Law of taxation

Tax planning:

Tax Planning is the arrangement of financial activities in such a way that maximum tax benefits are
enjoyed by making use of all beneficial provisions in the tax laws. It entitles the assessee to avail
certain exemptions, deductions, rebates and reliefs, so as to minimise its tax liability.

Implications of tax planning

(i) Reduction of tax liability: One of the supreme objectives of tax planning is the reduction of
the tax liability of the payer and the resultant saving of the earnings for a better enjoyment
of the fruits of hard labour. By usage proper tax planning, a tax payer can oblige the
administrators of the taxation laws to keep their hands off from his earnings.
(ii) Minimization of litigation and the tax payer may be saved from the hardships and
inconveniences caused by unnecessary litigations.
(iii) Productive investment: Tax planning is a measure of awareness of the taxpayer to the
intricacies of the taxation laws and it is the economic consciousness of the income earner to
find out the ways and means of productive investment of the earnings which would go a
long way to minimize its tax burden.
(iv) Healthy growth of economy: The saving of earnings is the only basement upon which the
economic structure of human life is founded.
(v) Economic stability: Productive investment increase contours of the national economy
embracing in itself the economic prosperity of not only the tax payers but also of those who
earn the income not chargeable to tax. The planning thus creates economic stability of the
nation and its people by even distribution of economic resources.

Features:

o Legal: Tax planning is legal and doesn't involve breaking the law, like evading taxes.

o Goal-oriented: Tax planning has specific goals, like paying less tax or getting more
tax benefits.

o Long-term: Tax planning takes time to work, so it's a long-term activity.

o Personalized: Tax planning is unique to each person's financial situation, so it's

tailored to their needs.

o Proactive: Tax planning means taking action ahead of time to lower taxes, instead of
reacting later.

Limitations of Tax planning

o tax planning measures can tie up the money. One cannot use that money and have to
invest in a specific investment domain.

o Tax-exempt measures often offer lower interest rates. Investors can earn more through
other investments.
 o Tax planning and tax avoidance go hand-in-hand. Taxpayers can use plans to avoid
the tax through investments. But, tax evasion can be confusing, and people may try
evading taxes. It can be through the misinterpretation of the taxation laws.

Tax Avoidance:

Tax avoidance is an act of using legal methods to minimize tax liability. In other words, it is
an act of using tax regime in a single territory for one’s personal benefits to decrease one’s
tax burden. Although Tax avoidance is a legal method, it is not advisable as it could be used
for one’s own advantage to reduce the amount of tax that is payable. Tax avoidance is an
activity of taking unfair advantage of the shortcomings in the tax rules by finding new ways
to avoid the payment of taxes that are within the limits of the law. Tax avoidance can be
done by adjusting the accounts in such a manner that there will be no violation of tax rules.
Tax avoidance is lawful but in some cases it could come in the category of crime.

Features:

1) the tax Avoidance motive is to use legal ways to reduce taxable income. One can use
government-sanctioned investments to earn without paying taxes.
2) Tax Avoidance is legal and doesn't lead to punishment. However, if the individual shows
incorrect deductions, they may face charges
3) Tax Avoidance happens before the tax liability occurs for the individual.
4) Legal means of tax planning before the assessment year

Tax Evasion:

an illegal method of saving tax and makes the person liable to penalties and prosecution.Tax
evasion refers to an exercise by a tax payer for not paying the tax legally becomingdue. it is
the general term for efforts by assesses to evade taxes by illegal means. Tax evasionusually
involves assesses deliberately misrepresenting or concealing the true state of their economic
affairs to the tax authorities to reduce their tax liability and includes dishonest taxreporting.
Tax evasion typically involves failing to report income or improperly claimingdeductions
that are not allowed or authori$ed. The methods of tax evasion are

1)under disclosure of income

2) inflating the expenses and thus reducing the real income!

3) manipulation of accounts to reduce the real income.

4) Violation of rules and regulations of laws with the intention to save the tax!

B5enami transactions
Although tax evasion leads to lower cash outflow on account of taxes yet such saving
of money may not be real and absolute. In fact tax evaded remains liability of the evader.
If trapped he will have pay the tax evaded along with penalties.

TAX MANAGEMENT

Tax management refers to compliance with the income tax rules and regulations. Tax management
covers matters relating to (a) Taking steps to avail various tax incentives (b) Compliance with tax
rules and regulations (including timely filing of return) (c) Protecting from consequences of non-
compliance of tax rules and regulations. i.e. penalties, prosecution etc. (d) Review of departments
orders and if need apply for rectification of mistake, filing appeal, tax revision or settlement of tax
cases.

Budget

Government budget refers to an annual financial statement that denotes its anticipated
expenditure and expected revenue generation in a fiscal year. It is presented by the
government in Lok Sabha at the beginning of every fiscal year, to give an estimate of its
expenditure and receipts for the upcoming year.The term “Annual Financial Statement” of a
nation is often used to define government budget.

Components of govt budget:

Government budget and its components can be divided into two parts – Capital budget
Revenue budget

Capital Budget – These refer to receipts that reduce assets for a government and create
financial liabilities. Conversely, capital expenditure on a government’s part helps to create
assets and reduce liabilities. The capital budget, thus, is an account of these liabilities and
assets under the government, which denote a change in total capital.

Revenue Budget – As its name suggests, the revenue budget refers to revenue receipts
generated and expenses met through this revenue. These receipts include both tax and non-
tax revenue earned by a government

Objectives:

Promoting Economic Growth:

Economic growth of a country refers to sustained growth in its GDP. The primary objective
of the government budget is, thus, to boost GDP growth by promoting balanced economic
development and improving people’s standard of living. That is done by considering general
public welfare.

Poverty Alleviation and Employment Generation

Social welfare is the most crucial objective of setting a country’s budget. This budget is set
in a way to ensure that every Indian can meet basic requirements like housing, clothing, food,
alongside basic education and healthcare. Further, a budget is also set by keeping in
consideration goals like eradication of poverty by generating employment.

Resource Reallocation

Each year, the government allocates more resources to the socially productive sector where
there is a shortage of private initiatives, like – providing electricity to rural areas, health,
education, public sanitation, etc. Further, the government also undertakes initiatives for
promotion of India’s indigenous industry, like Khadi, while drawing away from a few other
sectors to ensure balanced growth in every sector

.Reducing Inequality and Income Redistribution

To reduce inequality in the country, the government can undertake measures like imposing
taxes or granting subsidies. The government usually imposes taxes on the country’s affluent
to reduce their disposable income and undertakes schemes to aid the country’s poor. The
government also provides amenities and subsidies to those in need.

UNIT II

Income from house property:

. Under the head ‘Income from House Property’ the charging section is section 22. U/S 22
the annual value of any property consisting of any building or land appurtenant thereto of
which the assessee is the owner is chargeable to tax under the head ‘Income from house
property’. Thus the following three points must be considered for computing income under
this head-

. Conditions of chargibility:

1.Property should consist of any building or land apartment thereto:

a) Buildings include not only residential buildings but also factory buildings,
offices, shops, godowns and other commercial premesis.
b) Land apartment means land connected with the building like garden, garage
etc.

2.Assessee must be the owner of the property:

a) Owner is the person who is entitled to receive income from the property in his
own right
b) The requirement of registration of sale deed is not warranted
c) Ownership holds both free hold and lease hold rights.
d) Ownership includes deemed ownership
e) The person who owns the building need not be the owner of the land upon
which it stands.
 f)
g) The assessee must be the owner of the house property during the previous
year.

3.Use of property

The property may be used for any purpose, but it should not be used by the owner
for any purpose of any business carried on by him, the profit of which is chargable
by tax

Exempted incomes

Building situated in the immediate vicinity of agricultural land, and occupied by the cultivator as a
dwelling house or as a store house is treated as agriculture income and is fully exempt.

ii) Annual value of any one palace in the occupation of an Ex-Indian Ruler

iii) House properties belonging to a local authority, scientific research association, University or
other recognized educational institution, hospital, or Games or Sports Association and Registered
Trade Union.

iv) Property belonging to an authority constituted under any law for the purpose of marketing of
commodities and used for letting of godowns or warehouse for storage of commodities.

v) House property held by a trust established wholly for charitable purposes. vi) House property
held by a political party.

vii) House property owned by an assessee and used for his own business or professional purposes.
viii) Self-occupied houses - The Finance Act, 1986 W.e.f. 1.4.1987 provides that where the property
consists of one house or part of a house in the occupation of the owner for his own residence and is
not actually let out during any part of previous year, the annual value of such a house shall be taken
to be nil.

Case laws

In CIT v. Podar Cement Co. and Ors, the SC held that a person who receives or is entitled
to receive the income from the property in his own right is the owner.

In R.B. Jodha Mal Kuthiala v. CIT, SC held that for the purpose of this section (22), the
owner must be that person who can exercise the right of the owner, not on behalf of the
owner, but in his own right.

In CIT v. TP Sidhwa, it was held that in the case of sale of HP, the seller continues to be the
legal owner till the sale deed is registered in favour of the buyer.
Income from salaries

Section 17(1) of the Income tax Act It gives an inclusive and not exhaustive definition of “Salaries”
including therein

I)Wages (ii) Annuity or pension (iii) Gratuity (iv) Fees, Commission, perquisites or profits in lieu of
salary (v) Advance of Salary (vi) Amount transferred from unrecognized provident fund to
recognized provident fund (vii) Contribution of employer to a Recognized Provident Fund in excess
of the prescribed limit (viii) Leave Encashment (ix) Compensation as a result of variation in Service
contract etc. (x) Contribution made by the Central Government to the account of an employee
under a notified pension scheme.

As per Section 15, Salary consists of the following:

• any salary due from an employer or former employer to an assessee in the previous year,
whether actually paid or not; ( Normal Salary )

• any salary paid to him in the previous year by an employer or a former employer though not due
or before it became due to him. (Advance Salary) • any arrears of salary paid to him by employer or
former employer, if not charged to income tax for any earlier previous year. (Arrears of Salary)

Characteristics of Salary

1.Relationship of Employer and Employee: For payment fall under the head of salaries the
relationship of employer and employee must exist between payee and the receiver of the salary.
The employer may be any person or Government. The relationship of master and servant is the only
test to establish the relationship of employer and employee

2)Salary from more than one Employer:

Any amount of salary received or due from one or more than one employer/source shall be taxable
under this head. Such situation may arise when an employee is working with two employers
simultaneously or has worked with one employer and later on serves with another employer after
leaving service with, first employer, salary from both the employers shall be taxable under this head.

3) Tax Free Salary

Sometimes, the employer allows an employee to draw tax-free salary, e.g., the employer pays full
salary to the employee and also pays tax on this directly to the department. The employee’s
assessment is to be made not on the amount of salary he is drawing but on gross amount i.e., salary
drawn plus the tax paid by the employer.

4) Salary from Present, Past or Prospective Employer:

Salary received or due from present, past or future employer is also taxable under this head.

5). . Deductions made by the Employer

If, an employer makes certain deductions out of the salary payable to an employee, amount so
deducted is deemed to be received by the employee and the amount so deducted is also taken
as application of income by the employee. Some important types of deductions made by the
employer are as follows :

I. Deductions made to recover the loan advanced by the employer.

II. Employee’s contribution towards the provident fund, income-tax and profession tax.

III Deduction made to pay the premium on life insurance policy of the employee.

IV. Any other deduction for which the employee has authorised the employer.

6) Payments received by Legal Heirs of a Deceased Employee

Any ex-gratia payment or compensation given to widow or legal heirs of an employee who
dies during service is not taxable as salary income but family pension received is taxable
under ‘other sources’.

7) Payment made after Cessation of Employment

Perquisite of Salaries 17(2)

“Perquisite” may be defined as any casual emolument or benefit attached to an office or

position in addition to salary or wages.

“Perquisite” is defined in the section 17(2) of the Income tax Act as including:

(i) Value of rent-free/accommodation provided by the employer. (ii) Value of any concession
in the matter of rent respecting any accommodation provided to the assessee by his employer.
(iii) Any sum paid by employer in respect of an obligation which was actually payable by the
assessee. (iv) Value of any benefit/amenity granted free or at concessional rate to specified
employees etc.(v) The value of any specified security or sweat equity shares allotted or
transferred, directly or indirectly, by the employer, or former employer, free of cost or at
concessional rate to the assesssee.

UNIT III

Capital Gains:

An income shall be taxable as “Capital Gains” on the fulfillment of the following conditions:

- 1. There must be capital asset

2. The transfer must have been taken place during the P-Y
3. The transfer of such capital asset must give rise to profit or loss.

Capital Asset -2(14) Capital asset is defined as property of any kind held by an assessee, whether
connected with his business/profession or not. It includes all kind of property, movable or
immovable, tangible or intangible, fixed or circulating. Thus, Land and building, plant and machinery,
motor car, furniture, jewellery, route permits, goodwill, tenancy rights patents, trademarks, shares,
debentures, securities, units, mutual funds, Zero coupon bonds etc. are capital assets.

However the term capital asset does not includes the following

1. Any stock in trade, consumable stores or raw materials held for the purposes of his business or
profession.

2. Any movable property used for personal purpose except jewellery.

3. Agricultural land situated in rural area in India.

4. Gold deposit bonds issued under gold deposit scheme 1999. 5. Special Bearer Bonds 1991.

Exceptions:-

1. In case financial assets such as listed shares ,listed debentures or Government Securities , Units
of UTI, Mutual funds and zero coupon bonds held by the assessee less than or equal 1year is
considered as STCA. If they are held by the assessee more than 1year is considered as LTCA.

2. If unlisted shares held by assessee less than or equal to 2 years is considered as STCA. If they held
by the assessee more than 2 years is considered as LTCA

Transfer

Section 2(47) of the Income Tax Act defines the term “transfer” to include various types of
transactions. The term transfer of capital assets includes sale, exchange and relinquishment,
extinguishment compulsory acquisition of asset under law.

The definition of transfer includes the following types of transactions:

Sale: The transfer of a capital asset for a consideration, including a sale through an agreement, sale
deed, or any other legal instrument.

Exchange: The transfer of a capital asset in exchange for another capital asset or assets.

Relinquishment: The transfer of a capital asset without receiving any consideration, such as a gift or
surrender.

Extinction: The loss or destruction of a capital asset without any consideration, such as damage
caused by natural calamities.

Compulsory acquisition: The acquisition of a capital asset by a government or any other authority
under any law. This includes acquisition through eminent domain or land acquisition laws.

However the following transaction is not considered as transfer.

1. Transfer of assets under gift or will.

2. Any distribution of capital assets on the total or partial partition of a HUF.

3. Any transfer in a scheme of a amalgamation of a capital asset by the amalgamating company to

the amalgamated company if the amalgamated company is an Indian company.

4. Any transfer of a capital asset by a subsidiary company to the holding company etc.

Sec. 48 prescribes the Mode of computing capital gains.

As per Sec. 48, the income chargeable under the head "Capital gains" is liable to be computed by
deducting from the full value of the consideration received on transfer of the capital asset, the
amount of expenditure incurred wholly and exclusively in connection with such transfer and the
cost of acquisition of the asset and the cost of any improvement thereto.

The capital gains exempt from tax are :

i) Capital gains arising out of the transactions not regarded as transfer uls 47.

ii) Capital gains arising from' the transfer of a residential house subject to the conditions laid down
u/s 53. Capitsl Gains

iii) Capital gains arising on'the transfer of property used for residence and the land appurtenant
thereto subject to'the conditions laid down u/s 54.

iv) Capital gains arising from the transfer of agricultural land situated in an urban area are exempt
subject to the provisions contained in Section 54B.

v) Any capital gains arising out of compulsory acquisition of land and buildings are exempt from tax
subject to the provisions of Section 54D.

vi) Subject to the conditions of Section 54E, the capital gains arising on transfer of , a long-term
capital asset are exempt from tax.

vii) Any long-term capital gains arising on investment in residential houses is exempt subject to
conditions laid down in Section 54F..

viii)Capital gains on shifting of industrial undertaking from urban area are exempt from tax subject
to the conditions laiadown in Section 54G

“Personal effects” belong to this category of property, not considered as a “capital asset” and
hence, any income arising on the transfer of “personal effects” is not liable to income tax at all.

UNIT IV

Powers and functions of CBDT

The Central Board of Direct Taxes (CBDT) is a statutory authority in India responsible for
administering direct taxes and enforcing tax laws under the Department of Revenue, Ministry
of Finance. It formulates policies, guides and supervises the implementation of direct tax
laws, and ensures the fair and equitable collection of direct taxes, including income tax and
corporate tax, throughout the country. The CBDT also functions as the apex body for the
Income Tax Department and plays a crucial role in the assessment, scrutiny, and collection of
direct taxes in India.

Functions:

1)CBDT formulates policies and guidelines related to the administration and enforcement of
direct taxes in India.

2) CBDT plays a crucial role in drafting and amending tax laws, including the Income Tax Act
and other relevant legislation.

3) CBDT is responsible for providing taxpayer services and initiatives to enhance compliance,
facilitate the filing of tax returns, and address taxpayer grievances.

4) CBDT monitors tax collection and recovery activities to ensure the timely and efficient
collection of direct taxes.

5) CBDT is involved in tax investigation and enforcement activities to identify tax evasion,
financial fraud, and non-compliance with tax laws.

6)CBDT conducts policy analysis, research, and studies to assess the impact of tax policies and
propose improvements in the tax system.

POWERS

The Central Board of Direct Taxes (CBDT) in India possesses various powers to administer and
enforce direct taxes. These powers include:

1)Administrative Powers: CBDT exercises administrative control over the Income Tax Department
and oversees its functioning at the national level.

2)Rule-Making Powers: CBDT has the authority to make rules and issue guidelines for the
implementation and enforcement of direct tax laws in India.

3)Power to Grant Exemptions and Approvals: CBDT has the power to grant exemptions, relaxations,
and approvals under certain provisions of the Income Tax Act, such as exemptions for charitable
organizations or specific transactions.

4)Power to Conduct Tax Audits: CBDT has the power to conduct tax audits, either through its
officers or by appointing external auditors, to examine and verify the accuracy and compliance of
tax-related information.

5)Authority to Impose Penalties: CBDT can impose penalties for non-compliance, including the
failure to file tax returns, underreporting of income, or any violation of tax laws.
6)Power to Conduct Surveys and Search Operations: CBDT can authorize surveys and search
operations to gather information, detect tax evasion, and seize assets in accordance with the
provisions of the Income Tax Act.

7)Power to Requisition Information: CBDT has the authority to requisition information, documents,
or statements from individuals, banks, or other entities for the purposes of tax assessment and
investigation.

CIT powers and functions

Commissioners are appointed by the Central Government. Generally, they are appointed to
head income-tax administration of a specified area. As the head of administration, a
Commissioner of income-tax enjoys certain administrative as well as judicial powers. A
commissioner may exercise powers of an assessing officer. It has the power to transfer any
case from one or more assessing officers to any other assessing officer. It can grant approval
for an order issued by the assessing officer.

The commissioner exercises the power to control the staff of income tax department working
in his jurisdiction. He is also responsible for the efficiency of work in all respect in his zone.
Following are the important functions and powers of commissioner of income tax:

Order To Person For Payment :-

He may order a person who has committed an offence to pay the amount for which the
offence may not compound

Power To Compound Offence :-He may either before or after the institution of proceedings
compound such offence where a person has committed any offence under the income tax
law.

Refer The Case To High Court :-If he is not satisfied with the decision of appalled tribunal,
he can request the tribunal to refer the case to high court provided that the decision involves
the point of law.

Power To With Held The Refund :-The commissioner of income tax is empowered to order
that the refund must be with held if the department wants to appeal against the refund.

Revision Of Orders :-He may revise any other passed by his subordinates however these
orders should not be prejudicial to the assessee.

Transfer Of Jurisdiction :-He is empowered to transfer the jurisdiction from one income tax
authority to another.

Final Authority To Decide The Dispute :-Commissioner income tax is the final authority to
decide the disputes if two subordinate income tax authorities are not in agreement regarding
their areas of juries diction or the assessment of a person.
Best Judgement Assessment :-If any person fails to file the return of income tax with in due
date then the commissioner can make the best judgement of assessmen

Determine The Jurisdiction :-He has the power to determine the jurisdiction and assign the
work to subordinateinspecting additional commissioners income tax and deputy
commissioners.

APPEAL

During an Income Tax Assessment, there may be instances when the taxpayer is not
satisfied with the assessment made by the Assessing Officer. In these occurrences, the
taxpayer is entitled to file an appeal against the Assessing Officer. The appeal of an income
tax order has to be filed before the Commissioner of Income Tax (Appeals).

Appealable Order

Section 246A of Income Tax Act enumerates the orders against which an appeal can be filed
before the Commissioner of Income Tax (Appeals). All appeals have to be made to the
Commissioner of Income Tax (Appeals), who is considered to be the first appellate authority.
An appeal can be made under the following circumstances:

 When a taxpayer is served with an order where he is not liable to pay tax under the
Income Tax Act.

 When a taxpayer is issued a notice under Section 143(1)/1(B) where Income remitted
in the returns of income have been adjusted.

 When a taxpayer is issued with a notice under Section 200A(1) where the filed
statements have been adjusted.

 When an assessment order has passed under Section 143(3) other than cases when an
order has passed under the Dispute Resolution Panel.

 When an assessment order has been passed under Section 144.

 When an order of assessment, re-assessment or re-computation that has been passed

after reopening the assessment according to Section 147 other than cases when an
order has passed under the Dispute Resolution Panel.

 When an order has been issued according to Section 150.

PROCEDURE

1. The Commissioner of Income-tax (Appeals) will communicate to the taxpayer and the
Assessing Officer for whose order is preferred about the date and place for hearing the
appeal by issuing a notice to both parties.

2. On the date of hearing the taxpayer or the Assessing Officer can either appear personally
or through an authorized representative.
3. The Commissioner of Income-tax (Appeals) would either hear the appeal or may adjourn
the appeal from time to time as he may think fit.
4.Before passing the order, the Commissioner of Income-tax (Appeal) may either or may
direct the Assessing Officer to make necessary inquiries as he may deem fit and report the
result directly to him.

5. During the appeal, the taxpayer also has a right to go into additional grounds of appeal
which is correlated to it. However, additional grounds will only be accepted by the
Commissioner of Income-tax (Appeals) if he is satisfied that the omission of these grounds
was not willful or unreasonable

DOCUMENTS TO BE SUBMITTED

Form No. 35 (including a statement of facts and grounds of appeal) – in duplicate

One certified copy of the order for whom the appeal must be filed.

Notice of demand in the original

. Copy of challans of fees and the details of the challan (i.e., BSR code, date of payment of
fee, serial number, and amount of fee) are required to be furnished in case of e-filing of the
form of appeal.

Time Limit for Appealing

An appeal for any assessment or penalty should be made within 30 days from the date of
service of the demand notice. An appeal by a person who fails to withhold TDS (Tax
Deducted at Source) shall be filed within 30 days of the date of payment of tax. In all other
cases, an appeal can be made within 30 days from the date of issuing the intimation of the
particular order.

UNIT V

Best judge assesment:

The Best Judgment Assessment is a procedure under the IT Act to comply with the principles
of natural justice. Vide Section 144 of the Income Tax Act, 1961 the Assessing Officer is
under an obligation to make an assessment of the total income or less to the best of his
judgment in the following cases.

1. If the person fails to make a return or required under s. 139(1) and he has not
made a return or a revised return under ss. (4) or (5) of that section.

2. If any person fails to comply with all the terms and conditions stipulated under
a notice u/ss. 142 or fails to comply with the directions requiring him to get his
accounts audited in terms of section 142(2A).
 3. If any person, after having filed a return fails to comply with the with all the
terms of a notice under section 143(2) requiring his presence or production of
evidence and documents; or

4. If the Assessing officer is not satisfied about the correctness and the
completion of the accounts of the assessee if no method of accounting has
been regularly employed by the assessee.

In case of best judgment assessment an assessee has a right to file an appeal under S. 246A
or to make an application for revision under S.246 to the Income Tax Commissioner. The
best judgment assessment can only be made after giving the assessee an opportunity of being
heard.

Such opportunities shall be given by issuance of notice by way of a show cause as to why the
assessment should not be completed to the best of the judgment and that opportunity for
hearing will not be necessary where notice u/s 142(1) has been issued.

When Best Judgment Assessment can be made:

 Ex-parte proceedings – An assessment made under S. 144 can by no means be

equated to ex-parte proceedings in a civil court.

 Mandatory action for defaults – Best judgment assessment is mandatory for any one
of the defaults under S. 144.

 Approximations – Where the assessee had furnished only approximate figure in his
return of income without any further details, it was held that the best judgment
assessment made by ignoring such a return was invalid.

 Signing of returns – A best judgment assessment can be made when the return is not
signed and verified.

 Production of accounts – Where, in response to a combined notice for personal

appearance as well as production of account books, the assessee appeared in person
but did not produce any account books; it was held that the Income-tax Officer would
be justified in making a best judgment assessment.

There are two types of judgement assessment :

Compulsory best judgement assessment made by the assessing officer in cases of non-co-
operation on the part of the assessee or when the assessee is in default as regards supplying
informations.

Discretionary best judgement assessment is done even in cases where the assessing officer is
not satisfied about the correctness or the completeness of the accounts of the assessee or
where no method of accounting has been regularly and consistently employed by the
assessee
REASSESMENT:

Reassessment means reopening the already completed assessment on fulfillment of certain

conditions and reassess the total income of the assessee by including the income which has escaped
earlier assessment. However it may be the First assessment where assessee has not furnished the
return at all. An assessment once made can not be tampered by the AO at his will and pleasure. It
can be done only as per the conditions prescribed under section 147 of the Act. Reassessment is
completed under section 147 of the Income Tax Act.

Section 147 of the Income Tax Act. The object of section 147 is to bring to tax the income which has
escaped assessment. It applies under following circumtances: i) where a person is required to file a
return has not filed the same and consequently no assessment has been made ii) where a return has
been submitted and assessment has been made but later it came to light that some income has
escaped assessment.

Income which has escaped assessment.

Escaped assessment means liability to pay tax is evaded by one method or other. It includes both
i.e. under assessment as well as non- assessment. Income on which tax is chargeable and required
to be paid has been evaded or concealed is Income escaping assessment. Where any income comes
to light or revealed and which were not subjected to tax are income escaping assessment.

Issue of notice u/s 148:

AO should issue a notice u/s 148 and get it served on the assessee before making the assessment,
reassessment or recomputation u/s 147. AO should record the reason before issue of notice u/s
148.

Time Limit for issue of notice u/s 148

1)upto 4 years from the end of relevant assessment year ------ any amount

ii) upto 6 years from the end of relevant assessment year ------ Rs. 1 lakh or more

SET OFF AND CARRY FORWARD LOSSES:

The set off and carry forward of losses can be sub divided into two broad categories:- 1. Set off of
losses. 2. Carry forward and Set off of losses.

SET OFF OF LOSSES:-

The set off of losses are further sub divided in two categories:

1. Set off within the same head of income or inter head set off.

2. Set off within the same head of income or inter head set off (section 70) According to section 70,
if there is a net result of loss from any source of income during any assessment year the loss can be
set off against the income of any other source within same head of income.

Exceptions:-
1. Loss from speculation business.

2. Long term capital loss w.e.f AY 2004.

3. Loss from activity of owning and maintaining race horses.

4. No loss can be set off against gains from winning from lotteries, crosswords, puzzles, card games
or other gambling.

Set off against other heads of income or intra head set off (section 71).

According to section 71, if there is a net result of loss in respect of any head of income during any
assessment year the loss can be set off against the income of any other head of income. Exceptions:-

1. Loss from speculation business.

2. Losses under head capital gains.

3. Losses from the business of owning and maintaining of race horses.

4. Loss from business/profession cannot be set of against income under head salaries (2005-06).

5. Loss from exempt income (loss of profit must be loss of taxable profit).

6. No loss can be set off against gains from winning from lotteries, crosswords, puzzles, card games
or other gambling (section 58(4)).

CARRY FORWARD AND SET OFF OF LOSSES.

If a loss cannot be set off either under the same head or under the different heads due to
absence/adequacy of the income during the same year, such loss may be carried forward to the
next year to be set off against the income of that year. In the present context the losses can be
carried forward to be set off against the income e other subsequent year is possible in the following
heads of income:-

I. Loss from house property.

II. Loss from business and profession:- a) Loss from non speculation business.

B) Loss from speculation business.

c) Loss on account of depreciation, Capital Expenditure on Scientific Research and Family Planning

3. Loss on account of capital gain:-

a) Loss on account of short term capital gain.

b) Loss on account of long term capital gain.

4. Loss from other sources:-

a) Only from the activity of owning and maintaining race horses.