Income Tax Slab Rates for asst year 2020-21Financial year ending 31st MARCH 2020- News About Income Tax Slabs and RatesNIKUNJ AND ASSOCIATES-CHARTERED ACCOUNTANTS. 32,PANCHARATNA,OPERA HOUSE, MP MARG, BOM-400004. TEL-022-23688358, PROP-C.A.NIKUNJ SHAH-CHARTERED ACCOUNTANT-MOBILE-9820442177. BUDGET 2020-AMENDMENTS-
Taxable income slabs Tax rates 5 lakhs to 7.50 lakhs 10 % 7.50 lakhs to 10 lakhs 15% 10 lakhs to 12.50 lakhs 20 % 12.50 lakhs to 15 lakhs 25 % 15 lakhs and above 30 % In short, in case if you wish to avail these concessional tax rates, then you have to forego all the deductions U/C VI-A. 80C,80D, 80G, ETC and all exemptions u/s 10. So overall, this is not practically feasible because at the end, you will tend to pay a higher tax. So its better not to exercise this option and stick to the normal tax rates at present which is as under- (for income above 5 lakhs.) Upto 2.50 lakhs-nil 2.50 lakhs to 5 lakhs- 5 percent 5 lakhs to 10 lakhs-20 percent Above 10 lakhs= 30 percent. Senior citizens -60 to 80 years-
Less: Rebate under Section 87A =5000 Add: Health and Education Cess 4 %
Super senior citizens- above 80 years age-
Add: Surcharge and Health & Education Cess
) Surcharge: Surcharge is levied on the amount of income-tax at the following rates if total income of an assessee exceeds specified limits:
The surcharge shall be subject to marginal relief:
It is better to opt for these existing tax rates-and not to go for the concessional tax rates because of denial of exemptions.
Short TERM CAP GAIN-SHARES=15 PERCENT-SECTION 111A LONG TERM CAP GAIN-SHARES-10 PERCENT-Section 112- Provided gain is more than 1 lakh.
Dividend Distribution
Tax (DDT) abolished; -Companies will not be required to pay DDT; dividend to be
taxed only at the hands of recipients, at applicable rates. New power generation companies to be taxed at 15%-
To boost power
generation capacity, government has extended the new corporate tax regime for
new manufacturing plants to new power generation companies.
The decision of central government to grant 100% tax exemptions for sovereign wealth funds for their investments in infrastructure sector is expected to give a boost to the infra investments in India. Besides the exemption, abolition of dividend distribution tax (DDT) is also will give benefits to the global yield-seeking infrastructure investors in India. In order to
incentivise the investment by the Sovereign Wealth Fund of foreign governments
in the priority sectors, there is 100% tax exemption to their interest, dividend
and capital gains income in respect of investment made in infrastructure and
other notified sectors before 31st March, 2024 and with a minimum lock-in
period of 3 years,
Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years.
AUDT TURNOVER THRESHOLD LIMIT-
Turnover threshold for
audit of MSMEs to be increased from Rs 1 crore to Rs 5 crore, to those businesses
which carry out less than 5% of their business in cash. Banking: Taxation for Non resident Indians. The Residential status definition has been amended. If an Indian Citizen or a person of Indian origin stays in India for a period of 120 days or more, or stays abroad for 240 days or more (previously it was 182 days), shall be deemed to be a non resident. This non resident will be taxable in respect of the world income in India -which was previously exempt. This exemption can be sought provided the foreign country does not levy tax the foreign income of the non resident. Thus the non resident shall have to pay tax on his foreign income in India. The non resident shall be deemed to be Indian resident for the purpose of the income tax and taxed accordingly as per the Indian income tax rates on his foreign income. Explanation- The Union Budget 2020 has proposed
changes in the definition of residency of an individual (with reference to tax
residency in India) which determines how the person’s income tax liability will
be calculated in a financial year. According to the proposal, if an individual
has been a resident in atleast four out of last 10 financial years, then the
individual will qualify as an ordinarily resident. This is bad news for the
taxpayers as they will be required to pay tax on their foreign income and
. report foreign assets in their income tax return (ITR) in India Currently for a resident
individual to be classified as ordinarily resident for income tax purposes in
India, the individual has to satisfy two conditions. Budget 2020 has proposed
changes in these conditions which determine whether a resident individual is a
‘Not ordinarily resident’ or ‘ordinarily resident’. The Budget 2020 has proposed to remove the
condition that the individual should be physically present for more than 729
days in last 7 years to become ordinarily resident. Further, second condition
has been tweaked. Currently, second condition says that a person becomes
resident individual if he/she has been resident individual in atleast 2 out of
last 10 years. It has been proposed to hike this two years to four years. Further Budget 2020 also proposes that if an individual who is a citizen of India or person of Indian origin visits India for 120 days or more in a financial year and had spent more than 365 days in last four years, then such an individual will also become ‘resident’ in India. EXAMPLE- The non resident may plan his duration of stay in india in such a manner that he can escape the tax liability from both the countires- the place of residence(current residency) , or the place of his origin country. For example some NRIS who are PIO(PERSON OF INDIAN ORIGIN) may derive income in Dubai WHERE THE TAX RATE IS ALMOST “NIL”, or some other tax heavens like “MAURITIUS”, ETC-. When it is determined that his stay in INDIA has crossed 120 days, -ie he resides in Dubai for a period of more than 240 days, then he is a non resident. At present the DUBAI income is exempt as it is the world income of the non resident. But now , as per the new provisions, the entire income in Dubai shall be taxable as per the INDIAN APPLICABLE INCOME TAX RATES. In short, the non resident will be taxable in respect of his “WORLD INCOME”, provided it is exempt in that other country. Regards C.A.NIKUNJ SHAH CHARTERED ACCOUNTANT.
Tax rates )-
TDS Rate Chart for Financial Year 2019-20 · Article compiles Section wise TDS Rates / TDS Rate Chart for Financial Year 2019-20 or Assessment Year 2020-21 with Nature of Payment, Threshold Limit and Percentage TDS rate applicable to Individual, HUF and to other category of Assessees. Article takes into account recent changes by Interim Budget 2019 in TDS Threshold Limits.
E-commerce cos to collect 1% TDS from sellers under new levy- SECTION 194O-
NEW DELHI: The government on Saturday proposed a new levy of 1 per cent TDS (tax deducted at source) on e-commerce transactions, a move that could increase burden on sellers on such platforms. The documents said the e-commerce operator -- an entity owning, operating or managing the digital platform -- will have to deduct 1 per cent TDS on the gross amount of sales or service or both. TCS ON LRS u/s 206(1G) Vs. INTERPLAY WITH LRS.-LIBERALISED REMITTANCE SCHEME- In Para 3.3 of budget speech of FM, for widening the scope of TCS, it is proposed to provide for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees. As per proposed section 206(1G)- Every person,–– (a) being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India; shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent. of such amount as income-tax: Scope of 206C(1G) Section 206(1G) is binding on AD who receives an amount from a buyer for remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India. The LRS scheme is applicable to resident individuals. Hence, Non-residents can not make use of LRS scheme and hence the provisions of section 206C is not applicable. Also the Scheme is not available to corporates, partnership firms, HUF, Trusts, etc. and hence the TCS is not applicable to them. In terms of Section 5 of the FEMA, persons resident in India,-(as per the definition of non resident under FEMA) resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
Section 80c The maximum tax exemption limit under Section 80C has been retained as Rs 1.5 Lakh only. The various investment avenues or expenses that can be claimed as tax deductions under section 80c are as below;
Section 80CCC Contribution to annuity plan of LIC (Life Insurance Corporation of India) or any other Life Insurance Company for receiving pension from the fund is considered for tax benefit. The maximum allowable Tax deduction under this section is Rs 1.5 Lakh. Section 80CCD Employee can contribute to Government notified Pension Schemes (like National Pension Scheme – NPS). The contributions can be upto 10% of the salary (or) Gross Income and Rs 50,000 additional tax benefit u/s 80CCD (1b) was proposed in Budget 2015. To claim this deduction, the employee has to contribute to Govt recognized Pension schemes like NPS. The 10% of salary limit is applicable for salaried individuals and Gross income is applicable for non-salaried. The definition of Salary is only ‘Dearness Allowance.’ If your employer also contributes to Pension Scheme, the whole contribution amount (10% of salary) can be claimed as tax deduction under Section 80CCD (2). Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs 1,50,000 for the financial year 2016-17. The additional tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit. Section 80D Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior Citizens it is Rs 30,000. For very senior citizen above the age of 80 years who are not eligible to take health insurance, deduction is allowed for Rs 30,000 toward medical expenditure. Preventive health checkup (Medical checkups) expenses to the extent of Rs 5,000/- per family can be claimed as tax deductions. Remember, this is not over and above the individual limits as explained above. (Family includes: Self, spouse, dependent children and parents). Section 80DD You can claim up to Rs 75,000 for spending on medical treatments of your dependents (spouse, parents, kids or siblings) who have 40% disability. The tax deduction limit of upto Rs 1.25 lakh in case of severe disability can be availed. To claim this deduction, you have to submit Form no 10-IA. Section 80DDB An individual (less than 60 years of age) can claim upto Rs 40,000 for the treatment of specified critical ailments. This can also be claimed on behalf of the dependents. The tax deduction limit under this section for Senior Citizens is Rs 60,000 and for very Senior Citizens (above 80 years) the limit is Rs 80,000. To claim Tax deductions under Section 80DDB, it is mandatory for an individual to obtain ‘Doctor Certificate’ or ‘Prescription’ from a specialist working in a Govt or Private hospital. For the purposes of section 80DDB, the following shall be the eligible diseases or ailments:
(a) Dementia
Section 24 (B) The interest component of home loans is allowed as deduction under Section 24B for up to Rs 2 lakh in case of a self-occupied house. If your property is a let-out one then the entire interest amount can be claimed as tax deduction. (Read: Understanding Tax Implications of Income from house property) Section 80EE This is a new proposal which has been made in Budget 2016-17. First time Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan interest payments u/s 80EE. The below criteria has to be met for claiming tax deduction under section 80EE.
Section 80U This is similar to Section 80DD. Tax deduction is allowed for the tax assessee who is physically and mentally challenged. Section 80GG As per the budget 2016 proposal, the Tax Deduction amount under 80GG has been increased from Rs 24,000 per annum to Rs 60,000 per annum. Section 80GG is applicable for all those individuals who do not own a residential house & do not receive HRA (House Rent Allowance). The extent of tax deduction will be limited to the least amount of the following;
Section 80G Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act. This deduction can only be claimed when the contribution has been made via cheque or draft or in cash. But deduction is not allowed for donations made in cash exceeding Rs 10,000. In-kind contributions such as food material, clothes, medicines etc do not qualify for deduction under section 80G. Section 80E If you take any loan for higher studies (after completing Senior Secondary Exam), tax deduction can be claimed under Section 80E for interest that you pay towards your Education Loan. This loan should have been taken for higher education for you, your spouse or your children or for a student for whom you are a legal guardian. Principal Repayment on educational loan cannot be claimed as tax deduction. There is no limit on the amount of interest you can claim as deduction under section 80E. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. Section 87A Rebate If you are earning below Rs 5 lakh, you can save an additional Rs 3,000 in taxes. Tax rebate under Section 87A has been raised from Rs 2,000 to Rs 5,000 for FY 2016-17 (AY 2017-18). In case if your tax liability is less than Rs 5,000 for FY 2016-17, the rebate u/s 87A will be restricted up to income tax liability only. Section 80 TTA Deduction from gross total income of an individual or HUF, up to a maximum of Rs. 10,000/-, in respect of interest on deposits in savings account with a bank, co-operative society or post office can be claimed under this section. Section 80TTA deduction is not available on interest income from fixed deposits. .
1. Filling of Return of Income – Sec. 139
Due Dates According to Sec. 139 (1) i) Every person being a company or firm; or ii) Being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessment to tax during the previous year exceeded the maximum amount which is not chargeable to income tax, shall furnish Return of income within the due dates stipulated here under:
Illustrations 14.1 Mr. A furnishes the following particulars for the year ending 31.03.2010: a) income from business – Rs.9,80,000/-; b) income from other sources – Rs. 20,000/- c) gross sales turn over – Rs. 2 crores; d) deduction eligible u/s 10A – Rs. 9,80,000/-
Examine whether Mr. A should file the return of income for the A.Y. 2010-11. Ans : The gross total income of Mr. A is Rs. 10,00,000/- comprising of income from Business and other sources. After availing deduction u/s. 10A, the taxable income for the A.Y. 2010-11 is Rs. 20,000/-, which is below the maximum amount not chargeable to tax In the hand o fan individual. However, when total income before deduction u/s 10A, 10B or under Chapter VIA exceeds the maximum amount not chargeable to tax i.e.Rs. 1,60,000/- the return of income shall be filed u/s, 139(1). Therefore, in the given case, Mr. A shall file his return of income on or before 30th September 2010.
14.2 Mr. Y furnishes such the following particulars for the year ending 31.03.2010 a) Income from business – Rs.2,50,000/-; b) income from other sources – Rs. 25,000/-; b) gross sales turn over – Rs.25,00,000/-; d) brought forward business loss eligible for set off u/s. 72 Rs. 2,00,000/-.
Examine whether Mr. Y should file the return of income for the A.Y. 2010-11. Ans: Sec.80B defines gross total income to mean aggregate of taxable income under the Heads of income less brought forward losses eligible for set off. Accordingly , in the given case, the gross total income of Mr. Y is Rs. 75,000/- after set-off of losses. As the total income before claiming deductions has not exceeded the maximum amount not chargeable to tax, filling return of income Is not warranted as per the provisions of sec.139(1) for the A.Y. 2010-11.
Filing of bulk return of income by salaried employees – sec.139(1A) In case of salaried class assesses the return of income for any previous year may at the Option of the employee be furnished to the employer concerned. Such employer shall Furnish all returns of income received by him on or before the due date. In such form and manner as notified by the CBDT for this purpose. Any employee who has filed a return of income to his employer shall be deemed to have filed a return of income u/s139(1).
Filling of returns in electronic form – sec.139(1B) Any person may at his option file returns in electronic form. The return shall be in such form and manner as specified by the CBDT such as floppy diskette, magnetic cartridge tape. CD-ROM or any other computer readable media. Returns filed in such computer readable form shal be deemed to be a return filed u/s.139.
Loss return – Sec. 139(3) Any person may at his option file returns in electronic form. The return shall be in such Carried forward under sec. 72, 73, 74 and 74A of the Act shall furnish a return of loss Within the time allowed u/s.139(1) in the prescribed form. Any return so filed shall be Treated as a return filed u/s.139(1) and all the provisions of the Act shall apply accordingly. You may also refer to Sec. 80 which states that unless loss return is filed in accordance with the due date stipulated u/s 139(3) and loss is determined in pursuance of that return, the loss cannot be carried forward. The above mentioned condition does not apply to unabsorbed depreciation carried Forward u/s.32(2) and loss under the head “Income from house property” u/s.71B.
Belated return – Sec.139(4) Any person who has not furnished a return within the time allowed u/s 139(1) the time allowed by the notice issued u/s.142(1) can file a belated return for any previous year at any time before one year from the end of the relevant assessment year or before the assessment is completed, whichever is earlier. Returns by Trusts – Sec.139(4A) Every person in receipt of income derived from properly held under trust or other legal Obligation wholly or partly for charitable or religious purposes or income by way of Voluntary contributions shall furnish a return of the total income if it exceeds the Maximum amount which is not chargeable to tax i.e. Rs. 1,60,000. Before giving effect to The provisions of Sec.11 and 12. When the income of the trust before giving effect to sec. 11 and 12 exceeds the maximum amount not chargeable to tax, audit of accounts of the Trust is compulsory u/s 12A(b). Therefore, the due date for filing return of income of the Trust would be 30th September of the relevant assessment year.
Returns by political parties – Sec.139(4B) The Chief Executive Officer of every political party shall furnish a return of income in Respect of which the political party is assessable if it exceeds the maximum amount Which is not chargeable to tax before giving effect to the provisions of Sec.13A. In order To avail exemption u/s.13A, the accounts of a political party must be audited. Therefore, The due date for filing the return of income is 30th September of the relevant assessment Year. Returns by certain association /institutions – Sec.139(4C) The following entities shall furnish their return of income if the total income, before Giving effect to the exemption u/s.10.exceeds the basic exemption limit: a) Scientific Research Association covered under section10(21) b) News agency covered under section 10(22B); c) Association or institution referred to in section 10(23A)/(23B); d) Fund or institution, University or other educational institution or hospital or other Medical institution referred to under section 10(23C) (iiiad);(iiiae); (iv);/(v); /(vi)/(via);and e) Trade union or association covered under section 10(24).
You may note that the following institutions, associations etc, need not file their return of income:
Returns by associations/institutions approved under section 35-Sec.139(4D) Every University, College or other institutions approved u/s.35(1)(ii) or 35(1)(iii), which Is not required to file return of income under any other provisions of section 139, shall Furnish the return of income or loss for every previous year. The return so funnished Shall be considered a return filed u/s 139(1). Revised return – Sec.139(5) Any person who has furnished a return u/s.139(1) or in pursuance of a notice issued u/s.142(1) can file a revised return if the assessee discovers any omission or any wrong statement in the return filed earlier. Such revised return can be furnished at any time before the expiry of one year from the end of the relevant assessment year or before completion of assessment whichever is earlier. The effective return for the purposes of assessment is the return ultimately filed by the assessee. A revised return replaces the original return. Therefore, a return may be revised any number of times within the time limit u/s139(5).
Case Law a) Where belated return is filed u/s 139 (4), assesses can not file a revised return u/s. 139 (5). The provisions of u/s. 139 (5) provide that a revised return can be filed only where a return has been furnished u/s 139(1) or in response to a notice issued u/s. 142 (1) – Kumar Jagdish Chandra Sinha Vs. CIT 220 ITR 67(SC). b) Assessee files a loss return u/s 139 (3). Later he revises the return u/s. 139(5) and Claims enhanced amount of loss. According to section 139(3). once a return is filed, all The provisions of the Income-tax Act shall apply as if such return has been filed u/s.139(1). Consequently, the filing of revised loss return is valid and section 80 does not come in the way of disallowing the carry forward of such increased amount of loss – CIT Vs. Periyar District Co- operative Milk Producers Union Ltd. (2004) 266itr 705 (Mad). c) In a case where a return of income has been filed in accordance with the time limit, the only option available to the assessee to make amendment to such return is by way of filing a return u/s 139(5). Where an assessee, files a letter seeking the assessing officer to allow certain deduction by way of a letter, the assessing officer shall not allow the same. The Supreme Court in Goetze (India) Ltd vs. CIT (2006) 284 ITR 323 has held that there Was no provision in the Income Tax Act to amend in the return unless a revised return is Filed.
Defective return – Sec.139(9) Circumstances when a return can be treated as defective A return of income can be regarded as defective by the Assessing Officer under the Following circumstances: a) Annexures, statements and columns in the return of income have not been duly filed; b) Return of income has not been accompanied by – i) Statement showing computation of tax on returned income ii) Proof of tax claimed to have been deducted or collected at source (TDS or TCS) Advance tax paid and self-assessment tax paid However, the return of income shall not be regarded as defective if a certificate for TDS/TCS was not received by the person furnishing the return of income and such Certificate is produced within the period of 2 years from the end of the assessment year In which the income covered by TDS/TCS is assessable. Once the certificate is so Furnished , the Assessing Officer shall amend the intimation or deemed intimation or the order of assessment for the relevant assessment year by virtue of sec.155(14) to grant Credit for the TDS/TCS. iii) Tax Audit report u/s. 44AB or if report was furnished earlier copy of such report Together with proof of furnishing the report. c) Where regular books of account are maintained, the copies of Manufacturing account or Trading account or Profit and Loss account or Income and Expenditure account or any other similar account and Balance Sheet has not been furnished. Similarly, where no couples of personal account and personal account in the business of the proprietor, partner or member of AOP/BOT have been filed; d) If accounts are audited and copies of audited statement of accounts and auditor’s Report have not been filed (including Cost audit report, if any); e) Where regular books are not maintained, a statement indicating the amount of Turnover or gross receipts, gross profit, expenses an d net profit and the basis of Computation thereof together with the amount of total sundry debtors, sundry creditors, Stock-in-trade and cash balance at the end of the previous year have not been filed.
Procedure for rectifying the defect The A.O. may intimate the defect in the return of income to the assessee. The assessee May be called upon to rectify the defect within 15 days from the date of service or Within such extended time allowed on application by the assessee. If the defect is not so Rectified then the A.O. shall treat the return of income as an invalid return. However, if The assessee rectifies the defect after the time allowed but before the assessment is made, The A.O. is empowered to condone the delay and treat the return as valid.
Permanent Account Number – Rule 114/Form no.49A – Sec. 139 A The following person are required to apply for and obtain Permanent Account Number. a) Any person whose total income assessable to tax either in respect of his income or the income of any other person is required to apply on or before the 31st May of the relevant assessment year. b) Any person carrying on business / profession whose turnover or gross receipts are Likely to exceed Rs. 5,00,000 in any previous year is required to apply before the end of the relevant previous year. c) Any person who is required to furnish a return of income u/s139(4A) is required to apply before the end of the previous year.
Note : It may be noted that, from a practical point of view Sales tax, Customs, Excise Department insist on PAN for registration. Any peron registered under the Central Sales Tax Act, 1956 or the General Sales Tax Act, applying for Import-Export code, service tax assesses or customs, excise assesses of the appropriate state or union territory. a) The Central Government may notify the following classes of person who are Required to apply for a PAN within the prescribed time. i) (Importers and Exporters) – persons by whom cess or tax is payable, ii) Any other person, for collecting useful information.
b) The AO on his own motion ailot PAN to any person, having regard to the nature of Transaction, whether or not tax is payable. Any person may apply to AO for PAN. i) PAN should be quoted in all tax challans, returns and correspondence with the Income tax authorities. ii) Under Rule 114B of the Income-tax Rules, PAN should be quoted in all documents pertaining to the following transactions ;
A) Purchases of Assets (i) Securities 1. Any contract for sale or purchase of securities of a value of exceeding Rs. 1 lakh; 2. Making an application for purchase of mutual fund units for an amount of Rs. 50,000 Or more; 3. Making an application to company for acquiring shares for an amount of Rs. 50,000 or more. However, this provision shall apply only for public issue or right issue and not for purchases through stock broker and from share holder; 4. Making an applicable to a company or institutions for acquiring debentures for an Amount of Rs. 50,000 or more; 5. Making an applicable to Reserve Bank of India for acquiring its bonds for an amount of Rs. 50,000 or more;
(ii) Other assets a) Sale or purchase of any immovable property valued at Rs. 5 lakh or more; b) Sale or purchase of motor vehicle, as defined sec.2(28) of the Motor Vehicle Act, 1988 (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);
B) Transactions with Banks / Post office i) Opening an account with a banking company. ii) A deposit, exceeding Rs. 50,000 in any account with Post Office Saving Bank; iii) A Time deposit with a banking company exceeding Rs. 50,000. In the case of a Minor opening a time deposit account or any other account with a banking company and Who does not have any income chargeable to Income-tax, he shall quote the Permanent Account Number of his father or mother or guardian, as the case may be ; iv) Cash payment for purchase of bank draft or pay orders or bankers cheque from a Banking Company for an amount aggregating Rs. 50,000 or more during any one day; v) Cash deposits aggregating Rs.50,000 or more with a banking company during any vi) Making an application to any bank or banking institution or company or any Institution for issue of a credit card;
C ) Other Transactions i) Making an application for installation of a telephone connection including a cellular Phone connection; ii) Payment to hotels and restaurants against their bills for an amount exceeding Rs. 25,000 at any one time; iii) Cash payment exceeding Rs.25,000 in connection with travel to any foreign country At any one time;
Additional Points 1. In the case of following class or classes of persons the provisions of section 139 A Shall not apply:- a. Persons who have agricultural income and who are not in receipt of any other Income chargeable to Income-tax provided that a declaration in Form no. 61 is filed by such persons. b. Non-resident as defined in clause (30) of Sec.2. c. Payers being Central or State Governments and Consular Officers. 2. Any person who does not have a Permanent Account Number and who enters into Any of the above transactions shall make a declaration in Form No. 60 giving therein the particulars of such trasactions. 3. Any change in the address or name and nature of business on the basis of which PAN was allotted should be intimated to the Assessing Officer. 4. It is mandatory for every person receiving any sum or amount from which Tax is deducted at source to intimate his Permanent Account Number to the person responsible for deducting . A buyer or licensee or lessee from whom tax is collected at Source should intimate his PAN to the person collecting tax at source. similar obligation Is cast on every person who is responsible to deduct or collect tax to quote the Permanent Account Number in the statement / returns / certificate furnished. 5. It is mandatory for the deductor/collector of tax to quote PAN of payee/collectee in the TDS/TCS certificates. It addition, PAN is required to be quoted in all returns of TDS/TCS. Any person who has not been allotted a Permanent Account Number and who makes payment in cash or otherwise than by a crossed cheque drawn on a bank or through credit card issued by any bank in respect of any of the above transaction shall make a declaration in Form no. 60 giving therein the particulars of such transaction. 6. Any person who has already been allotted a permanent account number under the new series shall not apply, obtain or possess another permanent account number. Therefore, an assessee cannot hold two permanent account number. 7. Contravention of section 139A attracts penalty of Rs. 10,000 u/s 272B. Tax Return Preparer – Sec. 139B i. This Section enables the Board to frame a scheme by which specified class of persons May file their return of income through a tax return prepare. Tax return prepare (TRP) shall assist the specified class of person in preparing their return of income and affix His signature on such return. ii. “Specified class or classes of persons” shall mean any person, other than a company or a person , whose accounts are required to be audited under section 44AB or under any other law for the time being in force, who is required to furnish a return of income under the Income Tax Act. iii. “Tax Return Preparer” means any individual, who has been authorized to act as a Tax Return Prepare under the Scheme framed. However, TRPs do not include a chartered Accountant, legal practitioner entitled to practice in any civil court in India, an officer of a Scheduled Bank with which the assessee maintains a current account or has other regular dealings. iv. The scheme framed by the Board may provide for the following; v. Circumstances under which the authorization given to the TRP may be withdrawn.
Power of Board to dispense with furnishing of documents – Sec. 139C The Central Board of Direct Taxes is empowered to make to provide for a class or classes of persons who may not be required to furnish documents, statement, receipts, certificates, audit report or any other documents which are otherwise required under the Act. This provision is subject to sec. 139D under which the Central Board of Direct Taxes may required an assessee to furnish such documents. However such documents should be furnished on demand to the Assessing Officer.
Filing of return in electronic form – Sec.139D The Central Board of Direct Taxes is empowered to make rules providing for: a) The class or classes of persons who shall be required to furnish the return in electronic Form; b) The form and the manner in which the return in electronic form any be furnished; c) The documents, statements, receipts, certificates or audited reports which may not be furnished along with the return in electronic form but shall be produced before the Assessing Officer on deman; d) The computer resource or the electronic record to which the return in electronic form may be transmitted.
Return by whom to be signed – Sec. 140
Note : A return of income u/s 139(1) which is not signed and verified is not merely an Inaccurate or incomplete return but it is not a return at all. Self Assessment Tax – Sec. 140A On the basis of the return of income that is being filed u/s. 139 or in response to notice issued u/s 142(1) for making inquiry before assessment or in response to notice u/s 148 where income has escaped assessment; or in response to notice under section 153A for making assessment in case of search or requisition or under any other provisions of this Act, the assessee is required to computer the tax payable by him after considering the following: i. Tax paid under the provisions of the Act; ii. Amount of Tax Deducted at Source and Collected at Source; iii. Relief of Tax u/s 90,90A or 91; iv. Credit on Minimum Alternate Tax available in case of companies, u/s 115JAA. Besides, interest payable for delay in filing return of income [u/s.234A], interest for Default in payment of advance tax [u/s.234B] or interest for deferment in payment of advance tax [u/s 234C] shall be computed and paid together with the tax payable before filing the return of income and the proof of payment shall be attached thereto. If the payment made by the assessee falls short of the aggregate of the tax and interest, the payment made shall first be adjusted towards the interest payable and the balance amount shall be adjusted towards the tax payable. After a regular assessment is made under section 143 or assessment is made u/s 144 or u/s 153A or any other relevant provisions of the Act, any amount paid under this section shall be deemed to have been paid towards such assessment. 2. Inquiry before assessment – Sec. 142 Notice 1) The Assessing Officer may serve a notice on any person who has filed a return u/s. 139 or in the case of any other person where the due date for filing return of income has expired requiring the following; i) If the assessee has not filed a return within the time allowed u/s. 139(1) or before the end of the assessment year, then the notice can require him to furnish the return of income. ii) The notice can require the production of accounts and documents. iii) The notice can require furnishing of information on such points or such matters including the furnishing of the list of assets and liabilities as the Assessing Officer may require. 2) But, prior approval of Joint Commissioner is necessary before requiring the assessee to furnish the details of all assets and liabilities not included in the accounts. the assessing officer shall not require the production of accounts relating to a period more than 3 years prior to the previous year [Sec. 142 (1)]. Enquiry The Assessing Officer may make such inquiry as he considers necessary for the purpose of obtaining full information about the income or loss of any person [Sec. 142(2)]. Special Audit 1) The Assessing Officer at any stage of the proceeding may, having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue, direct the assessee to get the accounts audited and furnish the audit report, Such a direction can be issued only with prior approval of the Chief Commissioner or Commissioner and the audit shall be done by a Chartered Accountant nominated by the Chief commissioner or Commissioner. [Sec. 142(2)]. 2) The AO shall not direct the assessee to get the books of accounts audited unless the assessee has been given a reasonable opportunity of being heard. 3) The audit may be directed even if the accounts are already audited. The audit report shall be furnished within a period specified by the Assessing Officer which can be extended up to 180 days from the date of receipt of direction by the assessee. The date of furnishing of audit report may be extended either by the assessee officer himself or on an application made by the assessee. 4) The expenses for the audit shall be determined by the Chief Commissioner or commissioner in accordance with the prescribed guidelines and such fee shall be paid by the Central Government.
Opportunity The assessee shall be given an opportunity of being heard in respect of materials gathered on inquiry u/s. 142(2) or audit u/s 142(2A) and proposed to be used in the assessment. [Sec. 142(3)].
Case law (i) The power conferred u/s. 142(2A) to direct an assessee to get the accounts audited is discretionary in nature. Before the assessing and the Commissioner can pass an order for special audit, they are required to apply their minds and form an opinion that the accounts of the assessee are of such nature and complexity that without special audit, assessment or re-assessment is not possible. If the assessing officer sends the proposal for special audit without examination of the books of account, the Commissioner should not give approval. (ii) Again in a case where two sets of accounts are maintained by the assessee, it does not mean that it is in the nature of accounts difficult to understand as was held in rajesh Kumar and Other Vs Dy. CIT (2006) 287 ITR 91. The onus is on the assessing officer to substantiate that the accounts are complex in nature.
Estimation by Valuation Officer in certain cases – Sec 142A For the purposes of making an assessment or re-assessment, where an estimate of the value of any investment referred to in sec. 69 or sec.69B or the value of any bullion jewellery or other valuable article referred to in sec. 69A or sec. 69B is required to be made, the assessing officer may require the valuation officer to make an estimate of such value and report the same to him. The valuation officer to whom such reference is made shall have all the powers that he has u/s. 38A of the Wealth-tax Act, 1957, viz power to enter any place occupied by the assessee, inspect assets, enforce compliance etc.
The assessing officer may, after giving the assessee an opportunity of being heard, the into account the report of the Valuation Officer in making such assessment or re- assessment.
3. Assessment – Sec 143 The return of income or loss shall be computed after making the following adjustments, in the following manner:- a) the total income or loss shall be computed after making the following adjustments, namely a. any arithmetical errors in the return; or b. any incorrect claim if such incorrect claim is apparent from any information in the return An incorrect claim apparent from any information in the return shall mean the following claims, on the basis of an entry in the return,
i) of an item which is inconsistent with another entry of the same or some mean the item in the return of income ii) in respect of deduction, where such deduction exceeds specified statutory limit iii) in respect of deduction , where such deduction exceeds specified statutory limit expressed as monetary amount or percentage or ration or fraction iv) in respect of deduction, where such deduction exceeds specified statutory limit expressed as monetary amount or percentage or ratio or fraction
b) The tax and interest, if any, shall be computed o the basis of the total income after considering the adjustments mentioned above.
c) The tax payable by or refund due to the assessee shall be determined after giving credit to TDS, TCS, Advance tax paid, relief allowable under DTAA or u/s 91. self assessment tax paid or any other amount paid otherwise than by way of tax or interest paid. d) Based on the above, intimation shall be sent to the assessee specifying the sum payable or refund due to the assessee. If refund is due, it shall be granted to the assessee e) Intimation shall be sent to the assessee when the loss declared by the assessee is adjusted but no tax or interest is payable by or no refund is due to the assessee f) Intimation shall be sent within one year from the end of the financial year in which the return is made. Intimation is required to be sent only in a case where there is demand payable by the assessee or where refund is due to the assessee. In all other cases, acknowledgement issued on filling of the return of income shall be deemed to be intimation. Centralised Processing of Returns According to Sec. 143[1A], the board is empowered to make a scheme for centralized processing of return with a view to expeditiously determine the tax payable or refund due to the assessee in the pursuance of Sec. 143[1A].
Scrutiny Assessment 1) The Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee- a) has not understand the income; or b) has not computed excessive loss; or c) has not underpaid the tax in any manner, take up the case for regular assessment by issuing notice u/s. 143[2][ii] 2) Such notice shall be served on the assessee within six months from the end of the financial year in which the return is furnished. 3) The Assessing Officer, after hearing evidence produced by the assessee and taking into account all relevant material which he has gathered, shall make an assessment u/s. 143 [3][ii] of the total income or loss of the assessee by an order in writing and determine the sum payable by him or the amount refundable to him on the basis of such assessment . 4) Where a regular assessment is made under section143(3) or section 144, any tax or interest paid u/s. 143(1) shall be deemed to have been paid towards such regular assessment. If no refund is due on regular assessment or if the amount refunded u/s. 143(1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee Sec. 143(4). 5) During the course of assessment u/s 143 (3) of any University, College or other institutions approved u/s 35, the assessing officer, should satisfy himself that the activities of these institutions are being carried out in accordance with the guidelines and conditions subject to which the approval was granted. Incase it is found that, there is a violation, the assessing officer may recommend to the Central Government to withdraw the approval after giving the assessee a reasonable opportunity of showing cause against the proposed withdrawal. The Government may withdraw approval and forward a copy of the order to the assessee and AO – second proviso to Sec. 143(3). 6) While carrying out regular assessment u/s.143(3) in the case of scientific research association, news agency, institution, fund or trust, etc., the assessing officer shall not pass any assessment order without giving effect to the concerned sub-clause of section 10 under which such scientific research association, news agency, institution, fund or trust etc., have been granted exemption. However, the assessing officer may proceed to pass assessment order u/s. 143(3) in the following cases; (i) Where the assessing office has found during the course of assessment that such scientific research association, news agency, institution or association, fund or trust, etc., is carrying on its activity in contravention of the relevant sub clauses of section 10, under which they are approved for exemption and the same has been intimated to the central Government or the Prescribed authority; and (ii) the approval granted to the scientific research association, institution or association or fund or trust has been withdrawn or exemption notification issued in respect of such news agency or institution fund or trust has been rescinded.
Best Judgment Assessment –Sec. 144 The Assessing Officer, after taking into account all relevant material which he has gathered and giving the assessee an opportunity of being heard to make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment under the following circumstances:
The provisions of Sec. 144 are mandatory in nature. Even if there is one of the 4 defaults mentioned above on the part of the assessee the officer is bound to make assessment to the best of his judgment. The default committed by the assessee should be indicated in the record. Opportunity to be heard given to the assessee must be real and effective. proper and valid service of notice should be proved by the department. In addition to the above, according to Sec. 145(3), the assessing officer is empowered to invoke Sec. 144 in the following situations: a) Where the assessing officer is not satisfied about the correctness or completeness of the accounts of the asseessee; b) Where the method of accounting u/s 145(1) has not been regularly followed by the assessee; and c) Where the accounting standards notified by the Central Government u/s 145(2) have not been regularly followed by the assessee. You may note that Sec. 2(40) defines “Regular Assessment” to mean the assessment mad u/s.143(3) or u/s.144. Assessment made u/s. 144 is also known as ex-parte assessment since the assessment is mad without the co-operation of the party concerned. It is also known as Best Judgment Assessment as the Assessing Officer, in spite of non-compliance and no-cooperation of the assessee, is expected to make the assessment to the best of this judgment.
Case Law Where the assessing officer is in the process of carrying out best judgment assessment, there is always a certain degree of guess work. No doubt it is the duty of the authorities to try and make an honest and fair estimate of the income even while resorting to a best judgment assessment and should not act arbitrarily. In a case where the assessing officer has resorted to best judgment assessment based on the grounds that the assesee had not maintained the quantitative details or stock register; no evidence to verify stock; genuineness of the purchases was not proved beyond doubt, there is nothing arbitrary in resorting to sec 144. The Honorable Supreme Court in Kchawala Gems Vs. Joint CIT (2007)288 ITR 10 has upheld the action of the Assessing officer.
Protective Assessment Under the Income-tax Act, the income of a person can be assessed only in the hands of such person unless there is a specific provision by which it requires to be assessed in the hands of another person. (e.g. Clubbing provisions). However the same income cannot be taxed in the case of two persons under law. However, when the ownership ofthe income is in dispute or is matter of doubt, it is open to the Assessing officer to assess a particular income in the case of the person who is considered as liable to tax and include the same income in the case of another person also, as a protective measure. such an assessment is known as Protective Assessment.
For example, Mrs. A files her return of income showing a business income of Rs. 2 lakhs. however, if the Assessing Officer is of the view that the said income belongs to her husband Mr. A, the Assessing Officer shall assess the sum of Rs. 2 Lakhs in the case of Mr, A and shall proceed to assess the same amount in the case of Mrs. A on a protective basis.
Protective Assessment is made to ensure that when the issue is finally settled, the assessment of such income should not be time barred. When the issue is finally settled in appeal or otherwise, only one assessment will stand and the other will be cancelled accordingly, It requires to be mentioned that the Income-tax Department cannot recover the tax from both the assesses in respect of the same income. Similarly , Protective Assessment cannot be the basis for levy of penalty.
Power of Joint Commissioner to issue directions – Sec.144A 1. The Joint Commissioner may, (a) on his own motion or (b) on a reference by the Assessing Officer or (c) on an application by the assessee, call for and examine the records of any proceedings in which an assessment is pending and if he considers it necessary or expedient, having regard to the nature of the case, the amount involved or for any other reason, issue such directions as he deems fit. Such directions shall be issued for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the assessing officer.
2. Directions prejudicial to the interests of the assessee, cannot be issued unless the assessee has beengiven an opportunity of being heard. Directions issued on the lines of investigation to be made by the Assessing Officer will not be considered as directions prejudicial to the interests of the assessee. Therefore, such direction can be issued without hearing the assessee.
For instance, if the Joint Commissioner deems it fit to direct the Assessing Officer to disallow a particular claim by the assessee, an opportunity of being heard must be given before such a direction is issued. On the other hand, if the Joint Commissioner directs the Assessing Officer to verify the genuineness of certain expenditure or creditors, be may do so without hearing the assessee.
Reference to Dispute Resoluton Panel –Sec. 144C Inroduction you may note that the present system of dispute resolution under the Income-tax is tiem consuming and the finality in high demand cases is attained after a prolonged litigation. This uncertainty in finality of ther issued also indirectly effects the flow of foreign investment. Sec 144C address this issue to facilitate expeditions resolution of disputes. The following are the relevant provisions; 1. Only an eligible Assessee can avail the facility of reference to the Dispute Resolution panel. For this purpose, a) eligible assessee means, any person in whose caseIn the variation in the income or loss returned as consequences of order passed by the transfer pricing officer and any foreign company. b) Dispute Resolution Panel means a collegiums comprising of three commissioners of Income tax constituted by the Board. 2. In the case of eligible assessee, the assessee officer shall in the first instant forward the draft assessment order if he propose to make any variation in the income or loss returned which is prejudicial to the interest of the assessee.
3. Within 30 days from the date of receipt of the draft order, the eligible assessee shall file his acceptance of the variations to the assessing officer or file his objections, if any, to such variation with Dispute Resolution Panel and the Assessing officer.
4. If the assessee intimates the acceptance of the proposed variations to the Assessing officer proposed or no objection is received from the assessee within 30 days specified above, the assessing officer shall complete the assessment based on the draft order. For this purpose, the time limit is one month from the end of the month in which
a) the acceptance received or b) The time limit for filing objection expires
5. Where object is received from the eligible assessee, the Dispute Resolution Panel shall issue directions as it thinks fit for the guidance of the assessing officer to enable him to complete the assessment. Such directions shall be issued within 9 months from the end of the month in which the draft order is forwarded to the assessee.
6. Before issuing any directions, the Dispute Resolution Panel may make such further enquiry as it thinks fit or cause any further enquiry to be made by any income tax authority and report the result of the same to it.
7. The Dispute Resolution Pane shall consider the following while issuing directions namely:
a) draft order b) Objection file by the assessee c) Evidence furnished by the assessee d) Report, if any, of the assessing officer, valuation officer, or transfer pricing officer or any other authority e) Record relating to the draft order f) Evidence collected by or cause to be collected by it g) Result of any inquiry made by or caused to be made by it
8. The Dispute Resolution Panel shall issue directions only after giving opportunity of being heard to the assessing officer where the direction are prejudicial to the interest of the assessee and assessing officer respectively.
9. The Dispute Resolution Panel may confirm, enhance, reduce the variations proposed in the draft order. However, it shall not set aside any proposed variation or issue direction for further inquiry and passing of the assessment order.
10. If the member of the Dispute Resolution Panel differ in their opinion on any point, the point shall be decided according to the opinion of the majority of the members. 11. Every direction issued by Dispute Resolution Panel shall be binding on the assessing officer. Upon receipt of the direction, the assessing officer shall complete the assessment in conformity with the directions. Within one month from the end of the month in which such direction is received. While doing so assessing officer shall not give any further opportunity to be heard to the assessee.
The following table summarized the time limit provided u/s 144C after assessing officer issued draft assessment order to the eligible assessee:
Mehod of Accounting and Accounting Standards A. Mehthod of Accounting – Sec. 145 1. Income chargaeable under the heads ‘Profits and gains of business or profession’ and ‘Income from other sources’ shall be computed in accordance with either cash or merchantile system of accounting regularly employed by the assessee. 2. U/s 145(2), the Central Government is empowered to notify Accounting Standards to be followed by any class of assessee or in respect of any class of income. So far, the Central Board of Direct Taxes has notified two Accounting Standards – AS I – Disclosure of accounting policies and AS II Prior period and Extraordinary items and changes in accounting policies. These two accounting standards are required to be followed by all assessee following the mercantile system of accounting. 3. In the following situation, the Assessing Officer may take an assessment in the manner provide in Section 144: a. Where the Assessing Officer is not satisfied about the correctness or completeness of the accounting of the assessee. b. Where the method of accounting has not been regularly followed by the assessee. c. Where the Accounting Standards notified by the Central Government u/s 145(2) have not been regularly followed by the assessee.
Case Laws 1. CIT vs. British Paints (India) Ltd. (1991) 188ITR 44(SC) – Assessing Officer has power to substitute correct method in the place of wrong of method of valuing and closing stock adopted by the assessee. Merely because the wrong method was consistently followed it cannot be accepted. Consistency should be with reference to the correct method. Therefore, assessing officer is justified in substituting correct method in the place of incorrect method. 2. The assessee is entitled to change the method of accounting regularly employed by him. In such a case, he should abandon the old method and adopt the new method on a regular basis. The new method cannot be employed only for casual period. 3. When the accounts are incomplete or incorrect u/s. 145(3), assessing officer has the power to reject the books of accounting and estimate the profit. When profit is estimated by rejecting the books, thereafter the assessing officer cannot make disallowances based on infirmities in the books of accounts. For instance, after estimating profit of 10% of the turnover, assessing officer cannot make disallowance for cash purchases u/s. 40A(3). The estimated profit, in such a case, is deemed to be after all such disallowances and no separate addition can be made. A. Accounting Standard I relating to disclosure of accounting policies: 1) All significant accounting policies adopted in the preparation and presentation of financial statements shall be disclosed. 2) The disclosure of the significance accounting policies shall form part of the financial statements and the significant accounting policies shall normally be disclosed in one place. 3) Any change in an accounting policy which has material effect in the previous year or in the subsequent to the previous years shall be disclosed. The impact of, and the adjustments resulting from, such change, if material, shall be shown in the financialstatement of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the previous year but which is reasonable expected to have material effect in any year subsequent to the previous year, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. 4) Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vacation in the financial statements prepared and presented on the basis of such accounting policies. for thispurpose, the major considerations governing the selection and application of accounting policies are following, namely :- i) Prudence – Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information; ii) Substance over form – The accounting treatment and presentation in financial statement of transaction and events should be governed by their substance and not merely by the legal form; iii) Materiality – Financial statement should disclose all material items, the knowledgeof which might influence the decisions of the user of the financial statements. 5) If the fundamental accounting assumptions relating to going concern, consistency and accrual are followed in financial statements, specific disclosure in respect of such assumption is not required. If a fundamental accounting assumption is not followed, such fact shall be disclosed. 6) For the purpose of Paragraphs (1) to (5), the expressions, - a) “Accounting policies” means the specific accounting principles and the methods of applying those principles adopted by assessee in the preparation and presentation of financial statements: b) “Accrual” refers to the assumption that revenues and cost are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the period to which they relate; c) “Consistency” refers to the assumption that accounting policies are consistent from one period to another; d) “Financial statements” means any statement to provide information about thefinancial position, performance and changes in the financial position of an assessee and includes balance sheet, profit and loss account and other statements and explanatory notes forming part thereof; e) “Going concern” refers to the assumption that the assessee has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the business, profession or vacation and intends to continue his business, profession or vacation for the foreseeable future.
B. Accounting Standard II relating to disclosure of prior period and extraordinary items and changes in accounting policies: 7) Prior period items shall be separately disclosed in the Profit and Loss accounts in the previous year together with their nature and amount in a manner so that their impact on profit or loss in the previous year can perceived. 8) Extraordinary items of the enterprise during the previous year shall be disclosed in the profit and loss account as part of taxable income. The nature and amount of each such items shall be separately disclosed in a manner so that their relative significance and effect on the operating results of the previous year can be perceived. 9) A change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee. 10) Any change in an accounting policy which has material effect shall be disclosed. The impact of, and the adjustments resulting from such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the previous year but which is reasonably expected to have a material effect in years subsequent to the previous year, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. 11) A change in an accounting estimate that has a material effect in the previous year shall be disclosed and quantified. Any change in an accounting estimate which is reasonably expected to have a material effect in year subsequent to the previous year shall also be disclosed. 12) If a question arises as to whether a change is a change in accounting policy or a change in an accounting estimate, such question shall be referred to the Board for decision. For the purposes of paragraphs (7) to (12), the expressions :- a) “Accounting estimate” means an estimate made for the purpose of preparation of financial statements which is based on the circumstances existing at the time when the financial statements are prepared; b) “Accounting policies” means the specific accounting principles and the method of applying those principles adopted by the assessee in the preparation and presentation of financial statements; c) “Extraordinary policies” means gains or losses which arise from events or transactions which are distinct from the ordinary activities of the business and which are both material and expected not to recur frequently or regularly. Extraordinary items include material adjustments necessitated by circumstances which though related to the years preceding the previous year are determined in the previous year; Provided that income or expenses arising from the ordinary activities of the business or profession or vacation of an assessee though abnormal in amount or infrequent in occurrence shall not qualify as extraordinary items. d) “Financial statements” means any statements to provide information about the financial position, performance and changes in the financial position of an assessee and includes Balance Sheet, Profit and Loss account and other statements and explanatory notes forming part thereof; e) “Prior period items” means material charges or credits which arise in the previous year as a result of errors or omissions in the preparation of the financial statements of one or more previous year;
Provided that the charge or credit arising on the outcome of a contingency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in estimate and such an item shall not be treated as a prior period item.
Method of Accounting in certain cases – Sec. 145A [Valuation of purchases, sales and inventory] [i] The valuation of purchase and sale of goods and inventory for the purpose of determining of income chargeable under the heads “Profit and gains of business or Profession” shall be – a) in accordance with the method of accounting regularly employed by the assessee ; and b) further adjusted to include the amount of any tax, duty, cess or fee, by whatever name called, actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. [ii] Interest received by an assessee on compensation or on enhanced compasation, as the case may be, shall be deemed to be the income of the year in which it is received. Any payment of tax, duty etc., shall include even payments in respect of which any right [such as CENVAT] may arise as a consequences to such payment. Sec. 145A is introduced in order to ensure that the sale goods and purchase of goods are grossed up by including excise duty, tax, cess, etc., and consequences the value of inventory is grossed up, ignoring the CENVAT credit that may be available towards such duty paid. Assessees could normally follow two methods of treatment with reference to tax, duty etc., in the preparation accounts/statements. 1) Inclusive method where the figures are grossed up and, 2) Exclusive method where the figure are shown net of CENVAT credit. Few judicial pronouncements [held at the Tribunal level] upheld the application of exclusive method and held that Assessing Officer is not justified in making any adjustment if such method is consistently followed. In those cases, the excise duty liability was claimed as deduction on payment basis under the provision of section 43B of the Act. The insertion of section 145A is aimed at negating such judicial pronouncements and also to require assessee to follow only the inclusive method, According to the law makers, the profit gets reduces if the exclusive method is followed as demonstrated by the following illustration with assumed data:
PROFIT & LOSS ACCOUNT – INCLUSIVE METHOD
PROFIT & LOSS ACCOUNT – EXCLUSIVE METHOD
The introduction of section 145A is aimed at required assessee to follow the inclusive method whereby more profit in shown. However it needs to be appreciated that if closing stock is shown at a higher figure in one year, it will be carried forward and shown as the opening stock in the next year and to the profit increased in one year will be off set by the profit reduced in the next year. Thus, the effect of making the adjustment required under section 145A will be the advancing of a portion of the profits of one year to the proceeding one year. In case where the closing stock is progressively on the increase, the effect of such advancing will gradually increase resulting revenue collection to the government at an earlier of time. In the above working, in the inclusive method, the closing stock is shown at Rs. 10,000/- and the excise duty claim of Rs. 15,000/- is reduced by the entire Rs. 10,000/- being CENVAT credit available. However if an assessee avail CENVAT credit only to the extent of consumption of raw material the net result will be the same under both methods. Since the excise duty of Rs. 1,000/- attributable to raw material a deduction of Rs. 6,000/- towards the excise duty for this and the profit will be Rs. 24,000/- which is same as arrived at by the exclusive method. This is the approach suggested in the Guidance Note on Tax Audit under section 44AB by the Institute of Charted Accountants of India and if this approached is adopted. Sec. 145A become tax neutral as per the computation shown below:
PROFIT & LOSS ACCOUNT – INCLUSIVE METHOD
5. Income Escaping Assessment
Assessment, reassessment and recomputation – Sec. 147 Basis If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may assess or reassess such income or recomputed the loss or depreciation allowance or any other allowances for that assessment year. Scope (1) Once the assessment has been re-opened, any other income which has escaped assessment and which comes to the knowledge of the Assessing Officer subsequently in the course of the proceeding u/s. 147, can also be included in the assessment.(2) The Assessing Officer may assess or reassess such income which is chargeable to tax and escaped assessment other than the income involving matters which are the subject matter of any appeal, reference or revision.
Circumstances when income can be said escape assessment Explaination 2 : In the following cases, it shall be deemed that income chargeable to tax has escaped assessment – 1. Where no return of income has been furnished by the assessee although his income is above the Basic exemption limit. 2. Where a return of income has been furnished but no assessment has been made and the assessee is found to have understanted his income or claimed excessive loss, deduction, allowance or relief in the return. 3. Where an assessment has been made but – a) income chargeable to tax has been under assessed; or b) such income has been assessed at too low a rate; or c) excessive relief was given in respect of such income; or d) excessive loss/depreciation allowance or any other allowance under this Act has been computed. Explaination 3 : When the AO discovers an issue which has escaped assessment in the course of reassessment proceedings, he may assess or reassess the income in respect of such issue, even such issue was not mentioned in the reasons in the notice of reassessment u/s 148. in other way, scope of reassessment covers matters mentioned in the notice and any other matters which come to the knowledge of the Assessing Officer during reassessment.
Case Law 1. In a case where an assessee changes the method of accounting from mercantile system to cash system, the benefit already accured under the earlier method of accounting followed by assessee does not divest. The benefit of bad debts arriving out of merchantile system of accounting does not divest the assessee where there is a change in the method of accounting. This view is upheld by Madhya Pradesh High Court in CIT Vs. M.P. Financial Corporation (2008) 299 ITR 297. 2. The purpose or objective of reopen assessment is noly to bring to tax income escaping assessment and not to give further relief to assessee. therefore, even if any claim or relief advanced by the assessee is entertained, it should not be allowed to bring down the total income below the original total income assessed. This view has found acceptance of the Supereme Court in CIT Vs. Sun Engineering Works Pvt. Ltd. (1992) 198 ITR 297, wherein it was held that 147 proceeding cannot be used as revision or review proceedings. Therefore, based on Supreme Court decision referred to above, it can be stated that the proceedings u/s. 147 cannot be used to seek review of a concluded issue. 3. Mere change of opinion will not entitled the assessing officer to initiate reassessment proceeding. CIT Vs. Foramer France (2003) 264 ITR 566(SC). Where two views are possible and assessing officer has made an assessment by adopting one view, then reassessment proceedings cannot be made to adopt the other view. CIT Vs. Sambhar Salt Ltd (2003) 262 ITR 675 (Raj). Again, where the assessing officer cannot reopen the assessment based on the defects found in the books of account of earlier assessment years, in the absence of specific material for the subsequent year under consideration no belief could be formed about the escaped income. This view was upheld in Dass Friends Builders (P) Ltd Vs. Dy. CIT (2006) 280 ITR 77 (ALL). 4. Audit party factual errors in statement or the assessment order may prompt a rectification or reassessment proceedings. However, audit party giving interpretention of statutory provision can not be a reason for intiating reassessment proceedings. CIT Vs. Juhi Mehta Works (2003) 263 ITR 287 (All) 5. When a notice u/s. 148 is issued, the assessee is expected to file return of income in response thereto. If the assessee desire to seek the reasons for issuing the notice, the assissing officer is bound to furnish reason within reasonable time. On receiving the reasons for issuance of notice, assessee is entitled to file objections to the assessing officer and assessing officer is bound to dispose off the same by passing a speaking order – GKN Driveshhafts (India) Ltd. ITO and Other (2003) 259 ITR 19 (SC). 6. The decision of the Supreme Court in GKN Driveshafts (India) Ltd., reminds the assessee that when a notice u/s. 148 is issued, the proper course of action is to file a reply with objections including those in relation to the absence of juridiciton. However, nowhere in the decision does the Supreme Court may lay down that when such an objections is in relation to the absence of jurisdiction and the same is revealed on the face of the notice or resons in support thereof, the assessee has compulsorily to invite an order from the assessing officer. Where it is a clear case of the assessing officer issuing notice without jursdictions or the reasons for issue of the notice do not disclose any eascapement of income, the assessee can approach the High Court under Article 226 of the Constitution of India. It is also well settled, and the decisions of the Supreme Court in Calcutta Discount Co. Ltd. Vs ITO (1961) 41 ITR 191 is clear on the poin, that mere authorities seek to assume jurisdiction which they do not possess or act ina totally arbitrary manner – Ajanta Pharma Ltd. Vs. ACIT (2004) 267 ITR 200 (Bom.)
Issue of notice where income has escaped assessment – Sec. 148 1. The assessing officer shall, before making an assessment, reassessment or recomputation u/s. 147, serve on the assessee a notice u/s. 148 requiring him to file a return of his income or of any other person in respect of which he is assessable. 2. Before issuing any such notice, the Assessing Officer shall record his reason for doing so. 3. The return of income is required to be furnished within the time prescribed in the notice by the Assessing Officer.
Difference between ‘issue’ and ‘service’ of notice The date of issue a notice denotes the date on which the assessing officer signed and initiates the notice. Whereas, the date of service of notice indicates the date on which the assessee actually served with the notice. Issue of notice u/s. 143 after the expiry of the prescribed period of limitation is prohibited. But, once a notice is issued within the period of limitation, jurisdiction become vested with the income-tax officer to proceed to reassess. Service is not a condition precedent to conferment of jurisdiction on the Income-tax officer to deal with the matter but it is a condition precedent only to the making of order of the assessment.
For the purpose of Sec.143 (2), You should note that ‘service’ should be within a period of 6 months from the end of the financial year in which return of income is filed. Section 148 is the enabling section to initiate the reassessment proceedings u/s.147. This section is enables the assessing officer to issue notice to the assessing requiring him to furnish return of income in case of assessing officer has reason to believe that income of the assessee escaped assessment within the meaning of sec. 147. Once the notice is issued u/s. 148. all other regular provisions of the Act, dealing with the assessment the enabling provision to make the regular assessment. Accordingly, notice is required to be served u/s. 143(2) to initiate assessment proceedings. As per the proviso to section 143(2), notice u/s. 143(2) is required to be served on the assessee within the period of six months from the end of the financial year in which return of income is furnished. Time limit for issue of notice u/s.148 – u/s.149 and sanction for such issue of notice – Sec.151 The time limit for issuing notice u/s.148 are prescribed u/s.149 and the approvals subject to which Assessing Officer can issue such notice are stipulated u/s.151. These provisions are summarized and presented as follows:
If 4 year of expired, notice u/s.148 can be issued in a case only if the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 1 lakh or more for that year. According to sec.151, approval from CCIT, CIT or JCIT as the case may be the required in the circumstances mentioned above. Explanation to Sec.151(2) provides on being satisfied on the recorded by the assessing officer about the fitness of the case, CCIT, CIT, JCIT as the case may be, need not to issue notice u/s.148 himself. After the approval is granted, it is sufficient that AO issues notice u/s.148 to initiate the reassessment proceedings.
Exceptions to the time limit 1. Proviso to section 147: If an assessment for any year has been completed u/s.143(3) or u/s.147, then no action shall be taken u/s.147 after the expiry of 4 years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee – a) to file a return u/s.139 ; or b) to furnish a return in response to notice u/s.142(1) or u/s.148 ; or c) to disclose fully and truly all material facts necessary for that assessment year.
Production of books of account or other evidence from which material evidence could have been discovered with due diligence by the Assessing Officer will not necessarily amount to disclosure on the part of the assessee – Explanation 1 to Sec. 147, Students may note that there cannot be assessment u/s.143 (3) if a return has these criteria mentioned in (a) and (b) above shall apply only where assessment is made under section 147. The criteria mentioned in (c) above to apply to a case where order u/s.143(3) or u/s.147 has been passed.
Case Law 1. In a case where the original assessment was made either under 143(3) or u/s.147, such assessment can be reopened beyond a period of 4 years only if there is failure on the part of assessee to disclosed fully and truly all material facts necessary for the purpose of such assessment. If assessee has disclosed all material facts but claimed higher depreciation erroneously, it will not be case of failure to disclosed fully and truly all material facts. Rate of depreciation is not be claimed is a matter of legal inference drawn from the materials facts. If the legal inference so drawn is erroneous it cannot be said that there is failure on the part of the assessee to disclose material facts. Therefore, notice u/s. 148 invalid and Liable to be quashed – ICICI Bank Ltd. Vs K.J. Rao (2004) 268 ITR 203 (Bom) 2. The assessee company claimed in its return, a deduction supported by a certificate in the prescribed form from the Chartered Accountant. Assessing Officer Passed order of assessment u/s.143(3) and allowed the deduction. Thereafter, notice u/s.148 was issued. The assessee company, after filing return challenged the validity of such notice by filling a writ petition. Under sec. 147, a proceeding for reopening an assessment made u/s. 143(3) can be initiated where income escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In the reasons for reopening recorded, it has not been alleged that there had been any omission or failure on the part of the assessee to disclose fully and truly all material facts. It was not even noted in the recorded reasons as to what other primary facts were required to be disclosed by the assessee before the Assessing Officer at the time of assessment made u/s.143(3). Therefore, the notice u/s.148 is illegal and without jurisdiction and therefore, quashed – Mercury Travels Ltd. Vs. DCIT (2003), 258 ITR 533 (Cal). 2. Section 149(3) : In the case of an agent of a non-resident, notice u/s.148 in his capacity an agent of non-resident cannot be issued after the expiry of 2 years from the end of the relevant assessment year. Students may note that the restriction shall apply only to an agent of non resident and not for a non-resident. 3. Section 150: Notwithstanding anything contained in section 149, notice u/s.148 may be issued at any time in consequence of or to give effect to, (a) any finding or direction in an order passed by any authority in appeal, reference, revision or, (b) by a Court in any proceeding under any other law – sub – section (1). However, notice u/s.148 cannot be issued, if at the time when the order which was subject-matter of appeal, references, revision, was passed, the time-limit for the issue of such notice had expired – such – section (2) You may note that sub – section (1) of section 150 operates to relax the time restriction stipulated under section 149. Such relaxation can be made use of by the Assessing Officer only if the restriction placed under sub-section (2) of section 150 does not effect the operation of sub-section (1). You may also note that the restriction placed under sub-section (2) is applicable only in respect of appeal, references or revision referred to in sub-section (1) but it does not apply with reference to an order passed by a court in any proceeding under any other law. Illustration on the applicability of section 150 The case of Mr. A assessment is made under section 143(3) for the assessment year 1993-94 on 31-3-95 making an addition of Rs. 1,75,000/- being compensation received. Assessee contested the addition but lost the case in the first appeal. In the second appeal, the Appellate Tribunal passes an order on 5-1-99 holding that the sum of Rs. 1,75,000/- is chargeable to tax but the year of chargeability is not the year of receipt but it is the year in which it accrued namely the previous year 1987-88 relevant to the assessment year 1988-89. The Assessing Officer issues notice under section 148 for the assessment year 1988-89 in March 1999 to bring to tax the sum of Rs. 1,75,000. Is the notice valid? What will be your answer if the assessment order for the assessment year 1993-94 was passed on 5-4-95 ? Ans: The normal time limit available u/s.149 for issue of notice under section 148 in order to assess Rs.1,75,000/- escaping assessment is 6 years from the end of the relevant assessment year. Therefore, for assessment year 1988-89, notice u/s.148 cannot be issued in March 99. However, in order to give effect to a finding contained in an Appellate order notice can be issued at any time by virtue of sub-section (1) of section 150. The operation of sub-section (1) of section 150 is subject to the restriction placed under sub-section (2) of section 150. According to sub-section (2), if on the date of passing of the order which was the subject-matter of appeal was passed on 31-3-95. such notice cannot be issued by availing the relaxation made under sub-section (1). In this case, the order which was subject matter of appeal was passed on 31-3-95. Therefore, it needs to be examined whether notice could have been issued on 31-3-95 for the assessment year 1988-89 in order to assess Rs. 1,75,000/- as income escaping assessment. From the end of assessment year 1988-89, 31-3-95 falls within 6 years (it is the last day of the 6th year) and therefore, notice could have been issued then. Therefore, restriction placed under sub-sections (2) does not effect the operation of sub-section (1) in this case. The notice issued by the Assessing Officer in March 99for the assessment year 1988-89 is valid in view of applicability of sub-section (1) of section 150 If the order of assessment for the assessment year 1993-94 was passed on 5-4-1995, it falls beyond 6 years from the end of the assessment year 1988-89. Consequently, notice u/s.148 could not have been issued on 5-4-95 for the assessment year 1988-89 to assess Rs. 1,75,000/- being income escaping assessment. What could not have been done on 5-4-95 cannot be done now also. In other words, sub-section (2) applies in such a case and effects the operation of sub-section (1). Therefore, notice issued will be invalid.
Circumstances under which proceeding u/s.147 may be dropped – Sec.152 In the following circumstances, the assessee is entitled to claim that the reassessment proceeding u/s.147 shall be dropped: 1) Where the assessee has not filed any appeal to CIT ( Appeals) or revision petition before the CIT u/s.264 against the original assessment order; 2) Where the assessee has established that; (i) the original assessment order has been made properly and in accordance with law by the Assessing Officer; or (ii) he has already assessed on an amount not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account.
In any case, it may be noted that the assessee shall not be entitled to reopen matters concluded by an order under section 154, 155, 260, or 263. You may not that apart from the provision of section 152, in the following situations, the reassessment proceeding u/s.147 may be dropped:
(a) Where prior approval has not been sought in accordance with the law, wherever necessary; (b) Where Assessing Officer initialed without issuing notice or by issuing time barred notice u/s 148.
6. Time Limits and other Provisions Time Limit for completion of Assessments & Reassessments – Sec.153
Exception – Sec.153(3) The time limits prescribed u/s.153(1) and 153(2) will not apply in the following cases:- a) Where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order passed by CIT(A) or by Supreme Court on an appeal or by an Appellate Authority or by the Commissioner of Income-tax by way of revision or by any Court under any other proceeding, other than appeal or references. Exclusion of time – Explanation 1 to section 153 In computing the period of limitation for the purpose of this selection- i) The time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be re-heard under sec. 129, or ii) The period during which the assessment proceeding is stayed by an order or injunction of any court, or iii) The period commencing from the date on which the assessing officer intimates the central government or prescribed authority of the contravention of conditions by entities covered u/s.10(21), 10(22B), 10(23A), 10(23C), ending with date on which the copy of the order withdrawing the approval or rescinding the notification under those calluses is received by the assessing officer. iv) The period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under section 142(2A) and ending with the date on which the assessee required to furnish such audit report. v) The period (not exceeding 60 days) commencing from the date on which the Assessing Officer receives declaration u/s.158A for avoiding repetitive appeals on the same issue for different years and ending with the date of order passed under that section. vi) In a case where an application made before the Income-tax Settlement Commission under section 245C is rejected by it or is not allowed to be proceed with by it, the period commencing from the date on which such application is made and ending with the date on which the order u/s.245D(1) is received by the Commissioner. vii) The period commencing from the date on which an application is made before the Authority for Advance Ruling under section 245Q(1) and ending with the date on which, order rejection the application is received by the Commissioner u/s.245R(3) or the advance ruling pronounced by it is received by the Commissioner u/s.245R(7). vii) If after exclusion of the aforesaid time or period, the period of limitation available to the Assessing Officer is less than 60 days, such remaining period shall be extended to 60 days and the period of limitation shall be deemed to be extended accordingly – for proviso to explanation 1. 7. Special procedures in assessment of search cases Assessment in case of search or requisition – Sec.153A (1) Once the search is initiated u/s.132 in the case of any person or requisition is made u/s.132A. the Assessing Officer shall proceed to assess the income in the case of such period in accordance with the provisions of this section. (2) The Assessing Officer shall serve a notice to the person concerned requiring him to furnish the return of income in respect of each of assessment year falling within six assessment year immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. (3) The assessee shall furnish return of income in response to the above notice within the time period specified in the notice. The provision of the Act shall apply as if the return was required to be furnished u/s.139. (4) The assessing officer shall assess or reassess the total income in respect of each assessment year falling within such 6 assessment years. (5) Any assessment or reassessment relating to any assessment year falling within the period of 6 assessment year pending on the date of initiation of the search u/s.132 or making of requisition u/s.132A shall abate. If the search assessment order in annulled in appeal or any other proceedings, the abated proceedings shall stand revived w.e.f., date of receipt of order of annulment by the Commissioner. However, if the order of annulment of the search assessment is set side, the revived proceedings shall cease to have effect. (6) No order of assessment or reassessment shall be passed by an assessing officer below the rank of Joint Commissioner in respect of each assessment year, except with the prior approval of the Joint Commissioner- Sec.153D. (7) The income determined under this section shall’be taxed as per the rates of tax applicable for each of the relevant assessment year. The Limit for completion of assessment u/s.153A – Sec.153B (1) The time available for completion of assessment or reassessment in respect of each assessment year falling within 6 assessment years referred above shall be 21 months from the end of the financial year in which the last of the authorizations for search u/s.132 or for requisition u/s.132A was executed. (2) In respect of the assessment year relevant to the previous year in which search is conducted u/s.132 or requisition is made u/s.132A, a period of 21 months from the end of the financial year in which the last of the authorizations for search u/s.132 or for requisition u/s. 132A was executed shall be allowed. (3) Where during course of assessment proceedings, a reference to the Transfer pricing officer is made u/s.92CA, the time available for completion of assessment or reassessment in respect of each assessment year falling within 6 assessment years shall be 33 months from end of the financial year in which the last of the authorizations for search u/s.132 or for requisition u/s.132A was exacuted. (4) In case of annulled search assessment, the time limit of completion of revived assessment shall be one year from the end of the month in which the abated assessment revives or within the time limit specified in sec. 153 or sec.153B whichever is later. (5) In computing the period of limitation as above and in the case of assessment u/s.153C the following shall be excluded: i) Period during which stay or injunction is granted by any Court: ii) Period allowed for special audit u/s.142(2A) to be carried out and for furnishing of the said audit report; iii) Time taken for reopening any proceedings or for opportunity given to assessee u/s.129; iv) In case the assessee files the application before the Settlement Commission and the admission of such applications has been levied by the commission, the period from date of filling to the date of rejection by the Settlement Commission. v) In case the assessee approaches to the Authority for advance rulings, the period from the date of filling of application to the date of rejection the application or pronouncing the advance ruling as the case may be. vi) In case of annulment of search assessment order set aside, the period commencing from the date of annulment till the date of receipt of the order setting aside such order of annulment. (6) If after extending the time, the period available to the assessing officer for making an order is less than 60 days, then the remaining period shall be extended to 60 days. (7) For this purpose, the authorization for search shall be construed to have been executed only on the conclusion of the search as recorded in the last panchanama drawn. In the case of requisition u/s.132A the authorization for requisition shall be constructed as executed only on the actual receipt of the books of account or other documents or assets by the authorized officer.
Case Study A search was conducted u/s.132 of the Income-tax Act in the premises of Mr. A on 14.11.2009. Discuss which are the assessment years covered for which notice can be issued. What will be the time limit within which the A.O. shall complete the assessment? Ans: 1. The notice u/s.153A can be issued for six assessment years proceeding the provisions year in which the search is conducted. In this case the previous year in which search is conducted is 2009-10. The relevant assessment year is 2010-11. The notice shall be issued for the previous six assessment year. i.e., for assessment year 2004-05 to 2009-10. 2. The time available for completion of assessment in respect of each assessment year from 2004-05 to 2009-10. shall be twenty one months from the end of the assessment year (i.e.,2009-10) in which the search was initiated. As the search was initiated on 14.11.2009, the last day for completion of assessment shall be 31.12.2011. 3. The time available for completion of assessment in respect of the financial year 2009-10 in which search was initiated shall also be twenty one months from the end of the financial year. Therefore, the A.O. shall complete the assessment for the assessment year 2010-11 by 31.12.2011. Assessment of income of any other person – Sec. 153C Where the assessing officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs to any other person other than a person in whose case search was made u/s.132 or requisition was made u/s.132A, then the seized or requisitioned records and assets shall be handed over to the assessing officer having jurisdiction over such other person, Thereafter, such assessing officer shall proceed to issue notice to such other person and assess or reassess his income in accordance with the provisions of sec. 153A for a period of six years preceding the previous year in which search or requisition took place. Other points 1. Any assessment or reassessment may be made, relating to any assessment year falling with in a period or six years immediately preceding the assessment year relevant to the previous year in which search or requisition was made pending as on the date of receiving the books of accounts or documents or assets seized or requisitioned by the assessing officer having jurisdiction over such other person. 2. The assessing officer having jurisdiction over such other person can assess or re-assesses the total income of such other person for the previous year in which search or requisition took place in the manner provided in section 153A, if he receives the books income of that assessment year and in respect of such assessment year – a) no return of income has been furnished by such other person and no notice u/s. 142(1) has been issued to him, or b) a return of income has been furnished by such other person but no notice u/s.143(2) has been served and limitation of services the notice u/s.143(2) has expired, or c) assessment or reassessment, if any, has been made. 3. The assessment for the six years period and the year of search shall be completed with in period of 21 months from the end of the financial year in which the last of the authorization was executed or within 9 months from the end of the financial year in which the books of accounts or documents or assets are handed over to the assessing officer, having jurisdiction over such person, whichever is later. 4. Where references to the TPO u/s 92CA is made in the course of assessment u/s 153C, the period of limitation shall be 33 months from the end of the financial year in which last of authorization for search u/s 132 or requisition u/s 132A is drawn or within 21 months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over to the Jurisdictional AO.
Case study Mr. A’s premises were searched u/s.132. During the course of search, certain records belonging to Mr.B were found. Mr.C’s business premises were surveyed u/s.133A during course of survey, records were found which indicated undisclosed income of Mr. D. All the four persons seek to know from you the consequences. Advise them. Ans: The case of Mr. A is covered by Sec. 153A. The Assessing Officer having Jurisdiction will issue notice calling for returns of income for the 6 assessment year preceding the assessment year relevant to the previous year in which search is conducted. For all the 6 assessment years total income shall be computed and tax shall be levied at the rates applicable to the respective assessment years. The return for the year of search shall be filed in the normal course. The assessment for the 6 assessment years and also the assessment year relevant to the previous year in which search was conducted shall be completed within 21 months from the end of the financial year in which the last of the authorization for search u/s.132 or requisition u/s.132A was executed. Interest, penalty and prosecution provision shall apply as they apply to the regular assessment. If in respect of these assessment yeas if regular assessment or re-assessment proceedings are pending, then such proceeding shall abate and the officer shall proceed to make the assessments only u/s.153A. As regards Mr.B, the provisions of Sec.153C apply. Consequently, in his case also the assessing officer shall proceed in accordance with the provisions of Sec.153A. The points mentioned above in the case of A are equally applicable to Mr. B. Although there is no time limit for issue a notice calling for the returns for the 6 assessment years, in both the cases of A & B assessing officer shall send the notice at the earliest as the time limit for completion of assessment commences with conclusion of the search. In the case of Mr. C, only survey has been conducted. The provision of sec.153A, 153B and 153C are not applicable. In case income is found to have escaped assessment for the earlier years, assessing officer has to record the reasons and issue notice u/s.148 in respect of the assessment year for where there is reason to believe that income has escaped assessment. There is no mandate to reopen assessment 6 assessment years if no income has escaped assessment in some of those years. Hear again, normal rates of tax applicable to the respective years shall apply. Interest, penalty and prosecution provisions as may be applicable can be invoked. In case of the year of search, if there is any income offered, Mr. C can pay advance tax and file the return in the normal course including such income. As regards Mr.D is concerned, the provisions of sec.153A, 153B and 153C are not applicable since his records have not been found during the course of search u/s.132 nor they have been requisitioned u/s.132A.The records found the during the course of survey in the premises of Mr. C belonging to Mr. D. Should be perused by the assessing officer. On such examination, if there is reason to believe that income has escaped assessment in D’s case. then officer can records and issue notice u/s.148 in respect of assessment year for which such belief is warranted. The consequences shall be same as applicable to Mr. C. In the cases of Mr. C & D, any regular assessment pending in respect of assessment year for which sec. 148 notice is issued shall not abate. They shall be continued separately and completed. The time limit for completing any of the reopened assessment shall be nine months from the end of the financial year in which the notice u/s. 148 was served. In respect of the year of survey for which regular return is filed, the time limit shall be 21 months from the end of the relevant assessment year.
Case Law An income-tax authority acted as the authorized officer in conducting the search and later functioned as the assessing officer and completed the assessment. This alone does not render the assessment invalid. There are no provision of the Act imposing restriction that assessing officer and officer gathering information should not be the same. The question of bias will have to be decided on the facts of each case. If the assessee is able to establish that the assessing officer was in fact biased in the sense that he was involved or interested in his personal capacity in the outcome of the assessment then it would be a good ground for setting aside the assessment order – UOI & Others Vs. Vipan Kumar Jain & Others (2003), 260 ITR 1 (SC). Association/Institution In case any association or institution contravenes any provisions, the assessing officers may intimate the Central Government or the prescribed authority about such contravention. Where, any such intimation has been sent by the assessing officer, no order shall be passed making an assessment without giving effect to the provisions of Sec. 10, unless the approval granted to the entity has been withdrawn or rescinded. In all such cases, the period commencing from the date of intimation by the Assessing Officer and ending with the date of withdrawal or rescinding shall be excluded in computing the time limit u/s.153 for completion of assessment.
8. Rectification of mistake apparent on the record – Sec.154 1. Any mistake apparent form the record can be rectified by an Income-tax authority by: a) Amending any order passed by such authority under Income-tax Act; b) Amending any intimation or deemed intimation u/s.143(1) 2. Where any matter has been considered and decided any proceeding by way of appeal or revision relating to an order, the authority passing such order may amend the order in relation to any matter other than the matter which has been so considered and decided. 3. The mistake apparent on record can be rectified by an Income-tax authority either on its own motion or on an application by an assessee to that effect. Where the authority is Commissioner (Appeals), rectification can be done if any mistake has been brought to his notice by the assessee or by the assessing officer. 4. The amendment of an order, which has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the assessee, shall not be made without giving reasonable opportunity to the assessee of being heard. Amendment shall be by way of an order in writing. 5. Where an amendment gives rise to a demand, the AO shall serve a notice of demand on the assessee and it shall be deemed to be issued u/s.156. 6. In case where an assessee make an application for rectification u/s.154, then the income-tax Authority to whom such application is made shall pass an order within a period of 6 months from the end of the month in which the application is received from the assesee. 7. The order making amendment, shall be in writing and it should be made within a period of 4 years from the end of the financial year in which the order sought to be amended was passed. 8. The subsequent decision of a Jurisdictional High Court or Supreme Court may give rise to mistake apparent on record. Amendments made to the Income-tax Act with retrospective effect may also give rise to mistake apparent on record. However, a contrary view was expressed by the Madras High Court in T.T.K. Pharma Ltd. Vs. CTT (2008) 300 ITR 346 wherein it was held that subsequent decision of Supreme Court cannot justify rectification u/s. 154 9. “Mistake apparent on record” could be mistake of fact or a mistake of law but it should not be a debatable matter on which there could be two plausible interpretation. 10. If the assessment order is plainly and obviously in contract with specific and clear provision a amended retrospectively, there was a mistake apparent from the record. In the light of the retrospective amendment, the assessment order has to be revised – CIT Vs. E. Sefton and Co. (P.) Ltd, (1989) 179 ITR 435 (Cal). 11. The order referred to u/s.154 does not necessarily means the original order. It could be even rectified or amended order. 4 years time limit is to be reckoned with reference to order sought to be rectified. Hind Wire Industries Ltd., Vs. CIT (1995) 212 ITR 639 (SC). Other Rectification – Sec.155 Where any assessment made any respect of any assessment year is required to be Amended on account of any specific provision in the Act mentioned here below, such amending order can passed at any time within 4 year from the end of the year in which such provisions is attracted: (1) Where is partner is assessed for any remuneration from a firm u/s. 28(v) and later in the assessment of the firm such remuneration is found not deductible u/s.40(b), the assessment order of the partner shall be amended to exclude such remuneration which is not deductible from the firm’s case. This is in view of the provision under clause (v) of section 28 which states that the remuneration disallowed in the firm’s case cannot be charged to tax in the partner’s case – sub – section (14). (2) Where TDS/TCS certificates are not furnished along with return of income and such certificates produced before Assessing Officer within two years from the end of the A.Y. in which the income covered by the TDS/TCS certificate is assessable, the assessing officer shall amend the order of assessment or any intimation as the case may be, to give credit to such TDS/TCS certificates-sub-section (14). (3) Where loss or depreciation is recomputed in proceedings u/s.147, necessitating recomputation of total income of the following years, which were computed after set off of such loss or depreciation, AO can amend assessment orders of the relevant years within 4 years from end of the year in which order u/s.147 was passed. (4) When a holding company transfers a capital assets to its wholly owned subsidiary company or when such subsidiary company transfers a capital asset to its holding company, exemption from capital gains is allowed u/s.47(iv) and u/s.47(v). Subsequently, if the provision of section 47A are attracted then the capital gains which was originally assessment year in which the exemption was so granted – sub –section (7B). Within 4 years from the end of year in which section 47A was attracted. (5) Where the assessing officer adopts stamp duty value as full value of consideration u/s.50C and later such value is revised in any appeal or revision or reference, the assessment order shall be amended to give effect to such revised value for recomputing the capital gains –sub-section (15). (6) Where capital Gains arising on compulsory acquisition under any law, of an asset is charged to tax and subsequently the assessee makes investment to claim exemption within the extended period allowed u/s.54H, the AO shall rectify the order of assessment to exclude the capital gain so exempt. (7) Where capital gain arising from compulsory acquisition of capital assets under any law of referred in sec. 45(5) (a) or 45(5)(b), as the case may be is computed and subsequently the compensation is reduced, the assessment order shall be amended to recomputed the capital gain taking into consideration the reduced compensation –subsection(16). (8) Where deduction u/s. 80RRB allowed and subsequent to the allowance of such deduction in respect of any patent, the Controller or the High Court passes an order under the Patent Act, 1970 revoking the patent or excluding the name of the assessee from the Patent Register as Patentee in respect of that patent, the assessment order shall be amended withdrawing the deduction granted u/s.80RRB-subsection(17). (9) Where deduction u/s.10A, 10B, is not allowed because the assessee does not receive the export sales proceeds before the expiry of the stipulated period and the assessee subsequently receives the export sales proceeds, the assessment order shall be amended to allow deduction in respect of proceeds received after the stipulated time – section 155(11A)
9. Notice of demand – Sec.156 When any tax, interest, penalty, or any other sum is payable inconsequence of any order passed, any Assessing Officer shall serve upon the assessee, a notice of demand in the prescribed form specifying the sum so payable. Difference between “specifying” and “determining”You may note that a notice of demand can also specify the amount payable by way of tax, interest, penalty, etc. Amount payable cannot be determined under this section. While framing the assessment, the income and tax payable thereon shall be determined u/s.143(3) or 144 as the case may be. Assessing the taxable income u/s.143(3) without determining tax thereon, cannot be made good by determining the tax while serving notice of demand u/s.156. In case any sum was determined to be payable by an intimation u/s.143(1). such intimation deemed to be the notice of demand. Therefore in such cases the Assessing Officer need not issue a separate demand notice u/s.156 – proviso to Sec.156 Failure to pay the tax wholly or in part and interest shall result in the assessee being treated as an “assessee in default”.
Case Law 1) Service of notice of demand is mandatory before initiating recovery proceedings. Sec. 156 provides for a vital step to be taken by the Assessing Officer without which the assessee can not be termed as the defaulter. Failure to serve notice of demand rendered the recovery proceeding invalid – Sri Mohan Wahi Vs. CIT, 246 ITR 799 (SC). 2) Secton 156 provides for servicing upon the assessee a notice of demand specifying the amount of tax, interest, penalty, fine or any other sum payable in consequences of any order passed under the Act. Where the assessment does not indicate levy of interest under sections 234A and 234B it cannot be included in a notice of demand – CIT Vs. Ranchi Club Ltd. (2001) 247 ITR 209 (SC). Intimation of loss – Sec.157 In the course of the assessment of the total income of an assessee, if it is established that a loss has been suffered which the assessee is entitled to carry forward, the Assessing Officer shall notify the assessee by an order in writing, the amount of such loss, as computed by him. Representative assessee – Sec.160 In the case of certain assessee the assessment may be made on some other person as a representative assessee. According to Sec.160, ‘representative assessee’ with reference to the following person means:
Every representative assessee is deemed to be assessee under this Act.
Case studies 1. Can intimation u/s.143(1) succeed notice u/s.143(2) ? Section 143(1) enables the assessing officer to send intimation under that section without prejudice to the provision of the issue of notice u/s. 143(2) for regular assessment. Section 143(2) enables the assessing officer to serve a notice to the assessee requiring the assessee to produce the evidence on which the assessee may rely in support of the return of income. In view of the above language of law, intimation u/s.143(1) cannot succeed the notice issued u/s.143(2). Therefore, any intimation sent after the service of notice u/s.143(2) is invalid in law – CIT Vs. Gujrat Electricity Board – 260 ITR 84 (SC).
2. Distinguish notice issued u/s.142(1) and notice u/s.143(2). Where the assessee has not furnished a return within the due date prescribed u/s.139(1) the provision of Sec.142(1) enable an Assessee Officer to serve a notice upon the assessee calling for furnishing a return of income. Besides, even where a return of income has been filed u/s.139, notice u/s.142(1) can be issued calling upon the assessee to- i. produce books of accounts and documents of the preceding three years; ii. furnish particulars or information on any matter relevant to the assessment; and iii. submit a list of assets and liabilities not reflected in the balance sheet, after obtaining the approval of Joint Commissioner.
As compare to these point, a notice u/s.143(2) can be issued only in a case where the assessee has filed a return of income. The objective of issuing of notice u/s.143(2) is to ensure that the assessee has not understated his income or has not overstated the loss or has not under paid the tax in any manner. While, the Assessing Officer prescribes the books, documents etc., to be furnished in response to sec.142(1) notice, the assessee has the choice of records, documents etc., to be produced in support of the return of income filed in response to the notice served u/s. 143(2).
3. Can assessment order u/s.143(3)/144 and notice of demand u/s. 156 be sent to the assessee after the expiration of the period stipulated u/s.153 for completion of assessment? According to Sec.143(3), after hearing such evidence as the assessee may produce and such other evidence as the assessing officer may required and after taking into account all relevant material which has been gathered, the assessing officer shall by an order in writing- a) make an assessment of the total income or loss of the assessee; and b) determine the sum payable by the assesee or refund of any amount due to him on the basis of such assessment. Sec.153 prescribed the time limit as 21 months from the end of the assessment year in which income was first assessable for completion of assessment. An assessing officer is required not only to assess the total income but also determine the tax payable while passing the order, within the time limit stipulated u/s.153. According to Sec.156 where any tax, interest, penalty etc. is payable in consequence of any order passed, the assessing shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. There is no time limit stipulated for service of notice of demand. However, it should be served within a reasonable period. Therefore, if the amount payable is determined in the order passed within the time limit, the assessment and notice of demand cannot be invalid merely because they are served after the end of the stipulated period. 4. Can notice of demand be prepared after the expiry of stipulated period when the assessment order was made before the expiry of stipulated period? By virtue of the provision of sec.153, the time limit of completion of regular assessment is 21 months from the end of the relevant assessment year. The passing of an assessment order involves not only the assessment of total income but also the determination of tax. Unless the tax is determined on the basis of total income assessed, it cannot be construed that the process of assessment in complete. Sec143(3) and sec.144 specify that the Assessing Officer shall assess the total income or loss and shall also determine any sum payable by the assessee. According to the Gujrat High Court, both these steps may be taken up simultaneously or separately but both will have to be taken within the time prescribed. – CIT Vs. Purushottam Das T. Patel (1993) 209 ITR 52. Therefore, preparing the notice of demand after the period specified for completion of assessment shall make the order invalid.
5. Can reassessment proceeding be initiated, when intimation alone was sent to the assessee and no assessment was made earlier ? Where the Assessing Officer has reason to believe that income has escaped assessment, he can issue notice u/s.148 even if the assessee has already been served with an intimation u/s.143(1). Explanation 2(b) to sec.147 provides that where the return of income has been furnished. but no assessment has been made, it can be considered that income has escape assessment if there is reason to believe that the assessee has understated his income or overstated the loss. Therefore, Assessing Officer is empowered to issue notice u/s.148 initiate reassessment proceedings when intimation was alone sent to the assessee but no assessment was made earlier. This view was upheld by Supreme Court is Rajesh Jhaveri stock Brokers case.
6. Can reassessment proceedings be initiated, when reassessment was already made in the case of assessee? Assessment or reassessment proceeding can be initiated u/s.147 if the Assessing Officer has reason believe that income has escaped assessment. For this purpose notice u/s.148 has to be issued within the time prescribed u/s.149 and with the sanction required u/s.151. There is no restriction about the number of times an Assessing Officer may initiated reassessment proceeding so long as above mentioned conditions are satisfied. Therefore, reassessment proceeding can be initiated when the assessment proceeding already completed.
7. Can reassessment proceeding be initiated when the assessment or reassessment proceeding are pending to be completed? If the earlier assessment or reassessment proceeding remain pending with Assessing Officer, there is no need to issue another notice u/s.148. Once the assessment or reassessment proceeding is validly initiated, the Assessing Officer can proceed to include any other income also during the same proceeding. Thus, in suc a situation, the Assessing Officer would not have the authority to issue another notice u/s.148 to initiate reassessment proceedings. 8. Can the status of the assessee be changed in the assessment or reassessment proceedings? Where the status claimed in the return is alternate while making the original assessment, it can be challenged – CIT Vs. Adinarayana Murthy, 65 ITR 601 (SC). Changing the status without serving a fresh notice requiring the assessee to file a return has been held to be beyond the Jurisdiction of the powers of the Assessing Officer by the Bombay High Court in CIT Vs. Associated Cement and Steel Agencies (1983) 147 ITR 776; Allahabad High Court in CWT Vs. Srivastava and sons (1983) 142 ITR 183 and by the Rajasthan High Court in CWD Vs. Ridhkaran (1971) 84 ITR 705. A contrary view has been expressed by the Kerala High Court in CIT Vs. A.P. Parukutty Mooppilamma and others (1983) 149 ITR 131 and the Andhra Pradesh High Court in CIT Vs. Seshagiri Rao (1989) 182 ITR 24. According to these decisions, there is no prvision in law requiring issue of a fresh notice and the Assessing Officer is competent to change the status during the course of assessment. However, at the of making re-assessment u/s.147, the Assessing Officer can change the status as held by Punjab High Court, in the case of Dr. surmukh Singh Uppal Vs. CIT, (1982) 144 ITR 200.
9. Can the Assessee demand refund of the tax paid voluntarily on the ground that no assessment was made in his case? Can the assessee seek refund of tax paid in the event of assessment made on him being declared time barred? The liability to pay tax on the income earned is fastened by the charging section 4 of the Income-tax Act. Such a charge exist, even if no assessment is made. An assessment is only a process of quantifying the charge and the charge is not obliterated in the absence of such an assessment. Therefore, the claim of refund on the ground that no assessment was made cannot be sustained as held by Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. Vs. CIT (1992) 194 ITR 659. Further, under the existing assessment procedure, assessment shall not be made in all case, but it shall be made only in selected cases. Therefore, assessee cannot demand refund of the tax paid voluntarily, on the ground that the assessment made on him. Even where the assessment order of the Assessing Officer is held as void ab initio, the assessee the is not eligible for the refund of the tax paid on the reason that no assessment was made, as held by the Supreme Court in CIT vs. Shelly Products 261 ITR 367 (SC).
10. The value of closing stock is enhanced in the assessment. Can the assessee demand that the opening stock of subsequent year to be correspondingly adjusted? The contention of the assessee is correct as the amount of closing stock valued by the assessing officer for one particular assessment year will naturally be the amount to be taken as the opening stock for the subsequent year as per the IT records. Therefore, the claim of the assessee is justifiable – CIT Vs. Travancore Cochin Chemicals Limited (2000) 161 CTR 124 (Ker).
APPEALS AND REVISIONS- Introduction to Procedural Aspects :- The assessee is given a right of appeal by the Income Tax Act, 1961, if he feels aggrieved by the order of Assessing Authority. The assessee has following two remedies available against the order of Assessing Officer :- A) Appeal to Commissioner of Income Tax (Appeal) :- First Appeal in all cases shall lie with CIT (A). OR B) Revision by Commissioner of Income Tax : Alternatively if the appeal is not preferred or if it could not be filed within time limit allowed, the assessee has option to apply u/s 264 to the Commissioner of Income Tax for revision of order of AO. There are four stages of appeal under the Act. The flow chart on Appellate mechanism is as under : APPEALABLE ORDER OF AO First Appeal u/s 246 A within 30 days from date of service of order COMMISSIONER (APPEALS) Second Appeal u/s 253 within 60 days from date of service of order Income Tax Appellate Authority (ITAT ) (Final Fact Finding Authority) Third Appeal u/s 260 A within 120 days from date of service of order High Court (only if substantial question of law is involved) Final Appeal u/s 261 within 90 days from date of service of order. Supreme Court of India Basic Propositions : 1) Appeal can be filed only to Superior Authority than the one passing the Order. As such appeal against an order passed by a Commissioner u/s 12 AA, or 80 G (5) (vi), 263, 271 or order passed by him u/s 154 amending his order u/s 263, and order passed by Chief Commissioner or Director General or a Director u/s 272 A, can only be made to ITAT. 2) Appeal can be filed by a person who is aggrieved by the order passed. 3) The right to appeal must be given by express enactment and cannot be implied. The appeal for its maintainability must have clear authority of law and appellant has to adhere to all conditions, procedures and restrictions which are attached to the proceedings. 4) The order must be an “Appealable Order” i.e. it should fall within the orders mentioned u/s 246 A and 253 of the Act. For example some of the orders are not appealable eg : Order of refusal to grant stay of demand, Order to levy interest u/s 234 A, 234 B, 234C. 5) The impact of order on previous assessments, imposition of penalty, reopening of assessment etc should be examined before filing of appeal. 6) It should be ascertained whether the issue is worth appealing for the assessee and matter should be clearly discussed with the assessee. First Appeal : Appeal to CIT (A) 1) Appealable Orders : An assessee aggrieved by any of the following orders may appeal to the CIT (A) against such order u/s 246 A :- a) i) an order against the assessee, where the assessee denies his liability to be assessed under the Income-tax Act; or ii) an intimation under sub-section (1) or sub-section (1B) of section 143, where the assessee objects to the making of adjustments; or iii) any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; b) an order of assessment, reassessment or computation u/s 147 or section 150; c) an order of assessment or reassessment of search cases u/s 153 A; d) an order made under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections; e) an order made under section 163 treating the assessee as the agent of a non-resident; f) an order made under sub-section (2) or sub-section (3) of section 170 assessing the successor when predecessor cannot be found or when tax cannot be recovered from the predecessor; g) an order made after partition of HUF under section 171; h) an order made u/s 201 levying interest for delay in remitting tax deducted at source or failure to deduct at source; i) an order made u/s 206 C (6A) levying penalty for failure to collect tax at source or delay in remitting the tax collected at source; j) a refund order made under section 237; k) an order imposing a penalty under – i) sec. 221; or ii) sec. 271, sec. 271 A, sec. 271 AAA, sec. 271 F, section 271 FB, section 272 AA or sec. 272 BB; l) an order of imposing or enhancing penalty under section 275 (1A); m) an order of assessment made by an Assessing Officer under clause (c) of sec. 158 BC, in respect of search initiated u/s 132 or books of account, other document or any assets requisitioned u/s 132 A; n) an order imposing penalty under sub-section (2) of sec. 158 BFA; o) an order imposing penalty u/s 271 B or sec. 271 BB; p) an order made by a Joint Commissioner imposing a penalty under sec. 271 C, sec. 271 CA, sec. 271 D or sec. 271 E; q) an order made by a Joint Commissioner or Joint Director imposing a penalty u/s 272 A; r) an order made by a Joint Commissioner imposing penalty u/s 272 AA; s) an order imposing a penalty under chapter XXI; t) an order made by an Assessing Officer other than a Joint Commissioner under the provisions of the Income-tax Act in the case of such person or classes of person, as the Board may, having regard to the nature of the cases, the complexities involved and other considerations direct; u) an order of assessment u/s 115 WE (3) or section 115 WF, where the assessee being an employer objects to the value of fringe benefits assessed; v) an order of assessment or reassessment u/s 115 WG. 2) Form of appeal and Limitation (Sec. 249 and Rule 45) i) Prescribed Form :- The appeal should be filed and verified in prescribed manner in Form No. 35 (Rule 45). The person authorized to sign the return u/s 140 should sign Form No. 35. ii) Time Limit :- The appeal to CIT (A) should be filed within 30 days of the following dates, that is to say; a) Appeal is under section 248, the date of payment of tax. b) Where the appeal relates to any assessment or penalty, date of service of notice of demand relating to assessment or penalty. c) In any other case the date of intimation of order sought to be appealed against is served. The delay in filing of appeal can be condoned if the Commissioner (A) is satisfied that the appellant had sufficient cause for not presenting the appeal within the prescribed period. 3) Payment of Tax :- According to section 249 (4) no appeal shall be filed unless at the time of filing of appeal:- a) Where the return is filed by assessee, the assessee had paid the tax due on Income returned. b) Where no return has been filed by the assessee the assessee had paid an amount equal to amount of advance tax which was payable. 4) Payment of Appeal Fees :- The assessee has to pay an appeal fees as mentioned u/s 249 (1) of the Act . Details enclosed herewith. 5) Documents to be filed with the Appeal :- The appeal should be filed in DUPLICATE along with following document : a) Statement of facts :- The brief facts of the case should be mentioned after careful reading of the order appealed against. b) Grounds of Appeal : This should be prepared very carefully as this forms the base of the case and will be required in higher appeals. c) A general ground for raising additional ground should be mentioned eg :- “any other ground of appeals, which may be raised at the time of hearing”. c) Copy of order against which appeal is preferred. d) Original notice of demand (u/s 156). e) Copy of challan for payment of fees. f) Power of Attorney on stamp paper as per Bombay Stamp Act (presently Rs.100). g) Court fees stamp. (presently Rs.10) II. Second Appeal : - Appeal to Income Tax Appellate Tribunal (ITAT). 1. The ITAT is Constituted by the Central Government (Ministry of Law) and consist of Judicial and Accountant Member. The criteria of selection of Members of ITAT is prescribed u/s 252 (2) and (2A) of the Act. The appeal to ITAT can be made both by assessee and by the Department. 2. Appeallable Orders :- As per Section 253 of the Act the assessee aggrieved by any of following orders may appeal to appellate tribunal : a) An order passed by a Commissioner (Appeals) under section 115 VZC, 154, 250, 271, 271 A or sec. 272 A; or b) An order passed by a Commissioner under section 12 AA, 80 G(5) (vi), 263, 271, 272 A or an order passed by him u/s 154 amending his order u/s 263 or an order passed by a Chief Commissioner or a Director General or a Director u/s 272 A. 3. Fees :- Assessee has to pay appeal fees as specified in section 253 (6) [Details enclosed herewith]. 4. Time limit : Every appeal shall be filed within sixty days of date on which the order sought to be appealed against is served on the assessee or the CIT as the case may be. The delay in filing the appeal may be condoned by ITAT if it is satisfied that there is sufficient cause for not presenting it within time. 5. Form of Appeal :- Appeal is to filed in Form No. 36, as stated in Rule 47 and should be verified in prescribed manner. Memorandum of Cross objection shall be in Form 36 A. 6. Documents to filed with Form 36 :- The appeal in Form 36 in Triplicate shall be accompanied by :- a) Statement of facts : - The brief facts of the case should be mentioned after careful analysis of the order of Assessing Officer. b) Grounds of appeal (grounds not raised before CIT (A) cannot be raised before ITAT which can be allowed by ITAT) c) Copy of order of CIT(A) against which the appeal is preferred with ITAT. d) Copy of order of the Assessing Officer. e) Grounds of appeal before CIT (A). f) Statement of facts filed before CIT (A). g) Original Challan of fees. h) Power of Attorney on stamp paper i) Court fees Stamp Memorandum of Cross objection : On receipt of notice from the tribunal intimating that an appeal against the order of first appellate authority has been preferred under section 253 (1) or 253 (2) by the other party, the assessing officer or the assessee may file a memorandum of cross – objections within 30 days from the date of receipt of such notice. It shall be in Form No. 36A. No fee is required to be paid for filing such memorandum of cross objection. Even where the assessee or the Assessing Officer has not preferred an appeal against any part of the order of the first appellate authority (i.e. CIT (Appeals), they may present a memorandum of cross objection after receipt of notice from the ITAT. The ITAT may admit any memorandum of cross objections filed after the expiry of 30 days, if it is satisfied that there was sufficient cause for not presenting it within the due date. Procedures in Appeal (Sec. 250) :- 1) The Commissioner (Appeals) shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the Assessing Officer against whose order the appeal is preferred. 2) The following shall have the right to be heard at the hearing of the appeal – a) The appellant, either in person or by an authorized representative, b) The Assessing Officer, either in person or by a representative. 3) The Commissioner (Appeals) shall have the power to adjourn the hearing of the appeal from time to time. 4) The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). 5) The Commissioner (Appeals) may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Commissioner (Appeals) is satisfied that the omission of that ground from the form No. 35 of appeal was not willful or unreasonable. 6) The order of the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. 7) In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide such appeal within a period of one year from the end of the financial year in which such appeal is filed before him under sub-section (1) of section 246A. 8) On the disposal of the appeal, the Commissioner (Appeals) shall communicate the order passed by him to the assessee and to the Chief Commissioner or Commissioner. Powers of the Commissioner (Appeals) (Section 251) In disposing off an appeal, the Commissioner (Appeals), shall have the following powers : i) In an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or ii) In an appeal against the order of assessment in respect of which the proceedings before the settlement commission abates under section 245 HA, confirm, reduce, enhance or annul the assessment. iii) In an appeals against an order imposing a penalty – he may confirm or cancel, such order or vary it so as either to enhance or to reduce the penalty; iv) In any other case – he may pass such orders in the appeal as he thinks fit. In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant. v) The Commissioner (Appeal) does not have any power to set aside the order for fresh assessment by the Assessing Officer. [w.e.f. 01.06.2001] ADMISSION OF ADDITIONAL EVIDENCE : 1) Production of additional evidence. (Rule 46A) :- The CBDT has framed Rule 46A which provides that the appellant shall not be entitled to produce additional evidence before appellate authority except in the following circumstances : 1) Where assessing officer refused to admit the said evidence which ought to have been admitted. 2) Where appellant was prevented by sufficient cause from producing evidence called upon by the assessing officer or relevant to any ground in appeal. 3) Where the appellant was prevented by sufficient cause from producing before the assessing officer any evidence which is relevant to any ground of appeal. 4) Where assessing officer made the impugned order without giving sufficient opportunity to appellant. However, the appellate authority must record in writing the reasons for admission of additional evidence. 2) As regards the powers of appellate authority are concerned, it is well settled that the appellate authority’s powers are wide enough to cover power to admit additional evidence. [Babula Chhapalia (1966) 18 STC 17 (SC)]. 3) The Commissioner (Appeals) shall not take into account any evidence produced above unless the Assessing Officer has been allowed a reasonable opportunity : - To examine the evidence or document or to cross examine the witness produced by the appellant, or - To produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. ORDERS 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. (Sec. 254 (1)). 2) In an appeal filed by the assessee, the appellate tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub-section (1) or (2) of section 253. [Sec. 254 (2A)]. 3) Where an order of stay is made in any proceedings relating to an appeal filed under sec. 253 (1), the Appellate Tribunal shall dispose of the appeal within a period of 180 days from the date of such order (Proviso 1). 4) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal (sec. 254 (2B)). 5) The Appellate Tribunal shall send a copy of any orders passed by it to the assessee and to the commissioner. (sec. 254 (3)). 6) The order passed by appellate tribunal shall be final unless appeal is made under section 260 A to the High Court. Major Distinction in Powers of CIT (A) & ITAT :- 1) Commissioner (Appeals) has no power to set aside an order whereas Income-tax Appellate Tribunal has power to do so. 2) Commissioner (Appeals) cannot award costs to parties. Income-tax Appellate Tribunal can award costs to parties. 3) Commissioner (Appeals) can do enhancement of assessment, Income-tax Appellate Tribunal cannot do so. Stay of disputed demand [section 220 (6)] 1) Although an appeal can be filed by the assessee after depositing the tax due on the returned income, by the Assessing Officer normally continue with the recovery proceedings of the tax, demanded as per notice of demand. In such cases the assessee who has presented an appeal against such order can apply to the Assessing Officer for stay of the disputed demand. Where an assessee has presented an appeal under section 246A, the Assessing Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of. 2) No appeal is possible against the refusal of assessing officer to grant stay under section 220 (6). 3) Under Board Circular No. 530, dated 06.03.1989, the assessing officer will exercise his discretion under section 220 (6) of the Act (subject to such conditions as he may think fit to impose) so as to treat the assessee as not being in default in respect of the amount in dispute in the appeal in the following situations : i) The demand in dispute has arisen because the assessing officer had adopted an interpretation of law in respect of which there exists conflicting decisions of one or more High Courts or the High Court of jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment, or ii) The demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or court in the assessee’s own case. 4) The filing of an appeal does not result in an automatic stay of the demand. [Union of India v B.C. Nawan & Others (1972) 84 ITR 526 (Cal)]. 5) Stay can also be granted by CIT (A). [Paulsons Litho Works v ITO (1994) 208 ITR 676 (Mad)] 6) The CBDT has issued instructions which states that recovery proceeding may be stayed where the income determined in assessment is substantially, greater than the returned income (High Pitch assessment) F. N. 1.6.69 – ITCC dt, 21.08.1969. [Also refer case of N. Rajan Nair vs ITO (1989) 63 CTR (Ker) 33.] 7) Where income determined on assessment is more than twice the income returned, the stay should be granted during the appeal. [Maharana Shri Bhagwat Singhji of Mewar vs ITAT (1997) 223 ITR 192.] Suggestions : 1. On fixation of hearing of Appeal :- Initial Aspects :- a) Acquiring knowledge of client’s profile, general and specific, relevant to issues involved in appeal, and call for all necessary documents and records. b) Careful reading of grounds of appeal, order of first appellate authority and the assessment order (in case of 1 st Appeal Grounds of Appeals & Assessment Orders). Determining the substantial grounds of appeal and identification of thrust area. Study of various allegations made by the Assessing Officer for each grounds and respective findings of first appellate authority. c) Determination as to need of any additional ground to be taken. d) Discuss the issues clearly with the client. e) State only facts in the appeal proceedings. Assumption or incorrect statements or evidences will undermine your credibility . 2. Preparation for presentation of Case:-. a) Thorough preparation of the case in relation to all the aspects is necessary . b) Through study of allegations of Assessing Officer and findings of Commissioner of Income –tax (Appeals) on each of the relevant issues in appeal. c) Study of notices / query letters issued by the assessing officer or the Commissioner of Income-tax (Appeals) and replies filed in response thereof. Study the written submissions, if any, filed before the Commissioner of Income-tax (Appeals). d) Thorough study of all the papers in the paper book and specific relevance of all of them in the case. e) All aspects of such thrust areas should be studied thoroughly before hand and notes prepared for them. f) Prepare brief note on arguments covering all the allegations, findings, legal issues and other aspects. The note should cover all the arguments and should be arranged in systematic and logical sequence so as to assist at the time of hearing. Be however, prepared to vary the sequence as per the developments in the appeal proceedings. g) If the case is complex or lengthy, it is advisable to prepare synopsis of arguments and submit the same to the Tribunal and the other side for convenience at the time of hearing. h) Prepare a separate groundwise gist of case laws along with their citations to submit at the time of hearing. Each and every case to be cited should have been thoroughly studied. Keep ready the case laws with marking at the relevant places to be read before the Tribunal at the time of hearing if required. Also carefully study the case-laws against the assessee and prepare a counter reply. i) If any authoritative books are to be referred, extracts should be kept handy. j) Keep ready to take before the Tribunal, the relevant important books of accounts and other relevant documents, etc. or extracts thereof to present before the Bench if required. 3. Preparation & Filing of Paper Book with ITAT. i) Determining the papers / documents required to be relied upon during the course of hearing and important for deciding the issue under appeal. ii) Compilation of paper book containing all such papers / documents, serially numbered and indexed is to be filed in duplicate with the Tribunal at least a day before the date of hearing of the appeal along with the proof of service of a copy thereof to the other side at least a week before, in case of 1 st Appeal, Paper Book can be filed at the time of hearing. iii) All the papers contained in the paper book should be legible and each paper should be certified as a true copy by the party filing the same. A retyped / rewritten copy of illegible papers should be filed. The paper book should be indexed in such a manner as to give brief description of the relevance of the paper. iv) All the papers in the paper book should be the papers, which were filed in the proceedings before the authorities below. A certificate to that effect should also be given on the index of the paper book by the assessee or his authorized representative. v) If any party desires to file additional evidence, then the same shall be filed by way of separate paper book accompanied by an application stating the reasons for filing such additional evidence and prayer for admission of the same. vi) The parties shall not be entitled to submit any supplementary paper-book except with the leave of the Tribunal 4. Presence in ITAT :- a) Observing dress code b) Punctuality c) Observing Court decorum d) Presentation should be in dignified manner, polite and unambiguous. Some Important Case Laws:- 1) Agreed additions cannot be challenged - No appeal lies under section 246 (c) against an assessment relating to an addition where the assessment in that regard was made on agreed basis – [Sterling Machine Tools v CIT (1980) 123 ITR 181 (All).] 2) Order under section 220 (2) – Order charging interest under section 220 (2) is neither a part of assessment order nor there is any appeal provided under section 246 and, therefore, order charging interest under section 220 (2) is not an appealable order – [ANZ Grindlays Bank PLC v CIT (2000) 108 Taxman 328 (Cal).] 3) An appeal is maintainable in respect of grievances arising out of original assessment order passed under section 143 (3) even when reassessment proceedings in respect of that assessment have been initiated under section 147 – [Metal Import (P) Ltd. v CIT (1994) 72 Taxman 375 (Cal).] 4) Modification Order giving effect to appellate order is appealable - [Bakelite Hylam Ltd. v. CIT (1988) 171 ITR 344 (AP).] 5) Appellate authority is statutorily bound to consider condonation of delay is filling of an appeal – [Shrimant Govindrao Narayanrao Ghorpade v CIT (1963) 48 ITR 54 (Bom).] 6) Delay in filing appeal is condonable if appeal is based on a subsequent Supreme Court decision – [CIT v Sathia Mining & Mfg. Corporation Ltd. (1989) 46 Taxman 195 (Cal.).] 7) Amended law will apply – If during the pendency of appeal or reference, law is amended retrospectively, the amended law is to be applied by the authority deciding the appeal / reference – CIT v Straw Products Ltd. (1966) 60 ITR 156 (SC). 8) Appeal once filed cannot be withdrawn – CIT v Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) / CIT v B. N. Battachargee (1979) 118 ITR 461 (SC). 9) Revenue can object to delay in filing appeal – Mela Ram & Sons v CIT (1956) 29 ITR 607 (SC). 10) Before admitting additional evidence, ITO must be allowed opportunity – CIT v Valimohmed Ahmedbhai (1982) 134 ITR 214 (Guj). 11) CIT (A) has discretion to permit the raising of additional grounds – Jute Corporation of India Ltd. v CIT (1991) 187 ITR 688 (SC). 12) The powers of the CIT (A) are not confined to the subject matter of the appeal but extend to the subject matter of the assessment – CIT v Ahmedabad Crucible Co. (1994) 206 ITR 574 (Guj). 13) Appellate power conferred on CIT(A) is not confined to matter which had been considered by ITO and thus additions made by CIT(A) on account of unexplained hundi loans which had not been considered by ITO would be justified – CIT v Nirbheram Deluram (1997) 91 Taxman 181 (SC). 14) The Commissioner (Appeals) has inherent powers to stay recovery proceedings – Paulsons Litho Works v ITO (1994) 208 ITR 676 (Mad). 15) Whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147 / 148 (reassessment) and section263 (revision), if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. (Decision in CIT v. Union Tyres (1999) 240 ITR 556 / 107 Taxman 447 does not need reconsideration) – CIT v Sardari Lal & Co. (2002) 120 Tax man 595 (Delhi). 16) CIT (A) has powers to reject books of account accepted by the ITO – CIT v McMillan & Co. (1958) 33 ITR 182 (SC). 17) Appeal against a dead person is void – CIT v Smt. Santosh Rani (1996) 219 ITR 301 / 88 Taxman 209 (MP). 18) ‘Person aggrieved’ has wide meaning – The right to appeal to the Tribunal from an order passed by the AAC is not confined technically to the party who is a party to the appeal but is a much wider right which may be exercised by any person who becomes liable to pay tax by any order against which the appeal is preferred – CIT v N.CH.R Row & Co. (1983) 144 ITR 557 (Cal). 19) Right to file cross-objections is an independent right – Which may or may not be exercised by the assessee under section 253 (1) or by the ITO at the instance of the Commissioner under section 253 (2). – CIT v New India Assurance Co. Ltd. (1983) 141 ITR 367 (Bom). 20) Tribunal is not bound by circular dated 27.03.2000 – CBDT’s Circular, dated 27.03.2000 is only an instruction issued to income tax authorities not to file appeals where tax effect is less than Rs. One lakh, the Tribunal is not bound by any such instruction. Once department files an appeal, Tribunal is bound to decide the same on merits – Rani Paliwal v CIT (2004) 136 Taxman 135 (Punj. & Har). 21) New or additional points must be admitted – It is open to the Tribunal. If as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item – National Thermal Power Co. Ltd. v CIT (1998) 229 ITR 383 (SC). 22) An appellant before the Tribunal can raise any new or additional point for the first time in appeal before the Tribunal – CIT v Kerala State Co-operative Marketing Federation Ltd. (1992) 193 ITR624 (Ker), Kirtidev Chinmebhai HUF v CIT, CIT v Commnwealth Trust (India) Ltd.(1996) 23) Power to stay recovery of tax is incidental and ancillary – ITO v M. K. Mohammed Kunhi (1969) 71 ITR 815 (SC). 24) Tribunal must independently decide application for stay – Ashok Kumar Aggarwal v. ITAT (1997) 226 ITR 490 / 95 Taxman 117 (Delhi). 25) Tribunal must pronounce its judgment in open court – CIT v Sudhir Choudhrie (2005) 147 Taxman 306/278 ITR 490 (Delhi). 26) Revenue authorities has to follow decision of jurisdictional High Court – CIT v G. M. Mittal Stainless Steel (P) Ltd. (2003) 130 Tax man 67 / 263 ITR 255 (SC). 27) Dispute between Government department and / or public sector undertakings cannot come before Courts without clearance from high powered Committee – Mahanagar Telephone Nigam Ltd. v Chairman, CBDT (2004) 137 Taxman 242 / 267 ITR 647 (SC).
Drafting Appeal and Procedure in Income Tax Appeals before CIT (Appeals) and ITAT Drafting of Appeal 1. Drafting of Statement of Facts and Grounds of appeal before Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal.
A specimen draft of grounds of appeal is as under: “On the facts and in the circumstances of the case and in law the Assessing Officer (or ‘ the Commissioner of Income–tax (Appeals)’ where an appeal is filed before the Tribunal against the order of Commissioner (Appeals)) erred in …….without appreciating …………”. A prayer should be made for deletion or addition/disallowance after taking relevant ground as under : “The Appellant prays that the addition/ disallowance of Rs. _________ made in respect of/out of ……………. be deleted.” And at the end the Appellant should crave leave for variation or withdrawal of grounds of appeal as under: “The Appellant craves leave to add, amend , alter vary and / or withdraw any or all the above grounds of Appeal.” If the statement of facts /grounds of appeal are separately annexed then the same should be signed by the Appellant.
1. As stated hereinabove, an appeal to the Commissioner (Appeals) is to be filed in Form No. 35 and to the Tribunal in Form No. 36. Cross-objections are to be filed in Form No. 36A. As per notes to the Form No. 35 the memorandum of appeal, statement of facts and the grounds of appeal must be in duplicate and should be accompanied by a copy of the order appealed against and the notice of demand in original, if any. However, it is advisable that an assessee prepares three identical sets of appeal papers which would include the order for the sake of convenience so that he can file two sets with the Commissioner (Appeals) and take the acknowledgment on the third. The memorandum of appeal should be accompanied by the prescribed fee. The schedule of fee is given hereinafter. Further, where the appeal is filed against an order imposing penalty under section 271(1)(c) of the Act , a copy of assessment order must also be attached. Rule 9 of the Tribunal Rules provides that every memorandum of appeal to be filed before the Tribunal shall be in triplicate and shall be accompanied by two copies (at least one of which is a certified copy) of the order appealed against, two copies of the order of the assessing officer, two copies of the grounds of appeal, before the first Appellate authority and two copies of statement of facts, if any, filed before the said Appellate Authority. In a case of appeal against the order of penalty, the memorandum of appeal shall also be accompanied by two copies of the assessment order. Where an assessment order is passed under section 143(3) rws 144B or under section 143(3) rws 144A or under section 143(3) rws 147, the memorandum of appeal shall also be accompanied by the two copies of the draft assessment order under section 144B or directions under section 144A or the original assessment order as the case may be. The memorandum of appeal before the Tribunal shall also be accompanied by the prescribed fees. However, it is advisable that four identical sets consisting of memorandum of appeal in Form No. 36, order of Commissioner (Appeals), Form No. 35 with annexures and the assessment/penalty order from which the appeal arises are prepared for the sake of convenience so that three sets could be filed before the Tribunal and an acknowledgment can be taken on the fourth. It may be noted that, explanation to Rule 9 clarifies that “certified copy ” will include the copy which was originally supplied to the assessee as well as photostat copy thereof duly authenticated by the assessee or his authorised representative as a true copy. The Supreme Court in CIT vs. Calcutta Discount Co. Ltd., (1973) 91 ITR 8 (SC) observed that in considering an appeal the Appellate Authority should deal with the substance of the matter at issue and not be unduly influenced by mere procedural technicalities, for example, whether the memo of appeal was or was not in proper form etc. 2. Appeal fees The Tribunal (Mumbai Bench C) held that the levy of penalty u/s. 271B is not in any way related to the total income and hence fees would be Rs. 500/- as contemplated in section 253(6)(d). A similar view was taken in Chromatte India Ltd. vs. ITO (ITA/3486-87/M/02 dated 12-2-2002) where the Tribunal held that in an appeal against an order u/s 263 the fees are to be paid as per section 253(6)(d). Also, in Mrs. Nimu R. Thodani vs. Jt. CIT (ITA/5437/M/97 dated 1-2-2000) the Tribunal held that in cases filed with respect to interest under sections 234A, 234B, 234C or any other interest appeal fee would be Rs. 500/- as per section 253(6)(d) because interest is in no way related to the assessed income but is linked with tax payable. The ratio of the said decisions will also apply to the appeals to be filed before Commissioner (Appeals). 3. Who can sign the appeal memo 4. Presentation of appeal 5. Time for filing an appeal Where the assessment order was served on the person who was not an authorised agent of the assessee, and later on, the assessee applied for and obtained a copy of the assessment order for purpose of filing an appeal, it was held that the time limit for filing the appeal should be reckoned from the date on which the assessee obtained the copy of the assessment order and notice of demand and not from the earlier date of service of the assessment order – CIT vs. Prem Kumar Rastogi (1980) 124 ITR 381 (All). Also see, Jayalakshmi Cloth Stores vs ITO (1981) 132 ITR 764 (AP), Rasipuram vs. CIT (1956) 30 ITR 687 (Mad) and Malayalam Plantations Ltd vs. CIT (1959) 36 ITR 205 (Ker). Where postal acknowledgment in file of Assessing Officer did not bear signature of any person and so also it did not bear any date of service, it was reasonable to believe that the assessee was not served with the order of assessment and the demand notice and in such case appeal filed by the assessee on 10-8-1980 against the order of assessment for the assessment year 1981-82 could not be said to be barred by limitation. (Badri Singh Thakur vs. ITO (1995) 78 Taxman 206(Jab). 6. Delay in filing an appeal 7. Payment of admitted tax 8. Appeal is not maintainable where tax is not deducted at source from payment made to non-resident and is not paid to the Govt. prior to filing of appeal (ITO vs. Tata Iron & Steel Co. Ltd. (2001) 71 TTJ (Cal) 323. Crucial date for deciding the applicability of amended provisions to section 249(4) was the date of issue of notice under section 143(2) and not date of filing return. (Satyendra Pal Chaudhary vs. Asst. CIT (2002) 74 TTJ (Mum) 741) . Where despite adjustment of seized amount full amount of tax due from assessee was not paid before filing appeal, assessee’s appeal was not maintainable (Bharatkumar Sekhsaria vs. Dy. CIT (2002) 82 ITD 512 (Mum) . Also see CIT vs. Smt. G.A. Samonthakamani (2002) 125 Taxman 424 (Mad). In Shri Parasram G. Purohit vs. ACIT, ITA No. 2689/Bom/93 Bench ‘B’ Assessment year 1989-90, the Hon’ble Bombay Tribunal, held that once the tax required to be paid u/s. 249(4) has been paid before the final date of hearing, it is incumbent to consider the appeal having been filed on the date of payment. (Decision of Supreme Court in CIT vs. Filmistan 42 ITR 163 referred to). Where appellant was ‘notified entity under the Special Court (Trial of offences relating to Transactions in Securities) Act, 1992 and all properties had been attached, in view of this fact that the Appellant had requested the Assessing Officer to approach special Court to release amount of self assessment tax payable and such request had been made by Assessing Officer, assessee could be said to have made implied compliance with the provisions of section 249(4). (Divine Holdings (P) Ltd vs. Dy. CIT (2001) 119 Taxman 27 (Mum) (Mag) (Also see, Ashwin S. Mehta (HUF) vs. Asst CIT (2002) 75 TTJ (Mum) 960). Where assessee filed appeal on 2.4.1976 and 4.11.1997 was last date on which AAC heard appeal by which time assessee had paid entire tax due, the Delhi High Court in CIT vs. Rama Body Builders (2001) 250 ITR 825 (Del), AAC was not justified in refusing to entertain appeal on the ground that tax due had not been paid by 2.4.1976, the date on which the appeal was filed, [also see S. Venkatesh vs. Asst. CIT (2000) 112 Taxman 31 (Chennai) (Mag)]. 9. Death of an assessee CHART REGARDING FILING OF APPEALS UNDER THE INCOME-TAX ACT, 1961
SCHEDULE OF FEES FOR FILING APPEALS TO THE COMMISSIONER OF
CIT(A) can set aside assessment not made in accordance with ITAT’s direction
IT is clear that the Commissioner (Appeals) in his impugned order dated 29-4-2004 has not passed an order as if he was setting aside the order of assessment and referring the matter back to the Assessing Officer for making fresh assessment in accordance with his directions. The fact of the matter has been that the order as passed by the Assessing Officer earlier had already been subjected to appeal before the Commissioner (Appeals) and then before the Tribunal. As noticed, the Tribunal in its orders dated 22-11-2001 and 23-11-2001 restored the question of claim of higher depreciation to the file of the Assessing Officer for decision afresh after inspection of the building. In the orders, the Commissioner (Appeals) found that such directions of the Tribunal had not been complied with. The directions of the Tribunal were in any case required to be complied with by the Assessing Officer. The Commissioner (Appeals), in fact, had done nothing more than issuing directions for implementation of the order of the Tribunal. In this position, when the Commissioner (Appeals) was hearing the appeal against an order of assessment passed after the directions of the Tribunal, his power to annul the assessment order if found contrary to the Tribunal’s directions and directing the Assessing Officer to carry out the requirements of the order of the Tribunal cannot be denied. Even if the amendment in the clause (a) of section 251(1) has been made so as to provide that the Commissioner (Appeals) may not set aside the assessment and refer the case back to the Assessing Officer for making fresh assessment with a view to help bringing an early finalization of the assessment, it cannot be assumed that the Commissioner (Appeals) is divested of the power to annul the assessment and then to pass appropriate consequential order. In the instant case, the factual aspect has been that the order as passed by the Assessing Officer which was subject of appeal before the Commissioner (Appeals), was not an original order of assessment but was an order of assessment passed after remand by the Tribunal. The directions in remand order having not been complied with, the course as adopted by the Commissioner (Appeals) cannot be said to be de hors the powers available to him under the statute. On the facts and in the circumstances of the instant case, it appears that even if the appeal had been filed after amendment to section 251(1)(a), the order as passed by the Commissioner (Appeals) directing the Assessing Officer to decide the matter in accordance with the directions of the Tribunal cannot be said to be unauthorized. There being no illegality or infirmity in the principal order, the Commissioner (Appeals) was justified in rejecting the rectification applications and the Tribunal was also justified in dismissing the appeals filed by the revenue. HIGH COURT OF RAJASTHAN CIT v. Hindustan Zinc Ltd. AND 31, 35, 70, 117 & 142 OF 2008 APRIL 27, 2012 JUDGMENT Dinesh Maheshwari, J. – These six income-tax appeals by the revenue under section 260A of the Income-tax Act, 1961 ['the Act of 1961'] in relation to the same assessee, arising out of similar nature and inter-related orders, and involving similar nature substantial question of law, have been considered together; and are taken up for disposal by this common judgment. 2. Put in a nutshell, these appeals, relating to the assessment years 1979-80, 1980-81. and 1981-82, have their genesis in the orders dated 29.04.2004 wherein the Commissioner of Income Tax (Appeals), Udaipur ['the CIT(A)'] found that the Assessing Officer ['the AO'] had failed to carry out the directions given by the Income Tax Appellate Tribunal ['ITAT'] in the orders passed in the earlier round of the proceedings when the matters were restored to the file of the AO for decision afresh; and whereby the CIT(A) directed the AO to deal with the issue regarding claim of higher rate of depreciation on the building allegedly forming the part of plant and machinery in accordance with the directions of the ITAT. The respective appeals filed by the revenue against the aforesaid order dated 29.04.2004 were dismissed by the ITAT by a common order dated 20.02.2007. First three of the present appeals by the revenue (ITA Nos. 139/2007, 35/2008, 31/2008) arise out of this common order dated 20.02.2007. The revenue also made the respective rectification applications under section 154 of the Act, 1961 before the CIT(A) who proceeded to reject the same by the common order dated 12.08.2004. The appeals filed by the revenue against this order dated 12.08.2004 were also dismissed by the ITAT by another order of the even date i.e., 20.02.2007. Next three appeals by the revenue (ITA Nos. 117/2008, 70/2008, 142/2008) arise out of this other order dated 20.02.2007. 3. The sum and substance of the matter remains that in the respective orders dated 20.02.2007. the ITAT found the CIT(A) perfectly justified in issuing directions to the AO for compliance of its order as made in the earlier round of the same proceedings. The ITAT, thus, found no case for interference. Assailing the orders so passed by the ITAT and CIT(A) in these appeals, the revenue seeks to contend that in an appeal filed after the amendment to clause (a) of sub-section (1) of section 251 of the Act, 1961, as made w.e.f. 01.06.2001, the Commissioner (Appeals) has no power to remand the matter to the Assessing Officer, and hence, the order dated 29.04.2004, as passed by the CIT(A), remains wholly unauthorised. 4. Only the question of power of the Commissioner (Appeals) after the aforesaid amendment being in question in these appeals, we need not elaborate on all the factual aspects. A brief reference to the background aspects would suffice. 5. The relevant background aspects in ITA No. 139/2007 pertaining to assessment year 1979-80 are as follows: The assessment in this case was earlier completed by the AO on 20.01.1983 at nil income. The appeal against this order was decided by the CIT(A) on 08.03.1994. The assessee’s appeal [ITA No. 1232 (JP)/94] against this order was decided by the ITAT on 22.11.2001. In its order dated 22.11.2001, the ITAT restored essentially two issues to the file of AO for consideration afresh namely, the issue regarding disallowance of the provision for bad debts and written off advances: and regarding the assessee’s claim for higher depreciation on the building, said to be the part of plant and machinery, after inspection of the building by the AO. 6. Such relevant background aspects in ITA No. 35/2008 in relation to the assessment year 1980-81 are as follows; The AO passed the assessment order dated 24.01.1984 at nil income. The appeal was decided by the CIT(A) on 09.03.1994; and the assessee’s appeal [ITA No.1233(JP)/94] against this order was decided by the ITAT on 23.11.2001. In this matter, pertaining to assessment year 1980-81. the ITAT restored three issues to the file of AO for consideration afresh namely regarding non-allowance towards bad debts; the claim under section 80J; and the same issue regarding assessee’s claim for higher depreciation towards the building after inspection of the same by the AO. 7. Similar are the background aspects relating to ITA No. 31/2008 pertaining to assessment year 1981-82 wherein the assessment was made on 06.03.1985, the appeal by the CIT(A) was decided on 09.03.1994, and the ITAT considered the appeal of the assessee [ITA No.1234(JP)/94] in its similar nature order dated 23.11.2001, In this case, pertaining to assessment year 1981-82, the ITAT restored the three issues of same nature to the file of AO. In all these appeals, the issue regarding higher depreciation for the building remains the bone of contention. 8. It is borne out that the AO proceeded to decide all the remanded cases by the different orders of the even date i.e., 10.03.2003. The AO rejected the claim of higher depreciation essentially with the observations that the assessee did not file the requisite details for inspection despite granting of sufficient time. Against the aforesaid orders dated 10.03.2003, separate appeals were filed by the assessee on 22.04.2003 before the CIT(A). All these appeals were decided by separate but similar nature orders dated 29.04.2004. So far the issue at hands is concerned, regarding the claim of depreciation, the CIT(A) found that the AO failed to carry out the requirements of the orders as earlier passed by the ITAT on 22.11.2001 and 23.11.2001 restoring the issue to the file of AO. Thus, the CIT(A) did not approve of the order passed by the AO and directed that the AO, after inspecting the constructed building and keeping in view the directions of ITAT, should come to a finding as to whether the building was a part of the plant and allow depreciation accordingly. For ready reference, the observations as made by the CIT(A) in the order pertaining to assessment year 1979-80 could be noticed as under:- “3.2 I have considered the observations of the AO and the contentions of the appellant. The Hon’ble ITAT, Jodhpur Bench vide its order in ITA No. 1232(JP)/94 dated 22-11-2001, looking to the nature of buildings claimed as plant restored the matter back to the AO for considering the matter afresh with the following directions: “A characteristic of plant is that it is an adjunct to the carrying on of a business and not the essential site or core of the business itself. Keeping in view the facts of the case it is necessary to restore this issue to the file of the AO with direction that after proper appraisal of facts and inspection of the building constructed and keeping in view the various judgments discussed above, he should decide this issue afresh as to whether the building is a plant or not.”. As per the direction of the Hon’ble ITAT, the AO was to decide whether the buildings are plant or not after proper appraisal of the facts and inspection of the buildings constructed and keeping in view the various judgments discussed in the order From the facts as discussed above it is clear that the AO has not followed the directions of the Hon’ble ITAT. The appellant company had submitted that name and address of the units where the buildings were constructed as also photographs of the buildings. The appellant company also offered its assistance for inspecting the buildings at units. Therefore, the AO was not justified in stating that the appellant did not furnish proper information for inspecting the buildings. In view of the above, the AO is directed to comply with the directions of the Hon’ble ITAT as contained in its order dated 22-11-2001. The AO after inspecting the buildings constructed and keeping in view the above directions of the Hon’ble ITAT should come to a finding whether the buildings are plant or not and accordingly allow the depreciation on the same.” 9. Aggrieved by the aforesaid orders dated 29.04.2004, the revenue preferred respective appeals which have been dismissed by the ITAT alongwith other appeals in its common order dated 20.02.2007. The relevant part of the said order dated 20.02.2007 reads as under:- “ITA NOS. 372 to 375/JU/2004 (A.Y.1979-80 to 1981-82 & 1992-93) 7. Following solitary effective common ground has been raised by the Revenue in these appeals: “On the facts and in the circumstances of the case, the ld. CIT(A) has erred in directing the Assessing Officer to decide the matter afresh after inspecting the building to ascertain whether it is forming part of plant ignoring the material and other facts brought on record by the Assessing Officer.” 8. Briefly stated, the facts of this ground are that the assessee claimed building to be eligible for higher depreciation. In the absence of the assessee having assisted properly by furnishing necessary details, the Assessing Officer came to hold that higher rate of depreciation was not eligible. The ld. CIT(A) directed the Assessing Officer to decide the matter afresh after inspecting the building to ascertain whether or not it is forming part of plant. 9. Having heard the rival submissions and perused the relevant material on record, we find that the ld. CIT(A) has not decided the issue in assessee’s favour. Rather, the matter has been restored to the Assessing Officer for deciding it afresh. The Hon’ble Jurisdictional High Court in the case of Prem Agencies v. CIT [1988] 173 ITR 110 (Raj.) has held that no infirmity can be traced in the restoration of the matter to the lower authorities. We observe that the ld. CIT(A) has given a simple direction that the Assessing Officer should make inspection of the building constructed and then decide as to whether it should be considered as plant. In our considered opinion, there is no cause of grievance at the Revenue’s end because the issue is open at large before the departmental authorities. We are, therefore, not inclined to disturb the finding of the first appellate authority on this count. 10. Similar ground raised on similar facts and finding of the ld. CIT(A) has been assailed by the Revenue in the other years. Both the sides are in agreement that the facts and circumstances of this ground are mutatis mutandis similar to all the other years. We, therefore, uphold the impugned order as it is not suffering from any infirmity.” 10. As noticed above, the first three appeals herein (ITA Nos. 139/2007, 35/2008 and 31/2008) have been filed against the aforesaid common order dated 20.02.2007 whereby the ITAT has affirmed the order passed by CIT(A) on 29.04.2004 while essentially contending that the CIT(A) had no authority to remand the matter to the AO after the amendment to section 251(1)(a) of the Act, 1961 with effect from 01.06.2001 taking away his powers of remand. 11. For completion of background aspects, it could be noticed that as against the order dated 29.04.2004 the revenue made the respective rectification applications under section 154 of the Act, 1961 before the CIT(A) who proceeded to reject the same by the common order dated 12.08.2004. The appeals preferred against this order dated 12.08.2004 were dismissed by ITAT by the common order of even date i.e., 20.02.2007. The next three appeals herein (ITA Nos. 117/2008, 70/2008 and 142/2008) relate to this other order dated 20.02.2007. 12. Coming to the matters concerning rectification applications later, appropriate it shall be to take up for consideration at the first the three appeals (ITA Nos. 139/2007, 35/2008, 31/2008) arising out of the basic similar nature orders dated 29.04.2004 as passed by the CIT(A) in the respective appeals filed on 22.04.2003. Similar nature substantial question of law as formulated in these three appeals relating to the assessment years 1979-80, 1980-81, and 1981-82 respectively reads as under:- “Whether the learned Commissioner had the power to send the matter back to the Assessing Officer to decide the matter afresh in view of the amendment made in section 251(1)(a) taking away such power, which was made with effect from 1.6.2001, while the appeal in the present case before the learned Commissioner was filed on 22.04.2003?” 13. The learned counsel for the appellant has questioned the orders impugned essentially with the submission that for the appeals filed on 22.04.2003 i.e., after amendment to section 251(1)(a), the CIT(A) was having no power or authority to remand the matter to the AO. Per contra, the learned counsel for the respondent assessee has referred to the decision of the Hon’ble Supreme Court in the case of S. Shanmugavel Nadar v. States of Tamil Nadu [2003] 263 ITR 658 to submit that the orders earlier passed by the AO merged in the orders passed by the ITAT on 22.11.2001 and 23.11.2001. According to the learned counsel, the AO was, thereafter, duty bound to carry out the compliance of the directions of the ITAT and if he failed to do so, the CIT(A) cannot be faulted at directing him to carry out the compliance of the order of ITAT that had become final. The learned counsel also referred to the decision in the case of Union of India v. Umesh Dhaimode [2002] 124 Taxman 422 (SC) to submit that the appellate authority has power to annul the order and the order of remand necessarily annuls the decision which is under appeal. The learned counsel yet further referred to the decision of the Hon’ble Gujarat High Court in the case of CCE v. Medico Labs 2004 (173) ELT 117 to submit that in relation to section 35A of the Central Excise Act, 1944, similar nature amendment was made by the Finance Act, 2001 in regard to the powers of Commissioner (Appeals); and the Hon’ble Gujarat High Court, with reference to the decision in Umesh Dhaimode (supra), held that even after amendment, such powers of remand have not been taken away specifically. 14. The relevant provision i.e., Section 251(1)(a) of the Act, 1961 reads as under :- “251. Powers of the Commissioner (Appeals) (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment;” 15. Noticeable it is that earlier, there existed an expression after semicolon in the above-quoted clause (a), which conferred other powers on the Commissioner (Appeals); and which was deleted by the Finance Act, 2001 with effect from 01.06.2001. The said deleted portion as occurring in clause (a) after semicolon was as under:- “or he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment;” 16. The only question is whether for such deletion of the aforesaid wordings in clause (a) of sub-section (1) of Section 251, the CIT(A) was not justified in restoring the matter to the file of AO in the present cases. 17. Taking into comprehension the factual scenario and particularly the background aspects, it is, at once, clear that the CIT(A) in his impugned orders dated 29.04.2004 has not passed an order as if he was setting aside the order of assessment and referring the matter back to the AO for making fresh assessment in accordance with his directions. The fact of the matter had been that the order as passed by the AO earlier had already been subjected to appeal before the CIT(A) and then before the ITAT. As noticed, the ITAT in its orders dated 22.11.2001 and 23.11.2001 restored the question of claim of higher depreciation to the file of AO for decision afresh after inspection of the building. In the orders dated 29.04.2004, the CIT(A) found that such directions of ITAT had not been complied with. The directions of ITAT were in any case required to be complied with by the AO. The CIT(A), in fact, had done nothing more than issuing directions for implementation of the order of the ITAT. In this position, when the CIT(A) was hearing the appeal against an order of assessment passed after the directions of ITAT, his power to annul the assessment order if found contrary to the ITAT’s directions and directing the AO to carry out the requirements of the order of ITAT cannot be denied. 18. In the case of Umesh Dhaimode (supra) in relation to the appeal under the Customs Act, 1962, the Hon’ble Supreme Court has observed as under:- “The then judicial Commissioner, Goa, Daman and Diu, took the view that s. 128(2) of the Customs Act, 1962 as it then read, did not vest the appellate authority with the power to remand. Accordingly, he set aside such order and the Revenue is in appeal. 2. As the order under appeal itself notes, the aforesaid provision vested the appellate authority with powers to pass such order as it deemed fit confirming, modifying or annulling the decision appealed against. An order of remand necessarily annuls the decision which is under appeal before the appellate authority. The appellate authority is also invested with the power to pass such order as it deems fit. Both these portions of the aforesaid provision, read together, necessarily imply that the appellate authority has the power to set aside the decision which is under appeal before it and to remand the matter to the authority below for fresh decision.” 19. Even if the amendment in the aforesaid clause (a) of section 251(1) has been made so as to provide that the Commissioner (Appeals) may not set aside the assessment and refer the case back to the AO for making fresh assessment with a view to help bringing an early finalisation of the assessment, it cannot be assumed that the CIT(A) is divested of the power to annul the assessment and then to pass appropriate consequential order. 20. This apart, in the present case, as observed hereinbefore the factual aspect has been that the order as passed by the AO which was subject of appeal before the CIT(A), was not an original order of assessment but was an order of assessment passed after remand by the ITAT. The directions in remand order having not been complied with, the course as adopted by the CIT(A) cannot be said to be de hors the powers available to him under the statute. 21. On the facts and in the circumstances of the present cases, we are clearly of the view that even if the appeal had been filed after amendment to section 251(1)(a) of the Act, 1961, the order as passed by the CIT(A) directing the AO to decide the matter in accordance with the directions of the ITAT cannot be said to be unauthorised. These first three appeals (ITA Nos. 139/2007, 35/2008 and 31/2008) deserve to be dismissed. 22. In view of what has been discussed and held hereinabove, the issues raised in other three appeals (ITA Nos. 117/2008, 70/2008 and 142/2008) are rendered rather academic. There being no illegality or infirmity in the principal order dated 29.04.2004, the CIT(A) was justified in rejecting the rectification applications by the common order dated 12.08.2004; and the ITAT was also justified in dismissing the appeals filed by the revenue by the other common order dated 20.02.2007. The ITAT, in fact, decided four appeals together, three of them relating to the present appeals and another one relating to the assessment year 1992-93 with a short common order that is reproduced in extenso as under:- “This is a bunch of four appeals, which have been filed by the Revenue in relation to Assessment Years 1979-80, 1980-81, 1981-82 and 1992-93. For three assessment years, viz., 1979-80 to 1981-82, there is a common appellate order, which is dated 12.08.2004. For A.Y.1992-93, there is separate appellate order dated 04.08.2004. In all these appeals, however, exactly identical issue is involved. Therefore, for the sake of convenience and brevity, we are deciding them all by a common order. 2. The relevant facts are that the ld. CIT(A) set aside the issue of depreciation on building, forming part of plant and machinery, by giving a direction to Assessing Officer as per the directions of the Hon’ble ITAT, to decide whether the buildings in question are plant or not after proper appraisal of facts and inspection of the buildings constructed, in view of the various judgments discussed in the order. This order of the Tribunal is dated 22.11.2001. Section 251(1)(a) came into effect from 01.06.2001, according to this amended provision, the power of the ld. CIT(A) to set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with his directions, has been withdrawn. In view of these amended provisions the ld. ACIT, Circle-2, Udaipur filed petition u/s 154 of the Act to rectify the order by calling the order back. The ld. CIT(A), however, rejected the application so filed u/s 154, by observing that the specific directions given by him are in consonance and in compliance with the direction of the Hon’ble ITAT so his order was very well within the four-corners of law, and these directions could not be considered as simple set aside of the issues or that of the assessment order. This finding of the ld. CIT(A), is the subject-matter of all these four appeals. The facts and issues involved in all these appeals are, mutatis mutandis, identical. 3. We have heard the rival submissions and perused the evidence available on record. 4. The department has raised similar plea as was raised before the ld. CIT(A). The subject matter of all the above appeal is exactly similar. Having gone through the orders of the CIT(A), the applications u/s 154 so filed, the provisions of section 250 as amended upto date and the ITAT order referred to in this regard, we are of the considered opinion that the ld. CIT(A) has given his direction in compliance of the order of Hon’ble ITAT. The ld. CIT(A) is perfectly correct when he says that this set aside is not a simplicitor set-aside as has been envisaged by the amended provisions of section 251(1)(a) of the Act. We are totally in agreement with the ld. CIT(A), who has done nothing more than getting the order of the Tribunal implemented in its letters and spirit. This is not a simple set aside, which is barred now. Therefore, we confirm the finding of the ld. CIT(A), for all the four years. The grounds taken in all these years, thus, have to fail. This order was pronounced in the open Court, at the end of the hearing. 4. In the result, all the appeals of the Revenue for Assessment Years 1979-80 to 1981-82 and 1992-93, stand dismissed.” 23. We may observe that these three appeals arising out of the aforesaid order of the ITAT, whereby the order passed by the CIT(A) on 12.08.2004 in rejection of the rectification application was affirmed (ITA Nos. 70/2008, 117/2008 and 142/2008), have been admitted on the lines of the other three appeals and while formulating similar nature substantial question of law with change of date of filing of appeal as under:- “Whether the learned Commissioner had the power to send the matter back to the Assessing Officer to decide the matter afresh in view of the amendment made in section 251(1)(a) taking away such power, which was made with effect from 1.6.2001, while the appeal in the present case before the learned Commissioner was filed on 29.4.2004?” 24. There appears to be an obvious error in the question abovementioned because none of the appeals in question was filed before the CIT(A) on “29.04.2004″ . In fact, this date i.e., 29.04.2004 has been date of the basic order passed by the CIT(A), as noticed and discussed hereinbefore. Be that as it may, the core question as to whether the CIT(A) was right in passing the order dated 29.04.2004 has already been answered against the revenue. As a necessary consequence, it follows that the CIT(A) has rightly rejected the rectification applications and the ITAT has rightly dismissed the appeals relating thereto. Hence, these appeals also deserve to be dismissed. 25. As a result of the discussion aforesaid, all these appeals fail and are dismissed. No costs.
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Income-tax Appellate Tribunal
1. Introduction
2. Constitution
of Appellate Tribunal
3. Sittings
of Bench & Territorial Jurisdiction
The President is vested with the powers to
constitute the Benches under the provisions of sub-section (1) of section 255.
The Benches constituted from among the Members by the President shall exercise
the powers vested with the Appellate Tribunal.
4. Benches
1. Division
Bench
2. Single
Member Court (SMC)
There is no provision for SMC Bench under the Wealth Tax Act , 1957, Gift Tax Act, 1958 or Interest Tax Act, 1972.
3. Third
Member Bench
4. Special
Bench
5. Appealable
orders
However, certain issues arise where the
search action is conducted after 30-6-1995 but before 1-1-1997 and the Tribunal
has set aside the assessment order for the block period. Now, against the fresh
order passed by the Assessing Officer, whether the appeal lies to the
Commissioner (A) or to the Appellate Tribunal is a matter of debate. However,
in our opinion, the appeal to such fresh orders should be filed directly before
the Appellate Tribunal, due to the reason that for filing appeal relating to
the block assessment, the legislature has provided the forum of appeal on the
basis of the date of search rather than on the basis of the date of passing of
the order. Thus, for filing appeal against the fresh orders or the order giving
effect to the higher authority’s orders, the date of search action conducted is
important and not the date of passing the order.
6. Who can
file appeal
The Commissioner of Income-tax authorizes
the Assessing Officer to file appeals as per sub-section (2) to section 253
CBDT has been issuing notifications laying down the monetary limit with respect
to tax effect for preferring an appeal by the Commissioner. Bombay High Court
took notice of such circulars/notifications in the case of CWT vs. Executors
of Late D.T. Udeshi (1991) 189 ITR 319 (Bom.) and again in the case of CIT
vs. Camco Colour Co. (2002) 254 ITR 565 (Bom) observed that considering the
instructions issued by CBDT, the Board has taken a policy decision not to file
appeal in this type of case. The same is binding on the Revenue. The Madras
High Court in the case of CWT vs. S. Annamalai (2002) 258 ITR 675 (Mad.) has
followed the abovementioned decision of the Bombay High Court.
7. Fees
payable in an appeal
8. Grounds
of appeal
9. Additional
grounds of appeal
New India Life Ass. Co. Ltd. vs. CIT 31 ITR 844, 846 (Bom.)
In Ahmedabad Electricity Co. Ltd. vs. CIT 199 ITR 413 (Bom) (FB), the Court held that Rules 11 and 29 of the Appellate Tribunal Rules indicate that the scope of enquiry before the Tribunal can be wider than the points which are raised before the Tribunal. The Tribunal, therefore, would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject matter of the proceedings and not necessarily only the subject matter raised in the memorandum of appeal.
The Tribunal has jurisdiction to permit additional grounds to be raised before it, even though they may not arise from the order impugned before it as long as these grounds are in respect of the subject matter of the entire tax proceedings. The Apex Court in the case National Thermal Power Corporation vs. CIT (1998) 229 ITR 383 (SC) observed that Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceeding we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
The Rajasthan High Court in the case of Shilpa Associates vs. ITO (2003) 181 CTR (Raj.) 92 has held that the additional grounds of Appeal cannot be rejected on the ground that the same have been filed beyond the time limit provided u/s. 253(3).
Leave to urge additional grounds may be sought either in writing or by oral prayer. Rule 11 of the Appellate Tribunal Rules speaks only of leave and the leave may be sought for either in writing or by an oral prayer — Amines Plasticizers Ltd. vs. CIT, 223 ITR 173 (Gauhati).
Grounds of appeal can be amended by taking
leave of the Tribunal orally — Assam Carbon Products Ltd. vs. CIT 224 ITR 57
(Gauhati).
10. Cross
objections
11. Rule 27
12. Payment
of Tax mandatory on returned income before filing appeal
13. Duties
of Tribunal
1. Primary
duties
2. Speaking
order should be passed
The Tribunal in deciding a case should not
be unduly influenced by trivial procedural technicalities. The memo of appeal
should be liberally seen and entertained. No specific formula is necessary for
seeking relief at the hands of a court or Tribunal, if the necessary grounds
have been taken in the appeal memo. CIT vs. Calcutta Discount Co. Ltd. 91
ITR 811 (SC).
14. Powers
of the Appellate Tribunal
Thus, Appellate Tribunal is a judicial body exercising judicial powers under the statute. It is not empowered to employ its jurisdiction arbitrarily. Whatever it does must be done in consonance with sound judicial principles and in accordance with well-accepted doctrines applicable to judicial bodies. The words "pass such orders thereon as it thinks fit" of section 254(1) were subject matter of judicial scrutiny by various courts and the Apex Court had to define and determine the scope of the powers of the Appellate Tribunal. The powers conferred on the Tribunal to pass "such orders thereon as it thinks fit" in respect of an appeal before it, must be exercised within the limits which can be discovered with reference to the jurisdiction of the authority whose order has given rise to the appeal (CIT vs. Ram Murti 87 ITR 577 (All).) Hon'ble Andhra Pradesh High Court in the case of Thakur Hari Prasad vs. CIT 167 ITR 603 (AP) had observed that the power and jurisdiction of the Tribunal are of wide amplitude and depending upon the exigencies in a given case it has the power to make such appropriate orders thereon as justice of the case demands. The powers of the Tribunal are expressed in the widest possible terms similar to the power of the Appellate Court under section 96 of the Code of Civil Procedure. The words "as it thinks fit" are of wide amplitude to give directions to authorities below to afford an opportunity to the assessee and to the Revenue to adduce evidence afresh and consider the same and to submit a report. However, the Mysore High Court opined that the expression "thereon" clearly and undoubtedly points to the conclusion that the powers of the Appellate Tribunal are limited to the subject matter of the appeal. [Pathikonda Balasubba Setty vs. CIT 65 ITR 252 (Mys)]
As per the observations of the Calcutta High Court in the case of CIT vs. Amaredranath Mukherjee & Bros. 1973 TLR 119 (Cal) the Appellate Tribunal has wide powers in respect of subject matter of an appeal before it, it can decide any question which is material to the subject matter before it even though it was not specifically raised.
The Bombay High Court in the case of CWT vs. N.A. Narielwalla 126 ITR 344 (Bom) observed that before the Appellate Tribunal the point of jurisdiction can be challenged for the first time and it has got all the powers to entertain the same.
1. Power to
call for documents
2. Power to
remand
3. Power to
award cost
4. Power
for rectification of mistake apparent on record
1. Fees
2. Rule
5. No power
of review
The power of review is not an inherent power but must be conferred by law either specifically or by necessary implication. (Patel Thackersy vs. Profyumansinghji Arjunsinghji AIR 1970 SC 1273. The Courts have consistently held that review proceedings imply those proceedings where a party as of right can apply for consideration of the matter already decided after a fresh hearing on the merits of the controversy between the parties and that such a remedy is available only if provided by the statute. As early as in Trikamlal Maneklal In Re : (1958) 33 ITR 725 (Bom) the Bombay High Court held that the Tribunal having once delivered a judgment which has by operation of law become final is not entitled to review its decision in a subsequent proceeding.
It is said that an exception proves the rule and the same is true with respect to this rule also. One of the exceptions is that a Judicial Tribunal can always recall and quash its own order when it is shown that it was obtained by fraud or by palpable mistake or was made in utter ignorance of the statutory provision. (Mangat Ram Kutiala vs. CIT (1960) 38 ITR 1 (Pun). However, an inherent power to rectify a wrong committed by itself cannot be construed to be a power of review. (Shew Paper Exchange vs. ITO (1974) 93 ITR 186 (Cal.). Thus a Court or Tribunal can be said to have an inherent power and jurisdiction to rectify a wrong or correct an error committed by itself. (S.B. Singar & Sons vs. ITAT (1965) 58 ITR 626 (All.)
It is a moot point as to when the Tribunal can be said to be exercising its inherent power to correct a mistake or its statutory power to correct a mistake apparent from the records under section 254(2) and when the exercise of the power tantamounts to a review of its earlier order.
CERTAIN IMPORTANT CASE LAWS TO ILLUSTRATE THE POINT
1. Failure to consider material on record rectifiable In CIT vs. Mithalal Ashokkumar (1986) 158 ITR 755, the Madhya Pradesh High Court laid down the principle that although the Appellate Tribunal has no power to review its own order, yet it can certainly correct its mistakes by rectifying the same in case it is brought to its notice that the material which was already on record before deciding the appeal on merits was not considered by it.
2. Non-consideration of relevant provision of law rectifiable Non-consideration of a provision of law which would have material bearing on the decision is a glaring, obvious and self-evident mistake apparent from the record. Such a mistake would be required to be corrected. (CIT vs. Quilon Marine Produce Co. (1986) 157 ITR 448); Modu Finblo vs. 1st WTO (1995) 53 ITD 53 (Pune) (TM) ; ITO vs. Gilard Electronics (1986) 18 ITD 176 (Jp); ACIT vs. Sornamy Alkington Ltd. (1994) 49 ITD 207 (Del.) Similarly, non consideration of a Rule would also be rectifiable CIT vs. Ballabh Prasad Agarwalla (1997) 90 Taxman 283 (Cal.).
3. Order contrary to pronouncement constitutes mistake apparent on the record A decision which is delivered contrary to a pronouncement made in the court would constitute a mistake rectifiable. The announcement made in the open court, would constitute an order of the Tribunal. The order which is written subsequently merely consists of reasons for coming to the conclusion which it announced in the court. If the written order is at variance with the pronouncement made in the case there is a mistake in the order which can be rectified. CIT vs. G. Sagar Suri and Sons (1990) 185 ITR 484. (Del).
4. Order can be amended in the light of retrospective amendment It is, of course, well settled by the decision in M. K. Venkatachal vs. Bombay Dyeing and Mfg., Co. Ltd. (1958) 34 ITR 143 that an amendment with retrospective effect would require a rectification consequent to the retrospective amendment. Also refer CIT vs. Eva Raha (1980) 121 ITR 293 (Gau); CIT vs. Kelvin Jute Co. Ltd. (1980) 126 ITR 679 (Cal.).
5. Order can be amended in the light of a subsequent Supreme Court decision It is well settled that where no further investigation of facts is called on the facts found, the principle of law declared by the Supreme Court be straightaway applied with the consequence of rendering order mistaken, it would be case of a mistake apparent from record [Walchandnagar Industries Ltd. vs. V. S. Gaitonde (1962) 44 ITR] 260 (SC); CBDT Circular No. 68 dated 17/11/1971 – Chaturvedi & Pithisaria – Circular Book Vol. II page 1847.; ITO vs. Shashi Raj Kapoor (1987) 21 ITD 406 (Bom.) ; His Highness Sir Rama Varma vs. ITO 1982) 2 ITD 491 (Coch).
6. Failure to consider alternative argument rectifiable In CIT vs. ITAT (1988) 172 ITR 158 (MP) the issue which arose before the Tribunal was as regards the genuineness of certain cash credits and an alternative argument was raised that in any event only the peak ought to have been added. The Tribunal rejected the main contention, but omitted to give its findings on the alternative ground raised. On a Miscellaneous Application moved, the Tribunal held that the non-consideration of the alternative ground as regards the excessiveness of the addition was a mistake apparent on record. The High Court upheld the order of the Tribunal. However, the above decision has to be understood along with the decision of the Bombay High Court wherein, failure to consider argument advanced was held not an error apparent on the record [CIT vs. Ramesh Electric and Trading Co. (1993) 203 ITR 497 (Bom)]. The High Court was concerned with the question whether the non-consideration of an argument constitutes a mistake apparent on the record or not. The Bombay High Court held that such non-consideration would be an error of judgment but not an error apparent on record. It is submitted with due respect that an application of such a principle would be erroneous. The ratio of this decision must be considered in the light of the facts therein and in view of the observation of the court that one of the alleged failures was of the Income-tax Officer and not of the Tribunal. This is also because Bombay High Court in Khushalchand B. Daga vs. ITO (1972) 85 ITR 48 had endorsed the principle that a Tribunal has an inherent jurisdiction to rectify a wrong committed by itself when that wrong causes prejudice for which that party was not responsible. Unfortunately the High Court’s attention had not been drawn to Daga’s case in Ramesh Electric.
7. Order rejecting Miscellaneous Application cannot be rectified In CIT vs. ITAT (1992) 196 ITR 838, the Orissa High Court took the view that an order rejecting an application for rectification under section is not an order passed under section 254 (1) and therefore it cannot rectified under section 254(2). It is submitted, however, that a Miscellaneous Application would lie if the mistake which is sought to be corrected is in the original order made under section 254(1).
8. Order made under misconception or misapprehension rectifiable In Maharaja Martant Singh Ju Deo vs. CIT (1988) 171 ITR 586 (MP) Tribunal rectified its order and substituted its earlier findings. The High Court held that the earlier findings where the Tribunal under some misapprehension or misconception. Therefore, when the Tribunal corrected its earlier order it had rightly exercised power under section 254(2) and it was not a review of its earlier order.
9. Order rejecting Miscellaneous Application cannot be rectified In CIT vs. ITAT (1992) 196 ITR 838, the Orissa High Court took the view that an order rejecting an application for rectification is not an order passed under section 254 (1) and therefore it cannot be rectified under section 254(2). It is submitted, however, that a Miscellaneous Application would lie if the mistake which is sought to be corrected is in the original order made under section 254(1).
6. No power
of enhancement
However, the Appellate Tribunal’s bench constituted under section 24 of the Wealth Tax Act, 1957 can dispose of the appeal in the manner in which it thinks fit, the order passed by the Appellate Tribunal can enhance the assessment or penalty. But any enhancement to the assessment of penalty should be in conformity with the conditions mentioned in section 24.
Tribunal’s power is limited to the subject matter of the appeal before it. The powers of the Tribunal in dealing with appeals are expressed in section 254(1) in the widest possible terms. The word ‘Therefore of’ restricts the Jurisdiction of the Tribunal to subject matter of the appeal [Hukumchand Mills Ltd. vs. CIT 63 ITR 232 (236, 237) (SC)]. The power restricted to the year under appeal, incidental observations relating to other years, if any, made is not strictly speaking, a finding. The Tribunal has no jurisdiction to give direction with regard to the proceedings of the earlier year or to include deleted amount in other years assessment. ITO vs. Murlidhar Bhagwan Das 52 ITR 335 (SC).
7. No power
to pronounce upon validity of the Act
Venkatraman & Co. Ltd. vs. State of
Madras 60 ITR 112 (SC)
15. Ex parte
order
In CIT vs. Multiplan India (P) Ltd. 38 ITD 320, the reference was filed by the department. On the date of hearing neither the representative of the department was present nor an adjournment application was moved. The Tribunal passed the order after 5 days dismissing the appeal of department, treating the appeal as unadmitted. Against the order, the department filed reference application to refer the matter to High Court. Hon’ble Tribunal rejected the reference application on the ground that the department should have made application for restoration of appeal under rule 24 of the Income tax Appellate Tribunal Rules and observed that revenue chose to add to the litigation for no justifiable reason, hence no question of law arise.
However, the Tribunal has not considered the ratio laid down by Supreme Court in CIT vs. Chenniahha Mudaliar 74 ITR 41 (SC), wherein the Court held that the Tribunal must decide the case on merit and cannot dismiss it for non-appearance of appellant, hence judgment in Multiplan India requires reconsideration.
It has been observed that in number of cases, matters have been dismissed by the Tribunal applying the ratio of Multiplan India and thereafter when an assessee makes an application for restoration under rule 24 of the Income-tax Appellate Tribunal Rules, the same is restored. This results in multiplicity of litigation. The matters come for hearing before the Tribunal after 6 years of filing, it may be possible that the appellant might have changed its address, consultant etc. In such case, before passing the ex parte order, if a notice is sent through Assessing Officer lot of unintended paper work and time can be saved. When an assessee pays the Tribunal fees, it cannot be said that he has no interest in pursuing the matter. It is therefore urged that before applying the ratio of Multiplan India (P) Ltd, a notice may be sent to the assessee through Assessing Officer.
Where an ex parte order is passed against
the assessee, great responsibility is cast on the members of Tribunal. The
Members have to act not only as Judges but also as representative for the party
who is not represented. Duty of the Court is to decide correct interpretation
of Law, hence it may not be desirable to decide the issue which is an important
question of Law in an ex parte order, however it is inevitable, then the
Tribunal may request any member of Bar to help the court as amicus curaie to
help the Tribunal. In such situation help of Bar Association may be sought. If
such system is developed, it may go a long way in building the confidence of
institution in the mind of public. Even ex parte order, should not lead to
punishment to an assessee who may not be in a position to engage a competent
representative.
16. Preparation
of paper book
Rule 18 of the Appellate Tribunal Rules,
1963:
Provided, however, the Bench may in an appropriate case condone the delay and admit the paper book.
The Tribunal may suo motu direct the preparation of a paper book in triplicate by and at the cost of the appellant or the respondent containing copies of such statements, papers and documents as it may consider necessary for the proper disposal of the appeal.
The papers referred to in sub-rule(1) above must always be legibly written or typewritten in double space or printed. If xerox copy of a document is filed, then the same should be legible. Each paper should be certified as a true copy by the pary filing the same, or his authorised representative and indexed in such a manner as to give the brief description or the relevance of the document, with page numbers and the authority before whom it was filed.
The additional evidence, if any, shall not form part of the same paper book. If any party desires to file additional evidence, then the same shall be filed by way of a separate paper book containing such particulars as are referred to in sub-rule (3) accompanied by an application stating the reasons for filing such additional evidence.
The parties shall not be entitled to submit any supplementary paper book, except with the leave of the Bench.
Paper/paper books not conforming to the above rules are liable to be ignored.
The Hon’ble Tribunal in exceptional cases accept the paper book even on the day of hearing provided the other side does not object for the same.
As regards the case laws which are not
reported in the ITR or ITD, it may be desirable to file the copies of the same
as separate paper book which may help the members for speedy disposal of
matters.
17. Procedure
of Appellate Tribunal
18. Guidance
to authorised representative
In any appeal by any assessee, where the memorandum of appeal is signed by his authorised representative, the assessee shall append to the memorandum a document authorizing the representative to appear for him and if the representative is a relative of the assessee, the document shall state what his relationship is with the assessee, or if he is a person regularly employed by the assessee, the document shall state the capacity in which he is at the time employed.
It is important to note that Rule 17 provides that the letter of authority shall be furnished before the Bench before the commencement of the hearing.
Persons who are not authorised to appear u/s. 288 may be permitted to produce books of account should, however, be given by the assessee himself or by a person who is entitled to appear on behalf of an assessee u/s. 288 Circular No. 19-D(XL-62) of 1964, dated 3-7-1964.
A brother-in-law or father-in-law of an assessee can appear as authorised representative u/s. 288(2)(i).
A person who works part time as an accountant for any assessee regularly will be one who is ‘regularly employed’ within the meaning of section 288(2)(i).
An employee, who merely holds a power of attorney to represent his employer at every stage in the income-tax or sales tax or any Court case will not be considered as a person ‘regularly employed’ within the meaning of section 288(2)(i).
However, if he is qualified to represent an
assessee otherwise than as an employee
The practice of filing power of attorney/ vakalatnama/general power of attorney in favour of a firm or a legal body is not correct and the President, Income-tax Appellate Tribunal, has decided that proper authority in favour of the individual or a joint authority in favour of two or more individuals, only should be filed before the Tribunal.
Notification No. F. 161-Ad(AT)/70, dated
30-12-1971.
19. Dress
code for authorised representative
w
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