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An Evaluation of Assessment
Procedure under the
Income-tax Act, 1961
148
Chapter Five
An Evaluation of Assessment Procedure
UNDER THE INCOME-TAX ACT, 1961
5.1 Introduction
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bank or institution; or
i
(vi) is a member ofa club where entrance fee charged is twentyfive thousand
rupees of more,
shall furnish a return of his income during the previous year, on or before the
due date in the prescribedform and verified in the prescribed manner and setting
forth such other particulars as may be prescribed;
Providedfurther that the Central Government may, by notification in the
Official Gazette, specify the class or classes ofpersons to whom the provisions
of the first proviso shall not apply;
Provided also that every company shallfurnish on or before the due date
' ' i
(i) company; or
(ii) a person (other than a company) whose accounts are required to be
audited under this Act or under any other lawfor the time being in
force; or
(iii) a workingpartner ofafirm whose accounts are required to be audited
wider this Act or under any other law for the time being in fame,
the 31st day of October ofthe assessment year;
(b) in the case ofa person other than a company, referred to in thefirstproviso
to this sub-section, the 31st day of October of the assessment year;
(c) in the case of any other assessee, the 31st day ofJuly of the assessment
year;
Explanation-3. - For the purposes ofthis sub-section, the expression “travel to
anyforeign country " does not include travel to the neighbouring countries or to
such place ofpilgrimages the Board may specify in this behalfby notification in
the Official Gazette.
(2) (Omitted).
(3) If any person, who has sustained a loss in any previous year under the head
“Profits and gains ofbusiness ofprofession ” or under the head “Capital gains ”
and claims that the loss or any part thereof should be carried forward under
sub-section (1) ofSection 72, or sub-section (2) ofSection 73, or sub-section (1)
or sub-section (3) ofSection 74 or sub-section (3) ofSection-74, he mayfurnish,
within the time allowed under sub-section (1) a return of loss in the prescribed
form and verified in the prescribed manner and containing such otherparticulars
as may be prescribed, and all the provisions of this Act shall apply as if it were
; a return under sub-section (1).
(4)' Any person who has notfurnished a return within the time allowed to him under
1
••* ?
sub-section (1), or within the time allowed under a notice issued under sub-
/ section' (1) ofSection 142, mayfurnish the return for any previous year at any
time before the expiry of one yearfrom the end of the relevant assessment year
or before the completion ofthe assessment, whichever is earlier;
Provided that where the return relates to a previous year relevant to the
assessment year commencing on the 1st Day of April, 1988, or any earlier
151
(6) The prescribedform ofthe returns referred to in sub-sections (1) and (3) of this
Section and in clause (1) ofsub-section (1) ofSection 142 shall, in such cases as
may be prescribed, require the assessee to furnish the particulars of income
exempt from tax, assets of the prescribed nature, value belonging to him, Ins
bank account and credit card held by him, expenditure exceeding the prescribed
limits incurred by him under prescribed heads and such other outgoings as may
be prescribed.
(7) (Omitted).
(8) (a) Where the return under sub-section (1) or sub-section (2) or sub-section
(4)for an assessmentyear isfurnished after the specified date, or is notfurnished,
then (whether or not the Assessing Officer has extended the (kite forfurnishing
the return under sub-section (1) or sub-section (2)), the assessee shall be liable
to pay single interest at fifteen per cent per annum, reckoned from the day
immediately following the specified date to the date of the furnishing of the
return or, where no return has been furnished, the date of completion of the
assessment under Section 144, on the amount of the tax payable on the total
income as determined on regular assessment, as reduced by the advance tax, if
any, paid, and any tax deducted at source.
Provided that the Assessing Officer may, in such cases and under such
circumstances as may be prescribed, reduce or waive the interestpayable by any
assessee under this sub-seetion.
Explanation-1. - For the purpose ofthis subsection, “specified date ”, in relation
to a return for an assessment year, means, -
■ (a) in the case of every assessee whose total income, or the total income of
any person in respect ofwhich he assessable under this Act, includes any
income from business or profession, the date ofthe expiry offour months
from the end ofthe previous year or where there is more than one previous
year, from the end of the previous year which expired last before the
commencement of the assessment year or the 30th day of June of the
assessment, whichever is later;
(b) in the case ofevery other assessee, the 30th day ofJune ofthe assessment
year.
153
is made, the Assessing Officer may condone the delay and treat the return as a
valid return.
Explanation.- For the purposes of this sub-section, a return of income shall be
regarded as defective unless all the following conditions arefulfilled, namely,-
(a) the annexures, statements and columns in the return ofincome relating to
computation ofincome chargeable under each head ofincome, computation
ofgross total income and total income have been dulyfilled in;
(b) the return is accompanied by a statement showing the computation ofthe
tax payable on the basis of the return;
(bb) the return is accompanied by the report ofthe audit referred to in Section
44-AB, or, where the report has been furnished prior to the furnishing of
the return, by a copy ofsuch report together with proofoffurnishing the
report;
(c) the return is accompanied by proof of -
(i) the tax, if any, claimed to have been deducted at source and the
advance tax and tax on self-assessment, ifany, claimed to have been
paid;
f" (ii) the amount ofcompulsory deposit, ifany, claimed to have been made
under the Compulsory Deposit Scheme (Income Tax Payers) Act,
1974 (38 of1974);
(d) where regular boohs ofaccount are maintained by the assessee, the return
is accompanied by copies of-
*(i) manufacturing account, trading account, profit and loss account,
or, as the case may be, income and expenditure account or any other
similar account and balance sheet;
(ii) in the case of a proprietary business or profession, the personal
account ofthe proprietor, in the case ofafirm, association ofpersons
or body of individuals, personal accounts of the partners or
members; and in the case of a partner or member of a firm,
association ofpersons or body of individuals, also his personal
account in the firm, association ofpersons or body ofindividuals;
155
(e) where the accounts of the assessee have been audited, the return is
accompanied by copies ofdie auditedprofit and loss account and balance
sheet and the auditor Is report and, where an audit ofcost accounts of the
assessee has been conducted under Section 233-B of the Companies Act,
1956 (1 of1956), also the report under that section;
(f) where regular books of account are not maintained by the assessee, the
return is accompanied by a statement indicating the amounts of turnover
or, as the case may be, gross receipts, gross profit, expenses and netprofit
of the business or profession and the basis on which such amounts have
been computed, and also disclosing the amounts of total sundry debtors,
sundry creditors, stock-in-trade and cash balance as at the end of the
previous year.
(10) (Omitted).
as under:
The following persons are under statutory obligation to file return of income by
> Political Parties : Political parties are under a statutory obligation to file
provisions of the Income-tax At and the total income for this purpose has to be
> Liquidator : Under the Companies Act, a liquidator is not exempt from
its income is exempt.4 If the total income of a charitable trust (without claiming
exemption under Sections 11, 12 and 13 A) exceeds the maximum amount not
> Obligatory filing of return when income is lower than exemption limit
charitable trust) shall submit his return of income in Form 2C if he fulfills my one
otherwise;
1. Pannalal Nandlal Bhandari v. CIT (1961) 41ITR 76 (SC).
2. Common Cause (A Registered Society) v. Union of India (1996), 85 Taxman
600/222 ITR 260 (SC)
3. CIT v. Official Liquidator of the Agra, Spinning and Weaving Mills Co.Ltd.
(1934) 2 HR 79 (All.).
4. Lala Gopi Mai Kuthiala Trust v. ITO (1962) 46 ITR 436 (Punj.)
157
Mansarover);
(e) holder of a credit card (excluding ‘add-on’ card and Kisan Credit Card);
The above provisions shall not apply to persons as are notified by die Government,
to the non-residents; as also an individual who is atleast 65 years of age and not
forms prescribed by Rule-12 and should be verified in the manner indicated therein.
Rule-12 prescribes the following forms for different categories of the assessees.
> Timeforfiling of return : The due dates for filing the returns by different
' •*
> Return ofLoss: A return of loss can also be filed on the above dates. The
following losses cannot be carried forward ifthe return ofloss is not submitted in
time: '
(c) loss from the activity of owning and maintaining race horses.
159
> Extension of time: Undear the amended provisions applicable from 1 st April
1989, the Assessing Officers do not have any power to extend the date of filing
> Belated returns : If the return of income is not furnished within the time
allowed under Sec. 139(1) or within the time allowed under notice issued under
Sec. 142(1), the person may, before the assessment is made, furnish the return of
any previous year at any time before the end of one year from the end of relevant
assessment year.
> Revised return : If the following conditions are satisfied, a person may
pursuance of a notice under Sec. 142(1). But the return filed under
(b) A revised return can be filed under Sec. 139(5) only ifthe assessee discovers
not false ip the knowledge of the person making it. The word ‘discovers’
takes within its ambit that which was hidden, concealed or unknown.
due to a bona fide inadvertence or mistake on the part ofthe assessee.7 But
the assessment of the assessee itself and it is not that every incorrect
(c) Also, a revised return under Sec. 139(5) can be filed at. any time before the
expiry of one year from the end of the relevant assessment year or before
> Auditor’s report: Where the assessee-trust which was required to file the
auditor’s report with its return did not file the same with the original return, the
assessee was entitled to file the same with the revised return.9
return and a correction of the return. If the assessee files some application for
mean that he has filed a revised return. It will still retain the character of an
original return, but once a revised return is filed, the original return must be
taken to have been withdrawn and to have been substituted by a fresh return for
{ (J
the purpose of assessment.10 If the assessee files a revised return, assessment
y Application by the assessee: Where, after filing his return and after receiving
notice for production of accounts, the assessee sent an application to the Income-
tax Officer stating that a further income was required to be added to the declared
income, it was held that it would not amount to filing of a revised return.12
> Period oflimitation: A second revised return can be filed under Sec. 139(5)
correcting omissions or wrong statements made in the first revised return, for,
the first revised return filed under Sec. 139(5) would, in law, be a return under
Sec. 139(1) also. The period of limitation prescribed under Sec. 153(1) will run
from the date of filing of second revised return, if the assessee has filed two
revised returns.13
seek permission to revise a return. It is the right of the assessee to submit such
return.14
Where the Assessing Officer considers that the return of income furnished by the
assessee is defective, he is given the discretion to intimate the defect to the assessee
and give him an opportunity to rectify the defect within a period of fifteen days
from the date of intimation or within such further extended time, as the Assessing
If the defect is not rectified within the period specified, then the Assessing
Officer can treat the return as an invalid return and other provisions ofthe Income-
tax Act would apply as if the assessee had failed to furnish the return. Where the
assessee rectifies the defect within the period specified, but before the assessment
is made, the Assessing Officer has been empowered to condone the delay and
(a) a statement showing the computation oftax payable on the basis of return;
(b) audit report referred to in Sec.44AB, or where the report has been furnished
(c) proof of the tax, if any, claimed to have been deducted at source and the
advance tax and tax on self-assessment, if any, claimed to have been paid;
(d) proof of the amount of compulsory deposit, if any, claimed to have been
1974:
(f) where the accounts ofthe assessee have been audited, copies ofthe audited
profit and loss account and the balance sheet and a copy of the auditors’
report;
(g) where an audit of cost accounts of the assessee has been conducted under
Sec.233B of the Companies’ Act, the auditor’s report under that Section;
(h) where regular books of account are maintained by the assessee, a statement
and net profit of the business or profession and the basis on which such
amounts have been computed, as also ofthe amount oftotal sundry debtors,
previous year.
- The CBDT, vide its Circular No.281 dated 22.9.1980, has given the
> Defects other than the specified defects: A return ofincome is to be regarded
Sec. 139(9). In other words, the provision in Section 139(9) is not applicable in
the case of returns which do not contain any defects specified above. However,
the Calcutta High Court held that the defects specified in Sec. 139(9) are only
illustrative and not exhaustive.15 The Assessing Officer cannot ignore the specified
IS. CIT v. Raj Bahadur Bissesswarlal Motilal Malwasi Trust (1992) 19S ITR 82S)
164
defects and must get them rectified but to contend that only the defects specified
can be got rectified and no other defects would be Rutting unnecessary restrictions
absurd results not intended by the Legislature. The Assessing Officer has the
power to ask the assessee to remoye all defects ip the return pther than the defects
> Invalid return: The provision makes a distinction between a defective return
invalid return. It is only when a return contains any of the specified defects and
thp Assessing Officer, in his discretion, intimates the defect to the assessee and
the assessee fails to rectify the same within the specified period that the return
!
made, to Sec.292B, which, inter alia, provides! that no return of income will be.
The provision ip Sec. 139(9), however, overrides other provisions of the Income-
• i
tax Act (including.Sec.292B) in this regard and in a case where any ofthe specified
defects is not removed within the time allowed, the Return will be treated as
invalid return and the provisions of the Income-tax Act wifi apply as ifthp assessee
> Time limit of 15 days : The defect intimated by the Assessing Officer is
the date ofintimation. Where the Assessing Officer send a written communication
tp the assesspc by post or through Notice Server, the period of 15 days will have
assessee. Where there is a default in rectifying the defect intimated by the Assessing
Officer, the return of income has to be treated as an invalid return and further
proceedings will have to be taken on the footing that the asseesee had failed to
furnish the return. Thus, in a case where the return is furnished voluntarily under
Sec. 139(1), the Assessing Officer cannot proceed to make an ex-pqrte assessment
under Sec. 144 without serving a notice under Sec. 148. Where, however, the
defective return was filed ha response to a notice under Sec. 148, the Assessing
case where the assessee rectifies the defect alter the expiry of the prescribed
period of 15 days or the further period allowed by the Assessing Officer, but
before the assessment is made, the Assessing Officer may condone the delay and
treat the return as a valid return. Thus, in a case where the defect is not rectified
within the tipie allowed, but the assessee rectifies the same before the Assessing
, * \
Officer has completed the assessment, it will not be open to the assessee to question
the validity pf the assessment made by the Assessing Officer on the ground that
- ' V1'*
the defect had not been rectified within the time allowed and accordingly, the
It mu&t also he noted that a return which is not verified by the assessee is
not valid in the eye of law,16 as also an unsigned return is not a valid return at
all.17 Furthermore, the statutory time of 15 days for removing the defects in
return of income is available not only tp the proceedings before the first assessment
16. C1T v. br.kxishan Lai Gqyal (1?84) 148 1TR 283 (Punj.& Har.)
17. Befaari Lai Oiattexji v. GIT (1934) 2 ITR 377 (All.).
166
appellate authorities.18
the Board may, by notification in the Official Gazette, specify the date from
which the persons referred to in sub-section (1) and (2) and other persons who
have been allotted Permanent Account Numbers and residing in a place to
specified in such notification, shall, within such time as may be specified, apply
to the Assessing Officerfor the allotment ofsuch Permanent Account Number to
a person, the Permanent Account Number, if any, allotted to him earlier shall
cease to have effect.
Provided that the persons to whom Permanent Account Number under the
new series has already been allotted shall not applyfor such number again.
(5) Every person shall -
(a) quote such number in all his returns to, or correspondence with, any income
tax authority;
(b) quote such number in all challans for the payment ofany sum due under
this Act;
(c) quote such number in all documents pertaining to such transactions as
may be prescribed by the Board in the interests ofthe revenue, and entered
into by him;
Provided that the Board may prescribe different dates for different
- * transactions or class of transactions orfor different class ofpersons;
' Providedfurther that a person shall quote General Index Register
Number till such time Permanent Account Number is not allotted to such
• person.
(d) intimate the Assessing Officer any change in his address or in the name
and nature ofhis business on the basis of which the Permanent Account
- Number was allotted to him.
' *x
(5-A) Evety personreceiving any sum or income or amountfrom which tax Juts been
deducted under the provisions ofChapter XVJI-B, shall intimate his permanent
account number to the person responsible for deducting such tax under that
Chapter;
Provided that nothing contained in this sub-section shall apply to a non
resident referred to in subsection (4) of Section 115-AC or subsection (2) of
Section 115-BBA, or to a non-resident Indian referred to in Section 115-G;
168
(f) the manner in which the Permanent Account Number or the General Index
/> 7 /
Register Number shall be tptoted in respect ofthe categories oftransactions
„ ; V referred to clause (b);
. (g) the time and the manner in which the transactions referred to in clause (c)
shall be intimated to the prescribed authority.
Explanation. -For the purposes ofthis Section, -
(a) “Assessing Officer ” includes an income tax authority who is assigned the
duty ofallotting permanent account number;
(b) “permanent account number” means a number which the Assessing Officer
may allot to any person for the purpose of identification and includes a
Permanent Account Number allotted under the new series;
170
(c) “permanent account number under the new series” means a Permanent
Account Number having ten alphanumeric characters and issued in the
form ofa laminated card;
(d) “General Index Register Number ” means a number given by an Assessing
Officer to an assessee in the General Index Register maintained by him
and containing the designation and particulars of the ward or circle or
(PAN) is as under:
Allotment of a PAN
> The following persons should apply for the allotment of the PAN:
(a) Every person, if his total income assessable during the previous year exceeds ,
the maximum amount which is not chargeable to tax or any person carrying
i
or are likely to exceed Rs.5.0 lakh in any previous year and who has not
assessment year for which the income exceeds the maximum amount not
chargeable to tax or before the end of the accounting year for which gross
(b) A person who is required to furnish return of income under sub-sec. (4A) of
Sec. 139 (i.e. a charitable trust) is also required to obtain permanent account
(c) The Central Government has power to specify any class or classes of persons
by whom tax is payable under the Income-tax Act or any tax or duty is
171
payable under any other law for the time being in force, including importers
and exporters (whether any tax is payable by them or not) to apply to the
Besides the above cases, the Assessing Officer may also allot a PAN to any other
person by whom a tax is payable. Any other person may also apply for a PAN.
(a) Every person receiving any sum or income from which tax has been deducted
shall intimate his PAN (or GIR number if PAN is not allotted) to the person
responsible for deducting tax. This requirement shall not apply to a non-resident
to in Sec. 115G, for whom it is not necessary to furnish a return under Sec. 139(1).
The provision also shall not apply in case of a person whose total income is
not chargeable to income-tax or who is not required to obtain PAN if such person
referred to in Sec. 197A to the effect that the tax on his estimated total income of
(b) Every ‘buyer’ under Sec.206C shall intimate his PAN to the ‘seller’.
Every person shall quote his PAN or GIR number in all documents pertaining
(a) sale or purchase of any immovable property valued at Rs.5.0 lakh or more;
by a registering authority;
(c) a Time Deposit exceeding Rs.50,000 with a banking company to which the
(d) a deposit, exceeding Rs.50,000 in any account with Post Office Saving
Bank;
(e) a contract ofa value exceeding Rs. 10.0 lakh for sale or purchase of securities
Regulation Act, 1949, applies (but other than time deposit account);
(h) payment to hotels and restaurants against their bills for an amount exceeding
specified in above till such time the PAN is allotted to him. Where a person,
making an application for opening a bank account is a minor and who does not
have any income chargeable to income-tax, he shall quote the PAN or GIR number
of his father or mother or guardian, as the case may be. Any person who has not
been allotted a PAN or who does not have a GIR and who makes payment in cash
No.60 giving therein the particulars of such transaction. Form No. 60 is, however,
Also, the following provisions have been made with effect from 1st June,
collection at source:
(1) Tax deduction at source (Sec.l39A(5B)) : Where any sum or income has
been paid after deducting tax, every person deducting tax shall quote the PAN of
Sec.203 (Form No. 16,16A) and in all returns under Sec.206 (Form No.24, 26,
etc.). The Central Government may, however, have the power to notify separately
the dates from which these provisions shall apply in respect of any class or classes
of persons.
The above provisions shall not apply in case of a person whose total income
person furnishes to the person responsible for deducting tax, a declaration referred
to in Sec.l97A to the effect that the tax on his estimated total income of the
(2) -Tax collection at source (Sec. 139A(5)) : Every seller collecting tax under
Sec.206C shall quote the permanent account number of every buyer, in all
(a) a person who has agricultural income and is not in receipt of any other
(b) non-residents;
(1) Every person, receiving any document relating to the prescribed transactions
shall ensure that the PAN (or GIR number) has been duly quoted in the
document;
(2) Every person shall intimate the Assessing Officer any change in his address
or in the name and nature ofhis business on the basis of which the PAN was
allotted to him;
(3) No person who has already been allotted a PAN under the new series shall
(4) The PAN under the new series has been defined to mean a number which
..
M*
. The expression ‘Assessing Officer’ has been defined to include an Income-
*
tax authority to whom the job of allotting PANs has been assigned.
(iv) where, for any other reason, it is not possiblefor the individual to sign the
return, by any person duly authorized by him in this behalf;
Provided that in a case referred to in sub-clause (ii) or sub-clause
(iv), the person signing the return holds a valid power of attorney from
the individual to do so which shall be attached to the return.
(b) in the case of a Hindu undividedfamily, by the Karta, and, where the Karta is
absentfrom India or is mentally incapacitatedfrom attending to his affairs, by
any other adult member ofsuch family;
(c) in the case of a company, the managing director thereof, or where for any
unavoidable reason such managing director is not able to sign and verify the
return, or where there is not managing direct, by any director thereof;
Provided that where the company is not resident in India, the return may
be signed and verified by a person who holds a valid power of attorney from
such company to do so, which shall be attached to the return;
Providedfurther that, -
(a) where the company is being wound up, whether under the orders ofa court
or otherwise, or where any person has been appointed as the receiver of
any assets of the company, the return shall be signed and verified by the
' ■ liquidator referred to in sub-section (1) ofSection 178: * "
' ~ (b) where the management ofthe company has been taken oyer by the Central
Government or any State Government under any law, the return of the
' i ' i i
(f) in the case ofany other person, by that person or by some person competent to
The return of income under Sec. 139 is required to be signed and verified:
person competent to act on his behalf; and where for any other reason, it is
not possible for the individual to sign return, by a duly authorized person
(such person should hold a valid power of attorney, a copy ofwhich should
(c) in the case of a company, by its managing director, or where for any
(d) in the case of afirm, by its managing partner or where, for any unavoidable
(f) in the case of a political peaty, by its chief executive officer (by whatever
(g) in the case of any other association, by its principal officer or any member;
(h) in the case of any other person, by that person or by any other person
277
(i) in the case of a non-resident company, the return of income can be signed
(a) where the company is wound up, the liquidator of the company shall
(b) where the management of the company has been taken over by the
Central or the State Government, the principal officer shall sign and
The following details must also be paid attention while signing and verifying
a return of income:
the: writing of the name of the principal by the agent is regarded as the signature
ofthe principal himself But this result only follows when it is permissible for the
i ’i
agent to sign tfie name of the principal. Where in the return of income of an
illiterate assessee, the physical act of putting the mark was found to have been
made by his son who was not authorized in this behalf, the return must be treated
> Return of an HUF : Since a junior member could act as Karta with the
consent of other members, the return of income an HUF can be signed by such a
junior member.20
> Deity/Idol: The concept of a Hindu deity is such that it must be taken that
5.5 Self-assessment
Section 140-A reads:
140-A. Self-assessment-
(1) Where any tax is payable on the basis of any return required to be furnished
under Section 139 or Section 142 or Section 148 or, as the case may be, Section
158-BC, after taking into account the amount oftax, ifany, already paid under
any provision of this Act, the assessee shall be liable to pay such tax together
with interest payable under any provision ofthis Actfor any delay infurnishing
the return or any default or delay in payment ofadvance tax, before furnishing
the return and the return shall be accompanied by proofofpayment ofsuch tax
and interest.
Explanation. - Where the amountpaid by the assessee under this sub-section
fall short of the aggregate of the tax and interest as aforesaid, the amount so
paid shall first be adjusted towards the interest payable as aforesaid and the
balance, ifany, shall be adjusted towards the tax payable.
(1-A) For the purposes ofsub-section (1), interest payable under Section 234-A shall
be computed on the amount of the tax on the total income as declared in the
return as reduced by the advance tax, if any, paid and any tax deducted or
collected at source.
(1-B) For the purposes ofsub-section (1), interest payable under Section 234-B shall
* •¥ •
be computed on an among equal to the assessed tax or, as the case may be, on
the amount by which the advance tax paidfalls short ofthe assessed tax.
Explanation.-For the purposes ofthis sub-section, “assessed tax” means
the tax, on the total income as declared in the return as reduced by the amount of
tax deducted or collected at source, in accordance with the provisions ofChapter
XVIII, on any income which is subject to such deduction or collection and which
is taken into account in computing such total income.
(2) After a regular assessment tinder Section 143 or Section 144 (or cm assessment
under Section 158-BC has been mack, any amount paid under subsection (1)
shall be deemed to have been paid towards such regular assessment or assessment,
as the case may be.
(3) Ifany assessee fails to pay the whole or any part ofsuch tax or interest or both
179
Where any tax is payable on the basis of any return furnished under Sec. 139
or,Sec. 142 or Sec. 148 or (with effect from June 1, 1998) Sec.l58BC (after
the assessee is required to pay the tax before the filing ofthe return. It is mandatory
for a person also to pay interest payable up to the date of filing the return along
with the self-assessment tax. The interest is to be paid for non-payment or short
under Sec.234C and late filing ofreturn under Sec.234A. For this purpose, interest
under Secs.234A and 234B shallbe computed on the basis ofthe income declared
in the returmo;ftincome.
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The return of income is to be accompanied by proof of payment of both tax
and interne/Where the amount paid by the assessee falls short of the aggregate
of tax and interest, the amount so paid shall first be adjusted towards interest
payable and the balance, if any, shall be adjusted towards tax payable.
After a regular assessment under Sec. 143 or 144 has been made, any amount
paid under Sec.l40A shall be deemed to have been paid towards such regular
assessment.
180
If any assessee fells to pay wholejcir^ny part of such tax Qginterest or both
default in respect of the tax or interest or both remaining unpaid and all the
(2) For the purpose ofobtainingfull information in respect ofthe income or loss of
any person, the Assessing Officer may make such enquiry as he considers
necessary.
(2-A) If, at any stage of the proceedings before him, the Assessing Officer, having
regard to the nature and complexity of the accounts of the assessee and the
interests of the revenue, is of the opinion that it is necessary so to do, he may,
with the previous approval of the Chief Commissioner or Commissioner, direct
the assessee to get the accounts audited by an accountant, as defined in the
Explanation below sub-section (2) of Section 288, nominated by the Chief
Commissioner or Commissioner in this behalf and to furnish a report of such
audit in the prescribedform duly signed and verified by such accountant and
setting forth such particulars as may be prescribed and such other particulars
as the Assessing Officer may require.
(2-B) The provisions of sub-section (2-A) shall have effect notwithstanding that the
accounts of the assessee hive been audited under any other law for the time
being in force or otherwise.
(2-C) Every report under sub-section (2-A) shall be furnished by the assessee to the
Assessing Officer within such period as may be specified by the Assessing Officer;^
■ Provided that the Assessing Officer may, on an application made in this
behalf by the assessee andfor any good and sufficient reason, extend the said
period by such further period or periods as he thinks fit; so, however, that the
- aggregate of the period originally fixed and the period or periods so extended
■ shall not, in any case, exceed one hundred and eighty days from the date on
which the direction under sub-section (2-A) is received by the assessee.
(2-0). The expenses of, and incidental to, any audit under sub-section (2-A) (including
the remuneration of the accountant) shall be determined by the Chief
Commissioner or Commissioner (which determination shall be final) and paid
by the assessee and in default of such payment, shall be recoverable from the
assessee in the manner provided in Chapter XVII-D for the recovery ofarrears
of tax.
(3) The assessee shall, except where the assessment is made under section 144, be
given an opportunity ofbeing heard in respect ofany material gathered on the
182
basis ofany enquiry under sub-section (2) or any audit under subsection (2-A)
and proposed to be utilizedfor the purposes ofthe assessment.
(4) The provisions ofthis section as they stood immediately before their amendment
by the Direct Tax Laws (Amendment) Act, 1987 (4 of1988), shall apply to and in
relation to any assessmentfor the assessment year commencing on the 1st day of
April, 1988, or any earlier assessmentyear and references in this section to the
other provisions ofthis Act shall be construed as references to those provisions
as for the time being in force and applicable to the relevant assessment year.
(1) Giving notice to the assessee to submit return (if not submitted earlier),
(2) Making inquiry mid giving opportunity to the assessee (Sec. 142(2),(3));
(3) Giving direction to get books of account audited (Sec. 142(2A) to (2D)).
The Assessing Officer may serve on any person a notice under Sec. 142(1) for the
following purposes:
(1) Ifthe assessee has not submitted a return of income within the time allowed
under Sec. 139(1), the Assessing Officer may require him to submit the
notice;'
(2) Hie Assessing Officer may ask the assessee to produce (or cause to be
Assessing Officer shall not require the production of any accounts pertaining
to a period more than 3 years prior to the previous year. Where the Assessing
years and one of those years falls beyond the prescribed three-year limit,
183
the whole notice cannot be treated as bad, inasmuch as the illegal portion
ofthe notice as regards one ofthe years is clearly severable from the rest of
(3) The Assessing Officer may require the assessee to furnish in writing (and
before requiring the assessee to furnish a statement ofall assets and liabilities
(4) A combined notice calling upon the assessee to attend in person as well as
Making Inquiry
For the purpose of obtaining full information in respect ofthe income (or loss) of
any person, the Assessing Officer may make such inquiry as he considers necessary.
However, the assessee shall (accept where the assessment is made under SecJ44)
basis of any inquiry or any audit under Sec. 142(2A) and proposed, to be utilized
If the following conditions are satisfied, the Assessing Officer may direct the
even if accounts of the assessee have been audited under any other provision:
(a) directions for audit can be issued at any stage of proceedings before the
Assessing Officer; in other words, no such direction can be issued after the
(b) such directions can be issued only if having regard, to the nature and
complexity of the accounts of the assessee and interest of the revenue, the
(c) such direction can be issued only with the prior approval of the Chief
Commissioner/Commissioner.
i
A few more aspects are relevant to the inquiry before assessment under
> A mechanical and perfunctory order directing special, audit would be liable
t
to be quashed.24
> A direction to the assessee to get the accounts audited without hearing the
> The audit report shall be furnished by the assessee within the period specified
by the Assessing Officer, who shall have the power to extend such period
by assessee, the Assessing Officer can extend the period for submission of
. report of special audit under Sec. 142(2A)).26 However, the aggregate period
24. U.P.State Handloom Corporation v. CIT (2000) 245 ITR 192 (All.).
25. Muthoottu Mini Kuries v. Dy.CIT (2001) 115 Taxman 216 (Ker.).
26. Jagatjit Sugar Mills Co. Ltd. v. CIT (1994) 210 ITR 468 (Punj. & Har.)
185
> The audit fees and audit expenses shall be determined by the Chief
> Failure to comply with the direction under Sec. 142(2A) to get books of
account audited entails a best judgement assessment under Sec. 144. Besides,
> There is no merit in the submission that Sec.44AB has replaced and rendered
redundant Sec. 142(2A) to the extent of the cases covered by the former
appointed under Sec. 142(2A) only if the turnover in the case of business-is
less than Rs.40 lakh and the professional receipts are less than Rs. 10 lakh.29
The Assessing Officer can direct under Sec. 142(2A) an assessee to haye a
special audit even when accounts of assessee have already been audited by
adjustment ofany tax deducted at source, any advance tax paid, any tax
paid on self-assessment and any amount paid otherwise by way of tax or
interest, then without prejudice to the provisions of sub-section (2), an
intimation shall be sent to the assessee specifying the sum so payable, and
such intimation shall be deemed to be a notice of demand issued under
Section 156 and all the provisions ofthis Act shall apply accordingly; and
(ii) ifany refund is due on the basis ofsuch return, it shall be granted to the
assessee and an intimation to this effect shall be sent to the assessee;
Provided that except as otherwise provided in this sub-section, the
acknowledgment of the return shall be deemed to be an intimation under this
sub-section where either no sum is payable by the assessee or no refund is due to
him;
Providedfurther that no intimation under this sub-section shall be sent
after the expiry ofone yearfrom the end ofthefinancial year in which the return
is made;
Provided also that where the return made is in respect ofthe income first
assessable in the assessment year commencing on the 1st day ofApril, 1999,
such intimation may be sent at any time upto the 31st day ofMarch, 2002.
(2) Where a return has been made under Section 139, or in response to a notice
under sub-section (1) ofSection 142, the Assessing Officer shall, ifhe considers
it necessary or expedient to ensure that the assessee has not understated the
income or has not computed excessive loss or has not underpaid the tax in any
manner, serve on the assessee a notice requiring him, on a date to be specified
therein, either to attend his office or to produce, or cause to be produced there,
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 oftwelve monthsfrom the end ofthe month in which the
return is furnished.
(3) On the■ date specified in the notice issued under sub-section (2), or as soon
afterwards as may be, after hearing such evidence as the assessee may produce
and such other evidence as the Assessing Officer may require on specifiedpoints,
and after taking into account all relevant material which he has gathered, the
187
Under See. 143(1), the Assessing Officer can complete the assessment
> Intimation : If any tax or interest is found due on the basis of the return
filed under Sec. 139 or in response to a notice under Sec. 142(1), after
adjustment of any tax deducted at source, any advance tax paid, any tax
interest, then, an intimation shall be sent to the assessee specifying the sum
issued under Sec. 156 and all the provisions of the Act shall apply
., i '
accordingly. If any refund is due on the basis of such return, it shall be
deemed to be the intimation under Sec. 143(1) where either no sum is payable
> Time limit for intimation : An intimation for tax or interest due under
Sec. 143(1) should not be sent after the expiry of one year from the end of
A notice can be issued under Sec. 143(2), ifthe following conditions are satisfied:
(1) A return of income (or loss) has been made under Sec. 139 or in response to
notice under Sec. 142(1). If such return has not been furnished, notice under
(2) Such notice can be issued ifthe Assessing Officer considers it necessary or
expedient to ensure that the assessee has not understated the income or has
not computed excessive loss or has not underpaid the tax in any manner;
.i
(3) Such notice shall be served on the assessee before the expiry of 12 months
from the end of the month in which return is furnished. After hearing such
Sec. 143(2) and such other evidence as the Assessing Officer may require
on specified points and after taking into account all relevant materials which
writing determining the total income or loss of the assessee and the sum
payable by tlie assessee (or which effect from October 1,1998) refund of
has not made a return or a revised return under sub-section (4) or sub
section (5) of that section, or
(b) fails to comply with all the terms ofa notice issued under sub-section (1)
ofSection 142 orfails to comply with a direction issued under sub-section
(2-A) of that section, or
(c) having made a return, fails to comply with all the terms ofa notice issued
under sub-section (2) ofSection 143,
The Assessing Officer, after taking into account all relevant material which the
Assessing Officer has gathered, shall, after giving the assessee an opportunity
ofbeing heard, make the assessment ofthe total income or loss to the best ofhis
Judgement and determine the sum payable by the assessee on the basis ofsuch
assessment.
Provided that such opportunity shall be given by the Assessing Officer by
serving a notice calling upon the assessee to show cause, on a date and time to
be specified in the notice, why the assessment should not be completed to the
best ofhis judgement;
Providedfurther that it shall not be necessary to give such opportunity in
a case where a notice under sub-section (1) ofSection 142 has been issuedprior
to the making ofan assessment under this Section.
(2) The provisions ofthis section as they stood immediately before their amendment
by the Direct Tax Laws (Amendment) Act, 1987 (4 of1988), shall apply to and in
relation to any assessmentfor the assessment year commencing on the 1st day of
April]‘1-988, or any earlier assessment year and references in this section to the
other, provisions ofthis Act shall be construed as references to those provisions
1 -V
as for the timeZjbeing in force and applicable to the relevant assessment year.
The assessing Officer, after considering all relevant material which he has
(a) If the person Mis to make the return as required under Sec. 139(1) and has
(b) If any person fails to comply with all the terms of a notice under Sec. 142(1)
or fails to comply with the directions requiring him to get his accounts
(c) If any person, after having filed a return, fails to comply with the terms of
and documents; or
(d) If the Assessing Officer is not satisfied about the correctness or the
(1) The assessee has a right to file an appeal under Seci248 or to make an
(2) The best judgment assessment can only be made after giving the assessee
notice to him to show cause why the assessment should not be completed
to the best ofjudgment and opportunity for hearing will not be necessary
v
1. An assessment made under Sec. 144 can, by no means, be equated with ex-
/wa^p^oceedings in a civil court.31
2. Best judgment assessment is mandatory for any one of the defaults under
Sec.144.'32 '
31. Dhanalakshmi Pictures v. CIT (1983) 144 ITR 452 (Mad.).
32. CIT v. Segu Buchiah Setty (1970) 77 ITR 539 (SC).
191
3. Where the assessee had furnished only approximate figure in his return of
income without any further details, it was held that the best judgment
4. A best judgment assessment can be made when the return is not signed and
verified.34
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
produce account books over which the assessee has neither possession nor
control, is invalid.36
7. In orde^o commit the default under Sec. 143(2), it is necessary that there
assessee relied in support of his return. Therefore, where the assessee had
not relied on any such books, documents or evidence, there could not be a
10. While making a best judgment assessment under Sec. 144, the determination
of income.43
11. Before the Assessing Officer can assume jurisdiction under Sec. 144, he
must first record the finding that there has been a non-compliance with any
mentioned in Sec. 144, the High Court, in exercise of its jurisdiction under
Section 145 provides that in cases where (a) the assessee’s accounts are
employed by the assessee, the ITO has the discretion to make a best judgement
The Section enacts that for the purposes of Section 28 (profits of business,
profits and gainst must be computed in accordance with the method of accounting
194
regularly employed by the assessee. The choice of the method of accounting lies
with the assessee,45 but the assessee must show that he has followed his chosen
method regularly.46 Even for the very first accounting year, the method of
accounting would be deemed to have been regularly employed ifthe same method
is shown to have been employed for the subsequent years 47 The Section is
regularly employed unless by that method the true income, profits and gains cannot
be arrived at49 The assessee’s regular method cannot be rejected as being improper
merely because it gives him benefit in certain years.50 Secondly, the section
unless in the opinion of the ITO, the income, profits and gains cannot properly be
deducted therefrom. If the true income, profits and gains cannot be ascertain on
the basis of the asessee’s method, it would be the duty of the ITO to discard the
method, wholly or in part, and to adopt a method ofhis own. Where no method
of account has been regularly employed, the income must be;computed upon
such basis as the ITO may determine. These principles have been reafiiremed by
the Supreme Court.51 The word ‘method’ in this Section must be given a broad
The method of accounting can affect the computation of income only under
the heads of business or profession (Sec.28) and income from other sources
(Sec.56). The provisions of this Section do not apply to salaries (Sec. 15), interest
on securities (Sec. 18),, income from house property (Sec.22) and capital gains
by shareholder.
the mode of computing the taxable income, but it does not determine or even
affect the range of taxable income or the ambit of taxation.55 The provision of
provisions ofthe charging Section. In other words, the charge on income accruing
nor can the cargeability of income accruing in India be escaped on the ground
books - Sub-section (1) deals merely with the method of accounting. Ifthe assesse’s
method of accounting is improper, i.e. such that the real profits cannot properly
53. C1T v. Krishnaswami Mudaliar 53 ITR122, 128 (SC).
54. Kesbav Mills Ltd. v. CIT 23 ITR 230 (SC).
196
be deduced therefrom, the ITO must reject the method under the provision, but
he cannot merely on that ground reject the account books.55 He must compute
the income, having regard to the entries in the books, by applying a method of his
own,56 e.g. by revalutine undervalued stocks.57 Even where the accounts are
’ J-
complicated, the ITO must exercise his judgement and if by a reasonable amount
of labour, he can deduct the true profit from the accojuj^, he should do so and
If, however, the account books are unreliable, false or incorrect, or are
omitted with a view to suppressing profits, the ITO has the power to reject such
S'
account-books, but that power i^ ppt to be sought under the proviso to sub-
I *1
section (1). If the accounts are fcppd tp be incorrect or incomplete, the case
111 ;;i''
I* !*
would fall, not under the.provison, but under sub-section (2). For instance, the
proper method, but the entries in the books of account may be false or fabricated.
»•
To such a case, sub-section (2) applies and the ITO should: reject such account
* , “* •<
• |i
books and estimate the real income under Section 143(3) or in idle manner provided
S’1.
in Section 144 \yithout calling this proviso in aid.59 Conversely, the accounts
may be rejected as to their method but accepted as to their fa^ts, in which event,
. I ^ ^
55. Nathuram Mnnnalal v. CIT 25ITR 216,220;Pandit Bros' v' CIT 26LTR159.
56. Muthukaruppan Chettiar v. CIT-7 ITR 76,' 89 (FB). 11
57. Chhaoni Lai Pragdas v. CIT 31 ITR 597; CIT v Achralal 6 ITR 255; CIT v.
Ahmedabad New Cotton Mills Co.Ltd. 4ITC 245 (PC).
58. Gunimukh Singh v. CIT 12 ITR 393, 423 (FB); Dhuni Chand Dhani Ram v.
CIT 2 ITC 188, 193.
59. Guramukh Singh v. CIT 12 ITR 393,427.
60. CIT v. Khemchand Ramdas 8 ITR 159, 177.
197
assessee61 and whether the method adopted had been regularly employed62 are
questions of feet. The question whether the income, profits and gains can be
properly deducted from the method employed has been loosely held to be a
question offact and law. Where the finding ofthe Department is that the assessee’s
determination is whether there was any evidence before the Department upon
148 to 153., assess or reassess such income and also any other income chargeable to
tax yffnch has escaped assessment and which comes to fus notice subsequently in the
course ofthe proceedings, under this Section, or recompute tlx joss or the depreciation
allowance or any other allowance, as the case may be, for the assessmentyear concerned
(hereafter in this Section and in Sections 148 and 153 referred to as ‘the relevant
assessment year j.
61. Fatehchand Chakodilal v. CIT 13 ITR 198. But in Pandurang v. CIT 2ITC 69,
proper method of construing accounts entries was held to be a question of law.
62. Sarupchand v. CIT 4 ITR 420, 422-3.
63. Chhabildas Shah v. CIT 59 ITR 733 (SC) (a case of falsity of account books);
Neki Devi v. CIT 2 ITR 365; Diwan Chand v. CIT 2 ITR 382; Rulia Mai
Raunak Ram v. CIT 2 ITR 329; Narayan Atmaram Patkar v. CIT 2 ITR 486;
Jewan Shah Maya Shah v. CIT 2 ITR 343, etc., etc.
64. Feroz Shah v. CIT1 ITR 219 (PC); Dhakeshiyar Prasad v. CIT 4 ITR, 79
(FB); BCGA (Punjab) Ltd. v. CIT 5 ITR 279 (FB).
198
Provided that where an assessment under sub-section (3) ofSection 143 or this
Section has been made for the relevant assessment year, no action shall be taken under
this Section after the expiry offour yearsfrom the end ofthe relevant assessment year,
unless any income chargeable to tax has escaped assessment year by reason of the
failure on the part ofthe assessee to make a return under Section 139 or in response to
a notice issued under sub-Secfion (1) ofSection 142 or Section 148 or to disclose fully
and truly all materialfacts necessaryfor his assessment, for that assessment year.
Explanation-1. - Production before the Assessing Officer of accounts books or
other evidence from which material evidence could with due diligence have been
discovered by the Assessing Officer will not necessarily amount to disclose within the
meaning ofthe foregoing proviso.
Explanation-2. - For the purposes of this Section, the following shall also be
deemed to be cases where income chargeable to tax has escaped assessment, namely
(a) where no return ofincome has been furnished by the assessee although his total
income or the total income ofany otherperson in respect ofwhich he is assessable
I
under this Act during the previous year exceeded the maximum amount which is
not chargeable to income tax;
(b) where a return ofincome has been furnished by the assessee but no assessment
has been made and it is noticed by the Assessing Officer that the assessee has
understated the income or has claimed excessive loss, deduction, allowance or
relief in the return;
(c) when an assessment has been made, but-
(i) income chargeable to tax has been under-assessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject ofexcessive relief under this Act;
or
(iv) excessive loss or depreciation allowance or any other allowance under
this Act has been computed.
148. Issue of notice where income has escaped assessment -
(1) Before making the assessment, reassessment or recomputation under Section
147, the Assessing Officer shall serve on the assessee a notice requiring him to
furnish within such period, as may be specified in the notice, a return of his
199
treated as the agent of a non-resident under Section 163 and the assessment,
reassessment or recomputation to be made in pursuance of the notice is to be
made on him as the agent of such non-resident, the notice shall not be issued
dfter the expiry ofa period oftwo years from the end of the relevant qij^^nent
'* 'ill ,
year.
150. Provision for cases where assessment is in pursuance of an order on appeal,
etc.
(1) Notwithstanding anything contained in Section 149, the notice under Section
148 may be issued at any time for the purpose of making an assessment or
reassessment or recomputation in consequence ofor to give effect to anyfinding
200
notice.
If the Assessing Officer has reason to believe that any income chargeable to
tax has escaped assessment for any year, he may assess or reassess such income.
Once an assessment is Ireopened, any other income which has escaped assessment
and which comes to the notice ofthe Assessing Officer subsequently in the course
201
of the proceeding under See. 147 can also be included in the assessment.
For this purpose, there are two conditions; firstly, the Assessing Officer
must have reason to believe that income, profits or gains chargeable to income-
tax had escaped assessment, and secondly, he must also have reason to believe
that such escapement had occurred by reason of either omission or failure on the
part of the assessee to disclose fully or truly all material facts necessary for his
assessment of that year or failure on the part of the assessee to make a return
under Sec. 139 or in response to notice issued under Sec. 142(1) or 148.
under Sec. 143(3) or 147 and the Assessing Officer desires to take action after
However, in the following cases, only the first condition should be satisfied
(a) If the Assessing Officer wants to take action within 4 years (from the end
. ; of the assessment year) and the original assessment was completed under
(b) If the Assessing Officer wants to take action after the expiry of 4 years and
Explanation 2 to Sec. 147 clarifies that the following shall also be deemed
(b) where a return of income has been furnished, but not assessment has been
made, and the assessee is found to have understated his income or claimed
202
(c) where an assessment has been made, but the income chargeable to tax has
been under-assessed or has been assessed at too low a rate or any excessive
the Assessing Officer should serve on the assessee a notice requiring him to furnish
a return of income within such period as may be specified in the notice. Before
issuing a notice, the Assessing Officer is required to record reasons for doing so.
Time limit and other conditions for the issue notice under Sec.148 are as
under:
-
However, there are certain exceptions for the issue notice for the re-opening
-Vi"'
of the cases. .
1. According to Sec. 150(1), notice under Sec. 148 may be issued at any time
2. If the person on whom the notice under Sec. 148 is to be served is a person
treated as an agent of non-resident (under Sec. 163), then notice shall not
be issued after the expiry of 2 years from the end ofthe relevant assessment
year.
3. If an assessment has been made for the relevant assessment year under
Sec. 143(3) or under Sec. 147, no action shall be taken under Sec. 147 after
the expiry offour years from the mid ofthe relevant assessment year, unless
he income has escaped assessment due to the failure on the part of the
Sec. 142(1) or 148 or to disclose fully and truly all material frets necessary
for this assessment. For this purpose, production before the Assessing
would, with due diligence, have been discovered by the Assessing Officer
from the end ofthe assessment year, the Assessing Officer must necessarily record
not only his reasonable belief that income has escaped assessment, but also the
Reopening of assessment on the basis of law declared by the Court will not
proceeding initiated beyond the expiry of four years from the end of the relevant
(1) If a notice is invalid, entire proceedings are vitiated,67 even if the assessee
(4) Where return is filed within the time allowed in response to invalid notice
Assessing Officer should elaborately set out all relevant facts. It is essential
that he must indicate broadly the facts which constitute nondisclosure and
(6) If in original proposal for reopening assessment, reasons are recorded and
fresh proposal is sent merely to correct status ofthe assessee wrongly shown
in original notice, reasons need not be recorded afresh in the fresh proposal.74
(7) Only requirement in law for initiating proceedings under Sec. 148 is that
67. CIT v. Kurban Hussain Ibrahimji Mithibomala (1971) 82ITR 821 (SC)
68. Sewlal Daga v. CIT (1965) 55 ITR 406 (Cal.).
69. Dayaldas Khushiram v. CIT (1943) 11 ITR 67 (Bom.).
70. CIT v. Nemidas Vishaniji & Co. (1984) 145 ITGR 423 (AP).
71. CIT v. S.Raman Chettiar (1965) 55 ITR 630 (SC).
72. CIT v. Thakurlal (1981) 132 ITR 398;
East West Commercial Co.Ltd., v. ITO (1981) 128 ITR 326 (Cal.)
73. K.C.P.Ltd. v. ITO (1984) 146 ITR 284 (MP).
74. Sheo Narain Jaiswal v. ITO (1989) 176 ITR 352 (Pat.).
206
(8) Where petitioner makes an application for getting a copy of the reasons
recorded by the assessing authority to proceed under Sec. 148, then the
(9) Where assessee 1ms furnished return in pursuance of notice under Sec. 148,
(10) Once the assessee has filed his return in response to the notice under
proceedings is not valid in law for the reasons that reasons are not recorded
or that even if recorded, they are not relevant and germane, he becomes
(11) The assessing officer has to disclose reasons for reopening assessment to
Court though he does not have to disclose them in notice.79 It is trite law
Sec. 147 on ground that no reasons under Sec. 148 have been recorded or
disclosed, the Court must call for and examine the reasons.80
(12) Wherever a contention is raised that the Assessing Officer did not apply Us
mind before issuing notice under Sec. 148, the burden is on the assessee to
75. Dr.V.Mohan Das v. Dy.CIT (1991) 188ITR 727 (Ker.)
76. Jindal Products v. ITO (1993) 70 Taxman 111 (All.).
77. Jawahar Lai Gupta v. ITO (1992) 196 ITR 147 (All.).
78. Sohan Lai Singhania v. ITO (1992) 194 ITR 519 (AIL).
79. Dalai Consultants P.Ltd. v. D.V.Bapat, ITO (1982) 138 ITR 334 (Bom.)
80. Commnnidado of Chicalim v. ITO (2000) 113 Taxman 331 (SC).
207
show that the Assessing Officer did not act according to law.81 It is very
clear that when a notice has been issued on the ground that the income has
income tax authority to file an affidavit and to place the necessary material
drayvn:
1. The reasons for reopening of the case may not be supplied to the assessee;
and simply because these are not supplied to him, the reopening does not
become bad;
2. The reasons must, however, recorded and should have link with the reopened
assessment;
to the assessee to establish that there, in fact, existed no belief and that the
belief was not at all bona fide one or was based on vague, irrelevant and
non-specific information and to that limited extent, the court may look to
the conclusion arrived at by the Assessing Officer and whether the material
had any rational connection or a live link with the formation of the belief.
4. Where reasons said to have been recorded and said to be available fore the
issue ofnotice under Sec. 147, are not available even to the court or tribunal,
A few more judicial rulings are also available on the issue of notice for
reassessment:
8L S.K.Gupta & Co. v. ITO (2000) 246ITR 560 (All.)
82. Hiralal Bhagwati v. CIT (2000) 246 ITR 188 (Guj.)
208
(2) Before the issue of notice, it is not necessary to prove that a particular
(4) Wrong description of assessee in notice under Sec. 148, which is corrected
(5) Where there are two entities having same name and address and it is not
clear from the notice as to which entity it was addressed, the notice would
(6) If a notice sent by registered post comes back with an endorsement of refusal
(7) the proceedings which are initiated under Sec. 154 or 155 cannot be made a
ground of defence for invalidating the notice issued under Sec. 147 or 148,
-s
(8) Notice must be issued within the limitation period, service within the
Assessing Officer.90 Therefore, the word ‘issue’ used in Sec. 149 does not
mean ‘serve’.91
shall be chargeable at the rate or rates at which it would have been charged had
under Sec. 147, the assessee may (if he has not impugned any part of the original
assessment order for that year, either under Secs.246 to 248 or 264) claim that
the proceedings under Sec. 147 shall be dropped on his showing that he had been
assessed on an amount not lower than what he would be rightly liable for, even if
the income said to have escaped assessment had been taken into account, or the
shall not reopen matters concluded under Secs. 154 (Rectification of mistake),
Commissioner, on or after the 1st day ofApril, 1999, but before the 1st day of
April, 2000, such an order offresh assessment may be made at any time upto the
31st day ofMarch, 20002.
(3) The provisions ofsub-sections (1) and ((2) shall not apply to thefollowing classes
of assessments, reassessments and recomputations which may, subject to the
provisions ofsub-section (2-A) be completed at any time.
(i) (Omitted)
(ii) where the assessment, reassessment or recomputation is made on the
assesses or any person in consequence of or to give effect to anyfinding
or direction contained in an order under Sections 250, 254, 260, 262,
263, or 264 or in an order ofany court in a proceeding otherwise than by
way ofappeal or reference under this Act;
(in) where, in the case of a firm, an assessment is made on a partner of the
firm in consequence of cm assessment made on the firm under Section
147.
Explanation-1. -In computing the period oflimitationfor the purposes of
this Section -
(i) the time taken in reopening the whole or any part of the proceeding or in
giving an opportunity to the assessee to be reheard under the proviso to
Section 129, or
(ii) the period ihiring which the assessment proceeding is stayed by an order
or injunction ofany court, or
i! C'-
(Hi) the period commencingfrom the date on which the Assessing Officer directs
, the assessee to get his accounts audited under sub-section (2-A) ofSection
142 and ending with the last date on which the assessee is required to
, furnish a report ofsuch audit under that sub-section, or
(iv) (Omitted)
(iv-a) the period not exceeding sixty days commencingfro the date on which the
Assessing Officer received die declaration under subsection (1) ofSection
158-A arid ending with the date on which the order under subsection (3)
of that section is made by him, or
(v) in a case where an application made before the Income Tax Settlement
212
An assessment under Secs. 143 or 144 must be completed within 2 years from the
end of the relevant assessment year, regardless of the fact whether it is a case of
213
concealment. For example, assessment under Sec. 143 or 144 for the assessment
(one year with effect from June 1,2002) from the end of financial year in which
notice under Sec. 148 was served. For instance, for the assessment year 1990-91,
assessment was completed under Sec. 143(3) on 30.1.1991. Notice under Sec. 148
was issued on 26.3.2001 to include an unassessed income of Rs. 1.20 lakh. The
notice is served on the assessee on April 4,2001. In this case, the reassessment
under Sec. 147 must be completed by 31.3.2003, that is, within 1 year from the
reassessment or recomputation shall be made under Sec. 147, after the expiry of
one year from the end ofthe financial year in which the notice under Sec. 148 was
served. However, where the notice under Sec. 148 has been served during the
(Sec. 153(2A) is not applicable if an order is not set aside or cancelled). In such
cases, fresh assessment can be made within the time limits given below:
214
Situations lime-limit
If assessment is set aside or Fresh assessment shall be completed
cancelled virtue of an order within 2 years from the end of the
under Sees.250 or 254. financial year in which order under
Secs.250 or 254 is received by the
Chief Commissioner or Commissioner.
The Table below highlights the scope of sub-Secs.(2A) and (3) of Sec. 153.
partner’s
assessment
..
The provisions of sub-sees.(f) and (2) ofSec.153 shall not applyttrthe
fir the aforesaid cases, no lime limitation applies. The only exception is
fresh assessment can be made only within the time prescribed by Sec.153(2A).
Various judicial ridings have interpreted the meanings of the terms used in
(1) Any person’: The words ‘any person’ are necessarily circumscribed by
the scope of the subject matter of file appeal or revision; that'is, the'‘person’
signified by the' term must be the one who would be liable to be assessed for the
whole or a part of the income fiat went into the assessment of the year under-
firm, joint Hindu family, association of persons, for a particular yearinay affect
"the assessment for the said year on a partner or partners ofthe firm, member or
members of theHUF or the individual, in such cases, though the latter are eo
'nomine parties to the appeal, their assessment depend upon the assessment ofthe
former. These instances are only illustrative. Therefore, the expression ‘any person’
in-the above sense with the assessments ofthe year under appeal.'92
depend on the assessment ofthe other as inthe case of a partner and partnership
'firm and mi individual and members of the joint Hindu family. In other words,
though a person is not eo nomine party to an appeal, it is apparent that the finding
'subject matter of the appeal that the controversy as to whose income it is got
decided by the same order. Merely because in the course of assessment a finding
is recorded that income belongs to somebody else, the intimate connection is not
automatically established by the fact that the same income isthought to be assessed
the case of abigger HUF accepting or not accepting disruption, smaller HUFs
The- person who filed return as well as appeal cannot claim that he was
Where there was a partial partition in a HUF and the separated members
appellate authority in that appeal could not be said to apply to the other members
assessments.96
finding given against 'any other person’ will be operative (that is, an assessment
or reassessment can be made on ‘any other person’ on the basis of such a finding
In the case of a person other than the assessee who is not intimately connected
-with the assessment, a valid finding or direction cannot he given against them.97
an assessment must be afinding necessary for the disposal of the particular case,
in respect"of one person, a‘finding in respect of another person may be railed for.
For example, where the feet shows that the income can belong either to ‘A’ or
‘B’ and to no one else, a finding that it belongs or does not belong to ‘B” would
Cdtim&tefinding respecting ‘A’. If, however, the finding as to' A’s liability can be
for the disposal of the case pertaining to *A\ The same principles apply when the
question is whether the income under enquiry is taxable in the assessment- year
necessary for the disposal of the case before the authority or court. It must also
the case before it. The expressions ‘finding’ and ‘direction’ in See.l\53(3)(ii)
that the Assessing Officer “is free to take action” to assess the excess in the
Tlie word ‘finding’ will only cover material questions which arise in a
particular case for decision by the authority hearing the case or the appeal which
(being necessary for passing the final order or giving the final decision in the
appeal) has been the subject of controversy between the interested parties or on
which the parties concerned have been given a hearing. A ‘finding’ therefore, can
9SL Rajjnder-Nath v. CIT (1979) 120 JTR 14 (SC); C.M.Rajgharia v. TTO (1975)
98 ITR 486 (Pat); K.Simrathnmll v. CIT (1967) 64 ITR 166 (Mad.).
99. RajinderNath v. CIT (1979) 120FTR 14 (SC).
219
hold, on the evidence, that the income shown by the assessee is not the income
for the relevant year and thereby exclude that income from the assessment of the
year under appeal. The finding in that context is that income does not belong to
the relevant year. He may incidentally find that the income belongs to another
year, but that is not a finding necessary for the disposal of an appeal in respect of
(Appeals) can give under the Section. It can only refer to the directions which
the Commissioner (Appeals) or other Tribunals can issue under the powers
well as the expression ‘direction’ can be given full meaning, namely, that the
findingis a finding necessary for giving relief in respect ofthe assessment of the
year in question and the direction is a direction which the appellate or revisional
The word ‘finding’ in law has a definite meaning and that is indicated by
the provisions of the Code of Civil Procedure where it is indicated that a finding
decision, irrespective of whether that fact was or was not material to the decision
and whether the Court or the Tribunal, when recording the decision, had any
instead of merely reciting it as a statement of fact. The word ‘finding’ will only
cover a material question which arises in a particular case for decision by the
authority hearing the case or the appeal which, being necessary for passing final
order or giving the final decision ip the appeal, has been the subject of controversy
between the interested parties or on which the parties concerned have been given
a hearing.101
Under such order, an income is exclu Under such order, any income is exclu
ded from the total income of the ded from total, income of one person
assessee for an assessment year. and held to be income of another
person.
Chettiar v. CIT (1967) 66ITGR 586 by providing that in any case where income
the assessment for any year, an assessment of such income for another assessment
year shall be deemed to be one made in consequence of, of to give effect to, any
finding or direction by the authority hearing the case. This fiction of law removes
the bar of limitation, irrespective of the question whether the authority has, in
fact, given or can, in law, give a finding or direction that the income should be
taxed in specified assessment year other than the year for which the authority
hears the case. The effect of Secs. 150 and 153(3) read with Explanation-2 is
ground that it is not the income of that year, steps may be taken under Sec. 147 to
assess it as the income of another year; without any limitation applying to the
issue of the notice under Sec. 148 or to the completion of the assessment or
reassessment.
inasmuph as, once an income is excluded from assessment for a particular year
i
on the ground that it is not the income of that year, the bar of limitation is
whether there is any express finding by the higher authority that the amount
it, gives jurisdiction to the Assessing Officer to assess or reassess that excluded
shall apply. On the other hand,- if there is a finding or direction, the case would
Explanation-3 to Sec. 153 embraces with its scope ‘persons other than the
assessee’ as well but lays down the condition that the third party should be given
an opportunity of hearing before the order depriving him of the right ofpleading
order under Sec. l 53(3((ii) incorporates a finding that the income excluded from
the total income of one person was the income of another person.104 Mere
in Explanation-1 provides that where immediately after the exclusion of the time
(2A) of Sec. 153 available to the Assessing Officer for making orders under those
(1) Time limit is only for making assessment order* it may be communicated
later.106
limitation period.107
(4) There is no merit in the contention that since sub-Section (2A) of Section
153 uses the word ‘may’, it is not mandatory on the part of the Assessing
(5) ‘An order of any Court’ means an order of any and every Court in the
country. If there is an order of a Court, whatever be its status* then the bar
(6) The words ‘in consequence of or to give effect to’ have to be collated with
(7) ‘Finding’ which Gan lift bar oflimitation is limited to matters which appellate
(8) Explanation-3 embraces within its scope persons other than assessee as
well but it lays down conditions that such third party should be given an
order is made before the expiry of the limitation period even though the
order and demand notice are served on the assessee after the expiry of that
period.116
Where, however, the order of assessment was passed before the expiry
of limitation period, but the notice of demand was prepared after the expiry
assessment order includes not only computation of total income but also
(a) may make an amendment under sub-section (1) of its own motion, and
(b) shall make such amendment for rectifying any such mistake which has
been brought to its notice by the assessee, and where the authority
concerned is the Commissioner (Appeals), by the Assessing Officer also.
(3) An amendment, which has the effect of enhancing an assessment or reducing a
refund or otherwise increasing the liability of the assessee, shall not be made
under this Section unless the authority concerned has given notice to die assessee
of its intention so to do and has allowed the assessee a reasonable opportunity
ofbeing heard;
(4) Where an amendment is made under this section, an order shall be passed in
writing by the income tax authority concerned,
(5) Subject to the provisions of Section 241, where any such amendment has the
effect of reducing the assessment, the Assessing Officer shall make any refund
which, nitty be due to such assessee.
(5) Where any such amendment has the effect ofenhancing the assessment or reducing
a refund already made, the Assessing Officer shall serve on the assessee a notice
ofdemand in the prescribedfor specifying the sum payable, and such notice of
demand shall be deemed to be issued under Section 156 and the provisions of
this Act shall apply accordingly;
(7) Save as otherwise provided in Section 155 or sub-section (4) ofSection 186, no
amendment under this Section shall be made after the expiry offour years from
the end ofthefinancial year in which the order sought to be amended was passed.
(8) Without prejudice to the provisions ofsub-section (7); where an application for
amendment under this Section is made by the assessee on or after the 1st day of
June, 2001, to an income tax authority referred to in sub-section (1), the authority
shall pass an order, within a period ofsix months from the end of the month in
which the application is received by it, -
(a) making the amendment; or
With a view to rectifying any mistake apparent from the record an income-
tax authority may amend any order passed by it. An income-tax authority can
Following are some of the examples of the mistakes which can be rectified
(b) by the income-tax authority if mistake is brought to its notice by the assessee;
Even if an appeal has been preferred against an order, a mistake in that part
ofthe order which was not subject matter of appeal and which was left untouched
(a) within 4 years for the end ofthe financial year in which the original order is
passed; or
(b) within 6 months from the end of the month in which application is received
Where the rectification has the effect of reducing the assessment, the
Assessing Officer shall make any refund which may be due to the assessee.
Where the sums referred to in the first proviso under Sec.43B had in fact
been paid on or belbre the due dates mentioned therein, but the evidence therefor
had been omitted to be furnished along with the return, the Assessing Officers
can entertain applications under Sec. 154 for rectification ofthe intimations under
Sec. 143(l)(a) or orders under Sec. 143(3) and decide the same on merits (CBDT
The following judicial rulings on the scope of Sec. 154 merit consideration:
(2) Ifin a case, requirements ofboth Sec. 147 and 157 are satisfied, the Assessing
(3) Proceedings which are initiated under Sec. 154 or 155 cannot be made a
ground of defence for invalidating notice issued under Sec. 147 or 148.120
(4) Where the first rectification application has been dismissed by the
admits second application and allow the same in respect ofthe same alleged
mistake.121
'\n\
**v
(5) A mistake apparent from record must be an obvious and patent mistake, it
(6) If, on a question of construction on a point of law, two views are possible,
then the view which is in favour ofthe assessee has to be taken and, therefore,
(7) Under the provisions of Sec. 154, there has to be a mistake apparent from
the record. In other words, a look at the record must show that there has
been an error and that error may be rectified. Reference to documents outside
the record and the law is impermissible when applying the provisions of
Sec. 154.125
(8) If assessment order is plainly and obviously inconsistent with the specific
validly form basis for rectifying an order of assessment under Sec. 154,
provided the decision is given by the Apex Court within four years from
The CBDT has also issued its Circular No.68 of 17.11.1971 in support
Punjab and Haryana High Court, where it was held that it is not possible
for the department to carry out rectification on the solitary ground,128 that
in a later decision, the Supreme Court has impliedly overruled that decision.
(11) Record of assessment of other assessment years can also be looked into.132
(12) Assessment records of firm and partners are part of the same record.133
But Mistake apparent from record of firm is not a mistake apparent from
Deputy Commissioner.135
(14) The object of issuing a notice to the assessee before passing a rectification
but thfe rule is not so rigid that if, as a matter of fact, the assessee has
knowledge of the proceedings and the matter has been discussed with him,
rectification proceedings.136
129. 130 ITR 710 (Cal.)
130. N.V.N. Nagappa Chettiar v. ITO (1958) 34 ITR 583 (Mad.)
131. Mahendra Mills Ltd. v. P.B.Desai, AAC (1975) 99 ITR 135 (SC)
132. Indra singh & Sens P.Ltd. v. Union of India (1967) 64 ITR 501 (Cal.)
133. Devendra Prakash v. ITO (1963) 47 ITR 501 (All.)
134. Swaran Yash v. CIT (1982) 138 ITR 734 (Delhi)
135. Babulal & Bros. v. CIT (1989) 177 ITR 451 (MP)
136. Mulchand v. CIT (1977) 107 ITR 932 (MP)
230
(15) The action under Sec. 154 may be taken in favour of the taxpayer without
any notice to him, but ifthe action has the effect ofenhancing an assessment
or reducing the refund, the Assessing Officer must send a notice to the
(16) The word ‘order’ in the expression ‘from the date ofthe order sought to be
for rectification made within four years from the date ofthe first rectificatory
order is valid.138
(18) Where the Assessing Officer’s order was only partially revised under Sec.264
and the assessee sought rectification of an item which was not the subject
fromthe dafiTJf Assessing Officer’s original order and not from the date of
does not merge with the appellate order, the limitation will run from the
date of the original order and not from the date when the Assessing Officer
(19) Umitation period is applicable only to making of order and not to the issue
(20) Question whether there was sufficient cause for condonation of delay in
(21) Remedies available under Income-tax against issuance of notice under Sec.
154 are effective remedies and writ petition filed by the petitioner to quash
aforesaid notice under Sec. 154 without exhausting such remedies is not
maintainable.144
four years specified in subsection (7) of that Section being reckonedfrom the
end of the financial year in which the final order was passed in the case of the
firm.
(1-A) Where in respect ofany completed assessment ofa firm, it is found
(a) on the assessment or reassessment ofthe firm, or
(b) on any reduction or enhancement made in the income of the firm under
this Section, Section 154, Section 250, Section 254, Section 260, Section
262, Section 262 or Section 264, or
(c) on (my order passed under sub-section (4) of Section 245-D on the
application made by the firm,
that any remuneration to anypartner is not deductible under clause (b) ofSection
40, the Assessing Officer may amend the order ofassessment ofthe partner with
a view to adjusting the income ofthe partner to the extent ofthe amount not so
deductible; and the provisions of Section 154 shall, so far as may be, apply
thereto, the period offour years specified in sub-section (7) ofthat section being
reckonedfrom the end of the financial year in which the final order was passed
in the case of the firm.
(2) Where in respect ofany completed assessment ofa member ofcm association of
persons or ofa body ofindividuals, it is found -
(a) on the assessment or reassessment of the association or body, or
(b) on any ^reduction or enhancement made in the income ofthe association,
or body under this Section, Section 154, Section 250, Section 254, Section
260, Section 262, Section 262 or Section 264, or
(c) -• ^
on-any order, 'passed under sub-section (4) of Section 245-D on the
‘-t
member with a view to the inclusion of the share in die assessment or the
correction thereof, as the case may be; and the provisions ofSection 154 shall,
soJar as may be, apply thereto, the period offour years specified in sub-section
(7) ofthat section being reckonedfrom the end ofthefinancial year in which the
233
final order was passed in the case ofthe association or body as the case may be.
(3) (Omitted).
(4) Where as a result of proceedings initiated under Section 147, a loss or
depreciation has been recomputed and in consequence thereof, it is necessary to
recompute the total income of the assessee for the succeeding year or years to
which the loss or depreciation allowance has been carriedforward and set off
under the provisions ofsub-section (1) ofSection 72, or sub-section (2) ofSection
73, or sub-section (1) or sub-section (3) of Section 74, or sub-section (3) of
Section 74-A, the Assessing Officer may proceed to recompute the total income
in respect of such year or years and make the necessary amendments; and the
provisions of Section 154 shall, so far as may be, apply thereto, the period of
four years specified in sub-section (7) of that section being reckoned from the
end of the financial year in which the order was passed under Section 147.
(4-A) Where an allowance by way of investment allowance has been made wholly or
partly to an assessee in respect of a ship or an aircraft or any machinery of
plant in any assessment year under Section 32-A and subsequently -
(a) at any time before the expiry of eight years from the end of the previous
year in which the ship or aircraft was acquired or the machinery or plant
was installed, the ship, aircraft, machinery or plant is sold or otherwise
transferred by the assessee to any person other than the Government, a
local authority, a corporation established by a Central, State or Provincial
Act or a Government company as defined in Section 617 ofthe Companies
Act, 1956 (1 of 1956), or in connection with any amalgamation or
succession referred to in sub-section (6) or sub-section (7) ofSection 32-
. A; or
(b) at any time before the expiry often yearsfrom the end ofthe previous year
in which the ship or aircraft was acquired or the machinery or plant was
installed, the assessee does not utilize the amount credited to the reserve
account under sub-section (4) ofSection 32-A for the purposes ofacquiring
' a new ship or a new aircraft or new machinery or plant (other than
machinery or plant of the nature referred to in clauses (a), (b) and (d) of
* s ij
the second proviso to sub-section (1) or Section 32-A for the purposes of
234
(5) Wtiere an allowance by way of development rebate has been made wholly or
•S, '«*■’
partly to art assessee iri respect ofa ship, machinery or plant installed after the
31st day ofDecember, 1957, in any assessment year under Section 33 or under
the, corresponding provisions of the Indian Income Tax Act, 1922 (11 of1922),
and subsequently,
(i) at any time before the expiry of eight years from the end of the previous
year in which the ship was acquired or the machinery or plant was installed,
the ship, machinery orplant is sold or otherwise transferred by die assessee
235
recompute the total income of the assessee for the relevant previous year and
make the necessary amendment; and the provisions ofSection 154 shall, so far
as maybe, apply thereto, the period offour years specified in sub-section (7) of
that Section being reckonedfrom the end ofthe previous year in which the period
allowedfor the completion ofthe programme by the prescribed authority expired
(6) (Omitted).
(7) Where as d result of any proceeding under this Act, in the assessment for any
year ofa company in whose case an order under Section 104 has been mackfor
/•it
that year, it is necessary to recompute the distributable income ofthat company,
237
the Assessing Officer may proceed to recompute the distributable income and
determine the tax payable on the basis of such recomputation and make the
necessary amendment; and the provisions ofSection 154 shall, sofar as may be,
apply thereto, the period offour years specified in sub-section (7) ofthat section
being reckonedfrom the end of the financial year in which the final order was
passed in the case of the company in respect of that proceeding.
(7-A) (Omitted).
(7-B) Where in the assessment for any year, the capital gain arising from the transfer
ofa capital asset is not charged under Section 45 by virtue ofthe provisions of
clause (iv) or, as the case may be, clause (v) ofSection 47, but is deemed under
Section 47-A to be income chargeable under the head "Capital gains ” of the
previous year in which the transfer took place by reason of-
(i) such capital asset being converted by the transferee company into. or being
treated by it, as stock-in-trade ofits business; or
(ii) the parent company or its nominees or, as the case may be, the holding
company ceasing to hold the whole of the share capital of the subsidiary
company,
at any time before the expiry of the period of eight years from the date of such
transfer, the Assessing Officer may, notwithstanding anything contained in this
Act, recompute the total income of the transferror company for the relevant
previous year and make the necessary amendment; and the provisions ofSection
• ■'*' 154 shall, so far as may be, apply thereto, the period offour years specified in
subjection (7) of that Section being reckonedfrom the end ofthe previous year
in which the capital asset was converted or treated or in which the parent company
or its nominees or, as the case may be, the holding company ceased to hold the
whole of the share capital of the subsidiary company.
(8) (Omitted),
(8-A) (Omitted),
(9) (Omitted),
(9-A) (Omitted),
(10) (Omitted).
(10-A) Where in the assessmentfor any year, a capital gain arising from the transfer
238
ofa long-term capital asset, is charged to tax and within a period ofsix months
after the date ofsuch transfer the assesses has made any investment or deposit
in any specified asset within the meaning ofExplanation-1 to sub-section (1) of
Section 54-E, the Assessing Officer shall amend the order ofassessment so as to
exclude the amount ofthe capital gain nor chargeable to tax under the provisions
of sub-section (1) of Section 54-E; and the provisions of Section 154 shall, so
far as may be, apply thereto, the period offour years specified in sub-Section
(7) ofthat section being reckonedfrom the end ofthefinancial year in which the
assessment was made.
(10-B)(Omitted),
(10-C) (Omitted),
(11) Where in the assessmentfor any year, a capital gain arisingfrom transfer ofany
original asset as is referred to in Section 54-H is charged to tax and within the
period so extended under that Section, the assessee acquires the new asset referred
to in that Section or, as the case may be, deposits or invests the amount ofsuch
capital gain within the period extended, the Assessing Officer shall amend the
order ofassessment so as to exclude tlx amount ofthe capital gain not chargeable
to tax under any of the sections referred to in Section 54-H; and the provisions
of Section 154 shall, so far as may be, apply thereto, the period offour years
specified in subsection (7) of Section 154 being reckoned from the end of the
previous year in which the compensation was received by the assessee.
(12) Where in the assessment for any year commencing before the 1st day ofApril,
1998, the deduction under Section 80-0 in respect of any income, being the
whole ok any part ofincome by way ofroyalty, commission, fees or any similar
payment as is referred to in that Section, has not been allowed on the ground
that such income has not been received in convertibleforeign exchange in India,
or having been received in convertibleforeign exchange outside India, or having
been converted into convertible foreign exchange outside India, has not been
brought into India, by or on behalf of the assessee in accordance with any law
for die time being in force for regulating payments and dealings in foreign
exchange and subsequently such income or part thereofhas been or is received
in, or brought into, India in the manner aforesaid, the Assessing Officer shall
239
amendment may be done within four years from the date of the final order.150
A notice ofdemand is issued under this Section in respect ofany tax, interest,
penalty, fine or any other sum payable under this Act. Proceedings for the recovery
*
of such sums cannot be initiated unless and until a notice of demand is served.151
145. cf. Hansraj Dhingra v. Union of Lidia 98ITR 397 (provisional assessment
completed under Sec. 141 of 1922 Act).
146. Naraindas v. ITO 49 ITR 768; CIT v. Thimmaiah 67 ITR j
180; CIT v.
Balkishan Bhatia 86 ITR 452 (a partner’s share, treated as earned income in
the original assessment, cannot be treated as unearned income under this Sec.)
147. Ameeruddin v. ITO 92 ITR 366 (reassessment may be made after retirement of
a partner whose assessment is sought to be rectified).
148. Sankappa v. ITO 68 ITR 760 (SC)
149. Aithanari v. ITO 83 ITR 828 (The position was the same under Sec.35(5) of
the 1922 Act, although it did not expressly refer to rectified assessment).
150. Kishanlal Haricharan v. ITO 86 ITR 141 (SC); Ekambarappa v. ITO 49 ITR
692; Arthanari v. ITO 83 ITR 828; Karsandas Patel v. Shah 98 ITR 255.
151. Misri Bai v. ITO 51 ITR 487.
241
order is passed.152 Similarly, if there is no valid order under which tax, interest,
penalty or fine is payable by the asessee, no valid notice of demand can be issued
under this Section. Thus, where an order passed by the Assessing Officer under
Sec.221(l) did not specify the amount of penalty, the order was bad, and the
notice of demand was was issued pursuant to that order and which mentioned the
Tax and interest are distinct and different concepts,154 and so are tax and
penalty.155 Interest is payable under the provisions of Sections 215,216 and 217.
Though the tax is calculated and assessed by reference to the income of the
assessee for a given year, the tax when demanded by a notice under this section
If pursuant to a notice of demand, the assessee has paid part of the sum
demanded, it is not necessary to issue a fresh notice of demand for the unpaid
is not necessary to serve a fresh notice ofthe heir.158 But if no notice of demand
i
was served on the deceased, all the heirs who are sought to be held liable must be
Where a final assessment has been made and a notice of demand issued, any
If the notice of demand is defective and bad in law, the assesee who does
under this Act cannot be commenced against him.161 A notice of demand which
does not lake into account the advance tax already paid, is invalid, and the assessee
cannot be penalized for not complying with it.162 Ifthe notice ofdemand contains
a mistake or an inaccuracy, the notice may be called and the issue of a fresh
notice to the assessee would be valid.163 The notice of demand also shall not be
particularly if he is not thereby misled, or because the words in the printed form
inviting attention to the statutory right of appeal are deleted.164 Section 292-B
mistake, defect or omission therein, if the notice ‘is in substance and effect in
The Act nowhere imposes any time limit within which the service ofthe the
reasonable time.166
When after setting of a loss under one head against profits under another
head, the computation of the total income of the assesseee discloses a loss which
the assessee is entitled to carry forward, it is the duty of the Assessing Officer,
under this Section, to notify to the assessee by an order in writing the amount of
such loss. This is to obviate any dispute in future regarding the quantum of the
loss. The assessee may appeal against the amount of loss determined by the
Assessing Officer (Sec.246), but he cannot dispute the correctness ofthe amount
the canied|o|ward loss is sought to be set off, except in a case where the Assessing
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Officer hasTBiled to notify to the assessee by an order in writing the amount of
the loss competed by him.167 But ifthe Assessing Officer, having determined the
amount of loss, holds that it cannot be carried forward, on the ground that it is
not a business loss, that would not debar the assessee’s claim in a subsequent
year to have such loss carried forward and set off against that year’s profits.168
The loss contemplated by this Section can be determined only “in the course
80, an assessee would not be entitled to carry forward a loss unless the loss has
In the proceeding initiated under Section 147 for assessing the income which
is suspected to have escaped assessment, the assessee is not entitled to claim that
the loss sustained by him in the relevant accounting year or in an earlier year
should be determined and an order notifying the amount of such loss should be
firm under Section 183, he shall, by an order in writing, intimate to the firm, the
amount at whieh^the total income of the firm has been computed and the
apportionment thereofbetween the several partnrs. Any such partner may appeal
against the order determining the amount of the firm’s total income or the
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