Assessment Procedure under the Income Tax Act, 1961

The article 'Assessment Procedure under the Income Tax Act, 1961' discusses an overview of the assessment procedure under the Act, highlighting the key steps and processes involved. The Income Tax Act, 1961 provides the framework for the assessment of income tax in India. 

The assessment procedure under the Income Tax Act, 1961 is governed by rules and regulations to ensure fairness, transparency, and compliance. Taxpayers are encouraged to maintain accurate records, maintain proper books of accounts, and comply with the provisions of the Act to avoid complications during the assessment process.

Introduction

It is essential on the part of every taxpayer to furnish the details of his income to the income tax department. In contrast to the obligation imposed by the law on the assessee to declare the income in the return of income, the Act provides for a mechanism whereby the income declared by the assessee is verified by the taxing authorities. Ensuring that the income liable under this Act has been duly offered for taxation is necessary. According to the Act, this mechanism has been referred to as Assessment.

Meaning and Definition of Assessment Procedure

An assessment is a process for assessing the return of income by the Income Tax Department. The assessment shall also include a revaluation, by Section 144, the best judgment shall be assessed. Section 2(8) of the Income Tax Act defines the term assessment to be included in a reassessment. This is an inclusive definition, which does not give a definitive meaning to the word assessment. To cover all proceedings arising from the lodging of a return or issue of notification, as well as after the determination of the tax due by the assessee, different courts interpreted the word assessment. Chapter XIV of the Act contains provisions relating to the assessment procedure.

Purpose and Objective of the Assessment Procedure 

• It helps with the mitigation of tax litigation
• To make sure that the assessee does not overstate his income, miscalculate any expenditure or loss or undervalue any tax.
• To ensure that the income chargeable under the act is duly offered to tax

Types of Assessment Procedure 

There are various types of assessment procedures contained under the income tax act which are mentioned as follows:

• Summary assessment without calling the assessee under section 143(1)
• Scrutiny Assessment under section 143(3)
• Best Judgment Assessment under section 144.
• Re-Assessment under section 148.
• Summary Assessment

It is a preliminary assessment and is referred to as a summary assessment without calling the assessee. It is a preliminary examination of the return of income as described in Section 143(1). The return of revenue shall not be subject to any thorough examination at this stage. After adjusting for a number of these changes, the total revenue or loss shall be calculated.

Scrutiny Assessment

This is a detailed assessment and is referred to as a scrutiny assessment. In this phase, in order to verify the correctness and genuineness of particular claims, deductions or other transactions which took place by taxpayers on their return of revenues, it will be subjected to a thorough examination. The purpose of the review assessment is to verify that a taxpayer did not overstate its income or failed to calculate an excessive loss or paid no tax in any way.

In order to verify that, the Assessing Officer shall carry out a thorough examination of the return of income and will fulfil his responsibilities in relation to various claims, deductions etc. which have been submitted by the taxpayer during the Return of Income. To carry out an assessment under section 143(3), the Assessing Officer shall serve such notice in accordance with provisions of section 143(2).

Best Judgment Assessment

On the basis of all the relevant information gathered by the Assessing Officer, this assessment shall be carried out in accordance with the best judgment of the Assessing Officer. In the case of a taxpayer who does not fulfil the requirements set out in Section 144, this assessment shall be carried out. In accordance with section 144, the Assessing Officer has a duty to carry out an assessment to the best of his judgement in these cases.

Re-Assessment

If the assessee's income remained unassessed for the assessment year, the assessee can assess or reassess this income and also other unassessed income known to him in accordance with the provisions of Section 148-153 later in the proceedings or recalculated the loss or depreciation or other deduction for that assessment year.

Rights and Obligations of Tax Payers

A new provision was enacted under the Income Tax Act, 1861 which emphasizes the rights and obligations of taxpayers.

According to Section 119 A of the Income Tax Act, 1861, The Board shall adopt and declare a Taxpayers’ Charter and issue such orders, instructions, directions or guidelines to other Income tax authorities as it may deem fit for the administration of such Charter”.

Obligations

• The taxpayer is required to provide complete and truthful information in good faith, together with on-time compliance with its obligations.
• Taxpayers are expected to fulfil their obligations relating to tax and may seek assistance from the Department if necessary.
• Ensure that the records are accurately recorded, in accordance with the law.
• The taxpayer should be informed and know what their representatives are doing for them.
• As provided for in the tax law, taxpayers are expected to make timely submissions.
• Respond quickly and in a timely manner to income tax notices and information requests.

Rights of Tax Payer

Right to Legal Certainty

In particular, the rights of taxpayers in India provide protection from coercive procedures, breaches of confidentiality and the right to appeal. In addition, it takes into account the finality of judgments and deadlines for legal or administrative actions.

By protecting each taxpayer against abusive or unfounded actions, the right to legal certainty restricts the powers of tax authorities. Furthermore, this right permits a taxpayer to estimate his tax obligation and commitments while making him believe that such rights cannot be changed in an arbitrary fashion.

The principle of legality, with the exception of provisions laid down by law, guarantees a legal right for citizens to enjoy their possessions peacefully. Each tax act has to be approved by the legislature so that taxes do not apply other than under the jurisdiction of the law. Legal certainty ensures that taxes are imposed only if this is allowed by law, and the taxpayers do not pay any tax required by law.

Right to the Principle of Non-Retroactivity

It bars a number of states from making retroactive amendments to their legislation. The tax implications of his economic decisions are covered by the rights of taxpayers in India. It is therefore unfair and detrimental to his rights that any subsequent change of tax as a result of retrospective effect would have an unfavourable impact. In their constitutions, as well as civil law, a number of countries do not permit judicial changes to take effect retroactively.

Germany, Mexico, Paraguay, Russia, Slovenia, Sweden, and Venezuela, while those who permit them are Australia, France, India, and the United States, although there are exceptions to the permissions.

Right to the Principle of Equality and Taxpaying Capacity

Right to the principle of equality states that Tax law should be applied equally and impartially irrespective of the status of the person involved without any exceptions. Moreover, equality is not only about equal treatment between those who find themselves in that position. They must be comparable both on the basis of law and factuality as well as with an appropriate potential to pay taxes.

As opposed to the obligation of citizens to finance public expenditure, this principle permits taxation by the government. However, where there is not a real and effective potential to levy taxes, it also limits the government's tax creation powers. There should be no confiscatory taxation. If the tax amounts to a significant or unjustified amount of taxpayers' income, it is confiscatory. In addition, it must be justified by proportionality or on the basis that there is a real financial capacity or ability to pay.

Right to Due Process and Procedure and Adequate Judicial Review

Taxpayers’ rights can be either procedural or substantive. It is intended to protect against discrimination, undue taxation and retroactively applied legislation. It will deal with issues relating to legislative and administrative measures, collection of taxes and enforcement. The tax information of taxpayers shall be kept confidential by the authorities.

The Taxpayer may, in both the Court of Justice and administrative proceedings relating to tax matters, be entitled to a defence. This right shall include the right to attend courts; the right to hear pleas; the right to provide and use evidence; and the right to a properly reasoned decision. The need for regulatory provisions is generally not required in respect of these rights.

Right to Privacy

The Freedom of all taxpayers to be sure the tax authorities do not unnecessarily intrude into their private lives is unlimited. It is intended to avoid unnecessary searches, and requests for information that would have the effect of determining the correct amount of tax payable. Some strict entry into a person’s dwelling or business premises by a tax official in the course of a tax investigation and on obtaining information from third parties.

Apart from this, there are a few other rights as per the OECD report which are mentioned below:

• Right to be informed or notified
• The Right to Attend the information consultation process as it takes place
• The Right to Appeal and to regulate the authority of the application intervention.

Conclusion

Looking upon the details of the assessment procedure, it is appropriate to mention that if one is able to assess his taxable income as per the provisions contained in the income tax act, 1961 and discharge the tax liability within the respective due date then it will be highly beneficial in mitigating the process of litigation. 

By properly assessing and paying taxes on time, individuals can demonstrate compliance with tax laws and minimize the risk of being subjected to tax audits, investigations, or disputes. It helps in avoiding penalties, interest charges, and legal proceedings that may arise due to non-compliance or discrepancies in tax filings.

References

[1] Taxpayers Rights and Obligations, Available Here

[2] Rights of Taxpayers in India, Available Here

[3] TaxPayer Charter, Available Here

[4] Taxpayers Rights and Obligations in India, Available Here 

[5] Rights of TaxPayers in India, Available Here 

[6] Assessment Procedure, Available Here

[7] Assessment under the Income Tax Act 1961, Available Here

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