Term Paper on

Assessment Procedure under

The Income Tax Act 1961

By

Manu Gupta

LLM (Taxation)

Enrolment no.: A3268716003

 Acknowledgement

I wish to dedicate my sincere thanks and acknowledgements to Prof Alok Verma for his support and
motivation.

I also wish to acknowledge Amity Law School for providing me with the opportunity to enhance my
knowledge by submitting this research term paper and all the support and services.

Table of Contents
Objective...................................................................................................................................................1
Research Methodology............................................................................................................................1
Abstract.....................................................................................................................................................1
1. Introduction......................................................................................................................................2
2. History of Tax on Income................................................................................................................5
2.1 Ancient Period:......................................................................................................................................5
2.2 Initial Period (1860-1886).....................................................................................................................6
2.3 Pre Independence Period (1886-1947)..................................................................................................6
2.4 Post Independence Period.....................................................................................................................7
2.5 Recent Tax Reforms..............................................................................................................................8

3. Assessment........................................................................................................................................9
3.1 Assessment under Section 143(1)......................................................................................................10
3.1.1 Scope of assessment under Section 143(1):................................................................................10
3.1.2 Procedure of assessment under Section 143(1):..........................................................................10
3.1.3 Time-limit...................................................................................................................................11
3.2 Assessment under Section 143(3)......................................................................................................12
3.2.1 Scope of assessment under Section 143(3).................................................................................12
3.2.2 Procedure of assessment under Section 143(3)...........................................................................12
3.2.3 Time-limit...................................................................................................................................13
3.3 Assessment under Section 144..........................................................................................................14
3.3.1 Scope of assessment under Section 144......................................................................................14
3.3.2 Procedure of assessment under Section 144................................................................................15
3.3.3 Time-Limit..................................................................................................................................15
3.4 Assessment under Section 147..........................................................................................................16
3.4.1 Scope of assessment under Section 147......................................................................................16
3.4.2 Procedure of assessment under Section 147................................................................................17
3.4.3 Time-limit for completion of assessment under Section 147......................................................17
3.4.4 Time-limit for issuance of notice under Section 148...................................................................17

4. Important Case Laws....................................................................................................................18

Conclusion & Suggestions.....................................................................................................................23

 Objective

The main objective of the present research term paper is to ascertain and analyse the provisions
relating to the assessment procedure existing under the Income Tax Act 1961 for an individual.

Research Methodology

The present research term paper shall be using the Doctrinal method of research utilizing
several of the books, articles, publication, periodicals and other literary resources for the preparation of
this thesis. The research shall involve analysing and interpreting the black letters of law which include
various doctrines, principles, rules and precedents. The research primarily involves ascertaining and
analysis of the provisions relating to the assessment procedure existing under the Income Tax Act 1961.

The researcher has gone through precedent, decided judgments, library, various books,
newspapers, journals, articles and Internet on the subject for the purpose of collecting literature and
data for the study and analysis.

Abstract

Individual income tax is a subject matter of central govt. If an individual want to assess his/her
income tax then he/she should have knowledge of individual income tax structure. Individuals after
calculating their total income for a particular financial year can assess their income tax after deduction
of saving and doing other adjustments. By doing so they can plan in advance about their savings and
income tax.

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1. Introduction

Government has to play an important role in all round development of society in the modern
era. It has not only to perform its traditional functions (defence, maintenance of law and order) but also
to undertake welfare and development activities such as health, education, sanitation, rural
development, water supply etc. It has also to pay for its own administration. All these functions require
huge public finance. Taxes constitute the main source of public finance whereby government raises
revenue for public spending. Taxes have been broadly categorized into direct and indirect taxes. Direct
taxes include those taxes which are paid by the person on whom these are levied like income tax,
wealth tax etc. On the other hand, Indirect taxes are levied on one person, but paid by another e.g.
sales tax, excise duty, custom duty etc.

Income tax is the most important of all direct taxes and with the application of progressive rate
schedule, provision of exemption limit and incorporation of a number of incentive provisions. It can be
used not only to satisfy all the canons of a sound tax system but may also go a long way in realising
variety of socio economic objectives set out by the economic system [Gopal, M.H., p. 20]. It also helps
in bringing distributional justice through higher rate of tax on the rich class of the society. It may also
act as a tool for controlling inflation. Due to all these factors, income tax has assumed great importance
in the structure of direct taxation. Therefore, all politically advanced democracies impose some form of
personal taxation, generally based on income.

Indian Legal System follows the three tier system in taxation which is based between the
Central government, State Governments and the Local government organizations. India has a well-
developed tax structure with clearly separated authority between Central and State Governments and
local bodies. Central Government levies taxes on income, customs duties, central excise and service
tax.

According to the Constitution of India, the government has the right to levy taxes on
organizations and individuals. However, the constitution states that no one has the right to levy taxes
except the authority of law or the parliament. The main body, which is responsible for the collection of
taxes, is the Central Board of Direct Taxes (CBDT), which is a part of the Department of Revenue
under the Ministry of Finance of the Indian Government. The CBDT functions as per the Central Board

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of Revenue Act of 1963. In the last couple of decades, Indian taxation system has undergone wonderful
reforms. The tax laws have been simplified and the tax rates have been rationalized resulting in better
compliance, ease of tax payment and better enforcement.

The government imposes a tax on taxable income of all persons including individuals, Hindu
Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local
authority and any other artificial judicial person. Levy of tax is different on each individual. The levy is
governed by the Indian Income Tax Act, 1961. Income tax is a key source of funds that the government
uses to fund its activities and serve the public.

In India, this tax was introduced for the first time in 1860 by Sir James Wilson in order to meet
the losses sustained by the Government on account of the Military Mutiny of 1857.Thereafter, several
amendments were made in it from time to time. At last, in 1886, a separate Income tax act was passed.
This act remained in force up to 1918 with various amendments from time to time. In 1918, a new
Income tax was passed and again it was replaced by another new act which was passed in 1922. This
Act remained in force up to the assessment year 1961-62 with numerous amendments.

The Income Tax Act of 1922 had become very complicated on account of innumerable
amendments. The Government of India therefore referred it to the law commission in 1956 with a view
to simplify and prevent the evasion of tax. The law commission submitted its report in September 1958.
In consultation with the Ministry of Law finally the Income Tax Act,1961 was passed.

The Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole
of India and Sikkim (including Jammu and Kashmir). Since 1962 several amendments of far-reaching
nature have been made in the Income Tax Act by the Union Budget every year which also contains
Finance Bill. After it is passed passed by both the houses of Parliament and receives the assent of the
President of India, it becomes the Finance Act. Besides this, amendments have also been made by
various Amendment acts. For instance, Taxation laws Amendment Act 1984, Direct Taxes Amendment
Act 1987, Direct Taxes Law (Amendment) Acts of 1988 and 1989, Direct Tax Law (Second
amendment) Act 1992 and 1993. As a matter of fact, the Income Tax Act 1961, which came into force
on 1st April 1962, has been amended and re-amended drastically. It has therefore become very
complicated both for the administering authorities and the tax-payers.

The period after Independence was quite challenging for the tax planners. An enormous black
economy set in both due to Second World War and increases in economic activity after independence.

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Savings and investment were encouraged through the different taxation laws by the way of incentives.
There was a requirement for generating huge amount of revenues to fund the economic growth of the
country. The tax department took great care to plan the tax structure not only with the aspect to widen
the income tax base, but also to look for alternate taxes and to eliminate tax avoidance. The department
was harshly tested due to the high volumes of work.

Some of the prominent taxes that came into existence at that time were:1

Business Profits Tax (1947)

Capital Gains (1946-48 to 1956)
Estate Duty (1953)
Wealth Tax (1957)
Expenditure Tax (1957)
Gift Tax (1958)

The wave of tax reforms that started across the world in the second half of 1980's found its way
into India too. As part of its globalization policy including liberalization, India introduced tax reforms
in the 1990's. The reforms introduced in the Indian tax structure are various in comparison to other
countries. In India, the tax reforms took place independent of interference from any external
multilateral agency unlike some other countries. But the tax reforms took place in such a way as to
ensure its obedience to the prevailing International trends.

1 Kasuhik, R. Assessment of Individual Income Tax, Tax Planning and Saving in India, International Journal of Computational
Engineering & Management, Vol. 15 Issue 4 July 2012

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2. History of Tax on Income

It is a matter of general belief that taxes on income and wealth are of recent origin but there is
enough evidence to show that taxes on income in some form or the other were levied even in primitive
and ancient communities. The origin of the word "Tax" is from "Taxation" which means an estimate.
These were levied either on the sale and purchase of merchandise or livestock and were collected in a
haphazard manner from time to time.

1.1 Ancient Period:

Nearly 2000 years ago, there went out a decree from Ceaser Augustus that all the world should
be taxed. In Greece, Germany and Roman Empires, taxes were also levied sometime on the basis of
turnover and sometimes on occupations. For many centuries, revenue from taxes went to the Monarch.
In Northern England, taxes were levied on land and on moveable property such as the Saladin title in
1188. Later on, these were supplemented by introduction of poll taxes, and indirect taxes known as
"Ancient Customs" which were duties on wool, leather and hides. These levies and taxes in various
forms and on various commodities and professions were imposed to meet the needs of the
Governments to meet their military and civil expenditure and not only to ensure safety to the subjects
but also to meet the common needs of the citizens like maintenance of roads, administration of justice
and such other functions of the State.2

In India, the system of direct taxation as it is known today, has been in force in one form or
another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety
of tax measures. Manu, the ancient sage and law-giver stated that the king could levy taxes, according
to Shastras. The wise sage advised that taxes should be related to the income and expenditure of the
subject. He, however, cautioned the king against excessive taxation and stated that both extremes
should be avoided namely either complete absence of taxes or exorbitant taxation.

According to him, the king should arrange the collection of taxes in such a manner that the

2 History of Taxation Pre - 1922, Income Tax Department Website, (www.incometaxindia.gov.in)

Accessed on 17.10.2016
Page 5
subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th
of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their
produce depending upon their circumstances. The detailed analysis given by Manu on the subject
clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this,
taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls.
Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and also by rendering personal
service.3

1.2 Initial Period (1860-1886)

Income tax in its modern form was introduced in India for first time in 1860 by the British
Government to overcome the financial crisis following the events of 1857. Initially Government
introduced it as a temporary measure of raising revenue under the Income Tax Act 1860 for a period of
five years. Different tax rates were prescribed for different heads of income. In the year 1867, it was
transformed as licence tax on trade and profession. In the year 1869, the licence tax was replaced by
Income Tax again. The assessments were made on arbitrary basis leading to inequality, unpopularity
and widespread tax evasion. Income Tax was withdrawn in the year 1874. After the great famine of
1876-78, the Government introduced local Acts for income tax in different provinces. With several
amendments these Acts remained in force till 1886. Thus, the period from 1860 to 1886 was a period of
experiments in the context of income tax in India.

1.3 Pre Independence Period (1886-1947)

In 1886, a new Income Tax Act was passed with great improvements than the previous Acts.
This Act with several amendments in different years continued till 1918. In 1918, a new Act was passed
repealing all the previous Acts. For the first time, this Act introduced the concept of aggregating
income under different heads for charging tax.

In 1921, the Government constituted All India Income Tax Committee and on the basis of

3 History of Taxation Pre - 1922, Income Tax Department Website, (www.incometaxindia.gov.in)

Accessed on 17.10.2016
Page 6
recommendation of this committee a new Act (Act XI of 1922) was enacted. This Act is a landmark in
the history of Indian Income Tax system. This Act made income tax a central subject by shifting the tax
administration from the Provincial Governments to the Central Government. During this period the
Board of Revenue (Central Board of Revenue) and the Income Tax Department, with defined
administrative structure, came into existence.4

1.4 Post Independence Period

The Income Tax Act 1922 continued to be applicable to independent India. During the early
post independence period, the Income Tax legislation had become very complicated on account of
innumerable changes. During this period tax evasion was wide spread and tax collection was very
expensive. In 1956, the Government of India referred the Act to a Law Commission to make the
Income Tax Act simpler, logical and revenue oriented. The Law Commission submitted its report in
September 1956 and in the meantime the Govt. also appointed a Direct Taxes Administration Enquiry
Committee to suggest the measures for minimizing the inconvenience to the assessees and prevention
of tax evasion. This committee submitted its report in 1959. The recommendations of the Law
Commission and the Enquiry Committee were examined and extensive tax reform programme was
undertaken by the Government of India.

The Income Tax Bill 1961, prepared on the basis of the Committee s recommendations and
suggestions from Chamber of Commerce, was introduced in the Lok Sabha on 24.04.196. It was passed
in September 1961 by Lok Sabha. The Income Tax Act 1961 came into force on April 1, 1962. It
applies to whole of India including the state of Jammu and Kashmir. It is a comprehensive piece of
legislation having 23 Chapters, 298 Sections, various sub Sections and 14 schedules. Since 1962, it has
been subjected to numerous amendments by the Finance Act of each year to cope with changing
scenario of India and its economy. Moreover, the CBDT is empowered to amend rules and to clarify
instructions as and when it becomes necessary.

Besides this, amendments have also been made by various Amendment Acts e.g. Taxation Laws
Amendment Act 1984, Direct Taxes Amendment Act 1987, Direct Taxes Law (Amendment) Acts of
1988 and 1989, Direct Taxes Law (Second Amendment) Act 1989 and at last the Taxation Law

4 Arora, RS Taxation of income in India a study of post liberalisation period, Punjab University, November 2010

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(Amendment) Act 1991. As a matter of fact, the Income Tax Act 1961 has been amended drastically. It
has therefore become very complicated both for administration and taxpayers.

1.5 Recent Tax Reforms

The economic crisis of 1991 led to structural tax reforms in India with main purpose of
correcting the fiscal imbalance. Subsequently, the Tax Reforms Committee headed by Raja Chelliah
(Government of India, 1992) and Task Force on Direct Taxes made several proposals for improving
Income Tax System. These recommendations have been implemented by the government in phases
from time to time. As regarding the personal income tax, the maximum marginal rate has been
drastically reduced, tax slabs have been restructured with low tax rates and exemption limit has been
raised. In addition to this, government rationalised various incentive provisions and widened TDS
scope. In case of corporate tax, the government has reduced rates applicable to both domestic and
foreign companies, introduced depreciation on intangible assets and rationalised various incentive
provisions. Some new taxes have been introduced such as Minimum Alternative Tax and Dividend
Distribution Tax, Securities Transaction Tax, Fringe Benefit Tax and Banking Cash Transaction Tax.
However, Fringe Benefit Tax and Banking Cash Transaction Tax were withdrawn by Finance Act,
2009.

The Income tax administration was restructured with effect from August 1, 2001 to facilitate the
introduction of computer technology. Further, keeping in mind the global developments, the department
has made considerable efforts for reforming the tax administration in recent years. Some important
measures in this direction are introduction of mandatory quoting of Permanent Account Number
(PAN), e-filing of returns, e-TDS, e-payment, Tax Information Network (TIN), Annual Information
Return (AIR) for high value transaction, Integrated Taxpayer Profiling System (ITPS), Refund Banker
Scheme in certain cities etc. The main objective of these reforms has been to enhance tax revenue by
expanding the taxpayer base, improving operational efficiency of the tax administration, encouraging
voluntary tax compliance, creating a taxpayer friendly atmosphere and simplifying procedural rules.

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3. Assessment

Every taxpayer has to furnish the details of his income to the Income-tax Department. These
details are to be furnished by filing up his return of income. Once the return of income is filed up by the
taxpayer, the next step is the processing of the return of income by the Income Tax Department. The
Income Tax Department examines the return of income for its correctness. The process of examining
the return of income by the Income- Tax department is called as Assessment. Assessment also
includes re assessment and best judgment assessment under Section 144 of the Income Tax Act 1961.

Under the Income-tax Law, there are four major kinds of assessments:

(i) Assessment under Section 143(1), i.e., Summary assessment without calling the assessee.
(ii) Assessment under Section 143(3), i.e., Scrutiny assessment.
(iii)Assessment under Section 144, i.e., Best judgment assessment.

(iv)Assessment under Section 147, i.e., Income escaping assessment.

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1.6 Assessment under Section 143(1)

This is a preliminary assessment and is referred to as summary assessment without calling the
assessee (i.e., taxpayer).

1.6.1 Scope of assessment under Section 143(1):

Assessment under Section 143(1) is like preliminary checking of the return of income. At this
stage no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is
computed after making the following adjustments (if any), namely:

(i) any arithmetical error in the return; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the
return;

For the above purpose an incorrect claim apparent from any information in the return means a
claim on the basis of an entry in the return

(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 is required to be furnished under the Act to
substantiate such entry and 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;

1.6.2 Procedure of assessment under Section 143(1):

After correcting arithmetical error or incorrect claim (if any) as discussed above, the tax and
interest, if any, shall be computed on the basis of the adjusted income.
Any sum payable by or refund due to the taxpayer shall be intimated to him.
An intimation shall be prepared or generated and sent to the taxpayer specifying the sum
determined to be payable by, or the amount of refund due to the taxpayer.
An intimation shall also be sent to the taxpayer in a case where the loss declared in the return of
income by the taxpayer is adjusted but no tax or interest is payable by or no refund is due to him.
The acknowledgement of the return of income shall be deemed to be the intimation in a case where
no sum is payable by or refundable to the assessee or where no adjustment is made to the returned

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 income.
The processing of a return under Section 143(1) shall not be necessary, where a notice has been
issued to the assessee under Section 143(2), i.e., a notice for scrutiny assessment has been issued to
the taxpayer.

1.6.3 Time-limit
Assessment under Section 143(1) can be made within a period of one year from the end of the
financial year in which the return of income is filed.

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1.7 Assessment under Section 143(3)

This is a detailed assessment and is referred to as scrutiny assessment. At this stage a detailed
scrutiny of the return of income will be carried out. At this stage a scrutiny is carried out to confirm the
correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of
income.

1.7.1 Scope of assessment under Section 143(3)

The objective of scrutiny assessment is to confirm that the taxpayer has not understated the
income or has not computed excessive loss or has not underpaid the tax in any manner.

To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of
income and will satisfy himself regarding various claims, deductions, etc., made by the taxpayer in the
return of income.

1.7.2 Procedure of assessment under Section 143(3)

If the Assessing Officer considers it necessary or expedient to ensure that the taxpayer has not
understated the income or has not computed excessive loss or has not underpaid the tax in any
manner, then he will serve on the taxpayer a notice requiring him to attend his office or to produce
or cause to be produced any evidence on which the taxpayer may rely, in support of the return.
To carry out assessment under Section 143(3), the Assessing Officer shall serve such notice in
accordance with provisions of Section 143(2).
Notice under Section 143(2) should be served within a period of six months from the end of the
financial year in which the return is filed.
The taxpayer or his representative (as the case may be) will appear before the Assessing Officer and
will place his arguments, supporting evidences, etc., on various matters/issues as required by the
Assessing Officer.
After hearing/verifying such evidence and taking into account such particulars as the taxpayer may
produce and such other evidence as the Assessing Officer may require on specified points and after
taking into account all relevant materials which he has gathered, the Assessing Officer shall, by an
order in writing, make an assessment of the total income or loss of the taxpayer and determine the
sum payable by him or refund of any amount due to him on the basis of such assessment.

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1.7.3 Time-limit
As per Section 153, assessment under Section 143(3) shall be made within a period of two years
from the end of the relevant assessment year.

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1.8 Assessment under Section 144

This is an assessment carried out as per the best judgment of the Assessing Officer on the basis
of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails
to comply with the requirements specified in Section 144 of the income Tax Act 1961.

1.8.1 Scope of assessment under Section 144

As per Section 144, the Assessing Officer is under an obligation to make an assessment to the
best of his judgment in the following cases:-

(i) If the taxpayer fails to file the return required within the due date prescribed under Section
139(1) or a belated return under Section 139(4) or a revised return under Section 139(5).
(ii) If the taxpayer fails to comply with all the terms of a notice issued under Section 142(1).

Note: The Assessing Officer can issue notice under Section 142(1) asking the taxpayer to file the return
of income if he has not filed the return of income or to produce or cause to be produced such accounts
or documents as he may require and to furnish in writing and verified in the prescribed manner
information in such form and on such points or matters (including a statement of all assets and
liabilities of the taxpayer, whether included in the accounts or not) as he may require.

(iii) If the taxpayer fails to comply with the directions issued under Section 142(2A).

Note: Section 142(2A) deals with special audit. As per Section 142(2A), if the conditions justifying
special audit as given in Section 142(2A) are satisfied, then the Assessing Officer will direct the
taxpayer to get his accounts audited from a chartered accountant nominated by the principal chief
commissioner or Chief Commissioner or Principal Commissioner or Commissioner and to furnish a
report of such audit in the prescribed form.

(iv) If after filing the return of income the taxpayer fails to comply with all the terms of a notice
issued under Section 143(2), i.e., notice of scrutiny assessment.
(v) If the assessing officer is not satisfied about the correctness or the completeness of the
accounts of the taxpayer or if no method of accounting has been regularly employed by the
taxpayer.

From the above criteria, it can be observed that best judgment assessment is resorted to in cases

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where the return of income is not filed by the taxpayer or if there is no cooperation by the taxpayer in
terms of furnishing information / explanation related to his tax assessment or if books of accounts of
taxpayer are not reliable or are incomplete.

1.8.2 Procedure of assessment under Section 144

If the conditions given above calling for best judgment are satisfied, then the Assessing Officer will
serve a notice on the taxpayer to show cause why the assessment should not be completed to the
best of his judgment.
No notice as given above is required in a case where a notice under Section 142(1) has been issued
prior to the making of an assessment under Section 144.
If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has reason to
believe that the case demands a best judgment, then he will proceed to carry out the assessment to
the best of his knowledge.
If the criteria of the best judgment assessment are satisfied, then after taking into account all
relevant materials which the Assessing Officer has gathered, and after giving the taxpayer an
opportunity of being heard, the Assessing Officer shall make the assessment of the total income or
loss to the best of his knowledge/judgment and determine the sum payable by the taxpayer on the
basis of such assessment.

1.8.3 Time-Limit
As per Section 153, assessment under Section 144 shall be made within a period of two years
from the end of the relevant assessment year.

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1.9 Assessment under Section 147

This assessment is carried out if the Assessing Officer has reason to believe that any income
chargeable to tax has escaped assessment for any assessment year.

1.9.1 Scope of assessment under Section 147

The objective of carrying out assessment under Section 147 is to bring under the tax net any income
which has escaped assessment in original assessment.
Original assessment here means an assessment under Sections 143(1), 143(3), 144 and 147 (as the
case may be).
In other words, if any income has escaped from being taxed in the original assessment made under
Section 143(1) or Section 143(3) or Section 144 or Section 147, then the same can be brought under
tax net by resorting to assessment under Section 147.
In the following cases, it will be considered as income having escaped assessment: Where no return
of income has been furnished by the taxpayer, although his total income or the total income of any
other person in respect of which he is assessable during the previous year exceeded the maximum
amount which is not chargeable to income-tax.
Where a return of income has been furnished by the taxpayer but no assessment has been made and
it is noticed by the Assessing Officer that the taxpayer has understated the income or has claimed
excessive loss, deduction, allowance or relief in the return.
Where the taxpayer has failed to furnish a report in respect of any international transaction which
he was required to do under Section 92E.
Where an assessment has been made, but:
1. income chargeable to tax has been under assessed; or
2. income has been assessed at low rate; or
3. income has been made the subject of excessive relief; or
4. excessive loss or depreciation allowance or any other allowance has been computed;
Where a person is found to have any asset (including financial interest in any entity) located outside
India.

1.9.2 Procedure of assessment under Section 147

For making an assessment under Section 147, the Assessing Officer has to issue notice under
Section 148 to the taxpayer and has to give him an opportunity of being heard. The time-limit for
issuance of notice under Section 148 is discussed in later part.

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 If the Assessing Officer has reason to believe that any income chargeable to tax has escaped
assessment for any assessment year, then he may assess or reassess such income and also any other
income chargeable to tax which has escaped assessment and which comes to his notice
subsequently in the course of the proceedings under this Section. He is also empowered to re-
compute the loss or the depreciation allowance or any other allowance, as the case may be, for the
assessment year concerned.
Items which are the subject matters of any appeal, reference or revision cannot be covered by the
Assessing Officer under Section 147.

1.9.3 Time-limit for completion of assessment under Section 147

As per Section 153, assessment under Section 147 shall be made within a period of one year
from the end of the financial year in which notice under Section 148 is served on the taxpayer.

1.9.4 Time-limit for issuance of notice under Section 148

Notice under Section 148 can be issued within a period of 4 (*) years from the end of the
relevant assessment year. If the escaped income is Rs. 1,00,000 or more and certain other
conditions are satisfied, then notice can be issued upto 6 years from the end of the relevant
assessment year.
In case the escaped income relates to any asset (including financial interest in any entity)
located outside India, notice can be issued upto 16 years from the end of the relevant
assessment year.

Notice under Section 148 can be issued by AO only after getting prior approval from the prescribed
authority.

1. Important Case Laws

Page 17
1 Commissioner of Income Tax vs Govind Nagar Sugar Limited5

Issue: Can unabsorbed depreciation be allowed to be carried forward in case the return of income is
not filed within the due date?

Held: The unabsorbed depreciation will be allowed to be carried forward to subsequent year even
though the return of income of the current assessment year was not filed within the due date.

2. Orissa Rural Housing Development Corpn. Ltd. vs The Assistant Commissioner of Income
Tax, Bhubaneswar6

Issue: Can an assessee revise the particulars filed in the original return of income by filing a
revised statement of income?

Held: The assessee can make a fresh claim before the Assessing Officer or make a change in the
originally filed return of income only by filing revised return of income under section 139(5). There
is no provision under the Income-tax Act, 1961 to enable an assessee to revise his income by filling
a revised statement of income. Therefore, filling of revised statement of income is of no value and
will not be considered by the Assessing Officer for assessment purposes.

3. A Kowsalya Bai vs. UOI7

Issue: Is a person having income below taxable limit, required to furnish his PAN to the deductor
as per the provisions of section 206AA, even though he is not required to hold a PAN as per the
provisions of section 139A?

Held: That it may not be necessary for such persons whose income is below the maximum amount
not chargeable to income-tax to obtain PAN and in view of the specific provision of section 139A,
section 206AA is not applicable to such persons. Therefore, the banking and financial institutions
shall not insist upon such persons to furnish PAN while filing declaration under section 197A.,
5 ITA 164/2008.

6 W.P.(C) No. 4554 of 2011

7 WP no. 12780 12782 / 2010

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 section 206AA would continue to be applicable to persons whose income is the maximum amount
not chargeable to income-tax.

4. Aventis Pharma Ltd. vs The Assistant Commissioner8

Issue: Can the Assessing Officer reopen an assessment on the basis of merely a change of opinion?

Held: There was no tangible material before the Assessing Officer to hold that income had escaped
assessment within the meaning of section 147 and the reasons recorded for reopening the
assessment constituted a mere change of opinion. Therefore, the reassessment was not valid.

5. ACIT vs. ICICI Securities Primary Dealership Ltd9

Issue: Is it permissible under section 147 to reopen the assessment of the assessee on the ground
that income has escaped assessment, after a change of opinion as to a loss being a speculative loss
and not a normal business loss, consequent to a mere re-look of accounts which were earlier
furnished by the assessee during assessment under section 143(3)?

Held: The assessee had disclosed full details in the return of income in the matter of its dealing in
stocks and shares. There was no failure on the part of assessee to disclose material facts as
mentioned in proviso to section 147. Further, there is nothing new which has come to the notice of
the Assessing Officer. The accounts had been furnished by the assessee when called upon.
Therefore, re-opening of the assessment by the Assessing Officer is clearly a change of opinion and
therefore, the order of re-opening the assessment is not valid.

6. Ranbaxy Laboratories Limited Vs Commissioner Of Income Tax10

Issue: Can the Assessing Officer reassess issues other than the issues in respect of which

8 W.P. no. 139/ 2010

9 Civil Appeal No. 5960 Of 2012

10 ITA no. 148/2008

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 proceedings were initiated under section 147 when the original reason to believe on basis of
which the notice was issued ceased to exist?

Held: If the income, the escapement of which was the basis of the formation of the reason to
believe is not assessed or reassessed, it would not be open to the Assessing Officer to
independently assess only that income which comes to his notice subsequently in the course of the
proceedings under the section as having escaped assessment. If he intends to do so, a fresh notice
under section 148 would be necessary.

7. H. K. Buildcon Ltd. vs. Income-tax Officer11

Issue: In case of change of incumbent of an office, can the successor Assessing Officer initiate
reassessment proceedings on the ground of change of opinion in relation to an issue, which the
predecessor Assessing Officer who framed the original assessment had already applied his mind
and come to a conclusion?

Held: The Gujarat High Court, applying the rationale of the Apex Court ruling, observed that in the
entire reasons recorded in this case, there was nothing on record to show that income had escaped
assessment in respect of which the successor Assessing Officer received information subsequently,
from an external source. The reasons recorded themselves indicated that the successor Assessing
Officer had merely recorded a different opinion in relation to an issue to which the Assessing
Officer, who had framed the original assessment, had already applied his mind and come to a
conclusion. The notice of reassessment was, therefore, not valid.

8. Commissioner of Income-tax vs. Haryana State Handloom and Handicrafts Corporation

Ltd12

Issue: Can the Assessing Officer issue notice under section 154 to rectify a mistake apparent from
record in the intimation under section 143(1), after issue of a valid notice under section 143(2)?

Held: State Handloom and Handicrafts Corporation Ltd. (P&H High Court)

11 2010 (4) TMI 831

12 2010 (7) TMI 760

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 The Punjab and Haryana High Court relying, inter alia, on the said decision held that the scope of
proceedings under section 143(2) is wider than the power of rectification of mistake apparent from
record under section 154.The notice under section 143(2) is issued to ensure that the assessee has
not understated the income or has not computed excessive loss or underpaid the tax. It is only on
consideration of the matter and on being satisfied that it is necessary or expedient to do so that the
Assessing Officer issues the notice under section 143(2). Therefore, the Assessing Officer has to
proceed under section 143(3) and issue an assessment order. If issue of notice under section 154 is
permitted to rectify the intimation issued under section 143(1), then it would lead to duplication of
work and wastage of time. Therefore, it was concluded that proceedings under section 154 for
rectification of intimation under section 143(1) cannot be initiated after issuance of notice under
section 143(2) by the Assessing Officer to the assessee.

9. Commissioner Of Income Tax, Delhi Vs Tony Electronics Limited13

Issue: Would the doctrine of merger apply for calculating the period of limitation under section
154(7)?

Held: The High Court held that once an appeal against the order passed by an authority is preferred
and is decided by the appellate authority, the order of the Assessing Officer merges with the order
of the appellate authority. After merger, the order of the original authority ceases to exist and the
order of the appellate authority prevails. Thus, the period of limitation of 4 years for the purpose of
section 154(7) has to be counted from the date of the order of the Appellate Authority.

9.1

13 ITA no. 196/ 2009

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 Conclusion & Suggestions

The assessment of income tax of individuals have been explained in the term paper above but I
would now like to cite some suggestions for the betterment of the Tax Regime of India. Reforming
taxation is an on going process, through which tax policy makers and tax administrators are
continuously adapting the tax system to reflect changing economic, social and political circumstances.

Tax evasion and corruption are widely prevailing in the Indian tax system, which are the biggest
blocks in the way of proper implementation of law. Thus, there is a need to tackle tax evasion and
corruption for improving tax compliance.

Government should reduce number of taxes, rationalize tax rates, use TDS extensively, simplify
tax laws, widen Annual Information Return network, increase publicity, create awareness among
general public regarding tax morality, minimise discretionary powers available with income tax
authorities and inculcate a sense of integrity among tax officials for achieving this objective.

Income Tax Department should utilise information available under the Annual Information
Return properly for detecting tax evaders. Timely disposal of assessments ensures timely raising of tax
demands and quick refunds to assessees. Thus, there is a need to motivate assessees for e- filing of
returns and increase in number of assessing officers for timely completion of assessments.

Further, Government should start more centres for central processing of assessments. Mistakes
in assessments result in revenue loss to the Government as well as harassment to the taxpayers. Hence,
internal audit should be strengthened to minimise mistakes in assessments.

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