Common Income tax procedures at one place

In continuation of my previous article, posted almost 2 months back I am writing once again but I am extremely sorry for such a delay but the same was due to some other commitments. Thanks for wonderful response to  the first part of the article.

The link for previous article is: Income Tax Practical Procedures in FAQ Style

Q-1 What is meant by Assessment, what are it types? What is Assessment order?

Ans- The act of assessing (checking and calculating) the assessee’s income is termed as Assessment.

Under Income tax there are generally three types of assessments

a. Summary Assessment u/s 143(1)

b. Scrutiny (Regular) Assessment u/s 143(2)

c. Search (Raids) Assessment u/s 153A

Q-2 What is meant by Assessment order?

Ans- After completing the assessment, the Assessing Officer is required to pass an assessment order in writing. Such Assessment order should give details of observations made during the course of assessment, specifically in relation to additions and disallowances or other adjustments to income or losses.

For, summary assessment intimation under sec 143(1) is assessment order whereas for scrutiny and search assessment order is passed under sec 143(3) after detailed inquiries.

Practically, the scrutiny assessment order in the last provides brief details of assessment in the following manner:

Q- 3 What is meant by Notice of demand?

Ans- 3 If the summary or scrutiny assessment has the effect of increasing tax liability (as illustrated above) then a notice of demand u/s 156 is sent to assessee alongwith the copy of assessment order. The tax demanded is to be paid within 30 days of receipt of demand notice. If not paid then the said demand liable to simple interest @1.5% pm or part of month.

Q- 4 What is meant by Rectification of mistake u/s 154?

Ans- As per Sec 154, the income tax authorities (ITO/AO/CIT/CCIT) can rectify a mistake in an assessment order or intimation u/s 143(1) if such mistake is “apparent” from the record.

A mistake can be regarded as “apparent from record” *only when it is obvious or self-evident mistake and not something which can be established by a long-drawn process of reasoning on points in respect of which there may be two opinions*. (Please cram the starred sentence as it is given by a court in a decision so must to be quote while answering case law based ques)

Q -5 When can an assessee file application for rectification?

Ans – (i) If the assessee is not satisfied with order passed u/s 143(1)(Summary Assessment order) then he may file an application with Assessing Officer to rectify the same.

For Example- The assessee in his Return of Income claimed Rs. 200,000 as TDS but the AO gave credit of Rs. 20,000 only. The assessee assumed that the reason for short credit was the mismatch of TDS claimed in ROI with TDS as in Form 26AS, the remaining Rs. 180,000 as TDS is not found in 26AS because of mistake in quoting PAN of the assessee by the deductor in TDS return.

Thus it is mistake apparent from record which AO must rectify u/s 154 if the reason for rectification provided by the assessee is good enough.

(ii) If the assessee by mistake in his ROI did not make an apparent claim which he could have made.

In such case also assessee file a rectification application to AO.To get more clarity let’s take another example.

Rajasthan Silk Mills Ltd. filed its ROI for AY 2012-13 on Sept 20,2012, the same was processed on Dec 25,2012and an intimation u/s 143(1) was sent to the co. as:

In short the return was processed with the same results as provided by the assessee in his ROI.

But here the company noticed that it did not claim a deduction of Rs. 200,000 withdrawn from Revaluation reserve and credited to P&L, such non claiming has overstated book profits and also the MAT.

The question is now that should Raj Silk revise its return or file a rectification request u/s 154?

Here  no doubt that the additional claim can be made by revising the return because original return was filed before due date. But instead of revising the return the claim can also be made through rectification application u/s 154, the non- claiming of the deduction was A MISTAKE APPARENT FROM RECORD because corresponding book profits have shown in the return at an overstated figure and the same mistake could have been avoided.

Q- 6 When Rectification is made by AO on its own motion?

Ans-3 AO can rectify any mistake apparent from the record by amending any order passed by him like intimation u/s 143(1) or scrutiny assessment order u/s 143(3).

1. Interest not charged by AO while passing assessment orde u/s 143(3)  and demand order u/s 156.

Q-7 What are the examples of mistake apparent from record?

Ans- 1. TDS/Advance tax/MAT credit not claimed by assessee or short claimed or claimed in excess.

2. Interest not charged by AO while passing demand order u/s 156.

3. If any order passed by AO is not in agreement with a judgment attained finality* then it is the responsibility of AO to rectify such order.

*judgment attains finality when the decision of a court/tribunal is not challenged.

Other Points to be remembered:

1. Time limit for passing order u/s 154:

No rectification shall be made by AO after the expiry of four years from the end of the financial year in which the order subject to rectification was passed.  The same is the time limit for assessee to apply for rectification. .[Sec 154(7)].

2. Rectification request made by assessee within the time limit as above to be accepted or rejected within 6months from  the end of the  month in which application was made. The acceptance or rejection of rectification request is to be communicated to assessee by sending him the rectified order passed u/s 154.

3. A rectification, which has the effect of enhancing an assessment (raising tax demand) or reducing a refund or otherwise increasing the liability of the assessee, shall not be made unless the AO has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

4. Where a case is transferred to different AO (due to transfer of AO, his death etc) , successor AO  may pass rectification order.

5. The Assessing Officer should apply his independent mind to the facts of the case and should not be influenced or guided in the matter by any instruction of the Commissioner or any other superior authority.( As held by Hon’ble  Rajasthan High court in case of Rajputana Mining Agencies v. ITO), therefore if AO has not applied his independent mind the rectification order is void.

6. The power to rectify the assessment order   conferred upon AO  is to ensure that injustice to the assessee or to the revenue may be avoided. Therefore, it is mandatory for AO  to exercise his such power and rectify apparent mistakes. Therefore, power to rectify is mandatory and not discretionary.

7. AO can further rectify the order which he has rectified once, but within time limit only.

Similarly assessee can also file rectification request for rectifying the rectified order passed u/s 154.

8. The rectification application can be filed online or offline, online in case return was e-filed and offline if the return was manual. In case of Online rectification request can be of two types:

(i) only for tax credit mismatches

(ii) for rectifying any other mistake apparent from record.

So, as per your rectification requirement you need to select appropriate request type.

Further, the rectified xml file of the return form is to be uploaded, the rectification application is also to be signed digitally if the assessee was liable to sign return digitally.

8. It is worth noting here that only intimation u/s 143(1) or 154 can only be rectified online, rectification application for of order passed u/s 143(3) in case of scrutiny assessment can be filed only manually to local AO.

In the next article, we will be discussing scrutiny assessment and appeals procedure.

Any sort of comments, suggestions and queries are most welcomed.

Thanks for reading

Saurabh Maheshwari

CRO0310510, Ahmedabad

Email:saurabhchokhra92@gmail.com