words computing the income and tax on it. Under Income Tax Act there are four types of Assessment: - 1) Sec 140 A Self Assessment 2) Sec 143 (3) Regular / Scrutiny Assessment 3) Sec 144 Best Judgment Assessment 4) Sec 147 Assessment / Reassessment of Income Escaping Assessment Normal Procedure of Taxation The usual process of Taxation is: 1) The assessee earns income 2) Assessee deposits tax based on self calculation or as determined by his Tax Consultant 3) The assessee files Income Tax Return (ITR) Income Tax Return (ITR) l ITR can be called a self declaration of information containing various sources of income earned and tax paid. The Government requires ITR because, in absence of that, it would not be able to understand as to what amounts and from what sources the assessee has earned in the year, and what taxes has to been paid by the assessee. l ITR under normal course should be filed u/s 139(1). This section describes the normal time limit of filing the ITR which is for non-audit cases is July 31 of the Assessment year, and for audit cases September 30 of the Assessment year. l Generally, a person who has income above the minimum exemption limit (without giving effect of any sections of IT Act) is obligated under law to file ITR. However assessee eg a Company has to file ITR compulsorily whether it earns profit or not. Also, a person, who has income below the minimum exemption limit, though not required by law, is not barred from filing ITR. Often people having income below the minimum exemption limit also file ITR and the motivation for filing it varies it can be that someone wants a Credit Card or a loan from some Bank or NBFC, or has to produce the ITR for getting some contract. Many of those who return such income are genuine cases. However, there are others who would try to manipulate law for their ends. Also, sometimes, ITR is filed for the purpose of getting refund of TDS. Had there been no TDS, the person might not have required filing ITR. 1) Self Assessment u/s 140 A : This simply means that the person is calculating his own tax liability and thereafter filing ITR after payment of self-calculated tax. Since assessee himself calculates the tax and income returned it is called self-assessment. The Assessing Officer (AO) only checks the return of income on the face of it and corrects the mistake, if any on it. If there is any short of tax he call for it and if there is any excess of tax paid he shall refund the same. However, the system of self-assessment is only to make the work of IT Dept easier it is not the end of assessment. It is simply paying tax and filing of Return by the assessee. The IT Dept only gives an acknowledgement / intimation u/s 143(1). The assessee can file ITR as Self assessment under the different sections of 139 (Return within due date / Belated Return / Return of Loss etc.) or in response to notice u/s 142(1) or 148 or 153A There is no assessment order by the Dept. under Self Assessment simply because, the assessment is not being done by the department. Since the assessment is not being done by the IT Department, for legal purpose the acknowledgment / intimation by IT Department is not considered as Assessment. 2) Regular / Scrutiny Assessment u/s 143(3): On the basis of return of income filed, AO may undertake deep examination of some return of income roughly 2% to 3% of the total returns filed. In scrutiny assessment the AO calls the assessee to furnish the explanations and books of accounts. For undertaking the scrutiny assessment the AO has to issue a notice to the assessee under section 143(2). If Assessee produces the information and explanations required by the Assessing Officer (AO) the AO completes the assessment and determine the Taxable income and income tax liability on the basis of the information and explanations produced before him. Assessment made under this section would be final and the department cannot open the case again unless there are valid reasons (reasons to believe). 3) Best Judgement Assessment u/s 144 : Best Judgment Assessment, as the name indicates Best Judgment Assessment means the computation of income and tax is undertaken by the AO himself, on the basis of the best of his judgment. The Best judgment Assessment can be made by an A.O. under the following cases: - 1. Assessee does not file his regular return of income u/s 139. 2. Assessee does not comply with instructions u/s 142 (1), i.e., notice requiring to file his return of income or 142 (2A), i.e., notice requiring assessee to conduct audit of his accounts. 3. Assessee does not comply with instructions u/s 143(2), i.e., notice of scrutiny assessment. 4. AO is not satisfied regarding completeness of accounts Since in all of the above cases either assess does not cooperate with the Assessing Officer (AO) or does not file return of income or does not have complete accounts. Thus, the assessing officer cannot calculate the income and therefore, he has to judge the income on the basis of his best assumptions/judgments. The AO must give a hearing to the assessee before completing the assessment as per best of his judgment. No refund can be granted under best judgment assessment. U/s 144 A.O. cannot assess income below returned income and cannot assess loss higher than the returned loss. Even in case there is no return for the year, the AO has to base his calculation on certain logical/rational/ scientific and reasonable ways viz . based on ratios, growth rate of industry / sector. The assessment order should therefore be a speaking order. Assessment u/s 144 can also be resorted to if AO is not satisfied with the correctness / completeness of Books of Accounts. Also the AO can reject Books of accounts u/s 145 if assessment proceedings are in process u/s 143(3) / 144 / 147 / 153A and in such case, the AO shall assess the income and tax to the best of judgement (ie. as per the requirements / procedure of sec 144) and complete assessment proceedings under the particular section under which the proceedings are going on. 4) Assessment / Reassessment of Income Escaping Assessment u/s 147 : To undertake assessment u/s 147, notice has to be issued u/s 148. Before issuing notice u/s 148 the AO shall record his reasons for issuing the notice. The notice has to be issued separately for each AY for which proceedings are to be taken up u/s 147. The assessee has to file Return in response to notice u/s 148 even if he has filed the return previously within due date. Also, the AO is duty bound to provide the assessee the reasons recorded by him if the assessee requests for it after filing Return of Income in response to the notice. If on request the reasons are not supplied then the AO cannot proceed u/s 147 If there has been no previous assessment u/s 143(3) or 144, then proceedings u/s 147 is called assessment, else it is called re-assessment. Also assessment / re-assessment u/s 147 cannot be undertaken for any AY, if assessment proceedings are already underway under any other section of IT Act. In this the most important thing is that the AO should have reasons to believe that income chargeable to tax has escaped assessment. In proceeding under this sections, the AO can also consider any other income under any head of income that comes to his detection subsequent to issue of notice u/s 148. However, u/s 147 can only relate to issues of underassessment and unlike assessment u/s 143(3), the AO cannot reduce income or increase losses. This assessment can be undertaken whether the Assessee has filed return or not or whether any assessment has been undertaken previously or not. This is because, the section 147 speaks both of assessment and also reassessment. Reasons to believe includes: 1) There has been retrospective change of law either by legislation or due to court order (usually Supreme Court) and the AO finds that the assessee needs to be re-assessed in light of the new law / rule that is to be applied retrospectively. 2) Evidence that has come to notice of AO. This evidence can be from any source including any other assessment proceedings or information received from revenue intelligence etc. 3) Mistake apparent from records The interesting thing is that it is only necessary that there is prima facie some material on basis of which the case can be reopened. The sufficiency or even correctness of material is not to be considered at the stage of opening / reopening of case u/s 147. However reasons to believe does not include rumors, gossips, suspicion or change of personal opinion of AO. Now, the assessment u/s 147 and 143(3) (and also 144) is sort of linked. After all, any assessment can be done only on scrutiny of records. Now to take up assessment u/s 143(3) notice u/s 143(2) has to be served on the assessee within six months of expiry of financial year in which the return was furnished