Understanding the Income Tax Assessment Process: Key Sections, Notices and Timelines

1. Income Tax Return (ITR) Filing

• Authority: Assessee files the Income Tax Return (ITR) electronically via the Income Tax Portal.

• Section: Section 139 of the Income Tax Act

• Procedure: The taxpayer must file their income tax return by the due date specified for the assessment year (usually July 31st for individuals and 30th September for businesses, with extensions possible).

• Post-filing Process:

  • Intimation under Section 143(1): After filing, the ITR undergoes automated processing by the Income Tax Department. If there are any discrepancies, such as calculation errors or mismatched TDS (Tax Deducted at Source), adjustments are made, and an intimation notice is sent under Section 143(1) via Form 26AS or AIS.

  • Scrutiny Notice under Section 143(2): If the return is selected for scrutiny, the Assessing Officer (AO) will issue a notice within 3 months of filing. The notice will request the taxpayer to submit documents or clarifications for further examination.

  • Best Judgment Assessment under Section 144: If the assessee fails to respond to notices or submits incomplete information, the AO may initiate a best judgment assessment under Section 144, leading to penalties for non-compliance.

• Period: The return must be filed within the prescribed time. Notices under Section 143(2) are typically issued within 3 months from the filing date.

2. Assessment Order

• Authority: Assessing Officer (AO)

• Sections:

  • Section 143(3): After scrutiny, the AO passes a final order detailing the tax liability, along with any additions or disallowances.

  • Section 147: In cases where income has escaped assessment (e.g., due to concealment or non-disclosure), the AO may initiate reassessment proceedings under Section 147. This can happen up to 10 years from the assessment year for high-value cases.

  • Section 156: If the assessee is liable to pay any amount as per the assessment order or any other demand under the Act, a demand notice under Section 156 is issued. This is a formal demand for payment of the outstanding amount.

  • Section 157: If a demand notice under Section 156 is issued by the Assessing Officer (AO), the same can be served on the assessee either directly or by post. The assessee is required to make payment within the specified period or challenge the demand.

• Timeline: The assessment order must be passed within 21 months from the end of the assessment year (AY) for normal cases. For search-related cases, the timeline is reduced to 18 months.

3. First Appeal: Commissioner of Income Tax (Appeals) [CIT(A)]

• Authority: Commissioner of Income Tax (Appeals) [CIT(A)]

• Section: Section 246A (appealable orders) and Section 249 (procedure for filing appeals)

• Timeline: The appeal must be filed within 30 days from the date the assessee receives the assessment order.

• Requirements:

  • Form 35 must be submitted, outlining the grounds of appeal, a statement of facts, and relevant fees:

    • Rs 250 (for income ≤ Rs 1 lakh)

    • Rs 500 (for income Rs 1-2 lakhs)

    • Rs 1,000 (for income > Rs 2 lakhs)

• Process: After the appeal is filed, CIT(A) issues a hearing notice. The CIT(A) reviews the case and passes an order under Section 250, either confirming or modifying the assessment order.

4. Second Appeal: Income Tax Appellate Tribunal (ITAT)

• Authority: Income Tax Appellate Tribunal (ITAT), a quasi-judicial body

• Section: Section 253 of the Income Tax Act

• Timeline: An appeal to the ITAT must be filed within 60 days from the date the CIT(A) issues the order.

• Requirements:

  • Form 36 must be filed with the prescribed fees:

    • Rs 500 (for income ≤ Rs 1 lakh)

    • Rs 1,500 (for income Rs 1-2 lakhs)

    • 1% of the assessed income (maximum Rs 10,000 for income > Rs 2 lakhs)

• Outcome: The ITAT's decision is binding on factual matters, but the law can still be challenged in the High Court.

5. Appeal to High Court

• Authority: Jurisdictional High Court

• Section: Section 260A (Substantial question of law)

• Timeline: An appeal must be filed within 120 days from the date of the ITAT's order.

• Requirements:

  • A memorandum of appeal outlining the legal question must be submitted.

  • The High Court may accept the appeal if the tax effect is significant (usually if it exceeds Rs 50 lakh for departmental appeals).

• Outcome: The High Court will review the case if it involves a substantial question of law, such as issues regarding the interpretation of the Income Tax Act.

6. Appeal to the Supreme Court

• Authority: Supreme Court of India

• Sections:

  • Section 261: The appeal against the judgment of the High Court is governed under Section 261.

  • Article 136: This article of the Constitution of India allows the filing of a Special Leave Petition (SLP) to the Supreme Court, requesting permission to appeal against the High Court's decision.

• Timeline: The appeal must be filed within 90 days from the High Court's judgment.

• Requirements:

  • Section 261: Requires the High Court's certification that the case involves significant issues of law.

  • Article 136: Involves seeking discretionary leave from the Supreme Court. The Court typically handles appeals involving substantial legal issues, such as the constitutional validity of tax provisions.

• Outcome: The Supreme Court may either dismiss the appeal or take up the case if it involves critical legal or constitutional issues.

Key Notices and Orders

Critical Considerations

• Burden of Proof: The burden of proof generally lies with the assessee, except in cases where the revenue fails to establish mala fide intent or deliberate concealment of income.

• Monetary Limits:

  • Departmental Appeals to ITAT: Appeals by the department to ITAT require a tax effect of Rs 10 lakhs or more.

  • High Court Appeals: A certified question of law is required, and the appeal should generally involve a significant monetary value or a substantial question of law.

This comprehensive guide now includes the important sections related to demand notices (Sections 156 and 157) alongside the full procedural journey of filing an income tax return to seeking an appeal in the Supreme Court. The inclusion of Section 156 ensures that taxpayers are aware of how demands are formally communicated, while Section 157 outlines the process of serving such notices. This ensures clarity on all stages and timelines for both taxpayers and professionals.