Section 143

Assessment

Correctness of return - In order to enable the ITO to complete the assessment in a summary manner and in accordance with law, the returns of income should be correct and complete in all respects, and be accompa­nied by copies of trading profits and loss accounts, balance-sheets, etc., that are required under the rules. It is also necessary that evidence in support of rebates, reliefs and tax credit, etc., claimed, should accompany the returns.—Circular : No. 201 [F. No. 237/16/76-A & PAC-II], dated 5-7-1976.

Postponement of hearing - If the ITO, due to any unavoidable circumstance, cannot adhere to the schedule of hearing, the assessees should be informed in advance either through a letter or through telephone, wherever possible.—Instruction : No. 1395 [F.No. 201/28/81-IT(A-II)], dated  15-5-1981. [Source : 114th Report (1982-83) of the Public Ac­counts Committee, pp. 16-17].

Different timings to different assessees for hearing - While fixing the hearing of cases by the issue of statutory notice, the ITOs should not indicate the same time for attendance in all cases, but should give each assessee a different timing.—Circular : No. 230 [F. No. 225/109/77-IT(A-II)], dated 27-10-1977.

Information/evidence to be requisitioned in advance - On the date fixed for hearing, the taxpayer must be heard and any requisition for information or evidence should, as far as possible, be sent to him in advance.—Source : Relevant extracts from minutes of 12th meeting of CDTAC held on  17-8-1967.

Certificate by chartered accountant - With a view to encouraging non-company assessees to get their accounts fully audited, if a chartered accountant gives unquali­fied certificate in the prescribed form (as given in the circu­lar) and agreed to by the Institute of Chartered Accountants, then such a certificate should ordinarily be treated with the same consideration that would be given to a certificate given in the case of a company. The ITOs should not, however, hesitate to go behind the certificate and call for detailed accounts where in their opinion the facts of a case justify that course.

If a chartered accountant gives a certificate in the said form in a non-company case and any deliberate inaccuracy is found in it, he can possibly be held guilty of misconduct under one or more clauses (o), (p), (r), (s) and (u) of section 22 of the Chartered Accountants Act, 1949, and the schedule thereto.—Circular : No. 18(XL-37), dated 28-4-1955.

Power of attorney in favour of chartered accountant/income-tax practitioner - The power-of-attorney in favour of registered accountant or an income-tax practitioner or any other person who is not a duly appointed mukhtar under section 7 of the Legal Practitioners Act is a power of attorney (and not a vakalatnama or mukhtarnama) and requires to be stamped not under the Court Fees Act, but under the provisions of the Stamp Act as in force in the particular area, i.e., subject to the local amendments.

Instructions may continue to be followed in all charges except the Punjab charges. Insofar as the Punjab charges are concerned, the letter of authorisation presented by the income-tax practi­tioners and chartered accountants before the income-tax authority may be governed by the Court Fees Act in view of the decision of the erstwhile Punjab Chief Court in Ganpat v. Prem Singh [1912] 15 IC 122 wherein it was held that the power-of-attorney empower­ing any person to represent another in a civil court should be governed only by the provisions of the Court Fees Act and not by the Stamp Act.—Circular : No. 125 [F.No. 274/1/73-ITJ], dated 26-11-1973.

Court fee liability - All applications or petitions or representations which invoke any jurisdiction, authority, power, discretion, etc., whether real or supposed, vested in the Commissioner of Income-tax or the Central Board of Revenue under the Income-tax Act or any other Act, shall be liable to Court fee under article 1(c) of Schedule II to the Court Fees Act, 1870.

Application or representations which are in the form of com­plaints such as excessive delay in disposal of any matter, ill-treatment, etc., which are not strictly referable to any provi­sions in the Income-tax Act or any other Act, would not be liable to Court fee.—Circular : No. 36(XL-52), dated 19-11-1958.

Court fees on documents presented before the income-tax author­ities are chargeable according to the scales laid down in the Court Fees Act, 1870 and the amendments made in different States are not to be taken into consideration.—Circular : No. 50(XL-43) of 1956, dated 28-12-1956.

Application for transfer of files from one ITO to another or one Commissioner to another can be divided into two categories. The first category would be that where due to change of address or such other valid reasons the existing  ITO has ceased to hold jurisdiction. Application for transfer in such cases would not require the Court fee stamp. The other category would be where transfer of records is sought on grounds of personal convenience. In such cases Court fee stamps would be necessary—Letter : F. No. 91/41/67-ITJ(25), dated 3-7-1967.

Role of PRO - An important function of the Public Relation Officers would be to draw the attention of assessees to the rebates and reliefs provided by the Act. The Public Relation Officer should visit disabled persons, invalids, widows and pardanashin ladies, at their residence if they require his assistance.

The Public Relation Officer may also visit big Government and commercial establishments and explain the reliefs due under the Income-tax Act and the procedure for filling in the returns, and for applying for reliefs, etc.

Another way to render assistance to small assessees in the local areas in a big city could be for the Public Relation Officer to camp in a central public place in the various localities on fixed days published in advance. Small assessees of a particular local­ity can meet the Public Relation Officer at such public place for such assistance as they desire.—Letter : F. No. 81/27/65-IT(B), dated  18-5-1965.

Role of departmental officers - Officers of the Department must not take advantage of ignorance of an assessee as to his rights. Although, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should—

  (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

  (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.—Circular : No. 14(XL-35), dated 11-4-1955.

Functions of the assessing authority - Except that he should give precedence to cases which are likely to yield more revenue, the ITO should not be obsessed by the budget figure. He has certain number of assessments to complete in a year and his merits will be judged by the way in which he completes those cases and not by the extent to which he has collected his budget estimate.

Subject to the qualification that the ITO is free to call for books of account, vouchers, etc., in any company case where he feels that such a course is advisable, books of account, vouch­ers, etc., should not be called for either in the case of public companies or in the case of private companies where the accounts have been audited by an auditor qualified to audit a public company’s accounts and he has given a certificate similar to that given in the case of a public company.

Unless there is some material basis for suspicion, affidavits sworn or affirmed before Magistrates should not be called for.

The function of the ITO is to use, what he can make, of the assessee’s accounts as he finds them and not to lecture the assessee as to how he should keep his accounts.—Circular : No. 3 of 1942, dated 16-1-1942.

Payments covered under section 43B(a) - As far as evidence of payments under clause (a) of section 43B is concerned, there should normally be no difficulty as the assessee can enclose the challan, etc., evidencing the payment. In case this is not possible, for any reason, then he must sub­mit, along with the return of income, a  certificate from an accountant, as defined in the Explanation to section 288 of the Act. The accountant should verify that the payment of tax, etc., mentioned in clause (a) and claimed as a deduction, has been made by the due date for the filing of return under sub-section (1) of section 139 of the Act.

As regards evidence of payment under clause (c) of section 43B, the evidence required will be a certificate from an accountant as defined in the Explanation to section 288 of the Act. For pay­ments of the type referred to in clause (d) of section 43B, the evidence required would either be a certificate from the institu­tion concerned, or a certificate from an accountant as defined in the Explanation to section 288 of the Act.

The evidence mentioned above is considered sufficient for the purposes of making prima facie adjustments under section 143(1)(a) (as it stood at the relevant time). However, in cases selected for assessment under section 143(3), further evidence can be called for if necessary.—Circular : No. 601, dated 4-6-1991.

Overassessments to be avoided - The assessment have to be made in a reasonable and fair manner after considering all the relevant circumstances of the case. Even where an assessment has to be made ex parte, the information available should be reasonably weighed and a proper estimate made in the exercise of best judgment in the circumstances. There should be no tendency to frame assessments even in such cases mechanically on past basis, if there is evidence to the contrary, e.g., the business of the concern has become defunct or is in clearly adverse circumstances. If  unjustified over-assessments are avoided, this will, inter alia, curtail the feature of exaggerated demands which unneces­sarily inflate arrears figures.—Instruction : No. 574, dated 27-7-1973; Source : 193rd Report of Public Accounts Committee (1983-84) (Seventh Lok Sabha), (pp. 26-27).

Procedure for selection of cases for scrutiny - For non-corporate assessees

1. In supersession of earlier Instruction on the above subject, the Board hereby lays down the following procedure for selection of returns/cases of non-corporate assessees for scrutiny during the current financial year, i.e., 2005-06.

2. The following categories of cases shall be compulsorily scru­tinised :

  (a)  All assessments pertaining to search and seizure cases.

  (b)  All assessments pertaining to surveys conducted under section 133A.

(c)*  All returns where deduction claimed under Chapter VIA is Rs. 10 lakh or above in Delhi, Mumbai, Chen­nai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 5 lakh or above in other places.

(d)*  (i) All returns where refund claimed is Rs. 10 lakh or above in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Banga­lore and Ahmedabad, and Rs. 5 lakh or above in other places.

        (ii) In cases of non-residents, the refund limit for selecting a case for scrutiny shall be decided by the DGIT Inter­national Taxation.

  (e)  All cases wherein addition/disallowance sustained by the CIT (Appeal) in the appeal decided during the financial year 2004-05 amounts to Rs. 5 lakh or above in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 1 lakh or above in other places.

(f)*  All returns filed by local authorities assessable to income-tax.

  (g)  All cases of banks and non-banking financial institu­tions with deposits of Rs. 5 crore and above.

  (h)  Cases of universities, educational institutions, hospi­tals, nursing homes and other institutions for rehabilitation of patients (other than those, which are substantially financed by the Government), the aggregate annual receipts of which exceed Rs. 10 crore in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 5 crore or above in other places. (Ref. section 10(23C) and rule 2BC)

   (i)  All cases where exemption is claimed under section 11 and the gross receipts exceed Rs. 5 crore.

  (j)  All cases where total value of International Transac­tions (as defined under section 92B) exceeds Rs. 5 crore.

  (k)  All cases of stockbrokers (including sub-brokers) where brokerage received is disclosed at Rs. 50 lakh or above and income declared is less than 10% of such brokerage.

   (l)  All cases of stockbrokers (including sub-brokers) where there are claims of bad debts of  Rs. 5 lakh or more.

(m)  All cases of professionals with gross receipts of Rs. 50 lakh or more and income declared is less than 20% of gross professional receipts.

  (n)  All cases of deduction under section 10A and/or 10B with export turnover exceeding Rs. 5 crore.

  (o)  All cases of contractors whose gross contractual re­ceipts exceed Rs. 2 crore and net income declared is less than 5% of gross contractual receipts.

3. Where a case does not fall in the categories specified at para 2 above but the CCIT/DGIT (International Taxation)/DGIT (Exemp­tions), of his own motion or on the matter having been brought to his notice by an authority below, is satisfied that the case needs to be taken up for scrutiny, the CCIT/DGIT (International Taxation)/DGIT (Exemptions) for reasons to be recorded in writ­ing, may direct the Assessing Officer to take up the case for scrutiny.

4. The CCIT/DGIT (International Taxation)/DGIT (Exemptions), may issue suitable guidelines for reducing/increasing the number of cases selected under specific clauses of para 2, for proper management of the workload as well as to avoid large scale trans­fer of cases from one jurisdiction to another.

5. All returns filed in response to notice issued under section 148 shall be selected for scrutiny.

6. In addition to above, selection of cases out of returns proc­essed on AST will be made through a Computer Assisted Scrutiny (CASS). The selection will be made centrally at RCCs on the basis of selection criteria determined by the Board. Separate instruc­tions in this regard will be issued by the DIT (Systems). - Instruction, dated 25-10-2005.

Procedure for selection of cases for scrutinies - For corporate assessees

1. In supersession of earlier Instruction on the above subject, the Board hereby lays down the following procedure for selection of returns/cases of corporate assessees for scrutiny during the current financial year, i.e., 2005-06.

2. The following categories of cases shall be compulsorily scru­tinised :

  (a)  All assessments pertaining to search and seizure cases.

  (b)  All assessments pertaining to surveys conducted under section 133A.

(c)*  All returns where deduction claimed under Chapter VIA is Rs. 25 lakh or above in Delhi, Mumbai, Chen­nai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 10 lakh or above in other places.

(d)*  (i) All returns where refund claimed is Rs. 50 lakh or above in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Banga­lore and Ahmedabad, and Rs. 20 lakh or above in other places.

        (ii) In cases of foreign companies, the refund limit for selecting a case for scrutiny shall be decided by the DGIT Inter­national Taxation.

  (e)  All cases wherein addition/disallowance sustained by the CIT (Appeals) in the appeal decided during the financial year 2004-05 amounts to Rs. 10 lakh or above in Delhi, Mumbai, Chen­nai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 5 lakh or above in other places.

(f)*  All banks and public sector undertakings.

  (g)  All NSE-500 companies and BSE-A group companies listed on Bombay Stock Exchange as on 31-3-2005.

  (h)  All cases of companies liable to pay tax under section 115JB with book profit exceeding  Rs. 50 lakh.

   (i)  Cases of universities, educational institutions, hospi­tals, nursing homes and other institutions for rehabilitation of patients (other than those which are substantially financed by the Government), the aggregate annual receipts of which exceed Rs. 10 crore in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs. 5 crores or above in other places. [Ref. section 10(23C) and rule 2BC]

  (j)  Cases where total value of International Transactions (as defined under section 92B) exceed Rs. 5 crore.

  (k)  All Non-Banking Financial Corporations (NBFCs)/Invest­ment Companies having paid-up capital of more than Rs. 10 crore.

   (l)  All cases of stockbrokers (including sub-brokers) where brokerage received is disclosed at Rs. 1 crore or above and income declared is less than 10% of such brokerage.

(m)  All cases of stockbrokers (including sub-brokers) in  which bad debts of Rs. 10 lakh or more have been claimed.

  (n)  Cases of amalgamated companies claiming set-off of loss under section 72A.

  (o)  All cases of deduction under section 10A and/or 10B with export turnover exceeding Rs. 10 crore.

  (p)  All cases of contractors whose gross contractual re­ceipts exceed Rs. 5 crore and net income declared is less than 5% of gross contractual receipts.

3. Where a case does not fall in the categories specified at para 2 above but the CCIT/DGIT (International Taxation)/DGIT (Exemp­tions), of his own motion or on the matter having been brought to his notice by an authority below, is satisfied that the case needs to be taken up for scrutiny, the CCIT/DGIT (International Taxation)/DGIT (Exemptions) for reasons to be recorded in writ­ing, may direct the Assessing Officer to take up the case for scrutiny.

4. The CCIT/DGIT (International Taxation)/DGIT (Exemptions), may issue suitable guidelines for reducing/increasing the number of cases selected under specific clauses of para 2, for proper management of the workload as well as to avoid large scale trans­fer of cases from one jurisdiction to another.

5. All returns filed in response to notice issued under section 148 shall be selected for scrutiny.

6. In addition to above, selection of cases out of returns proc­essed on AST will be made through a Computer Assisted Scrutiny (CASS). The selection will be made centrally at RCCs on the basis of selection criteria determined by the Board. Separate instruc­tions in this regard will be issued by the DIT (Systems). - Instruction, dated 25-10-2005.

Compulsory scrutiny of returns involving refund of Rs. 5 lakhs or above

Instances have been brought to the notice of the Board wherein cases involving refund of Rs. 5 lakhs or above are not being picked up for scrutiny by the CASS in the networked stations. This happened in cases where credit for prepaid taxes is not being given at the time of processing for want of necessary documentary evidence. Such cases, therefore, do not fall in the category of determined refund of Rs. 5 lakhs or more and conse­quently are not picked up by the CASS. Subsequently, rectification orders are passed manually on submission of neces­sary evidence in respect of prepaid taxes and the data is not captured in the AST. As a result, several such cases involving refund of Rs. 5 lakhs or above have been left out of the selec­tion process.

CBDT has directed that all such refund cases that have been left out by CASS for the reasons mentioned above should be picked up for scrutiny through manual intervention in the net­worked stations—Instruction No. 01/2008, dated 9-1-2008.

‘Benign Assessment Procedure’ for assessees engaged in diamond manufacturing and/or trading

‘Benign Assessment Procedure’, in the case of assessees engaged in diamond business as announced by Hon’ble Finance Minister in his Budget Speech on 28-2-2007, shall be as under:—

   A.  The procedure will apply to assessees engaged in the business of manufacturing and/or trading of diamonds (referred to below as such business).

   B.  If an assessee has shown a sum equal to or higher than 6% of his total turnover from such business as his income under the head ‘Profits and gains of business or profession’ for a particular assessment year, the Assessing Officer shall accept his trading results.

  C.  (i) The assessee shall be required to maintain separate books of account of such business.

        (ii) Acceptance of profit at 6% or above as per para (B) for a particular assessment year will not be a precedent for that assessee or for any other assessee.

  D.  The procedure shall not apply to an assessee for an assessment year—

        (a)  Where assessment is being made pursuant to a—

    i.  search and seizure action under section 132; or

   ii.  requisition made under section 132A; or

  iii.  survey action 133A.

        (b)  Where 50 per cent or more of the income from such business of an assessee is claimed as deduction under Chapter-III or under Chapter VI-A of the Income-tax Act.

        (c)  Where there is information regarding escapement of income.

   E.  The rate of profit as a percentage of turnover would be reviewed annually on the basis of revenue generation and results of scrutiny assessments, searches and surveys made during the year.

2. The above instruction is issued under section 119(1) and would be applicable for assessments made during financial year 2008-09—Instruction No. 02/2008, dated 22-2-2008.

Cases of certain assessees owning power-looms not to be selected for scrutiny assessment - Where an assessee, being an owner of power-looms, filed income-tax return for the first time for assessment year 2004-05, the same shall not be selected for scrutiny, provided the assessee makes a true disclosure of his stock of yarn and finished goods not exceeding Rs. 20,000 per power-loom, and furnishes along with the return of income evi­dence in support of ownership of power-looms in his name. This will not have retrospec­tive application or consequences.—Circular : No. 4/2003, dated 14-5-2003.