Q. How is the residence of assessee determined for income tax purposes?

Discuss the
effect of residence on income tax liability.

Introduction:

The residential status of an assessee is a foundational concept under the Income Tax Act,
1961, as it determines the scope of total income chargeable to tax in India. Different rules
apply to individuals, Hindu Undivided Families (HUFs), companies, and other entities. This
status must be determined every assessment year, based on the previous year’s stay and
connections with India.

I. Determination of Residential Status

A. Individual Assessee [Section 6(1)]

An individual is considered Resident in India if he satisfies either of the following two

basic conditions:

1. Stayed in India for 182 days or more in the relevant previous year,
OR
2. Stayed in India for 60 days or more in the relevant previous year and 365 days or
more in the preceding four years.

Exception: For Indian citizens or Persons of Indian Origin (PIO) visiting India, or Indian
citizens leaving India for employment or as a crew member of an Indian ship, the 60-day
period is replaced by 182 days.

Resident but Not Ordinarily Resident (RNOR)

If a person qualifies as resident, he may still be treated as RNOR if:

 He has been non-resident in 9 out of 10 preceding years, or

 He has stayed in India for less than 730 days in the preceding 7 years.

Non-Resident (NR)

An individual is non-resident if he does not satisfy any of the above basic conditions.

B. Hindu Undivided Family (HUF) [Section 6(2)]

An HUF is resident in India if its control and management is wholly or partly in India
during the relevant previous year.

It is RNOR if:

 The Karta satisfies the RNOR conditions applicable to individuals.

C. Company [Section 6(3)]

A company is resident in India if:

 It is incorporated in India,
OR
 Its place of effective management (POEM) is in India during the relevant year.

Non-resident company: A foreign company whose POEM is outside India.

D. Other Assessees (Firms, AOPs, etc.) [Section 6(4)]

They are resident in India if control and management of affairs is wholly or partly in
India.

If the control is wholly outside India, they are non-resident.

II. Effect of Residential Status on Income Tax Liability

1. Scope of Total Income [Section 5]

Income
Indian Income accrued
Residential Status Foreign Income received in
Income outside India
India
Resident and
Ordinarily Resident Taxable Taxable Taxable Taxable
(ROR)
Resident but Not Taxable (if from a Not taxable unless from
Ordinarily Resident Taxable business controlled Taxable business controlled or
(RNOR) in India) set up in India
Non-Resident (NR) Taxable Not Taxable Taxable Not Taxable

Examples:

 Salary received in India is taxable for all.

 Foreign salary of an ROR is taxable; not taxable for NR.

III. Importance of Residential Status

 Determines taxability of global income.

 Helps avoid double taxation under DTAA provisions.
  Essential for TDS, advance tax, and return filing provisions.
 Impacts eligibility for exemptions and deductions.

Conclusion

Residential status under the Income Tax Act is not based on citizenship, but on physical
presence and economic ties to India. A correct determination is critical for applying
appropriate tax rules. Errors in establishing residential status can lead to wrong tax
computation, penal consequences, or litigation. Therefore, assessees and tax professionals
must exercise due diligence in determining and applying residential status each year.

Q. State the exceptions to the rule that income tax is assessed on the income of the
previous year in the next assessment year.

Introduction

Under the Income Tax Act, 1961, the general rule is that income earned in a "previous
year" is assessed and taxed in the "assessment year" that follows it [Section 3].
For example, income earned during FY 2024–25 (Previous Year) is taxed in AY 2025–26
(Assessment Year).

However, to protect the revenue and in specific cases where delayed assessment could lead to
tax loss, exceptions have been provided where income is assessed in the same year in
which it is earned.

Main Body

Exceptions to the Rule of Taxation in the Next Assessment Year

These are covered primarily under Section 172 to 176 of the Income Tax Act.

1. Shipping Business of Non-Residents [Section 172]

 If a non-resident shipping company earns income from transporting goods or

passengers from Indian ports, the income is taxed immediately in the same year
before the ship leaves the port.
 Reason: Non-resident ship operators may not return to India, making later assessment
difficult.
2. Persons Leaving India [Section 174(1)]

 If an individual is likely to leave India in a way that they may not return before the
end of the assessment year, the Assessing Officer (AO) may assess total income of
the current year in the same year.
 Reason: To avoid tax evasion by individuals permanently leaving the country.

3. Association of Persons (AOP)/Body of Individuals (BOI) formed for a particular

event or purpose [Section 174A]

 If an AOP or BOI is formed for a specific venture or event, the total income is
assessed in the same year if the venture is likely to be completed before the year
ends.
 Reason: Such entities may dissolve after completion and may not be traceable later.

4. Persons Trying to Alienate Property to Avoid Tax [Section 175]

 If a person is about to transfer assets with the intention of evading taxes, the AO
may take action to assess income in the same year.
 Reason: To prevent loss of tax due to fraudulent transfers or concealment of assets.

5. Discontinued Business [Section 176]

 If a business or profession is discontinued during the year, the income till the date of
discontinuance can be assessed in the same previous year.
 Applies to both resident and non-resident persons.
 Reason: After discontinuance, the assessee may not remain traceable or in existence.

Other Related Instances (Administrative, Not Statutory Exceptions)

Though not formal exceptions under the Act, in practice, some incomes are also taxed during
the same year, such as:

 Lottery winnings or casual incomes are subject to TDS at source, meaning tax is
collected in the year of earning.
 Capital gains on property sales are also often collected at source via TDS.

Conclusion
While the general principle is that income is taxed in the assessment year following the
previous year, the Income Tax Act provides specific exceptions to safeguard revenue in
cases where there is a risk of tax loss or disappearance of the assessee.
These exceptions ensure prompt and efficient tax collection, especially in cases involving
non-residents, one-time ventures, or persons likely to vanish or discontinue operations.

Q. Discuss in detail the law relating to tax evasion. What action can be taken by the
Income Tax Department in this context?

Introduction

Tax evasion refers to illegal practices by which a person or entity intentionally avoids
paying true tax liability. It is a criminal offence under the Income Tax Act, 1961, and
involves willful suppression of income, falsification of accounts, and submission of false
information.

Tax evasion not only harms government revenue but also distorts economic equality and
encourages black money.

I. Meaning of Tax Evasion

 Tax evasion is an unlawful act of avoiding tax by misrepresenting or concealing

facts.
 It differs from:
o Tax avoidance – use of legal loopholes to minimize tax.
o Tax planning – legal and ethical means of reducing tax liability.

Example of tax evasion:

 Not disclosing certain income.

 Maintaining false books of accounts.
 Claiming false deductions or exemptions.

II. Provisions of the Income Tax Act Dealing with Tax Evasion

1. Section 132 – Search and Seizure ("Income Tax Raids")

 Authorizes the department to conduct raids on premises of suspected tax evaders.

 Assets, documents, books of account can be searched and seized.

2. Section 133A – Survey

 Conducted during business hours.

  Used to collect information about tax evasion, stock, or cash irregularities.

3. Section 131 – Power to Summon

 Officers have powers similar to a civil court to enforce attendance, examine under
oath, or compel production of documents.

4. Section 147 – Income Escaping Assessment

 Allows reopening of assessment if income has escaped taxation due to evasion.

5. Section 148 – Issue of Notice

 Notice is issued to reassess escaped income.

III. Penalties and Prosecutions for Tax Evasion

A. Penalties (Civil Consequences)

Provision Nature of Default Penalty

Sec. 270A Underreporting or misreporting of income 50% to 200% of tax
Sec. 271AAC Undisclosed income found in search 10% of tax plus normal tax
Sec. 271A Failure to maintain books ₹25,000
Sec. 271B Failure to get accounts audited ₹1,50,000 or 0.5% of turnover

B. Prosecutions (Criminal Consequences)

Provision Offence Punishment

Sec. 276C(1) Wilful attempt to evade tax 3 months to 7 years + fine
Sec. 276CC Failure to file return 3 months to 7 years + fine
Sec. 277 False statement or verification 3 months to 7 years
Sec. 278 Abetment of evasion Same as evader

Note: Prosecution requires sanction from the Principal Commissioner or Commissioner.

IV. Other Legal Measures

 Benami Transactions (Prohibition) Act: Used where assets are held in the name of
others.
 Prevention of Money Laundering Act (PMLA): In case of large-scale evasion
linked with laundering of money.
  Black Money (Undisclosed Foreign Income and Assets) Act, 2015: To curb foreign
asset-based evasion.

V. Recent Measures to Curb Tax Evasion

 Faceless assessments and appeals to reduce corruption.

 Aadhaar-PAN linkage to improve transparency.
 Use of Artificial Intelligence (AI) and data analytics to detect evasion patterns.
 TDS/TCS and e-filing compliance tracking.

Conclusion

Tax evasion is a serious economic offence that weakens the country’s financial system and
governance. The Income Tax Act provides comprehensive tools—from surveys, searches,
and penalties to criminal prosecutions—to tackle evasion effectively. Increasing
digitization and legal reforms have strengthened enforcement, but public awareness and
voluntary compliance are equally crucial for a fair and efficient tax system.

Q. What do you mean by Business and Profession? Discuss the taxable incomes under
the head 'Income from Business and Profession'.

I. Introduction

Under the Income Tax Act, 1961, the head "Income from Business or Profession" covers
income earned by individuals, firms, and companies from commercial and professional
activities. It is governed by Sections 28 to 44DB of the Act.

This is one of the five heads of income, and it includes profits and gains arising from the
systematic and continuous activity undertaken with the intent of earning profits.

II. Meaning of Business and Profession

1. Business [Section 2(13)]

“Business includes any trade, commerce, manufacture or any adventure or concern in the
nature of trade, commerce or manufacture.”

 It refers to continuous or recurring commercial activities.

 Includes production, purchase and sale of goods, services, real estate, etc.

Examples:
  Running a retail shop
 Manufacturing units
 Transportation services
 Construction business

2. Profession [Section 2(36)]

“Profession includes vocation.”

 It refers to activities requiring intellectual or manual skill and specialized

knowledge.
 Usually practiced by individuals with qualifications or skills.

Examples:

 Doctors, Lawyers, Engineers, Chartered Accountants

 Architects, Authors, Consultants

III. Taxable Incomes under ‘Income from Business or Profession’ [Section 28]

The following types of incomes are chargeable to tax under this head:

1. Profits and Gains of Business or Profession [Section 28(i)]

 Income earned from any business or professional activity carried on during the
previous year.
 Includes direct or indirect profits.

2. Compensation or Payments [Section 28(ii)]

 Compensation received for:

o Termination of business contracts
o Modification of business terms
o Loss of agency or dealership

3. Income from Trade or Professional Associations [Section 28(iii)]

 Profits made by trade or professional bodies providing services to their members.

4. Export Incentives [Section 28(iiia to iiie)]

 Includes:
o Duty drawback
o Export incentives
o Profit on transfer of Duty Entitlement Pass Book (DEPB)
5. Income from Speculative Transactions [Section 43(5)]

 Includes profits from forward contracts or derivatives, if not treated as capital gains.

6. Recovery of Expenses or Bad Debts [Section 41(1)]

 Recovery of any expenditure or loss allowed in earlier years is taxable if recovered.

7. Income from Profession

 Consultation fees, retainers, appearance fees, commission, etc. received by

professionals.

8. Value of Benefits or Perquisites [Section 28(iv)]

 Any non-monetary benefit arising from business/profession (like free gifts, cars,
accommodation, etc.) is taxable.

9. Interest on Capital Received by Partner [Section 28(v)]

 Interest or salary received by a partner from the firm is taxable in the hands of the
partner under this head.

10. Income from Maintenance of Books and Records

 Income inferred by AO based on books maintained, especially under presumptive

taxation.

IV. Allowable and Disallowable Expenses [Sections 30–43B]

To compute net taxable income, certain expenses are allowed as deductions, such as:

 Rent, repairs, and depreciation of business premises

 Salaries, wages, and professional fees
 Interest on business loans
 Bad debts
 Advertisement expenses
 Scientific research expenditure

Certain expenses like personal expenses, capital expenditure, or those not related to
business are not allowed as deductions.

V. Presumptive Taxation Schemes (Optional)

For small businesses and professionals, simplified taxation is available under:

  Section 44AD – For small businesses
 Section 44ADA – For professionals
 Section 44AE – For transporters

These allow declaring income at a prescribed percentage of gross receipts, without

maintaining detailed accounts.

VI. Conclusion

The head "Income from Business and Profession" covers a wide range of incomes arising
from commercial and professional activities. Accurate computation under this head
requires proper maintenance of books, classification of incomes, and compliance with
deductions and disallowances under the Act. Understanding these provisions is crucial for
businesses, professionals, and tax authorities alike.

Q. How is depreciation availed while company income is from business or

profession?

I. Introduction

Depreciation is a deduction allowed under the Income Tax Act, 1961 for the gradual
reduction in the value of tangible and intangible assets used for business or professional
purposes.

It is governed by Section 32 of the Act. Depreciation is allowed to companies and other

assessees to account for the wear and tear of capital assets used in the generation of
business income.

II. Conditions for Claiming Depreciation [Section 32]

A company can claim depreciation if the following conditions are fulfilled:

1. Asset must be owned, wholly or partly, by the company.

2. The asset must be used for the purpose of business or profession.
3. The asset must be a part of the block of assets.
4. Depreciation is mandatory (cannot be waived off voluntarily after FY 2001–02).

III. Block of Assets Concept

 Depreciation is not calculated asset-wise, but on a block of assets.

 A block is a group of assets falling under the same class and rate of depreciation.
  Common blocks:
o Buildings (10%, 40%)
o Machinery & Plant (15%, 40%)
o Computers (40%)
o Intangible assets like patents, trademarks (25%)

IV. Method of Depreciation

 The Income Tax Act uses the Written Down Value (WDV) Method.
 Companies have to compute depreciation on opening WDV + additions – sales.

Formula:
Depreciation = Rate × (Opening WDV + Additions – Sale of assets)

 If asset used <180 days: Only 50% of eligible depreciation is allowed for that year.
 If used ≥180 days: Full depreciation is allowed.

V. Additional Depreciation [Section 32(1)(iia)]

 Available to manufacturing companies (not applicable to power sector, service

sector, or software).
 20% additional depreciation on new plant & machinery (except certain exclusions
like office equipment, cars).
 10% if asset is used for <180 days.

VI. Unabsorbed Depreciation [Section 32(2)]

 If current year’s depreciation exceeds the business income, the excess is carried
forward.
 It can be set off against any income (except salary) in future years.
 Carried forward indefinitely until fully absorbed.

VII. Intangible Assets [Section 32(1)(ii)]

Depreciation @ 25% is allowed on intangible assets such as:

 Patents
 Copyrights
 Trademarks
 Licenses
 Goodwill (if acquired for consideration)
VIII. Depreciation as a Tax Planning Tool

 Helps reduce taxable income.

 Encourages capital investment.
 Used in MAT (Minimum Alternate Tax) computation (Book depreciation vs
Income Tax depreciation).

IX. Audit and Documentation

 Depreciation claim must be supported by:

o Fixed Asset Register
o Proof of usage
o Invoices and ownership documents
 Must be certified in the Tax Audit Report (Form 3CD).

Conclusion

Depreciation is a vital tool for businesses to claim deductions on capital assets used in the
course of business. For companies, it provides a systematic and tax-compliant way to
recognize asset wear and tear while reducing taxable profits. However, it must be claimed
as per the Act’s prescribed rules and backed by proper records.

Q. What do you mean by income? Enumerate the classes of income which are
exempt from tax and included in the total income of an assessee for rate
purposes.

I. Meaning of Income

Under Section 2(24) of the Income Tax Act, 1961, “income” is broadly defined to include
any kind of monetary gain or receipt received by an individual, firm, company, or any other
person.

Income includes:

 Profits and gains of business or profession

 Salary
 Capital gains
 Dividends
 Rent or interest
 Voluntary contributions (for trusts)
 Any other source of revenue or periodic return
Income may be:

 Earned or unearned
 Legal or illegal
 Received in cash or in kind
 Accrued or deemed to accrue

II. Heads of Income (Classification)

As per Section 14, income is classified under five heads:

1. Income from Salaries

2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
5. Income from Other Sources

III. Exempt Incomes [Section 10]

Some incomes are exempt from tax, either partially or fully, under Section 10 of the Act.
These are excluded from the total income and are not chargeable to tax.

Common Exempt Incomes:

Section Nature of Income Exemption

10(1) Agricultural income Fully exempt
10(2) Share of profit from partnership firm Fully exempt in hands of partner
Partially/fully exempt depending on
10(10) Gratuity
employee category
10(10A) Pension/commutation of pension Partially exempt
10(10B) Retrenchment compensation Subject to limits
10(10C) Voluntary retirement compensation Up to ₹5 lakhs
10(12) Provident Fund Fully exempt (under conditions)
10(15) Interest on certain securities Exempt up to limit
10(16) Educational scholarships Fully exempt
10(17) Allowances to MPs/MLAs Certain allowances exempt
10(23C) Income of charitable/religious institutions Fully exempt subject to approval
Dividend income from domestic company Earlier exempt; now taxable in
10(34)
(until AY 2020–21) shareholder's hands

IV. Incomes Exempt but Included for Rate Purposes

Certain incomes are exempt from tax but are included in total income for determining the
rate of tax (i.e., for rate purpose, not tax purpose). These are mainly:

1. Agricultural Income [Section 10(1)]

 Fully exempt, but added to total income for rate calculation if:
o Net agricultural income > ₹5,000
o Non-agricultural income > basic exemption limit

This is known as partial integration of agricultural income (used to determine slab/rate on

non-agri income).

2. Share of Profit from Firm [Section 10(2)]

 Share of profit from a partnership firm is exempt in the partner’s hands, but it is
added to total income for determining the applicability of slab rate or surcharge.

V. Importance of Including Exempt Income for Rate Purposes

 Although the exempt income is not taxed, it increases the applicable tax rate on the
taxable portion.
 This is primarily to prevent misuse of exemptions and ensure progressive taxation.

VI. Conclusion

The Income Tax Act recognizes various forms of income, some of which are exempt to
provide relief to taxpayers or promote social/economic goals. However, in certain cases like
agricultural income, such exemptions are added back for rate calculation, ensuring a fair
and balanced taxation system without directly taxing the exempt source.

Q. An assessment proceeding starts with the filing of a return by the assessee

and ends with an appeal to the Supreme Court. Discuss.

I. Introduction

The term “assessment” refers to the process of determining the correct tax liability of an
assessee under the Income Tax Act, 1961. It begins with the filing of the return of income
and may go through various stages such as scrutiny, reassessment, rectification, and
appeal, ultimately ending at the level of the Supreme Court if needed.

II. Filing of Return of Income – Beginning of Assessment [Section 139]

  The process begins when the assessee files a return of income voluntarily under
Section 139(1) or in response to a notice under Sections 142(1), 148 or 153A.
 Return must disclose:
o Total income
o Deductions claimed
o Taxes paid
o TDS and TCS details

Filing is mandatory if income exceeds the basic exemption limit.

III. Types of Assessment Under the Income Tax Act

1. Summary Assessment (Section 143(1))

 Auto-processed without human intervention.

 System checks for:
o Mathematical errors
o TDS mismatch
o Incorrect claims
 Intimation is sent to assessee.

2. Scrutiny Assessment (Section 143(3))

 Detailed verification of return by Assessing Officer (AO).

 AO may examine:
o Books of accounts
o Bank statements
o Other documents
 After hearing the assessee, AO passes an assessment order.

3. Best Judgment Assessment (Section 144)

 Done when:
o No return is filed
o Incomplete or false information is provided
 AO estimates income based on available information.

4. Reassessment (Section 147/148)

 If income has escaped assessment, AO can reopen the case.

 Time limits apply (usually 3 to 10 years depending on amount involved).

5. Search Assessment (Section 153A/153C)

 In case of search or seizure by Income Tax Department.

 Assessment is done for multiple past years.
IV. Post-Assessment: Appeals and Legal Remedies

Once an assessment order is passed, the assessee can challenge it if aggrieved. The law
provides a hierarchical structure of appeals.

1. Appeal to Commissioner of Income Tax (Appeals) – CIT(A) [Section 246A]

 First appellate authority.

 Must be filed within 30 days from the date of the assessment order.

2. Appeal to Income Tax Appellate Tribunal (ITAT) [Section 253]

 Second level of appeal.

 Decides on facts and law.
 No fee for appeal against penalty orders by small taxpayers.

3. Appeal to High Court [Section 260A]

 Only on substantial question of law.

 Must be filed within 120 days of ITAT order.

4. Appeal to Supreme Court [Section 261]

 Final appellate authority.

 Only lies if there is an important legal issue of national significance or where
different High Courts have given different rulings.

V. Revision and Rectification (Alternative Remedies)

Apart from appeals, other remedies include:

1. Revision by Commissioner [Section 263/264]

 Section 263 – If order is erroneous and prejudicial to revenue.

 Section 264 – If assessee is aggrieved and seeks relief.

2. Rectification of Mistake [Section 154]

 Minor errors (arithmetical or apparent from record) can be corrected by AO or

assessee.

VI. Penalty and Prosecution (Parallel Proceedings)

During or after assessment, proceedings for:

  Penalties (for concealment, misreporting) under Sections 270A, 271 etc.
 Prosecution (for willful default) under Sections 276C, 277, etc.

can also run simultaneously.

VII. Conclusion

Assessment proceedings are not merely mechanical computations of tax but involve legal
interpretations, verification, and adjudication of facts. Starting from filing the return, it
may culminate in the Supreme Court if disputes persist. The structure ensures natural
justice, tax compliance, and judicial oversight, making assessment a comprehensive legal
and administrative process.

Q. Discuss the constitution and powers of the Income-Tax Appellate Tribunal.

I. Introduction

The Income Tax Appellate Tribunal (ITAT) is the second appellate authority under the
Income Tax Act, 1961. It plays a vital role in resolving disputes between the Income Tax
Department and the assessees. It is a quasi-judicial body established under Section 252 of
the Act.

Motto of ITAT: “Sulabh Nyay Satwar Nyay” – Inexpensive and Quick Justice

II. Constitution of the Income Tax Appellate Tribunal (ITAT)

1. Legal Provision: Section 252 – 255 of the Income Tax Act, 1961

 The Central Government constitutes the ITAT by notification.

 Headquartered in Mumbai, with multiple regional benches across the country.

2. Composition of Benches (Section 255)

Each bench of the ITAT generally consists of:

 One Judicial Member

 One Accountant Member

Judicial Member – A person who has been a judge or is qualified to be one.

Accountant Member – A person who is a Chartered Accountant with at least 10 years of
experience.
However, Single Member Benches may hear appeals involving income up to ₹50 lakh
(excluding international taxation or transfer pricing cases).

3. Appointment and Service

 Members are appointed by the Central Government in consultation with the Union
Public Service Commission (UPSC).
 Their service conditions are governed by Tribunal Reforms Act, 2021.

III. Jurisdiction and Powers of the ITAT

1. Appellate Jurisdiction [Section 253]

The ITAT hears appeals against:

 Orders of Commissioner (Appeals) – CIT(A)

 Orders passed by Assessing Officer under directions of Dispute Resolution Panel
(DRP)
 Orders in penalty, reassessment, rectification, transfer pricing, etc.

2. Powers of ITAT [Section 254]

 Can confirm, reduce, enhance, annul or set aside any assessment or penalty order.
 Has the power to admit additional evidence or remand the case.
 Has discretionary powers to grant relief to the assessee.

3. Power to Grant Stay [Section 254(2A)]

 Can grant stay of demand for maximum 180 days (can be extended in certain cases).
 If appeal is not disposed within time, stay stands vacated automatically.

4. Power to Rectify Mistake [Section 254(2)]

 ITAT may amend its own order to correct any mistake apparent from record.
 Rectification must be done within 6 months from the date of the original order.

5. Binding Nature of Decisions

 ITAT decisions are binding on Assessing Officers and lower authorities in similar
matters.
 However, they are subject to appeal before the High Court on substantial questions
of law.

IV. Procedure of the ITAT

 Functions independently from the Income Tax Department.

  Not bound by the Code of Civil Procedure (CPC) but follows principles of natural
justice.
 Proceedings are quasi-judicial in nature and conducted in a formal court-like manner.
 No court fee is charged; only a nominal appeal fee is payable.

V. Importance of the ITAT

 Acts as a filter before cases reach the High Court or Supreme Court.
 Provides expert, speedy, and impartial justice.
 Helps in reducing pendency in regular civil courts.
 Balances the rights of the taxpayer and the powers of the tax department.

VI. Conclusion

The Income Tax Appellate Tribunal is a vital institution in India’s tax adjudication
framework. With its expertise, independence, and judicial approach, it ensures fair
resolution of tax disputes and upholds the principles of justice and equity under the Income
Tax law. Its role contributes significantly to maintaining taxpayer confidence in the legal
system.

Q. Explain various "Assessment Procedures" as defined in the Income Tax

Act, 1961. Also explain the types of Income Tax returns and their uses, self-
assessment, due dates of return filing, return of loss, belated return, defective
returns, income escaping assessment, etc.

I. Introduction

The assessment procedure under the Income Tax Act, 1961, is a systematic process through
which the Income Tax Department determines the correct taxable income of an assessee and
computes tax liability. It begins with the filing of the income tax return and can proceed
through various types of assessment mechanisms as prescribed under the Act.

II. Types of Income Tax Returns (ITRs) and Their Uses

The Central Board of Direct Taxes (CBDT) notifies different types of ITR forms based on the
nature and amount of income:

ITR Form Applicable to

Individual with income up to ₹50 lakh (salary, one house property, other
ITR-1 (Sahaj)
sources)
 ITR Form Applicable to
Individuals/HUFs with income from capital gains or more than one house
ITR-2
property
ITR-3 Individuals/HUFs having income from business/profession
ITR-4
Presumptive income for small businesses/professionals (u/s 44AD, 44ADA)
(Sugam)
ITR-5 Partnership firms, LLPs, AOPs, BOIs
ITR-6 Companies (excluding those claiming exemption u/s 11)
ITR-7 Trusts, political parties, charitable institutions, etc. (Section 139(4A)-(4F))

III. Due Dates for Filing Returns [Section 139(1)]

Category Due Date

Individuals / HUFs (not audited) 31st July of the assessment year
Companies / Firms (audit required) 31st October
Assessees required to furnish transfer pricing report (92E) 30th November

IV. Types of Returns and Related Provisions

1. Return of Loss [Section 139(3)]

 Filed to carry forward losses (business, capital gains, etc.)

 Must be filed within due date to claim carry forward benefit

2. Belated Return [Section 139(4)]

 Return filed after due date, but before 31st December of the assessment year
 Subject to late fees under Section 234F

3. Revised Return [Section 139(5)]

 Filed to correct any omission or error in the original return

 Can be filed before completion of assessment or 31st December, whichever is
earlier

4. Defective Return [Section 139(9)]

 A return is defective if it lacks essential information (e.g., TDS certificate, audit

report)
 The assessee gets 15 days to correct the defect, failing which the return is treated as
invalid

V. Types of Assessments under the Income Tax Act

1. Summary Assessment [Section 143(1)]

 Automated processing
 Checks for arithmetical errors, incorrect claims, TDS mismatch
 No scrutiny or personal hearing involved

2. Scrutiny Assessment [Section 143(3)]

 Detailed examination of return and documents

 AO may issue notice under Section 143(2)
 Ensures correctness of income, deductions, exemptions

3. Best Judgment Assessment [Section 144]

 Made when:
o No return is filed
o Incomplete/false return
o Assessee fails to comply with notice
 AO makes a reasonable estimation of income

4. Income Escaping Assessment [Reassessment] [Section 147/148]

 If AO believes income has escaped assessment

 Notice under Section 148 is issued
 Reassessment can go back up to 10 years if income escaped is over ₹50 lakh

5. Search or Block Assessment [Section 153A/153C]

 Arises during search and seizure operations

 Assessment for 6 years preceding the search year

VI. Self-Assessment Tax [Section 140A]

 Assessee must calculate tax liability and pay taxes before filing the return
 Includes advance tax, TDS, and interest/penalty if any
 Proof of self-assessment tax payment must be submitted with the return

VII. Faceless Assessment (New Initiative)

 Introduced to promote transparency and efficiency

 Assessment is done electronically without personal interaction
 Notices and replies are issued and responded to via e-portal
VIII. Penalties and Prosecution

 Late filing – Penalty under Section 234F (₹1000–₹5000)

 Underreporting/misreporting – Penalty under Section 270A
 Failure to file return – Penalty under Section 276CC

IX. Conclusion

The Income Tax Act lays down a well-defined assessment procedure aimed at ensuring
voluntary compliance and fair computation of taxes. Starting from return filing, the law
provides for various assessment types, and corrective measures such as belated and revised
returns. It also includes mechanisms to track escaped income, penalties for non-
compliance, and appeal provisions to ensure taxpayer rights are protected.

Brief Explanation: "Gross Total Income" under the Income Tax Act, 1961

Definition:

Gross Total Income (GTI) refers to the aggregate of income earned by an assessee from all
five heads of income before allowing deductions under Chapter VI-A (Sections 80C to
80U) of the Income Tax Act, 1961.

It is defined under Section 14 and calculated as per the provisions of Section 80B(5) of the
Act.

Components of Gross Total Income:

1. Income from Salaries

2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains (Short-term & Long-term)
5. Income from Other Sources

Calculation of GTI:

Gross Total Income=Total income under all heads−Exempt incomes under Section 10\text{G
ross Total Income} = \text{Total income under all heads} - \text{Exempt incomes under
Section
10}Gross Total Income=Total income under all heads−Exempt incomes under Section 10

Note: GTI does not include:

  Agricultural income (fully exempt)
 Exempt incomes under Section 10, 11, etc.

Purpose of GTI:

GTI serves as the base for allowing:

 Deductions under Chapter VI-A (e.g., 80C, 80D, 80G)

 Determination of Total Taxable Income

Example:

If an individual earns:

 Salary: ₹6,00,000
 House Property Income: ₹1,00,000
 Business Income: ₹3,00,000
 Capital Gains: ₹50,000
 Other Sources: ₹50,000

Then:

Gross Total Income = ₹6,00,000 + ₹1,00,000 + ₹3,00,000 + ₹50,000 + ₹50,000 =

₹11,00,000

Conclusion:

Gross Total Income is a crucial step in tax computation, as it forms the basis on which
deductions are allowed and net taxable income is derived. Accurate determination of GTI
ensures correct tax liability under the Income Tax Act.

4o

Q. Discuss the concept of Goods and Services Tax (GST).

I. Introduction

The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based

indirect tax that has replaced many indirect taxes in India. It came into force on 1st July
2017 through the 101st Constitutional Amendment Act, 2016, and aims to create a unified
tax structure across the country.
Motto of GST: “One Nation, One Tax, One Market”

II. Meaning and Concept of GST

GST is a value-added tax levied on the supply of goods and services. It is collected at
every stage of the supply chain, with credit for tax paid on inputs available at each stage.
Ultimately, the end consumer bears the final tax burden.

III. Features of GST

1. Comprehensive and Unified Tax – Replaces multiple indirect taxes like VAT,
service tax, excise, etc.
2. Destination-Based Tax – Tax is collected at the place of consumption, not origin.
3. Multi-Stage Taxation – Levied at every stage from manufacturing to sale.
4. Input Tax Credit (ITC) – Credit for tax paid on inputs is available, reducing tax
cascading.
5. Technology-Driven – Return filing, payment, and registration are done online via the
GST portal.

IV. Types of GST in India

To accommodate India's federal structure, GST is divided into:

Type Levied By Applicability

CGST (Central GST) Central Government On intra-state supply

SGST (State GST) State Government On intra-state supply

UTGST (Union Territory

Union Territory Govt On intra-UT supply
GST)

Central Govt (shared with On inter-state and export/import

IGST (Integrated GST)
states) transactions

V. Taxes Subsumed Under GST

GST has replaced the following Central and State taxes:

Central Taxes:
  Central Excise Duty
 Service Tax
 Additional Customs Duty (CVD/SAD)
 Central Sales Tax (CST)
 Cesses and surcharges

State Taxes:

 Value Added Tax (VAT)

 Entry Tax
 Entertainment Tax
 Luxury Tax
 Octroi
 State Cesses

VI. Structure and Rates of GST

GST has four primary tax slabs:

 5% – Essential items and some services

 12% & 18% – Standard rates for most goods and services
 28% – Luxury goods, sin goods (like tobacco, aerated drinks)

Certain goods such as alcohol for human consumption and petroleum products are currently
outside the GST and continue to be taxed by states.

VII. Benefits of GST

1. Elimination of Cascading Effect – No tax on tax due to input tax credit.

2. Ease of Doing Business – One nation, one tax increases transparency and uniformity.
3. Boost to GDP – Simplified taxation encourages business and trade.
4. Improved Tax Compliance – Automated processes reduce evasion.
5. Increased Revenue – Broader base and digital tracking improve tax collection.

VIII. Challenges in Implementation

1. Technical Glitches – Issues with GSTN portal and return filing.

2. Multiple Tax Rates – Complicates classification and compliance.
3. Small Businesses Impacted – Compliance burden increased for small traders.
4. Frequent Amendments – Confusion due to frequent rule and rate changes.
IX. Constitutional Framework of GST

 Article 246A – Concurrent powers to Centre and States to levy GST.

 Article 269A – IGST on inter-state supply to be levied by Centre and shared.
 GST Council – Established under Article 279A; recommends rates, exemptions,
rules.

GST Council Composition:

 Union Finance Minister (Chairperson)

 Union Minister of State (Finance)
 Finance Ministers of all States

Decisions are made by a three-fourth majority, with the Centre having 1/3rd voting power
and States sharing 2/3rd.

X. Returns and Compliance

Businesses registered under GST must file:

 Monthly Returns (e.g., GSTR-1, GSTR-3B)

 Annual Return (GSTR-9)
 Audit Report (for turnover above specified limit)

XI. Penalties and Offences

 Late fee for delay in filing returns

 Interest on late tax payment
 Penalty for tax evasion, incorrect invoicing, fraud (can include imprisonment)

XII. Conclusion

The Goods and Services Tax (GST) is a revolutionary tax reform that has brought
transparency, efficiency, and uniformity in India’s indirect taxation system. Despite initial
challenges, GST is paving the way for a modern tax system, contributing to economic
growth, ease of business, and revenue collection in the long run.