Income Tax Assessment: Types of Assessment in Income Tax

We all agree that ITR filing is not a walk-in-the-park process. However, filing your taxes is
important for tax compliance. Individuals and businesses file ITRs, which are examined by
the Income Tax Department; this process is referred to as tax assessment.

In this article, we have discussed the types of assessment that you should know as a taxpayer.

1. Self Assessment

The assessee himself determines the income tax payable. The tax department has made
available various forms for filing income tax returns. The assessee consolidates his income
from various sources and adjusts the same against losses or deductions or various exemptions
if any, available to him during the year. The total income of the assessee is then arrived at.
The assessee reduces the TDS and Advance Tax from that amount to determine the tax
payable on such income. Tax, if still payable by him, is called self-assessment tax and must
be paid by him before he files his return of income. This process is known as Self
Assessment.

2. Summary Assessment

It is a type of assessment carried out without any human intervention. In this type of
assessment, the information submitted by the assessee in his income tax return is cross-
checked against the information that the income tax department has access to. In the process,
the reasonableness and correctness of the return are verified by the department. The return
gets processed online, and adjustments for arithmetical errors, incorrect claims, and
disallowances are automatically done.

For example, credit for TDS claimed by the taxpayer is found to be higher than what is
available against his PAN as per department records. Making an adjustment in this regard can
increase the tax liability of the taxpayer. After making the aforementioned adjustments, if the
assessee is required to pay tax, he will be sent an intimation under Section 143(1). The
assessee must respond to this intimation accordingly.
3. Regular Assessment

The income tax department authorizes the Assessing Officer or Income Tax authority, not
below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure
that the assessee has neither understated his income nor overstated any expense or loss nor
underpaid any tax. The CBDT has set certain parameters based on which a taxpayer’s case
gets picked for a scrutiny assessment.

a. If an assessee is subject to a scrutiny assessment, the Department will send a notice well in
advance. However, such notice cannot be served after the expiry of 6 months from the end of
the Financial year, in which the return is filed.

b. The assessee will be asked to produce the books of accounts, and other evidence to validate
the income he has stated in his return. After verifying all the details available, the assessing
officer passes an order either confirming the return of income filed or making additions. This
raises an income tax demand, which the assessee must respond to accordingly.

4. Scrutiny Assessment

After submitting an income tax return, an Income Tax Officer may be assigned by the Income
Tax Department to assess the tax filing. The taxpayer is informed of this through an Income
Tax Notice under Section 143(2). The officer may request information, documents, and
books of accounts for scrutiny assessment, which will be thoroughly examined. The officer
then calculates the income tax payable by the taxpayer, and if there is a mismatch between
the income and the tax due, the taxpayer can either pay the extra amount or receive a refund.

If the taxpayer is not satisfied with the assessment, they can apply for recitation under Section
154 or submit a revision application under Section 263 or Section 264. If the Scrutiny
Assessment order is still considered invalid, the taxpayer can appeal to higher authorities
such as CIT (A), ITAT, High Court, and The Supreme Court, in that order.

5. Best Judgement Assessment

This assessment gets invoked in the following scenarios:

a. If the assessee fails to respond to a notice issued by the department instructing him to
produce certain information or books of accounts.

b. If he/she fails to comply with a Special Audit ordered by the Income-tax authorities.

c. The assessee fails to file the return within the due date or such extended time limit as
allowed by the CBDT

d. The assessee fails to comply with the terms as contained in the notice issued under
Summary Assessment After providing an opportunity to hear the assessee’s argument, the
assessing officer passes an order based on all the relevant materials and evidence available to
him. This is known as the Best Judgement Assessment.

6. Income Escaping Assessment

When the assessing officer has sufficient reasons to believe that any taxable income has
escaped assessment, he has the authority to assess or reassess the assessee’s income. The time
limit for issuing a notice to reopen an assessment is 4 years from the end of the relevant
assessment Year.

Some scenarios where reassessment gets triggered are given below.

a. The assessee has taxable income but has not yet filed his return.

b. The assessee, after filing the income tax return, is found to have either understated his
income or claimed excess allowances or deductions.

c. The assessee has failed to furnish reports on international transactions, where he is required
to do so.
hat is the meaning of assessment?

Every taxpayer has to furnish the details of his income to the Income-tax Department. These
details are to be furnished by filing his return of income. Once the return of income is filed by
the taxpayer, the next step is the processing of the return of income by the Income-tax
Department. The Income-tax Department examines the return of income for confirming its
correctness. The process of examining the return of income by the Income-tax Department is
called “Assessment”. Assessment also includes re-assessment or best judgment assessment
under section 144.

Note: The Finance Act, 2018 has inserted section 143(3A) to implement e-assessment
scheme for the regular assessment carried out by the Assessing Officer under section 143(3).

Now, the Finance Act 2020 has expanded the scope of e-assessment to cover the best
judgment assessments under section 144. The Central Government may issue necessary
directions in this regard by 31-03-2022.

Under the Income-tax Law, there are four major assessments as given below:

1. Section 143(1), i.e., Summary assessment without calling the assessee i.e. taxpayer.-
section 143(1)
2. Assessment under section 143(3), i.e., Scrutiny assessment- section 143(3)
3. Assessment under section 144, i.e., Best judgment assessment.
4. Assessment under section 147, i.e., Income escaping assessment.

Scope of assessment under section 143(1)

Under section 143(1) is like preliminary checking of the return of income. At this stage no
detailed scrutiny of the return of income is carried out. At this stage, the total income or loss
is computed after making the following adjustments (if any), namely:-

(i) any arithmetical error in the return; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is
claimed was furnished beyond the due date specified under sub-section (1) of section 139

(iv) disallowance of expenditure indicated in the audit report but not taken into account in
computing the total income in the return;

(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID or
section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of
section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been
included in computing the total income in the return.

However, no such adjustments shall be made unless an intimation is given to the assessee of
such adjustments either in writing or in electronic mode. Further, the response received from
the assessee, if any, shall be considered before making any adjustment, and in a case where
no response is received within thirty days of the issue of such intimation, such adjustments
shall be made.

For the above purpose “an incorrect claim apparent from any information in the return”
means a claim on the basis of an entry in the return:-

(i) of an item which is inconsistent with another entry of the same or some other item in such
return;

(ii) in respect of which the information is required to be furnished under the Act to
substantiate such entry and has not been so furnished; or

(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which
may have been expressed as monetary amount or percentage or ratio or fraction;

What is the procedure adopted for making the assessment under section 143(1)?

Assessment under section 143(1) is like preliminary checking of the return of income. At this
stage, the total income or loss is computed after making the preliminary adjustments (as
discussed in previous FAQ). The other procedures in this regard are as follows:
After making the adjustments (if any) as discussed in previous FAQ, the tax, interest, and fee
if any, shall be computed on the basis of the adjusted income.

Any sum payable by the taxpayer or refund due to the taxpayer shall be intimated to him.

An intimation shall be prepared or generated and sent to the taxpayer specifying the sum
determined to be payable by, or the amount of refund due to him.

An intimation shall also be sent to the taxpayer, in a case, where the loss declared in the
return of income by the taxpayer is adjusted but no tax or interest is payable by, or no refund
is due to him.

No intimation will be sent to the taxpayer in a case where no sum is payable or refundable or
no adjustment is made to the returned income. In such a case, the acknowledgement of the
return of income shall be deemed to be the intimation.

*As per section 234F, a fee shall be levied where the return of income is not filed within the
due dates prescribed under section 139(1). Fee for default in furnishing return of income shall
be Rs. 5,000 if return has been furnished after the due date prescribed under section 139(1).
However, it shall be Rs. 1,000 if the total income of an assessee does not exceed Rs. 5 lakh.

Assessment under section 143(1) can be made within a period of 9 months from the end of
the financial year in which the return of income is filed.

What is assessment under section 143(3)?

This is a detailed assessment and is referred to as scrutiny assessment. At this stage, a

detailed scrutiny of the return of income will be carried out. The scrutiny is carried out to
confirm the correctness and genuineness of various claims, deductions, etc., made by the
taxpayer in the return of income.

What is the scope of assessment under section 143(3) i.e. scrutiny assessment?

The objective of scrutiny assessment is to confirm that the taxpayer has not understated the
income or has not computed excessive loss or has not underpaid the tax in any manner.
To confirm the above, the Assessing Officer carries out a detailed scrutiny of the return of
income and will satisfy himself regarding various claims, deductions, etc., made by the
taxpayer in the return of income.

What is the procedure adopted for making the assessment under section 143(3) i.e. scrutiny
assessment?

In case of Assessment under section 143(3), a scrutiny is carried out to confirm the
correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the
return of income. The other procedures in this regard are as follows:

If the Assessing Officer or prescribed income tax authority considers it necessary or

expedient to ensure that the taxpayer has not understated the income or has not computed
excessive loss or has not underpaid the tax in any manner, then he will serve on the taxpayer
a notice requiring him to attend his office or to produce or cause to be produced any evidence
on which the taxpayer may rely on in support of the return.

The provisions of notice are governed by section 143(2). In other words, to carry out
assessment under section 143(3), the Assessing Officer should serve a notice under section
143(2).

Notice under section 143(2) shall be served on the taxpayer within a period of six months
from the end of the financial year in which the return is filed.

The taxpayer or his representative (as the case may be) will appear before the Assessing
Officer and will place his arguments, supporting, etc., on various matters/issues as required
by the Assessing Officer.

After hearing/verifying such evidence and taking into account such particulars as the taxpayer
may produce and such other evidence as the Assessing Officer may require on specified
points and after taking into account all relevant material which he has gathered, the Assessing
Officer shall, by an order in writing, make an assessment of the total income or loss of the
taxpayer and determine the sum payable by him or refund of any amount due to him on the
basis of such assessment.
What is the time limit for making the assessment under section 143(3) i.e. scrutiny
assessment?

As per section 153, the time limit for making assessment under section 143(3) is within:-

21 months from the end of the assessment year in which the income was first assessable. [For
assessment year 2017-18 or before]

18 months from the end of the assessment year in which the income was first assessable. [for
assessment year 2018-19]

12 months from the end of the assessment year in which the income was first assessable
[Assessment year 2019-20].

18 months from the end of the Assessment Year in which income was first assessable
[Assessment Year 2020-21].

9 months from the end of the Assessment Year in which income was first assessable
[Assessment Year 2021-22].

12 months from the end of the assessment year in which the income was first assessable
[Assessment year 2022-23 and onwards].

Note: If reference is made to TPO, the period available for assessment shall be extended by
12 months

Note: If a return of income is furnished in consequence of an order under clause (b) of

Section 119(2), time limit for making assessment is within 12 months from the end of the
financial year in which such return is furnished.

What is assessment under section 144?

Assessment under section 144 (called best judgment assessment) is an assessment carried out
as per the best judgment of the Assessing Officer. Best judgment assessment is resorted due
to certain failures (specified under section 144) on the part of the taxpayer (discussed in next
FAQ).
As per section 144, the Assessing Officer is under an obligation to make an assessment to the
best of his judgment in the following cases:

If the taxpayer fails to file the return of income as required within the due date prescribed
under section 139(1) or a belated return under section 139(4) or a revised return under section
139(5).

If the taxpayer fails to comply with all the terms of a notice issued under section 142(1).

Note: section 142(1) deals with the general provisions relating to an inquiry before
assessment. Under section 142(1), the Assessing Officer can issue notice asking the taxpayer
to file the return of income if he has not filed the return of income or to produce or cause to
be produced such accounts or documents as he may require and to furnish in writing and
verified in the prescribed manner information in such form and on such points or matters
(including a statement of all assets and liabilities of the taxpayer, whether included in the
accounts or not) as he may require.

If the taxpayer fails to comply with the directions issued under section 142(2A).

Note: Section 142(2A) deals with special audit. As per section 142(2A), if the conditions
justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer
will direct the taxpayer to get his

Accounts audited from a chartered accountant;

Inventory valued by a Cost accountant

nominated by the principal chief commissioner or Chief Commissioner or Principal

Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.

If after filing the return of income, the taxpayer fails to comply with all the terms of a notice
issued under section 143(2), i.e., notice of scrutiny assessment.

From the above criteria, it can be observed that best judgment assessment is resorted in cases
where the return of income is not filed by the taxpayer or there is no co-operation by the
taxpayer on various matters.
What is the procedure adopted for making the assessment under section 144 i.e. best
judgment assessment?

Assessment under section 144 (called best judgment assessment) is an assessment carried out
as per the best judgment of the Assessing Officer. The other procedures in this regard are as
follows:

If the circumstances justifying best judgment assessment (discussed in previous FAQ) are
satisfied, then the Assessing Officer will serve a notice on the taxpayer to show cause why
the assessment should not be completed to the best of his judgment.

No notice as given above is required in a case where a notice under section 142(1) has been
issued prior to the making of an assessment under section 144.

If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has reason to
believe that the case demands a best judgment, then he will proceed to carry out the
assessment as per best of his knowledge.

If the criteria of the best judgment assessment are satisfied, then after taking into account all
relevant material which the Assessing Officer has gathered, and after giving the taxpayer an
opportunity of being heard, the Assessing Officer shall make the assessment of the total
income or loss to the best of his judgment and determine the sum payable by the taxpayer on
the basis of such assessment.

What is the time limit for making the assessment under section 144 i.e. best judgment
assessment?

As per section 153, the time limit for making assessment under section 144 is within :

(a) 21 months from the end of the assessment year in which the income was first assessable.
[For assessment year 2017-18 or before]

(b) 18 months from the end of the assessment year in which the income was first assessable.
[for assessment year 2018-19]

(c) 12 months from the end of the assessment year in which the income was first assessable
[Assessment year 2019-20].
(d) 18 months from the end of the Assessment Year in which income was first assessable
[Assessment Year 2020-21].

(e) 9 months from the end of the Assessment Year in which income was first assessable
[Assessment Year 2021-22].

(f) 12 months from the end of the assessment year in which the income was first assessable
[Assessment yeadr 2022-23 and onwards].

Note: If reference is made to TPO, the period available for assessment shall be extended by
12 months/

Note: If a return of income is furnished in consequence of an order under clause (b) of

Section 119(2), time limit for making assessment is within 12 months from the end of the
financial year in which such return is furnished.

What is assessment under section 147?

This is an income escaping assessment. This assessment is carried out if the Assessing
Officer observes that any income has escaped assessment.

What are the circumstances under which assessment under section 147 i.e. income escaping
assessment can be carried out?

If any income of an assessee has escaped assessment for any assessment year, the Assessing
Officer may, subject to the new provisions of sections 148 to 153, assess or reassess such
income and also any other income which has escaped assessment and which comes to his
notice subsequently in the course of the proceedings, or recompute the loss or the
depreciation allowance or any other allowance, as the case may be, for such assessment year.

It is imperative to note that once assessment or reassessment or re-computation has started,

the Assessing Officer is empowered to assess or reassess the income which has escaped
assessment and which comes to his notice subsequently in the course of the proceeding under
this procedure notwithstanding that the procedure prescribed in new section 148A was not
followed before issuing such notice for such income.
What is the procedure adopted for making the assessment under section 147 i.e. income
escaping assessment?

The Assessing Officer is required to make an assessment or re-assessment as per the

following procedures:

Issue of Notice

The Assessing Officer shall serve on the assessee a notice under Section 148 along with a
copy of the order passed under clause (d) of Section 148A, requiring him to furnish return of
his income or the income of any other person in respect of which he is assessable under this
Act during the previous year corresponding to the relevant assessment year. The return shall
be furnished within 3 months from the end of the month in which such notice is issued. This
period of 3 months can be extended by AO.

The notice shall be issued in the prescribed form and verified in the prescribed manner and
setting forth such other particulars as may be prescribed; and the provisions of Income-tax
Act shall, so far as may be, apply accordingly as if such return were a return required to be
furnished under section 139.

Circumstances in which notice can be issued

Notice is required to be issued only when information with the Assessing officer suggests that
the income chargeable to tax has escaped assessment. Prior approval of specified authority is
also required to be obtained before issuing such notice by the Assessing Officer.

However, no such prior approval is required if the Assessing Officer has passed an order
under Section 148A(d) with prior approval of the specified authority stating that the income
is escaping assessment.

What is the time limit for making the assessment under section 147 i.e. income escaping
assessment?

As per section 153, the time limit for making assessment under section 147 is:-

Within 9 months from the end of the financial year in which the notice under section 148 was
served (if notice is served before 01-04-2019).
12 months from the end of the financial year in which notice under section 148 is served (if
notice is served on or after 01-04-2019).

Note: If reference is made to TPO, the period available for assessment shall be extended by
12 months

What recourse is available to me if I am not satisfied with the order passed by my Assessing
Officer?

If you are not satisfied with the order passed by your Assessing Officer then you can file an
appeal to the higher authority. The first appellate authority is the Commissioner (Appeals).
Subsequently, the matter can be taken to the Income-tax Appellate Tribunal, then to the High
Court and the Supreme Court.

Alternatively, instead of going for the appeal mechanism, you can make an application of
revision to the Commissioner of Income-tax.

Form No. 35 .In case of appeals to Commissioner (Appeals) (irrespective of date of initiation
of assessment proceedings) the following fee is payable :

Where assessed income is Rs. 1,00,000 or less - Rs. 250.

Where assessed income is more than Rs. 1,00,000 but not more than Rs. 2,00,000 - Rs. 500.

Where assessed income is more than Rs. 2,00,000 - Rs. 1,000.

Where subject-matter of appeal is not covered under any of the above - Rs. 250.

What is limited scrutiny?

In case of assessment two type of cases have been selected for scrutiny: one is 'Limited
Scrutiny' and other is 'Complete Scrutiny'.

The assessees concerned have duly been intimated about their cases falling either in 'Limited
Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-
tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under:

a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the

assessee concerned.
b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall
remain confined only to the specific reasons/issues for which case has been picked up for
scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues.

c. These cases shall be completed expeditiously in a limited number of hearings.

d. During the course of assessment proceedings in 'limited Scrutiny' cases, if it comes to the
notice of the Assessing Officer that there is potential escapement of income exceeding Rs.
five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial
verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with
the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by
the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating
'Complete Scrutiny' in that particular case.

How to file response to notice issued under section 143(2)?

If a return has been furnished under section 139 or in response to notice under section 142(1),
the Assessing Officer or the prescribed income tax authority, as the case may be, if, considers
it necessary to ensure that the assessee has not understated the income or has not computed
excessive loss or has not under-paid the tax in any manner, shall serve a notice on the
assessee requiring him on a date specified in the notice, either to attend the office of the
Assessing Officer or to produce before the Assessing Officer any evidence on which the
assessee may rely in support of the return.

Provided that no notice under this sub section shall be served on the assessee after the expiry
of 6 months from the end of the financial year in which the return is furnished.
1. Assessment in Case of Search u/s 153A
This type of income tax assessment is applicable on taxpayers who have been
searched u/s 132 of the Income Tax Act. According to the income tax assessment
procedures outlined in Section 153A, the Assessing Officer can scrutinise the
taxpayer’s ITR for the last six years, immediately preceding the ‘search’ year.
However, it is to be noted that the assessment must be made in accordance with the
material disclosed during the search.