Income escaping and best judgment assessment

Objective and Agenda:

To know the need for assessment of return of income. To understand various types of income tax return and their due dates for filing. To understand different types of assessment and to analyse Best Judgment Assessment and Income Escaping Assessment. To know the scope, procedure and time limit for carrying out Best Judgment Assessment and Income Escaping Assessment. Finally, the webinar would touch upon relevant judicial precedents.

1. Income Escaping and Best Judgment Assessment CA. Divakar Vijayasarathy

2. Credits and Acknowledgments Bharathi Priya R D Jugal Gala

3. Legends used in the Presentation AO Assessing Officer AY Assessment Year BJA Best Judgement Assessment CA Chartered Accountant CCIT Chief Commissioner of Income Tax CIT Commissioner of Income Tax FY Financial Year ITD Income Tax Department JCIT Joint Commissioner of Income Tax PCCIT Principal Chief Commissioner of Income Tax PCIT Principal Commissioner of Income Tax PY Previous Year TPO Transfer Pricing Officer

4. Presentation Schema

5. Assessment

6. Types of Assessment Four Major Assessment Summary assessment – Sec 143(1) Scrutiny assessment – Sec 143(3) Best Judgement assessment – Sec 144 Income Escaping assessment – Sec 147

7. Best Judgement Assessment (BJA)

8. Scope of BJA – Sec 144 As per Sec 144, the AO is under an obligation to make an assessment to the best of his judgment in the following cases These circumstances are alternative and not cumulative for the purpose of BJA

9. Basis of Sections for BJA

10. Procedure for BJA

11. Time Limit for Completion of BJA – Sec 153 Assessment Year Time limit for Scrutiny Assessment For AY 2017-18 or before 21 months form the end of the AY in which the income was first assessable For AY 2018-19 18 months form the end of the AY in which the income was first assessable From AY 2019-20 onwards 12 months form the end of the AY in which the income was first assessable If reference is made to Transfer Pricing Officer (TPO) the period available for assessment shall be extended by 12 months

12. Caveats

13. Income Escaping Assement

14. Income Escaping Assessment – Sec 147

15. Relevant Terms

16. Deeming Fiction for Income Being Escaped

17. Contd.

18. Issue of Notice for Income Escaping Assessment – Sec 148

19. Time Limit for Issuing Sec 148 Notice - Sec 149 Criteria Time limit Prior Approval (Sec 151) Income chargeable to tax is < ₹ 1,00,000 4 years from the end of the Relevant AY JCIT Income chargeable to tax is >= ₹1,00,000 6 years from the end of the Relevant AY PCCIT / CCIT / PCIT / CIT In case the assessee being a non-resident Notice is issued directly to Non-resident Income chargeable to tax is < ₹ 1,00,000 4 years from the end of the Relevant AY JCIT Income chargeable to tax is >= ₹1,00,000 6 years from the end of the Relevant AY PCCIT / CCIT / PCIT / CIT Notice is issued against the person treated as agent under Sec 163 of non-resident 6 years from the end of the Relevant AY In case the assessee has foreign asset including financial interest 16 years from the end of the Relevant AY

20. Exception to Time Limit – Sec 147 AND In above scenario, time limit for issuing notice will be 4 years from the end of the relevant AY The aforesaid time limit shall not be applicable for income in relation to any foreign asset (including financial interest), has escaped assessment Time limit under Sec 148 as mentioned earlier will not apply if the following conditions are satisfied The above time limit, if conditions are satisfied, shall override the time limit mentioned in Sec 149 in case of contradictions

21. Circumstances in which Notice can be Issued at Any Time - Sec 150 Exception: Assessment, reassessment or recomputation could not have been made at the time of the order which was the subject-matter of such appeal, reference or revision, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken

22. Miscellaneous Provisions – Sec 152

23. Time Limit for Completion of Assessment – Sec 153 Service of Notice Time limit for Completion of Assessment Before 01.04.2019 9 months from the end of the FY in which the notice was received by the assessee Received on or after 01.04.2019 12 months from the end of the FY in which the notice was received by the assessee Assessment of partner where firm has been assessed under Sec 147 on or before 12 months from the end of the month in which the assessment order in the case of the firm is passed

24. Notice of Demand – Sec 156

25. Income Escaping Assessment Vs. Scrutiny Assessment Basis of Differentiation Scrutiny Assessment Income Escaping Assessment Reasons to Believe No need for reasons to believe Concrete material or information is mandatory to carry out assessment Recording Reasons Recording reasons is not required Must record reasons before issuing notice Prior Approval Higher authority approval is not required for issuing notice Higher Authority approval is required for issuing notice

26. Principles from Landmark Judgment Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442 (SC) Principles emerging from the decision of Supreme Court

27. Appeals and Rectification Income Escaping Assessment order under Sec 147 Best Judgment Assessment order under Sec 144 Appealable Orders Appeal Authority Commissioner of Income-tax (Appeals) [CIT(A)] Rectification under Sec 154 All orders made under the Act are rectifiable Provided the mistake is apparent from record

28. Judicial Precedents Where assessee firm failed to comply with notices issued under section 142(1), Assessing Officer was right in framing assessment order under section 144 denying allowance of interest and salary paid to partners by taking support of provisions of section 184(5) Eastern Engineering Venture vs. Income-tax Officer, Angul [2019] 107 taxmann.com 78 (Cuttack - Trib.) Where notice issued to assessee for reassessment was based only on allegation that it had permanent establishment in India, said notice could not be sustained once arm's length price procedure had been followed - Honda Motor Co. Ltd. v. Assistant Director of Income-tax, Noida [2018] 92 taxmann.com 353 (SC) Where there was no tangible material before the AO to hold that income has escaped assessment within the meaning of Sec 147 and the reasons recorded for reopening the assessment constituted a mere change of opinion, the reassessment was not valid Aventis Pharma Ltd. v. Assistant Commissioner of Income-tax [2010] 323 ITR 570 (Bombay) Opinion of audit party does not amount to 'information' on basis of which an order of reassessment could be made under section 147 Commissioner of Income-tax v. Mettur Chemical & Industrial Corpn. [2000] 242 ITR 119 (Madras) Retrospective amendment in Section 115JA can't be deemed as reasons to believe that income has escaped assessment Godrej Industries Ltd. vs. B.S. Singh, Deputy Commissioner of Income-tax, Range 10(2) [2015] 62 taxmann.com 354 (Bombay)

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