Filing your tax returns is only one part of the Income Tax laws. It is equally important to have your assessment completed of the returns filed. After filing I-T returns, most tax payers don't bother about it unless they have filed for a tax refund.
Under tax laws, most returns are usually summarily assessed under section 143(1) of the Income Tax Act ('the Act'). An intimation issued under this section highlights if the tax officer has accepted all the claims of the taxpayer as offered in his return of income or otherwise. Based on this assessment, the tax payer will be either eligible to his refund or will need to pay additional taxes, as applicable. In cases where the tax officer feels that the returns need to be scrutinised in greater detail, notices for regular assessment (u/s 143(3) of the Act) are issued. Under the tax laws, there are time limits prescribed for issuing notices for regular assessments.
Further, the tax officers are also empowered to initiate reassessments in cases where they are of the opinion that income has escaped assessment during either of the two types of assessments described above.
The tax payer filed the return of income for assessment year 2005-06, which was processed under section 143(1) of the Act. Subsequently, on 26 March 2012, the tax officer issued a notice for reopening the assessment for the said year. While complying with the notice, the tax payer requested for the reasons recorded by the tax officer for reopening the assessment. For the said assessment year, the tax payer had filed the return and offered an income of Rs 655,000 as short-term capital gains ('STCG').
During the course of regular assessment for 2007-08, STCG declared by the tax payer were treated as business income from purchase and sale of shares. Therefore, the tax officer while reopening the case for reassessment, said there was omission or failure on the part of the tax payer to disclose truly and fully all material facts necessary for assessment income. The tax payer objected saying he was earlier assessed under summary assessment. But the tax officer rejected the objection saying it is a settled law that intimation under section 143(1) is a summary processing of returns where there is no application of mind by the tax officer. At the first appellate level, the authority reversed the finding of the tax officer and held that the income was to be treated as STCG and not as business income.
The reopening of an assessment is permitted under the Act if the tax officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The scope of the phrase "reason to believe" has been considered by the Supreme Court in various decisions and has held that while a Court will not judge the adequacy of the reason provided by the tax officer, it must assess whether the belief is based on relevant and specific information that could lead to such a belief.
In the said case, the honourable High Court observed that the reassessment is not on the basis of new information or facts that have come to the fore now, but rather a review of facts that were provided along with the original return filed by the tax payer.
The reassessment, in the court's opinion, amount to a review or change of opinion carried out in the earlier assessment year 2005-06. The Court also observed that in the tax payer's case, the order of the tax officer to convert the STCG into business income for AY 2007-08 has been reversed in further appellate stages. In the light of these facts, the tax officer was not right in reopening the case.
The court further observed that the section which empowers the tax officer to reopen a case makes no distinction between an order passed by regular assessment and the intimation issued under summary assessment. The court while not conforming to the tax officer's view, that summary assessment does not involve any application of mind by the tax officer, held that if this was true then it would in effect place a tax payer whose return was processed under summary assessment in a more vulnerable position than in a case where a full-fledged scrutiny assessment is made.
The tax payer has no choice or is not in a position to control whether their filed return is put to scrutiny or is summarily assessed. The court also reiterated the observation made in an earlier ruling that if the summary assessment is only an intimation and not assessment, then the tax officers could never reopen such cases, as re-opening of a case is allowed only an assessment has been done.
Under the system of electronic filing of tax returns, summary assessments are completed much faster and intimations u/s 143(1) of the Act is issued to a majority of tax payers. On receipt of this intimation, the tax payer should make an attempt to carefully understand the reason for rejection of any particular claim by the tax officer and accordingly accept the same or file for a rectification.
The author is a chartered accountant
Under tax laws, most returns are usually summarily assessed under section 143(1) of the Income Tax Act ('the Act'). An intimation issued under this section highlights if the tax officer has accepted all the claims of the taxpayer as offered in his return of income or otherwise. Based on this assessment, the tax payer will be either eligible to his refund or will need to pay additional taxes, as applicable. In cases where the tax officer feels that the returns need to be scrutinised in greater detail, notices for regular assessment (u/s 143(3) of the Act) are issued. Under the tax laws, there are time limits prescribed for issuing notices for regular assessments.
Further, the tax officers are also empowered to initiate reassessments in cases where they are of the opinion that income has escaped assessment during either of the two types of assessments described above.
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In a recent case that came up for hearing before the Delhi High Court, the question that was put up for decision was whether the tax officer can select a case for reassessment, where the summary assessment has been completed, in the absence of a firm belief that income chargeable to tax has escaped assessment.
The tax payer filed the return of income for assessment year 2005-06, which was processed under section 143(1) of the Act. Subsequently, on 26 March 2012, the tax officer issued a notice for reopening the assessment for the said year. While complying with the notice, the tax payer requested for the reasons recorded by the tax officer for reopening the assessment. For the said assessment year, the tax payer had filed the return and offered an income of Rs 655,000 as short-term capital gains ('STCG').
During the course of regular assessment for 2007-08, STCG declared by the tax payer were treated as business income from purchase and sale of shares. Therefore, the tax officer while reopening the case for reassessment, said there was omission or failure on the part of the tax payer to disclose truly and fully all material facts necessary for assessment income. The tax payer objected saying he was earlier assessed under summary assessment. But the tax officer rejected the objection saying it is a settled law that intimation under section 143(1) is a summary processing of returns where there is no application of mind by the tax officer. At the first appellate level, the authority reversed the finding of the tax officer and held that the income was to be treated as STCG and not as business income.
The reopening of an assessment is permitted under the Act if the tax officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The scope of the phrase "reason to believe" has been considered by the Supreme Court in various decisions and has held that while a Court will not judge the adequacy of the reason provided by the tax officer, it must assess whether the belief is based on relevant and specific information that could lead to such a belief.
In the said case, the honourable High Court observed that the reassessment is not on the basis of new information or facts that have come to the fore now, but rather a review of facts that were provided along with the original return filed by the tax payer.
The reassessment, in the court's opinion, amount to a review or change of opinion carried out in the earlier assessment year 2005-06. The Court also observed that in the tax payer's case, the order of the tax officer to convert the STCG into business income for AY 2007-08 has been reversed in further appellate stages. In the light of these facts, the tax officer was not right in reopening the case.
The court further observed that the section which empowers the tax officer to reopen a case makes no distinction between an order passed by regular assessment and the intimation issued under summary assessment. The court while not conforming to the tax officer's view, that summary assessment does not involve any application of mind by the tax officer, held that if this was true then it would in effect place a tax payer whose return was processed under summary assessment in a more vulnerable position than in a case where a full-fledged scrutiny assessment is made.
The tax payer has no choice or is not in a position to control whether their filed return is put to scrutiny or is summarily assessed. The court also reiterated the observation made in an earlier ruling that if the summary assessment is only an intimation and not assessment, then the tax officers could never reopen such cases, as re-opening of a case is allowed only an assessment has been done.
Under the system of electronic filing of tax returns, summary assessments are completed much faster and intimations u/s 143(1) of the Act is issued to a majority of tax payers. On receipt of this intimation, the tax payer should make an attempt to carefully understand the reason for rejection of any particular claim by the tax officer and accordingly accept the same or file for a rectification.
The author is a chartered accountant