents as required by the authority
(b) Failure to produce books of accounts or other documents which will be useful or
relevant to any proceeding under the Act
(c) If the person is in possession of any money, jewellery or any other valuable articles
which represent income or property undisclosed.

(3) Power to requisition of books of accounts

The income tax authorities not below the rank of Commissioner or Director can require the
production of books of accounts under the custody of officers or authorities under any other
law, if required.

(4) Power of application of retained assets

The income tax authorities are authorised to recover any income tax liability of an assessee
from the assets retained under the provisions of the Act.

(5) Power to call for information

The authority may for the purpose of the Act:

(a) Require any firm to furnish a return of the names and addresses of the partners of the
firm and their respective shares.
(b) Require any HUF to furnish the names and addresses of the manager and the members
of the family.
(c) Require any trustee, guardian or agent to furnish the names and addresses of the
persons for whom he is trustee, guardian or agent.
(d) Require any assessee to furnish a statement of the names and addresses of all persons
to whom he has paid rent, interest, commission, royalty, brokerage or any other
amount exceeding Rs.1,000.
(e) Require any dealer, broker or agent of a stock exchange to furnish the names and
addresses of all persons to whom he or the exchange has paid any sum in connection
with the transfer of assets.
(f) Require any person including a bank to give information in relation to such points or
matters or to furnish statements of accounts which will be useful for any enquiry or
proceeding under the Act.

(6) Power to inspect registers of companies

The income tax authorities can inspect and take copies of any register of the members,
debenture holders or mortgagees of any company or of any entry in such register.