Assessment/ Reassessment of Income Assessment/ Reassessment of Income Escaping Assessment Escaping Assessment

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Assessment/ Reassessment of Income Assessment/ Reassessment of Income

Escaping Assessment Escaping Assessment

Nritya Agrawal

Nritya Agrawal


Income Escaping Assessent

Income which has escaped from assessment

Either wholly or partly

May be brought to tax net under this



AO may assess or reassess an income which is chargeable to tax and escaped assessment other than incomes

involving matters which are subject

matter of any appeal, reference or



Concept of Income Escaping Assessment

Scheme of taxation taxes an income in the Relevant A/Y in the hands of person who has earned it

If the income is not taxed in that relevant A/Y, it has escaped from assessment


1. If taxed in another A/Y or

2. Charged to Tax in the hands of another person [CIT vs Narsee]


Deemed Cases Of Concealment

Income escaping due to non furnishing of return

Income escaping due to non-assessment Post assessment finding about of income escaping assessment


Under Assessment of income


Income assessed at too low rate


Excessive loss, depreciation etc. allowed


To undertake assessment u/s 147, notice has to be issued u/s 148.

Before issuing notice u/s 148 the AO

shall ‘record his reasons’ for issuing the notice.

The notice has to be issued separately

for each AY for which proceedings are

to be taken up u/s 147.


The assessee has to file ROI u/s 148 – even if he has filed the ROI earlier in normal course.

AO is duty bound to provide the

assessee the reasons recorded by him –

if the assessee requests for it after filing


If on request the reasons are not

supplied – then the AO cannot proceed u/s 147.

No previous assessment u/s 143(3)/

144, proceedings u/s 147 called assessment

Else re-assessment


The most important thing- AO should have ‘

reasons to believe

’ that income chargeable to tax has

escaped assessment

AO can also consider any other income under any head of income that comes to his detection

subsequent to issue of notice u/s 148 without issuing a fresh notice


Reasons to believe includes:

1) Retrospective change of law-

disallowing an expense/ taxing a receipt 2) A later SC judgement

3) Evidence in possession of AO that the assessee has understated the

income or claimed excessive loss/

deductions etc.

4) Mistake apparent from records


Reasons to believe does not include – rumors, gossips, suspicion or change of personal opinion of AO

Where the AO computed the income of an assessee by applying one of the different

legal permissible method, he cannot reopen assessment to apply another permissible

method which would result in larger income-


Assessment u/s 147 and 143(3) (and also 144) is sort of linked. After all, any

assessment can be done only on scrutiny of records.

Now take an example – the assessee “X” has filed Return for AY 2006-07 based on income for the FY 2005-06 within due date of 31-

July-2006. For doing scrutiny assessment u/s

143(3), Notice u/s 143(2) can be issued upto



Now suppose there is no action by the

department and no assessment proceedings are undertaken by the department. Now

suppose, in the May 2009, the AO concerned while doing assessment of some other case comes to understand that for “X”, for the AY 2006-07, certain amount of income has

escaped assessment. Now in May 2009, the

AO cannot issue “X” notice u/s 143(2) for

doing assessment u/s 143(3).


But now he can do the assessment u/s 147.

He would issue him notice u/s 148 on 30-May- 2009 for opening assessment proceedings u/s 147.

In response to this notice – “X” files return in 5- June-2009. This return is treated as return u/s 139. But this return cannot be revised.

AO can issue him notice u/s 143(2) till 30-Sept- 2010 to call for various documents and records The assessment shall be considered to have

been carried out u/s 147

AO issues notice u/s 143(2) after 30-Sept-2010,

proceeding u/s 147 would be void



Now suppose – in response to notice u/s 147, the assessee “X” does not file any return.

AO shall proceed u/s 147 to the Best of his Judgment to assess the income and tax.

U/s 148 notice can be issued till the end of 6 years from the end of relevant AY, if the

income which has escaped assessment is or likely to be 1,00,000 or more. Otherwise the limit is 4 yrs.

There are various criteria laid down as to


All these tend to complicate the assessment proceedings. And that is apart from – at times – illegal gratification for ’satisfaction’ of AO

’satisfaction’ of AO more important than the

correctness of accounts!



SECTION 149(3) SECTION 150(1)



Assessment made earlier u/s 143(3)/ 147 No notice u/s 148 shall be issued after the expiry of 4 yrs from the end of Relevant A/Y.



Assessee has filed ROI u/s 139/142(1)/148 AND

2. Assessee has disclosed fully & truly all

material facts necessary for assessement


But the explanation to sec 147 provides Production before AO of the books of

accounts and other evidence from which

material evidence could have been gathered by him using reasonable intelligence will not necessarily amount to true and full discloure.



Section 149(3)- Notice Issued To Agent Of Non-Resident

Notice cannot be issued after the expiry of 2

years from the end of relevant assessment



Section 150(1)- No Time Limit For Issue Of Notice

Notice under section 148 may be issued at any time to give effect to the finding or

direction contained in an order u/s 250, 254, 260A, 262, 263 or 264 of the IT Act OR THE ORDER OF A COURT UNDER ANY OTHER



Computation of Concealed Income, Escaping Assessement

Whole Assessement gets reopened

Re-assessment Proceedings are for the benefit of revenue [CIT vs Sun Engineering Works (P) Ltd.]

Valuation report cannot be the basis of revision Cash credits and loans

Income assessed in the hands of wrong person Expenditure or exemption relating to concealed income to be allowed

Assessee is entitled to rebut the concealment Re-assessment proceedings be dropped if over

assessment nullifies the effect of concealment and it was not contested in the appeal [Ch CIT vs Dharam


Time Limit For Assessment (Sec. 153(2))

No Order of assessment or reassessment u/s 147 shall be made after the expiry of 9 months from the end of the F/Y in which notice u/s 148 was Served


Example- For A/Y 2003-04, the assessment was completed on 10.12.2004 u/s 143(3) assessing the income at Rs. 5,00,000. On 30.3.2010, the AO

notices that income of Rs. 90,000 has escaped

assessment for A/Y 2003-04 and issues a notice u/s 148 on that date. The said notice is served on the assessee on 4th April, 2010.

Time limit for completion of assessment?







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