UNIT - III

INCOME-TAX AUTHORITIES

The following income-tax authorities have been constituted under Section 116 of the Act to ensure efficient administration and to discharge executive and other appellate functions under the Income-tax Act, 1961 –

1. The Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963;

2. Directors General of Income-tax or Chief Commissioners of Income-tax;

3. Directors 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 or Deputy Commissioners of Income-tax (Appeals);

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.

Provisions of the Income-tax Act with regard to income-tax authorities may be classified into following four categories-(I) Appointment and Control, (II) Jurisdiction, (III) Powers, and (IV) Disclosure of information.

I. Appointment and Control [Sections 117 To 119]

Appointment [Section 117] :

1. Appointment by Central Government : The Central Government may appoint such persons as it thinks fit to be income-tax authorities. Members of the Central Board of Direct Taxes (CBDT) are also appointed by the Central Government. Besides, the Central Government may appoint income-tax authorities of any rank.

2. Appointment by Income-Tax Authorities : Subject to the rules and orders of the Central Government regulating the conditions of Service of persons in public services and posts, the Central Government may authorize the Board, or a Director General, a Chief Commissioner or a Director or a Commissioner to appoint income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner. Thus, Income-tax Officers, Tax Recovery Officers and

Inspectors of Income-tax may be appointed by any of the above income-tax authority, if authorized by the Central Government.

3. Appointment by an authority authorized by the Board-Subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, an income-tax authority authorized in this behalf by the Board (CBDT) may appoint such executive or ministerial staff as may be necessary to assist it in the execution of its functions.

Control [Section 118 & 119] :

1. The CBDT may by notification in the Official Gazette, direct that any income-tax authority or authorities specified in the notification shall be subordinate to such other income-tax authority or authorities as may be specified in such notification.

2. The CBDT may, from time to time, issue orders, instructions and directions to other Income-tax authorities for the proper administration of the Act. The authorities and all other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board.

II. Jurisdiction [Section 120 to 130-A]

Jurisdiction of income-tax authorities [Section 120] :

1. Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on or assigned to such authority by the Central Board of Direct Taxes.

2. The Board may authorize any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the income-tax authority who are subordinate to it.

3. The Board of other income-tax authority authorized by the Board to issue directions, may take into consideration the following points while issuing directions for the determination of jurisdiction and powers:

a) Territorial area;

b) Persons or classes of persons;

c) Income or classes of income;

d) Cases or classes of cases.

4. The Board may, subject to such conditions, restrictions or limitations, issue general or specific order to the following effect:-

a) The Board may authorize any Director General or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board.

b) The Board may empower the Director General or Chief Commissioner or Commissioner to delegate the powers of the Assessing Officer to a Joint Commissioner or a Joint Director. Such delegation of power shall be done by an order in writing.

5. The Board or any other income-tax authority authorized by the Board may, by its directions and orders, required two or more Assessing Officers (whether or not of same class) to exercise and perform, concurrently, the powers and functions in respect of any area of persons or classes of persons or incomes or classes of income or cases or classes of cases. Where such powers and functions are exercised or performed concurrently by the Assessing Officer of different classes, any authority lower in rank amongst them is required to follow the directions of any higher authority amongst them in exercising the powers and performing the functions.

6. The Board is empowered to notify in Official Gazette the jurisdiction of different authorities in the matters of furnishing the return of income or doing any other act or thing under the Act or any rule made thereunder.

III. Powers [Sections 131 to 135] :

1. Power Regarding Discovery and Productions of Evidence Etc. [Section 131]- During the proceedings under the Act, the Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), and Chief Commissioner or Commissioner shall have the same powers as are vested in a civil court in respect of the following matters:

a) Discovery and inspection;

b) Enforcing the attendance of any person, including a bank officer and examining him on oath;

c) Compelling the production of books of accounts and other documents; and

d) Issuing commissions.

If the assessee has produced any books of accounts or other documents before the Director General or Director or Joint Director or Assistant Director or Deputy Director or any other authorized officer in any proceeding under the Act, it may impound and retain in its custody for such period as it thinks fit any book of account or other documents so produced before it. But an Assessing Officer or an Assistant Director shall not:

a) impound any books of account or other documents without recording his reasons for so doing; or

b) retain in his custody any such books or documents for a period exceeding 15 days (exclusive of holidays) without obtaining the approval of the Chief Commissioner, Director General or Commissioner or Director.

2. Enquiry into Concealment [Section 131 (I-A) : If the Director General or Director or Deputy Director or Assistant Director has reason to suspect that any person or class of persons, within his jurisdiction, he is empowered to make any enquiry or investigation relating to it although no proceedings with respect to such persons or class or persons are pending before him.

3. Search and Seizure [Section 132] : Where the Director General or Director, or the Chief Commissioner or Commissioner or any such Joint Director or Joint Commissioner who has been empowered by the Board in this regard, on the basis of information he possesses, has reason to believe that:-

a) any person has omitted or failed to produce such books of account, or other documents as required from him through a notice or summons; or

b) any person, to whom a summon or notice as aforesaid is issued, would not produce any books of account or other documents which will be useful for or relevant to any proceeding under the Act; or

c) any person is in possession of any money, bullion, jewellery or other valuable article or things which represent either wholly or partly such income or property which is not disclosed for the purposes of this Act or which will not be disclosed in any of the proceedings under the Act;

then,

The Director General or Director or the Chief Commissioner or Commissioner may authorize any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer for the search and seizure proceedings. Such Joint Director or Joint Commissioner, as the case may be, may authorize any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax officer. During the search and seizure proceedings the ‘Authorised Officer’ is empowered to do the following –

a) He can enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable articles or things are kept;

b) He can break open the lock of any door, box, locker, safe, almirah or other receptacle if the keys thereof are not available;

c) He can search any person who has got out of, or is about to get into or is in, the building, place, vessel, vehicle or aircraft if it is suspected that such person has secreted any such books of account, other documents, money, bullion, jewellery or other valuable article or things;

d) He can seize any such books of account, other documents, money, bullion, jewellery or other valuable articles or things found as a result of such search;

e) He can place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;

f) He can make a note or an inventory of any such money, bullion, jewellery or other valuable articles or things.

The following provisions of section 132 are applicable in respect of search and seizure–

a) The authorized officer has the power to requisition the services of any police officer or of any officer of Central Government, or of both, to assist him in the work of search and seizure. It shall be the duty of every such officer to comply with such requisition.

b) If it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable articles or things, the authorized officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer.

c) The ‘authorised officer’ may, during, the course of search and seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and the statement of such person may thereafter be used in any proceeding under the Act.

d) If any books of account, money, bullion, jewellery or other valuable articles or things are found in the possession or control of any person in the course of search, it may be presumed:

i) That these belong to such person;

ii) That the contents of such books of account and other documents are true; and

iii) That the signature and every other part of such books or accounts and other documents which purport to be in the handwriting of any particular person are assumed in the person’s handwriting and if a document is stamped, executed or attested, it presumed that it is duly stamped, executed or attested by the person by whom it purports to have been so executed or attested.

e) The Assessing Officer can retain in his custody such assets or part thereof as are, in his opinion, sufficient to satisfy the aggregate of the amount demanded by him and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized.

4. Powers to Requisition Books of Account [Section 132-A] : If the Director General or Director of the Chief Commissioner or Commissioner, on the basis of his information, has reason to believe that –

a) any person has omitted or failed to produce the books of accounts or other documents in spite of a notice or summon being issued to him for it and the said books of account or other documents have been taken into custody by any officer or authority under any other law for the time being in force (such as Sales-tax Officer, Excise-duty Officer etc.); or

b) any books of accounts or other documents will be useful for, or relevant to, any proceeding under this Act and the assessee, in spite of a notice or a summon, from any officer or authority in whose possession such books of account or other documents are kept for the time being in force; or

c) any assets represent either wholly or partly income or property which has not been disclosed by any person from whose possession or control such assets have been taken into custody by any officer or authority any other law for the time being in force,

The Director General or Director or Chief Commissioner or Commissioner may authorize any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer to require the officer or authority who is in possession of such books of account or other documents or assets, to deliver these to the requisitioning officer.

On such requisition, the officer or authority shall deliver the books of account, other documents or assets to the requisitioning officer either immediately or when the purpose of these being kept in his custody by such officer or authority is fulfilled.

5. Application of Retained Assets [Section 132-B] : The asset seized can be applied in the following manner–

a) It can be used or applied in the satisfaction of existing liability under direct taxes Act and any liability determined on the completion of the regular assessment or reassessment for the assessment year relevant to the previous year to which the undisclosed income relates. This liability also includes any penalty levied or interest payable in connection with such assessment or reassessment.

b) If the seized assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in discharge of the assessee’s liabilities.

c) The assets other than money many also be applied for the discharge of any liability under the Act. For this purpose the assets shall be sold as per provisions of this Act.

Any asset or proceeds thereof which remain after all the liabilities are discharged shall be forthwith returned or paid to the person from whose custody the assets were seized.

6. Power to Call for Information [Section 133] : The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), may call for information from the following for the purposes of this Act:-

a) From any firm, the names and addresses of its partners and their respective shares;

b) From any Hindu undivided family, the guardian or agent, the names and addresses of the persons for or of whom he is trustee, guardian or agent;

c) From any person who is trustee, guardian or agent, the names and addresses of the person for or of whom he is trustee, guardian or agent;

d) From any assessee the names and addresses of all persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage, or any annuity (not being any annuity taxable under the head salaries) amounting to more than Rs. 1000 together with particulars of all such payments made;

e) From any dealer, broker or agent or any person managing a stock or commodity exchange, the names and addresses of all persons to whom he or the exchange has paid any sum in connection with sale, exchange has received any such sum, together with particulars of all such payments and receipts;

f) From any person including a bank or any officer thereof, the information or the statement of accounts and affairs which will be useful for, or relevant to any proceeding or inquiry under the Act.

Such powers may also be exercised by the Director-General, the Chief Commissioners, the Director and the Commissioner. But the power to make inquiry, in a case where no proceeding is pending, shall be exercised by the Director or Commissioner or any authority with the prior approval of the Director or the Commissioner.

7. Power of Survey [Section 133-A] : An income-tax authority is empowered to make survey. In this regard it has the following powers –

(A) (i) He may enter any place within the limits of the area assigned to him; or (ii) He may enter any place occupied by any person in respect of whom he exercises jurisdiction; or (iii) He may enter any place for which he has been authorized by the income-tax authority within whose jurisdiction such place is situated or who exercises jurisdiction over the person occupying such place.

8. Power to Collect Certain Information [Section 133-B] : A Joint Commissioner, an Assistant Director or a Deputy Director or an Assessing Officer or an Income-tax Inspector authorized by Assessing Officer is empowered to collect any information for the purposes of this Act. For collecting such information –

a) he can enter any building or place within the jurisdiction of such authority; or

b) he can enter any building or place occupied by any person who is under the jurisdiction of such authority;

The building or place must be such in which business or profession is carried on whether such place be the principal place or not of such business or profession;

c) he can acquire from any proprietor, employee or any other person, who is engaged in the carrying on of such business or profession in any capacity and ask him to furnish such information as may be prescribed;

d) he can enter any such building or place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.

9. Power to inspect registers of companies [Section 134] : The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), or any person subordinate to him authorized in writing in this behalf, may inspect and if necessary take copies, of any register of members, debenture holders or mortgages of any company or of any entry in such register.

10. Power to Make Enquiries [Section 135] : The Director General or Director, the Chief Commissioner or Commissioner and the Joint Commissioner shall be competent to make any enquiry under this Act, and for this purpose shall have all the powers that are possessed by an Assessing Officer under this Act in relation to making of enquiries.

11. Judicial Powers [Section 136] : Any proceeding under this Act before an income-tax authority shall be deemed to be a judicial proceeding and every income-tax authority shall be deemed to be a civil court and shall enjoy all the powers a judicial officer or court has.

IV. Disclosure of Information [Section 138] : The Board or any other income-tax authority specified by it by a general or special order in this behalf may furnish information, received or obtained by an income-tax authority in the performance of his functions under the Act, in respect of any assessee to the following authorities:

1. Any officer, authority or body performing any function under any law relating to imposition of any tax, duty or cess, or to dealings in foreign exchange; or

2. Any officer, authority or body performing functions under any other laws as the Central Government may notify for this purpose.

Such information shall be supplied only when the Board or other income-tax authority is satisfied that these informations are necessary for the purpose of enabling the officer, authority of body to perform his or its functions under the law.

If a person makes an application to the Chief Commissioner or Commissioner in the prescribed form for any information relating to any assessee, received or obtained by any income-tax authority in the performance of his functions under the Act, he may furnish the informations asked for if he is satisfied that disclosure is in the public interest.

PROCEDURE OF ASSESSMENT

Assessment : As per Section 2 (8) ‘Assessment’ includes reassessment for income escaping assessment. The word assessment is used in different senses. Sometimes, it is used to mean the computation of income and sometimes the determination of the amount of tax payable. In a number of provisions of the Act, it is used in a comprehensive sense of the whole procedure laid

down in the Act for ascertaining and imposing liability upon the tax-payer. Thus, to understand the correct meaning of the word ‘assessment’ the context in which it has been used must be referred to.

Return of income : Return of income means a statement furnished by an assessee regarding his total income. The provisions of the Act in connection with return of income are as follows –

1. Period for Filing the Return [Section 139 (1)] : Every person, being a company or other than a company, has to file voluntarily a return of his total income or the income of any other person in respect of which he is assessable under this Act, if such total income during the previous year exceeds the exemption limit. The return of income must be filed in the prescribed form and verified in the prescribed manner containing all the particulars as may be prescribed. But if a person, other than a company, not furnishing return u/s 139 (1) and residing in an area notified by the Board and who, at any time during the previous year, fulfils any one of the six condition given hereunder, shall furnish a return of his income of the previous year on or before the due date in the prescribed form and verified in the prescribed manner and containing all the particulars as may be prescribed. Such six conditions are as follows :-

a) He is in possession of an immovable property exceeding a specified floor area, whether as owner, tenant or otherwise, as may be specified by the Board in this behalf; or

b) He is the owner or lessee of a motor vehicle other than a two wheeled motor vehicle, whether having any detachable side car having extra wheel attached to such two-wheeled motor vehicle or not; or

c) He is a subscriber to a telephone; or

d) He has incurred expenditure for himself or any other person on travel to any foreign country except travel to neighbouring countries or to the notified places or pilgrimage; or

e) He is the holder of the credit card, not being an “and or’ card, issued by any bank or institution; or

f) He is member of a club where entrance fee charged is Rs. 25,000 or more.

But the Central Government may notify that these provisions shall not apply to any class or class of persons.

Every company shall furnish on or before the due date the return in respect of its income or loss in every previous year.

The return of income must be filed with the income-tax department on or before the due date given as under –

a) Where the assessee is :-

i) a company; or

ii) a person, other than a company, whose accounts are required to be audited under this Act or under any other law; or

iii) a working partner of a firm whose accounts are required to be audited under this Act or under any other law, the 31st day of October of the assessment year.

b) Where the assessee is a person, other than a company, the 31st October of the assessment year;

c) in the case of any other assessee, the 31st day of July of the assessment year.

2. Return of Loss [Section 139 (3)] : If any person who has sustained a loss in any previous year under the heads ‘Profits and gains of business or profession’ or ‘Capital gains’ and wants to carry-forward such loss or part thereof, he may furnish within the time allowed u/s 139 (1), a return of loss in the prescribed form duly verified in the prescribed manner and containing such other particulars as may be prescribed. The Assessing Officer may accept such return of loss. When such return of loss is accepted by the Assessing Officer the assessee may carry-forward the losses so shown in the return.

3. Late Filing of Return of Income [Section 139 (4)] : A person, who has not furnished a return within the time allowed u/s 139 (1) or within the time allowed under a notice issued under section 142 (1), may furnish a return for any previous year at any time within one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

4. Return of Income of Charitable or Religious Trusts [Section 139 (4-A)] : Any person who is in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or of income being voluntary contributions for such purposes and his total income for which he is assessable as a representative assessee exceeds the exemption limits, he shall furnish a return of such income of the previous year in the prescribed form, verified in the prescribed manner and setting forth such other particulars as may be prescribed.

5. Return of Political Parties [Section 139 (4-B)] : The Chief Executive Officer (by whatever designation he may be called) of every political party, shall file a nature for the assessable total income of the previous year in the prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed.

6. Revised Return of Income [Section 139 (5)] : If any person who has furnished a return either u/s 139 (1) or under a notice issued u/s 142 (1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

7. Prescribed form of Return of Income [Section 139 (6) and (6-A)] : Prescribed form of return of income shall contain the following information–

a) Particulars of incomes exempted from tax;

b) Assets of the prescribed nature and their value belonging to the assessee;

c) The bank account of the assessee and credit card held by him;

d) Expenditure incurred on prescribed limits; and

e) Such other outgoing as may be prescribed.

In the case of an assessee engaged in any business or profession he shall have to furnish the following information also–

a) The report of any audit or if the report has been furnished before filing the return then, a copy of such report together with proof of filing the report;

b) Location and style of the principal place of business or profession and all the branches thereof;

c) Names and addresses of his partners or members; and

d) The extent of the share of the assessee and of all his partners or members.

8. Liability for interest [Section 139 (8) (a)] : If the return for an assessment is furnished after the specified date, or is not furnished, then, the assessee shall be liable to pay simple interest at 15% per annum, reckoned from the next day following the specified date upto the day on which return is furnished or upto the date of completion of the assessment (in the case where no return has been furnished). The interest shall be calculated on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source.

The Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section. As per rule 117-A of the cases and circumstances under which the interest may be reduced or waived are as follows –

a) Where the return of income is furnished by a person as an agent of a non-resident and is assessed for latter’s income;

b) Where the return of income is furnished by an assessee whose only source of income is a share in the income of an unregistered firm which has been assessed u/s 183 (b);

c) Where the return of income of a deceased individual is furnished by his legal representative satisfies the Assessing Officer that he had sufficient cause for not furnishing such return within time;

d) Where the return of income has been furnished in pursuance of a notice issued under section 148;

e) In any case in which the assessee satisfies the Assessing officer that he had sufficient cause for not furnishing the return within time.

If the amount of interest reduced or waived exceeds Rs. 1,000, the previous approval of Assistant Director or Assistant Commissioner has to be obtained by the Assessing Officer.

9. Defective Return of Income [Section 139 (9)] : If the Assessing Officer thinks that the return of the assessee is defective, he has to give him an opportunity to rectify the defect within 15 days from the date of such intimation or within such extended times as may be allowed by the Assessing Officer on an application made by the assessee for such extension. If the assessee fails to rectify the defects within the time allowed, the return shall be treated as an invalid return and it shall be presumed that the assessee had

failed to furnish the return. But if the assessee rectifies the defects after the prescribed period but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.

10. Return by Whom to be Signed [Section 140] : The return of income furnished u/s 139 shall be signed and verified by the following –

a) In the case of an individual –

i) by the individual himself;

ii) where he is absent form India, by himself or by some person duly authorized by him;

iii) when he is mentally incapacitated, by his guardian or any other person competent to act on his behalf; and

iv) by any person duly authorized to sign, a valid power of attorney must be attached with the return.

b) In the case of a Hindu undivided family, by the Karta and if Karta is out of India or mentally incapacitated by any other adult member of such family;

c) In the case of a company, by the managing director thereof or by any director thereof. But if the company is non-resident in India, the return may be signed and verified by a person who holds a valid power of attorney from such company to do so, which shall be attached to the return. Similarly, in case of a company being wound up the return may be signed, by the liquidator thereof on where the management of the company has been taken over by Central or State Government under any law, by the principal officer thereof.

d) In the case of a firm, by the managing partner thereof or by any partner thereof;

e) In the case of a local authority, by the principal officer thereof;

f) In the case of political party, by the chief executive officer thereof;

g) In the case of any other association, by any member of the association or the principal officer thereof; and

h) In the case of any other person, by that person or by some other person acting on his behalf.

Types of Assessment : Assessment consists of four types:- (1) Self assessment; (2) Regular assessment; (3) Best Judgement assessment; and (4) Re-assessment.

I. Self Assessment [Section 140-a] :

1. If any tax is payable on the basis of any return furnished under section 139 or 142 or 148 or 158 BC after deduction the amount of tax already paid under this Act, the assessee shall pay such tax, together with any interest for any delay in filing in the return. The return so filed shall accompany the proof of payment of such tax and interest.

If the amount paid by the assessee falls short of the aggregate of tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest and balance, if any, shall be adjusted towards the tax payable.

2. Interest payable u/s 234A shall be computed on the amount of tax on the total income as declared in the return as reduced by the advance tax paid and tax deducted at source.

3. Interest payable u/s 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax.

“Assessed tax” means the tax on total income as declared in the return as reduced by the amount of tax deducted at source on any income which is included in the total income.

4. When regular assessment has been made under section 143 or 144 or an assessment u/s 158 BC, any amount paid as above shall be deemed to have been paid towards such regular assessment or assessment u/s 158 BC.

5. If any assessee fails to be an assessee in default in respect of the tax or interest or both as above, he shall be deemed to be an assessee in default in respect of the tax or interest of both remaining unpaid and all the provisions of this Act shall apply accordingly.

II. Regular Assessment [Section 143] : An assessment made under the provisions of section 143 is termed as regular assessment. The following provisions shall apply in this regard –

1. Where a return has been filed under section 139 or in response to a notice under section 142(1) –

a) If any tax or interest is found due on the basis of such return (after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid as tax or interest), then, a notice of demand shall be sent to the assessee specifying the balance sum so payable.

b) If any refund is due on the basis of such return, it shall be granted to the assessee, and an intimation to this effect shall be sent to the assessee.

Provided that the acknowledgement of the return shall be deemed to be intimation as above where either no sum is payable by the assessee or no refund is due to him. But no such intimation shall be sent after the expiry of one year from the end of the assessment year in which the income was first assessable. But if the return is made in respect of the income first assessable in the assessment year 1999-2000, then, such intimation may be sent at any time upto 31st March, 2002.

2. If, in connection with the return filed by the assessee, the Assessing Officer shall in order to ensure himself of the following facts–

a) that the assessee has not understated the income; or

b) has not computed excessive loss; or

c) has not underpaid the tax in any manner;

serve to the assessee a notice requiring him, on a specified date, to attend his office or to produce any evidence on which the assessee may rely in support of the return. But such notice shall not be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished.

1. On the day specified in the above notice or as soon afterwards as may be, after taking into account all the evidences produced by the assessee and after taking into account all relevant material which he has gathered, the Assessing Officer shall make an assessment order in writing and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.

2. Where a regular assessment has been made, then–

a) any tax or interest paid by the assessee shall be deemed to have been paid towards such regular assessment;

b) if no refund is due on regular assessment or the amount refunded exceeds the amount refundable on regular assessment, the excess amount so refunded shall be deemed to be tax payable by the assessee and it shall be recovered as per provisions of the Act.

III. Best Judgement Assessment [Section 144] : It is an ex-parte assessment. It is made by Assessing Officer on his own accord acting honestly and with utmost good-faith without any prejudice to the assessee. During the course of assessment when the Assessing Officer does not get the required informations and material evidences from the assessee in response to a notice served on him, he may proceed on the basis of the information and material evidences on record and may pass such order he may deem fit in the best interest of revenue and without prejudice to the assessee. Such judgement is called as ‘compulsory best judgement assessment:-

Consequences of Compulsory Best Judgement Assessment : The following shall be the consequences when an assessment has been made to the best of his judgement by the Assessing Officer–

1. The penalty under section 271 may be imposed on the assessee;

2. If he has not filed his return of income or has not produced his books of account or other documents in pursuance to a notice, he may be prosecuted and punished with imprisonment or penalty or both;

3. If the assessee is a firm, it can be refused grant of registration or if it be a registered firm its registration may be cancelled;

4. The assessee is prevented from producing fresh evidences on material facts in the course of an appeal being made against a best judgement assessment before Deputy Commissioner (Appeals).

5. Refund of tax may be disallowed.

Appeal Against Best Judgement Assessment : If the assessee is not satisfied by the best judgement assessment of the Assessing Officer, he may file an appeal against

Assessing Officer, he may file an appeal against such judgement to the Deputy Commissioner (Appeals) or the Commissioner (Appeals). If the best judgement assessment has been passed by Deputy Commissioner in the capacity of the Assessing Officer, the appeal shall lie to the commissioner (Appeals). If the assessee is not satisfied with the order of the Deputy Commissioner (Appeals) or the Commissioner (Appeals), he may appeal to the Tribunal, whose judgement shall be final as regards the facts. But if any legal point is involved in the case, the Tribunal, on the application by the assessee, may refer the case to the High Court.

Discretionary Best Judgement Assessment : As per section 145 (3) if the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or if the assessee has not employed a regular method of accounting, the Assessing Officer may make a best judgement assessment in his own discretion. Such assessment is also appealable.

IV. Re-assessment or Income Escaping Assessment [Section 147] : It is also termed as assessment of income escaping assessment. If the Assessing Officer has reason to believe that any taxable income has escaped assessment for any assessment year, he may assess or re-assess such income and also other taxable income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. He may also recompute the loss or the depreciation allowance or any other allowance.

The re-assessment shall not be done after expiry of four years from the end of the relevant assessment year unless–

1. Any taxable income has escaped assessment for such assessment year on account of the fact that the assessee has not filed return u/s 139; or

2. Any taxable income has escaped assessment as the assessee has not filed any return under section 142 (1) or 148; or

3. Any taxable income has escaped assessment as the assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Issues of Notice [Section 148] : Before making assessment, re-assessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice of filing by him, within the time specified in the notice, a return of his total income or the total income of any other person for whom he is assessable. The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

Time-Limit for Notice [Section 149] : A notice under section 148 shall not be issued for the relevant assessment year in the following cases–

Rectification of Mistakes [Section 154]

1. When any mistake is apparent from the record, an income-tax authority may–

a) amend an order passed by it under the provisions of this Act;

b) amend any intimation or deemed intimation u/s 143 (1).

2. Where any matter has been considered and decided in any appeal or revision relating to an order under section 143 (1), the authority passing such order may amend that portion or matter of the order which has not been considered and decided in appeal or revision.

3. Rectification of mistake may be done by the income-tax authority concerned –

a) On its own accord; or

b) When it has been brought to its notice by the assessee; or

c) when the order which is to be rectified is of the Commissioner (Appeals), has been brought to its notice by the Assessing Officer.

4. If the amendment has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, it shall be made only after giving the assessee a reasonable opportunity of being heard.

5. Order of rectification shall be passed in writing by the income-tax authority concerned.

6. If the amendment has the effect of reducing the tax-liability of the assessee, the Assessing Officer shall make a refund.

7. If the amendment has the effect of enhancing the tax-liability of the assessee or reducing his refund amount already made, the Assessing Officer shall serve on the assessee a notice of demand.

8. No rectification shall be made after the expiry of 4 years from the end of the financial year in which the order sought to be amended was passed.

9. If an application of an amendment under this section is made by the assessee on after Ist June, 2001 to relevant Income-tax authority it shall pass an order for making the amendment or refusing to allow the claim. Such an order shall be passed within a period of six months from the end of the month in which the application is received by it.

REFUND OF TAX

Refund : As per Section-237, if any person satisfies the Accessing Officer that tax paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess. In brief, if the tax paid or deposited by a person is more than the tax due on him, he is entitled to get refund of the excess amount paid or deposited by him.

An assessee may claim refund under the following circumstances –

1. Deducting tax at source at higher rate;

2. Depositing excess amount as advance tax;

3. Total income of an assessee being reduced in an appeal or other proceedings under the Act;

4. Reduction in the amount of tax as a result of rectification of mistake;

5. Deducting tax at source at a higher rate in case of a non-resident;

6. In case of double taxation relief.

Person Entitled to Claim Refund : As per section 238, following persons may claim refund –

1. Where the income of one person is included in the total income of any other person, the other person alone shall be entitled to a refund in respect of such income.

2. Where on account of death, incapacity, insolvency, liquidation or other cause, a person is unable to claim or receive any refund due to him, his legal representative, or guardian or receiver, as the case may be shall be entitled to claim or receive refund for the benefit or such person or his estate.

Procedure for Claiming Refund : Procedure for claiming refund is explained in Sections 239 and 240. It is as follows –

1. Every claim for refund shall be made in the prescribed form (Form No. 30) and verified in the prescribed manner. The Claim shall accompany the following documents as per Section-41 of the Income–tax Rules, 1962–

a) Return of income;

b) Certificate of deduction of tax at source.

2. Claim should be made within one year from the last day of such assessment year in respect of which the claim is made.

3. If refund of any amount becomes due to the assessee as a result of any order passed in appeal or other proceedings, the Assessing Officer shall refund such amount to the assessee. The assessee is not required to put his claim for such refund.

4. If, in an appeal or other proceeding, an assessment is set aside or cancelled and an order of fresh assessment is passed, the refund if any, shall become due only on the making of such fresh assessment.

5. If, in an appeal or other proceeding, the assessment is annulled, only such amount of tax paid would be refunded which is in excess of the tax chargeable on the total income returned by the assessee.

Correctness of Assessment not to be Questioned : As per Section-242, the assessee, at the time of making claim for refund, shall not question the correctness of any assessment or other matters which have been finally decided. He shall not ask even for a review of the claim, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess.

Interest on Refunds : As per section 244-A. provisions dealing with the calculation of interest on refunds –

1. If any refund becomes due to the assesse, he shall, subject to the provisions of this section, be entitled to receive the amount of refund along with simple interest thereon calculated in the following manner–

a) If the refund is out of the tax deducted at source or advance tax paid, during the calculated at ¾% for every month or part of a month for the period from Ist April of the assessment year to the date on which the refund is granted. But if the amount of refund is less than 10% of the tax determined on regular assessment, no interest shall be payable on it;

b) In any other case, such interest shall be calculated at ¾% for every month or part of a month for a period beginning from the date on which the tax or penalty was paid, to the date on which the refund is granted.

2. If the proceedings relating to refund are delayed by the assessee, whether wholly or in part, the period of delay caused by him shall be excluded from the period for which interest is payable. The question of exclusion of the period shall be decided by the Chief Commissioner or Commissioner whose decision shall be final.

3. If, as a result of an appeal of revision or an order of the settlement commission, the amount on which interest was payable has been increased or reduced, the interest shall be increased or reduced accordingly. In a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand requiring him to pay the amount of excess interest paid to him.

Appeals and Revisions : An assessee who is aggrieved by an order of income – tax authorities, has the remedy of appeals and revision against such order. Such assessee can file appeals at different levels and get justice done to him. Rules regarding appeals, their nature, scope etc. are discussed herewith in this chapter.

Meaning of Appeal : Appeal is complaint to a superior court against an injustice, done by an inferior one. A person who files an appeal i.e., the aggrieved party is called as the ‘appellant’ and the other party against whom appeal is filed is called ‘respondent’. Aggrieved party, in the Income-tax Act, 1961, is generally the assessee. Hence, he has the first right to file an appeal. But if the decision of the Tribunal or High Courts is against the Government, the Government, being an aggrieved party, may also file appeal before the superior court. The right to appeal is not implied. This is a right by enactment expressly. If the right to appeal is not given expressly, in any Act, in respect of a particular matter, appeal cannot be filed in that matter.

Appellate Authorities : Appeal lies before the following authorities against an order of the inferior authority –

1. Deputy Commissioner (Appeals);

2. Commissioner (Appeals);

3. Appellate Tribunal;

4. High Court;

5. Supreme Court;

6. Revision by Chief Commissioner or Commissioner.

Appellate Hierarchy : Appeal against the order of the Assessing Officer lies with the Deputy Commissioner (Appeals) or Commissioner (Appeals). Any party aggrieved by the order of Deputy Commissioner (Appeals) or Commissioner (Appeals) may file appeal before the Appellate Tribunal. Appeal against the order of the Appellate Tribunal can be filed, by the aggrieved party, before the High Court. The order of the High Court can be challenged in the Supreme Court. The order of the Supreme Court is final. Appellate hierarchy can be explained through the chart given below –

Assessing Officer

Deputy Commissioner (Appeals)or

Commissioner (Appeals)

Appellate Tribunal

High Court

Supreme Court

I) Appeals to the Deputy Commissioner (Appeals) : As per section 246(1) any assessee aggrieved by any of the following orders of an Assessing Officer (other than the Deputy Commissioner) may appeal to the Deputy Commissioner (Appeals) before Ist June against such order –

1. An order against the assessee when–

a) he denies his liability to be assessed under this Act; or

b) he objects to the amount of income assessed;

c) he objects to the amount of tax determined; or

d) he objects to the amount of loss computed; or

e) he objects to the status under which he is assessed.

2. An order for assessment, re-assessment or re-computation under section 147 or section 150.

3. An order u/s 154 enhancing the assessment or reducing a refund or refusing to allow the claim made by the assessee under either of the said sections.

4. An order u/s 163 treating the assessee as the agent of a non-resident.

5. An order u/s 170 (2) or (3) relating to the succession to business or profession.

6. An order u/s 171 relating to partition of a Hindu undivided family.

7. An order u/s 201 in which the assessee is deemed to be an assessee in default.

8. An order u/s 237 refusing to grant refund.

9. An order imposing a penalty under –

a) Section – 221 : for not paying the amount of tax;

b) Section – 271 : for not furnishing the return of income not complying with the notice or concealment of income;

c) Section – 271-A : for failure to keep, maintain or retain books of accounts, documents etc;

d) Section – 271-B : for failure to get accounts audited;

e) Section – 272-A : for failure to answer questions, sign agreements, furnish information, returns or statements, allow inspections etc;

f) Section – 272-AA : for failure to comply with the provisions of section 133-B;

g) Section – 272-BB : for failure to comply with the provisions of section 203-A.

II) Appeal to the Appellate Tribunal – Formulation of Appellate Tribunal : As per section 252(I), the Central Government shall constitute an Appellate Tribunal Consisting of as many judicial and accountant members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act.

Members of the Tribunal : The Tribunal shall consist of some judicial members and some accountant members. As per section 252(2), a judicial member shall be a person–

1. Who has held a judicial office in India for at least last 10 years; or

2. Who has been a member of the Indian Legal Service and has held a post in Grade II of that service or any equivalent or higher post for at least 3 years; or

3. Who has been an advocate for at least 10 years.

As per section 252(2-A), an account member shall be a person–

1. Who has been in the practice of accountancy as a Chartered Accountant or as a registered accountant under any law for at least 10 years; or

2. Who has been a member of the Indian Income-tax Service, Group A and has held a post of Additional Commissioner of Income-tax or any equivalent or higher post for at least 10 years.

Office Bearer : The Central Government shall ordinarily appoint a judicial member of the Appellate Tribunal to be the Presidents thereof and one or more members of the Appellate Tribunal to be the Vice-Presidents. One of the Vice-Presidents may be appointed as the Senior Vice-President. The Senior Vice-Presidents or the Vice-Presidents shall exercise such powers and perform such functions of the President as may be delegated to him by the President by a general or special order in writing.

Rules for appeal in the Tribunal :

1. If the Commissioner objects to any order passed on or before 1-10—1998 by a Deputy Commissioner (Appeals) or by a Commissioner (Appeals) u/s 154 or u/s 250, or by a Commissioner (Appeal) on or before 1-10-1998 u/s 246 A (1) or (2), he may direct the Assessing Officer to appeal to the Appellate Tribunal against such order.

2. Every appeal shall be filed within 60 days of the date on which the order sought to be appealed against is communicated to the assessee or to the Commissioner, as the case may be. But for filing an appeal against the order of the Assessing Officer in respect of the Assessment for the block period, the period of 60 days is reduced to 30 days.

3. The Assessing Officer or the Assessee, as the case may be, may, within 30 days of the receipt of the notice that an appeal has been filed with, file a memorandum of cross objections, verified in the prescribed manner.

4. The Appellate Tribunal may admit an appeal or permit the filing of a memorandum of cross objections even after the expiry of 30 days, if it is satisfied that there was sufficient cause for not presenting it within that period.

5. An appeal to the Appellate Tribunal shall be in the prescribed form (form 36) and shall be verified in the prescribed manner and shall, in the case of an appeal made on or after Ist October, 1998, irrespective of the date of initiation of the assessment proceedings thereto, be accompanied by a fee of–

a) Rs. 500, if the total income of the assessee as computed by the Assessing Officer in the case to which the appeal relates is upto Rs. 1,00,000:

b) Rs. 1,500, if the total income of the assessee computed by the Assessing Officer in the case to which the appeal relates exceeds Rs. 1,00,000, but does not exceed Rs. 2,00,000;

c) 1% of the assessed income or Rs. 10,000 (whichever is less). If the total income of the assessee computed as aforesaid, in the case to which the appeal relates exceeds Rs. 2,00,000.

d) Rs. 500, if the subject matter of an appeal relates to any matter, other than those specified in (a), (b) and (c) above.

No such fee is payable in the case of an appeal made by the Assessing Officer as per the direction by the commissioner.

6. An appeal for stay of demand shall be unaccompanied by a fee or Rs. 500.

Order of Appellate Tribunal (Section 254) :

1. The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

2. The Appellate Tribunal may, at any time within four years from the date of order, amend its previous order to rectify any mistake which is apparent from the record and the mistake is brought to its notice by the assessee or by the Assessing Officer.

But if the amendment has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, the assessee shall be given a notice of its intention to do so and he shall be given a reasonable opportunity of being heard before any order is so amended by the Tribunal.

But any application filed by the assessee in this section on or after 1-10-1998, shall be accompanied by a fee of Rs.50 (Fifty rupees).

3. In every appeal, the Tribunal, if possible, may decide such appeal within 4 years from the end of the financial year in which such appeal is filed.

But if a stay order is made in any appeal proceedings, the Appellate Tribunal shall dispose off the appeal within a period of 180 days from the date of such stay order.

If such appeal is not so disposed off within 180 days, the stay order shall stand vacated after the expiry of the said period.

4. The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal.

5. The Appellate Tribunal shall send a copy of any order passed to the assessee and to the Commissioner.

6. The order passed by the Tribunal is final so far as facts are concerned.

Procedure of Appellate Tribunal (Section 255) :

1. Powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the President of the Appellate Tribunal from among the members thereof.

2. A Bench shall consist of one judicial member and one accountant member.

3. The President or any other member of the Appellate Tribunal authorized in this behalf by the Central Government may, sitting singly, dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose assessed income does not exceed Rs. 5,00,000. The President may constitute a Special Bench of three or more persons for the disposal of any particular case. Of the three members of the Bench one shall be judicial and one accountant member.

4. If the members of a Bench differ in opinion on any point or points, the point or points shall be decided according to the opinion of the majority. But if the members are equally divided, the point or points shall be referred by the President to one or more members of the Tribunal for hearing and such point or points shall be decided according to the opinion of the majority of all the members of the Tribunal who have heard the case including those who first heard.

5. The Appellate Tribunal is empowered to regulate its own procedure and the procedure of benches thereof in all matters arising during the exercise of its powers or the discharge of its functions, including the places at which the Benches shall hold their sittings.

6. The Appellate Tribunal shall have all the powers which are vested in Income-Tax authorities and any proceeding before the Tribunal shall be deemed to be a judicial proceeding.

III) Revision by the Commissioner :

1. Revision of orders prejudicial to revenue (Section 263) – The Commissioner may call for and examine any proceeding under the Act, if he thinks that order passed by the Assessing Officer.

a) is erroneous, and

b) is prejudicial to the interest of revenue.

He may, after giving the assessee an opportunity of being heard and after making such inquiry as he thinks necessary, pass necessary orders including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

2. Such order in revision shall not be made after the expiry of 2 years from the end of the financial year in which the order sought to be revised was passed.

3. But an order in revision may be passed at any time in the case of an order which has been passed in consequence of any finding or direction by an order of the Appellate Tribunal, the High Court or the Supreme Court. Thus, the Tribunal, the High Court or the Supreme Court may issue direction to the Commissioner for revision of any order and in such a case the limitation of 2 years shall not be effective.

SETTLEMENT OF GRIEVANCES (Section 245A-245L)

Sections provides for settlement of cases pending under this act or under the Indian income tax act,1922 in connection with the assessment or reassessment of any person in respect of any year or years which may be pending before an income tax authority on the date on which such an application is pending.

The settlement commission shall consist of a chairman and many vice-chairman and other members as the central government thinks fit and shall function within the department of the central government dealing with direct taxes.

According to section 245C(1) an assessee may at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed , and containing a full and true disclosure if his income which has not been disclosed before the assessing officer, the manner in which such income has been derived, the additional amount of income tax payable on such income and such other particulars as may be prescribed, to the settlement commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided. However, no such application shall be made unless-

a) The assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this act; and

b) The additional amount of income-tax payable on the income disclosed in the application exceeds one hundred thousand rupees.

The provisions relating to the settlement of cases has been enacted for those assesses who want to disclose income not disclosed till then together with the manner in which that income is derived.

On receipt of application, the settlement commission shall call for a report from the commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the settlement commission may by order allow the application to be proceeded with or reject the application.

Where am application is allowed to be proceeded with under sub-section(1) the settlement commission may call for the relevant records from the commissioner and after examination of such record, if the settlement commisision is of opinion that any further enquiry or investigation in the matter is necessary, it may direct the commissioner to make or cause to be made such

further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.

After examination of the records and the report of the commissioner, received under sub-section (1), and the report, if any of the commissioner received under sub-section (3) and after giving an opportunity to the applicant and to the commissioner to be heard, either in person or thorugh a representative duly authorized in this behalf and after examining such further evidence as may be placed before it or obtained by it, the settlement commission may in accordance with the provisions of this act, pass such order as it thinks fit on the matters covered by the application but referred to in the report of the commissioner under sub-section (1) or sub-section (3) .

IMPORTANT QUESTIONS

Q.1. Discuss the various income tax authorities.

Q.2. What do you mean by refund of tax?

Q.3. What are the powers and functions of Income Tax authorities?

Q.4. Discuss the essentials and types of assessment.

Q.5. Discuss the procedure and concept of refund of tax.