INTIMATION OF LOSS [SECTION 157]

When, in the course of the assessment of total income of any assessee, it is established that a loss has taken place which the assessee is entitled to have carried forward and set-off under the provisions of section 72(1) or 73(2) or 74(1) or 74(3) or 74A(3), the Assessing Officer shall notify the assessee by an order in writing the amount of the loss as computed by him for this purpose.

Self-examination questions

1. Filing of return of income on or before due date is necessary for carry forward of all losses - Discuss the correctness of this statement.

2. Who are the persons authorised to sign the return of income in the case of - a) Hindu Undivided Family

b) Company c) Partnership firm

3. What are the circumstances when a return of income can be treated as defective?

4. List ten transactions for which quoting of permanent account number is mandatory.

5. Write short notes on -

a) Regular assessment b) Best judgement assessment 6. Write short notes on -

a) Valuation of inventory for tax purposes b) Tax Return Preparers

7. Does the Assessing Officer have power to make a reference to the Valuation Officer?

If so, under what circumstances can he exercise such power?

8. (i) Discuss the procedure for assessment in search cases under section 153A of the Income-tax Act, 1961?

(ii) What is the time limit for completion of such search assessments?

9. The Assessing Officer found defects in the books of accounts of XYZ Ltd. for the A.Y.2004-05 and made a best judgement assessment by estimating profits at 10% of the gross receipts for the P.Y.2003-04. On account of the defects in the books of accounts for the A.Y.2004-05, the Assessing Officer proceeded to reopen the assessment for the A.Y.2003-04 and initiated proceedings under section 147. Accordingly, the Assessing Officer estimated the net profit at the rate of 10% of gross receipts for the P.Y.2002-03 as against the loss shown by the company in its return of income. Discuss whether the action of the Assessing Officer is correct in law?

10. Is it necessary that the Assessing Officer should record his reasons in writing for exercising the power to reduce the period for making the payment specified in the notice of demand?

11. Anirudh filed return of income for A.Y. 2008-09 claiming a refund of Rs.37,500. The said refund was granted and paid to the assessee on 1st March, 2009 after processing the return under section 143(1). Later on, the case was taken up for regular assessment by issue of notice under section 143(2) and the said assessment was completed on 7th September, 2009 resulting in demand of Rs.6,300. Is the assessee liable to pay interest on the amount of refund already granted to him and if so, what is the amount of such interest?

12. Rallis Ltd. filed its original return for the previous year 2006-07 on 30^th October, 2007 declaring loss of Rs.16.25 lakhs. Thereafter, it filed a revised return on 28^th February, 2009 declaring loss of Rs.19.3 lakhs. The assessment of Rallis Ltd. was not completed at that point of time. The Assessing Officer opined that the loss indicated in the original return alone can be carried forward for set-off in the subsequent yeas, since section 80 does not contemplate that a revised return can be filed. Is the contention of the Assessing Officer correct? Discuss.

13. Can intimation under section 143(1)(a) be issued after notice for regular assessment is issued under section 143(2)?

14. The Assessing Officer had completed the assessment of Vikram Traders under section 143(1) without disputing any cash credit entries which were entered in the books of account. Thereafter, proceedings under section 147 were initiated only because of information received from another Assessing Officer regarding the purchases made by Vikram Traders, which had not been recorded in the books of account. In the course of reassessment proceedings, Vikram Traders were asked to explain as to why it had not entered all the purchases in its books of account. Since no satisfactory explanation was given, the Assessing Officer made addition on this account. Further, the Assessing Officer also gave notice to Vikram Traders to prove the genuineness of the cash credit entries

made in books of account, and on failure of the assessee to do so, he treated the entire amount of cash credits as the assessee’s income from undisclosed sources.

Discuss whether the Assessing Officer can make fishing enquires on concluded contracts in the course of reassessment proceedings under section 147? Is the action taken by the Assessing Officer correct?

15. What are the consequences if the assessee fails to maintain the proper records of the stock?

16. Can an assessee seek reasons for issue of notice under section 148 ? Answers

9. This issue came up before the Allahabad High Court in Dass Friends Builders (P.) Ltd. v. Dy. CIT (2006) 153 Taxman 282. The High Court observed that under section 147, the words used are ‘has reason to believe’ and not ‘has reason to suspect’. The material should be relating to the particular year for which the assessment is sought to be reopened. In this case, the escaped income for the relevant year was inferred on the basis of the assessed income of the next year by way of best judgement assessment due to defects found in the books of account for the next year. There was no material that some profit was earned in the relevant previous year or that the loss shown in the return was incorrect. The High Court held that in such circumstances, there was no material relating to the assessment year under consideration of any escaped income. The basis for reopening of the case is only a presumption and guess work and does not constitute material to reopen the case.

Therefore, in view of the principle of law, in the absence of specific material of escaped income for the previous year 2002-03, no belief could be formed about the escaped income merely on the basis of the assessment for the previous year 2003-04. Hence, in this case, the initiation of proceedings under section 147 was not correct in law.

10. The Delhi High Court, in Agricultural Produce Marketing Committee v. Union of India (2006) 155 Taxman 186, observed that the legal position regarding the competence of the Assessing Officer to reduce the period for payment of the outstanding dues is clearly stated in section 220. A plain reading of the proviso to section 220(1) makes it clear that while the assessing authority has the power to reduce the period for making the payment specified in the notice of demand under section 156, such reduction must be supported by valid reasons to be recorded in writing. Therefore, whenever the competent authority invokes its powers of reducing the period stipulated under section 220, it must take care not only to pass a proper order but also to support the same by cogent reasons.

In this case, the High Court has built in the principles of natural justice into the provisions of section 220(1), by interpreting that the “reason to believe” as required

by the proviso to section 220(1), implies that such reasons should be cogent and should be recorded in writing.

11. As per section 234D, where any refund is granted to the assessee after processing