UNIT 4

1. submission of return of income

 **2. Procedure for assessment 

3. penalties and prosecution

4. interest

5. Assessment of companies ( Notes shared in Whatsapp group, plz check)

1Q) SUBMISSION OF RETURN OF INCOME:

The Income-tax Act, of 1961 contains provisions for filing of return of income. Return of income is the format in which the assessee furnishes information as to his total income and tax payable. The format for filing returns by different assessees is notified by the CBDT. The particulars of income earned under different heads, gross total income, deductions from gross total income, total income, and tax payable by the assessee are generally required to be furnished in a return of income. In short, a return of income is the declaration of income and the resultant tax by the assessee in the prescribed format.

COMPULSORY FILING OF RETURN OF INCOME  [SECTION 139(1)]:

(i) Companies and firms (whether having profit or loss or nil income);

(ii) a person, being a resident other than not ordinarily resident, having any asset (including any financial interest in any entity) located outside India held as a beneficial owner or beneficiary  or who has signing authority in any account located outside India, whether or not having income chargeable to tax;

(iii) Individuals, HUF, AOPs, or BOIs and artificial juridical persons whose total income before giving effect to the provisions of Chapter VI-A and sections 54, 54B, 54D, 54EC, or 54F exceeds the basic exemption limit.

(iv) Any person who during the previous year –

* has deposited more than ` 1 crore in one or more current accounts maintained with a banking company or a co-operative bank; or

* has incurred expenditure of more than ` 2 lakhs for himself or any other person for travel to a foreign country; or

*has incurred expenditure of more than ` 1 lakh towards consumption of electricity; or

*fulfills such other conditions as may be prescribed

v) Any person other than a company or a firm, who is not required to furnish a return under section 139(1) -

(i) If his total sales, turnover, or gross receipts, as the case may be, in the business > ` 60 lakhs during the previous year; or

(ii) if his total gross receipts in profession > ` 10 lakhs during the previous year; or

(iii) if the aggregate of TDS and TCS during the previous year, in the case of the person, is ` 25,000 or more; however, a resident individual who is of the age of 60 years or more, at any time during the relevant previous year, if the aggregate of TDS and TCS during the previous year, in his case, is ` 50,000 or more

(iv) the deposit in one or more savings bank accounts of the person, in the aggregate, is ` 50 lakhs or more during the previous year.

Due date of filing return of income

31st October of the assessment year, in case the assessee is:

(i) a company; 

(ii) a person (other than a company) whose accounts are required to be audited; or

(iii) a partner of a firm whose accounts are required to be audited.

31st July of the assessment year, in case of any other assessee (other than assessees including the partners of the firm being such assessees who are required to furnish a report under section 92E, for whom the due date is 30th November of the assessment year)

234A   - Interest for default in furnishing return of income

Interest under section 234A is payable where an assessee furnishes the return of income after the due date or does not furnish the return of income. Assessee shall be liable to pay simple interest @1% per month or part of the month for the period commencing from the date immediately following the due date and ending on the following dates –

However, where the assessee has paid taxes in full on or before the due date, interest under section 234A is not leviable.

234F Fee for default in furnishing return of income

Where a person who is required to furnish a return of income under section 139, fails to do so within the prescribed time limit under section 139(1), he shall pay, by way of fee, a sum of ` 5,000. 

However, if the total income of the person does not exceed ` 5 lakhs, the fees payable shall not exceed ` 1,000

139(3) Return of loss

An assessee can carry forward or set off his/its losses provided he/it has filed his/its return under section 139(3), within the due date specified under section 139(1). 

Exceptions

Loss from house property and unabsorbed depreciation can be carried forward for set-off even though the return has not been filed before the due date.

139(4) Belated Return

A return of income for any previous year, which has not been furnished within the time allowed u/s 139(1), may be furnished at any time before the:

(i) three months prior to the end of the relevant assessment year (i.e., 31.12.2023 for P.Y. 2022-23); or

(ii) completion of the assessment,

          whichever is earlier.

139(5) Revised Return

If any omission or any wrong statement is discovered in a return furnished u/s 139(1) or belated return u/s 139(4), a revised return may be furnished by the assessee at any time before the:

(i) Three months prior to the end of the relevant assessment year (i.e., 31.12.2023 for P.Y. 2022-23); or

(ii) completion of the assessment,

        whichever is earlier.

 Thus, the belated return can also be revised.

139A Permanent Account Number (PAN)

Quoting of PAN is mandatory in all documents pertaining to the following prescribed transactions :

(a) in all returns to, or correspondence with, any income-tax authority;

(b) in all challans for the payment of any sum due under the Act;

(c) in all documents pertaining to such transactions entered into by him, as may be prescribed by the CBDT in the interests of revenue. For example, the sale or purchase of a motor vehicle, payment in cash of an amount exceeding ` 50,000 to a hotel against a bill or bills at any one time, etc.

Inter-changeability of PAN with the Aadhaar number

Every person who is required to furnish or intimate or quote his PAN may furnish or intimate or quote his Aadhar Number in lieu of the PAN if he 

- has not been allotted a PAN but possesses the Aadhar number

- has been allotted a PAN and has intimated his Aadhar number to the prescribed authority in accordance with the requirement contained in section 139AA(2)

139AA Quoting of Aadhar Number

To be quoted by every person on or after 1.7.2017 in the application for allotment of PAN and in Return of Income. If a person does not have Aadhar Number, the Enrolment ID of the Aadhar application form issued to him at the time of enrolment shall be quoted. 

Every person who has been allotted PAN as on 1.7.2017 and who is eligible to obtain Aadhar Number, has to intimate his Aadhar Number to the prescribed authority on or before 31.3.2022. Where a person, whose PAN has become inoperative, is required to furnish, intimate, or quote his PAN under the Act, it would be deemed that he has not furnished, intimated, or quoted the PAN, as the case may be, in accordance with the provisions of the Act. 

Consequently, he would be liable for all the consequences under the Act for not furnishing, intimating or quoting the PAN.

However, the consequences would have effect from the date specified by the CBDT i.e., 1st April, 2023.

140A   Self-Assessment

Where any tax is payable on the basis of any return required to be furnished under section 139, after taking into account – 

(i) the amount of tax, already paid, 

(ii) the tax deducted or collected at the source

(iii) any relief of tax claimed under section 89

(iv) any tax credit claimed to be set off in accordance with the provisions of section 115JD; and

(v) any tax and interest payable as per the provisions of section 191(2)the assessee shall be liable to pay such tax together with interest and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax before furnishing the return.

Where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax, interest, and fee as aforesaid,  the amount so paid shall first be adjusted towards the fee payable and thereafter, towards interest and the balance shall be adjusted towards the tax payable.

2Q) PROCEDURE FOR ASSESSMENT 

              After submission of the income tax return, the Income-tax authority justifies/authenticates the return whether it is correct or not. So assessment is a process of verification of the correctness of the income tax return & its authentication by the authority, if the assessing officer (A. O)  is not satisfied the appeal procedure starts. 

INQUIRY BEFORE ASSESSMENT [SECTION 142]

A. Issue of Notice to any person for making assessment [Section 142(1)]

For the purpose of making an assessment, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under section 139(1) for furnishing the return has expired, a notice u/s 142. 

Note - It may be noted that the time limit provided under section 153(1) for completion of the assessment is 21 months/18 months/12 months as the case may be, from the end of the assessment year in which the income was first assessable. Therefore, since the assessment has to be completed within the said period, it appears that notice under section 142(1) should also be issued within that period.

B. Inquiry by Assessing Officer [Section 142(2)] 

For the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.

Section 142(3): Opportunity of being heard to be given before issuing directions for special audit. 

Section 142(2A): Direction for special audit _ (i)  Basis for direction to get accounts audited :

• If at any stage of the proceedings before him, the assessing officer (A.O), having regard to the nature & complexity of the accounts, the volume of the accounts, doubts about the correctness of accounts, multiplicity of transactions in the accounts / specialized nature of the business activity of the assessee, & the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the principal chief commissioner/chief commissioner/commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit. 
• A special audit is to be conducted by the accountant nominated by the principal chief commissioner / principal commissioner/commissioner. 
• A special audit may be directed even if accounts are audited under any other law. 
• Time limit: should not exceed 180 days
• expenses of special audits to be paid by the central government. 

(ii)  Consequences of failure to get a special audit done : 

In any case, where the assessee is directed to get an audit done & the assessee fails to do so, the assessing officer is entitled to make the best judgment assessment u/s 144 in addition to imposing penalty / taking such steps as may be necessary under the law. 

          In a case where a principal chief commissioner/chief commissioner / principal commissioner or commissioner issued instructions u/s 142(2A) nominating a chartered accountant for auditing the assessee's accounts & though the concerned assessee was willing to produce the records, the concerned CA refused to audit the accounts, a question arose as to whether there was a failure on the assessees part to comply with the directions u/s 142(2A)& consequently the best judgment assessment could be made u/s 144(b).

Section 142B: faceless inquiry and valuation :

Section 142b has been inserted with effect from 1st November 2020 to empower the central government to notify the scheme for faceless processes for eliminating physical interfaces. 

Section 143: Assessment 

Summary Assessment section 143(1):

Where a return has been made u/s 139/ in response to a notice u/s 142(1), if any tax/interest is found due an intimation should be sent to the assessee which will be deemed to be a demand notice. If any refund is due to the assessee it shall be granted. 

Section 143(2) Regular assessment/scrutiny assessment :

If the AO considers it necessary to ensure that the assessee has not understood his income / has not computed excessive loss / has not underpaid his tax in any manner he can issue a notice for making the assessment in the normal manner as at present. This will be a scrutiny assessment. 

Note: notice cannot be issued after the expiry of 6 months from the end of the financial year in which the return of income is furnished. 

Section 144: Best judgment assessment :

(i) Best judgment assessment mandatory in all the three cases stated above - It is mandatory for the Assessing Officer to make a best judgment assessment and he has no 

discretion to make or not to make such an assessment. These three cases are alternative and not cumulative for the purpose of making an ex parte assessment.

ii) Opportunity of being heard - Before making the best judgment assessment, the Assessing Officer has to take into account all relevant material that he has gathered. The assessee must be given an opportunity of being heard. Such opportunity shall be given by an 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 of his judgment. Thereafter, the Assessing Officer shall make the assessment of total income or loss to 

the best of his judgment and determine the sum payable on the basis of such assessment. It may be noted that no refund can be granted under section 144. However, where a notice under section 142(1) has been issued prior to the making of an assessment under this section, it is not necessary to give such an opportunity.

FACELESS ASSESSMENT [SECTION 144B]

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has introduced faceless assessment under section 144B w.e.f. 1st April 2021. “Faceless assessment” means the assessment proceedings are conducted electronically in the 'e-Proceeding' facility through the assessee's registered account in the designated portal. 

3Q)  Penalties and Prosecution:

 Concept of Penalty:

             A penalty is a form of punishment given for violating a law. In the context of income tax, one shall be penalized if one fails to comply with the rules mentioned in the Income Tax Act, of 1961. The penalty can either be a fixed amount or a percentage of a certain amount.

               An assessee who commits an offense under the provisions of The Income Tax Act, 1961 shall be subject to penalty. The penalty is an additional amount levied and is different from the tax payable. The penalty is levied based on the law at the time of the offense being committed and not as it stands in the financial year for which the assessment is being made.

            A timely and consistent paying of taxes and filing of returns ensures the government has money for public welfare at any point in time. To make sure that taxpayer does not default in paying taxes or disclosing the information, there are several penalties prescribed under the Act. A penalty is a punishment imposed on the taxpayer for being non-compliant. Listed below is a summary of some of the important and most common penalties.

 

Default in making payment of tax:

The amount of penalty leviable will be determined by the Assessing Officer. However, the amount will not exceed the amount of tax in arrears

 

 Under-reporting of income:

·       If the income assessed/re-assessed exceeds the income declared by the assessee, or in cases where a return has not been filed and income exceeds the basic exemption limit, a penalty at 50% of tax payable on such under-reported income shall be levied.

·       200% of the tax is payable if under-reporting results from misreporting of income

 Failure to maintain books of accounts and other documents:

·       Normally, the amount of penalty leviable is ₹25,000

·       In case, an assessee is a person who has entered into the international transaction, the penalty will be 2% of the value of such international transactions or specified domestic transactions

 

 Penalty for false entries such as fake invoices:

In case the income tax officer finds that the books of accounts provided by the assessee in the proceeding contain the following:

·       forged or falsified documents such as a fake invoice or a false piece of documentary evidence

·       an invoice in respect of supply or receipts of goods or services issued by any person without actual supply or receipt of goods or services

·       an invoice of supply or receipt of goods or services received from a person who does not exist

·       an omission of any entry which is relevant for the computation of total income.

Then, the assessee might have to pay a penalty of the amount equal to the sum of such false or omitted entries.

 

 Undisclosed income:

·       Where the income determined includes undisclosed income, a penalty of @10% is payable. However, no such penalty will be leviable, if such income was included in the return and tax was paid before the end of the relevant previous year.

·       Where Search has been initiated on/ after 1/7/2012 but before 15/12/2016,

a) If undisclosed income is admitted during the course of the search and the assessee pays tax and interest and files a return, a penalty of 10% of such undisclosed income is payable.

b) If undisclosed income is not admitted but the same is furnished in the return filed after such search, 20% of such undisclosed income is payable.

c) In all other cases, the penalty is leviable @ 60%

·       Where Search has been initiated on/ after 15/12/2016,

a. If undisclosed income is admitted during the course of the Search and the assessee pays tax and interest and files a return, a penalty of 30% of such undisclosed income is payable.

b. In all other cases, the penalty is leviable @ 60%

 Audit and Audit Report

·       If the assessee fails to get his accounts audited, obtain an audit report, or furnish a report of the such auditor, a penalty will be leviable at ₹1,50,000 or ½% of the total sale/ Turnover/ gross receipts whichever is lesser.

·       Failure of the assessee to furnish an Audit report related to a foreign transaction, a penalty @ ₹1,00,000 will be payable

TDS/TCS:

·       Where a person fails to deduct tax at source, he will be liable to pay a penalty equal to the amount of tax that he has failed to deduct/ pay.

·       Where a person fails to collect tax at source, he will be liable to pay a penalty equal to the amount of tax that he has failed to collect.

·       Failure to furnish TDS/TCS statements or furnishing incorrect statements, shall attract a penalty ranging from ₹10,000 to ₹1,00,000

·       Failure to furnish information/ furnishing inaccurate information related to TDS deduction related regarding Non- residents shall attract a penalty of ₹100,000

 Penalty for using modes other than Account payee cheque/ draft/ ECS:

·       If a person takes/ accepts a loan/ deposit except by way of Account payee cheque/ account payee draft/ ECS, and if the aggregate amount exceeds ₹20,000, he shall be liable to pay a penalty of an amount equal to such loan/ deposit.

·       If an amount of ₹2,00,000 or more is received in aggregate from a person in a day/ single transaction/ relating to one event, a penalty equal to such amount will be payable.

·       If a person repays a loan/ deposit and such amount so repaid exceeds ₹20,000 and the such amount has been repaid except by way of Account payee cheque/ account payee draft/ ECS, an amount equal to such loan/ deposit shall be payable.

 Failure to furnish statements/ information:

·       Failure to furnish a statement of financial transaction or reportable account shall attract a penalty of ₹500 for each day of failure. And if the failure is in response to a notice to report on a specified financial transaction, the penalty shall be ₹1,000 for each day of failure

·       A penalty of ₹50,000 shall be attracted for furnishing inaccurate statement of a financial transaction/ reportable account

·       Failure of an eligible investment fund to furnish any statement/information/ documents within the prescribed time shall attract a penalty of ₹5,00,000

·       Failure to furnish any information/ document in relation to the international transaction shall attract a penalty of 2% of the value of the such transaction

·       Failure to furnish any information/ document by an Indian Concern related to the international transactions, shall attract a penalty of 2% of the value of the transaction or ₹50,000 in some cases.

·       If a report/ certificate is required to be furnished by an Accountant/ Merchant Banker/ Registered Valuer and such information is found to be incorrect, a penalty of ₹10,000 for each incorrect report/ information is payable

·       Failure to furnish information by any person who is attending/ helping to carry the business/ profession of any person, in whose building/ place the income tax authority has entered for collecting information shall attract a penalty of up to ₹1,000

· Non-furnishing of the report by any reporting entity which is obliged to furnish Country by Country report will attract penalty as follows:

 

Period of delay  Penalty

 Less than or equal to 1  -    ₹5000 per day

Continuing default         -     ₹50,000 per day from the beginning of service of the order

Submission of inaccurate Information   ₹5,00,000

 

 Others:

·       Failure to apply/quote/ intimate PAN/ quoting false PAN shall attract a penalty of ₹10,000

·       Failure to apply/quote TAN/ quoting false TAN shall attract a penalty of ₹10,000

·       In case of the following defaults, ₹10,000 will be the penalty leviable,

  a. Refusal to answer questions put by the department

  b. Refusal to sign statements made in income tax proceedings

  c. Non-compliance with a summons to give evidence/ produce books of    accounts

  d. Failure to comply with a notice.

4Q) OFFENCES & PROSECUTION:

            Prosecution provisions under the income tax Act,1961 are used as a tool for effective enforcement of tax laws and determining tax avoidance and tax evasion.

  While penalties may be imposed by the income tax authorities, the imposition of a fine or the launching of prosecution for any offence under the Act can be made only by the magistrate of a court undersections 275A to 280. In respect of the same default of an assessee, penalty may be imposed and a prosecution also may be launched against him.

section 278AA provides that where a reasonable cause for the failures is proved, punishment shall not be imposed for offences specified in sections 276A, 276B &276BB.

For the purposes of offences and prosecutions, the following individuals will be deemed to be guilty of the offence committed by the respective person.

      section 278B(3) provides that it an offence under the Act has been committed by a person being a company, it shall be punished with fine. Every other person who was in charge of and was responsible for the conduct of business of the company, or any director, manager, secretary or other officer of the company would be liable for punishment of imprisonment and fine wherever  so provided.

Q) INTEREST: 

          Introduction Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults. In this part, you can gain knowledge about the provisions of sections 234A, 234B and 234C dealing with interest levied for (i) delay in filing the return of income; (ii) non-payment or short payment of advance tax; and (iii) non-payment or short payment of individual installment or installments of advance tax (i.e., deferment of advance tax).

Manner of computation of interest under the Income-tax Act

 Before understanding the provisions of sections 234A, 234B, and 234C it is important to understand the provisions of Rule 119A which gives the manner of computation of interest under the Income-tax Act. As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act, the following rule shall be followed: a) where interest is to be calculated on an annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated; b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated; c) the amount of tax, penalty or other sums in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated. E.g. If we want to compute interest under section 234A on Rs. 8,489 for 3 months and 10 days, then as per Rule 119A discussed above, while computing the amount liable to interest, any fraction of Rs. 100 is to be ignored and, hence, we will ignore Rs. 89 and the balance amount will come to Rs. 8,400. Interest will be computed on Rs. 8,400. Further, the period of 10 days will be considered a full month and, hence, interest will be computed for 4 months.

Interest for delay in filing the return of income [Section 234A] Under section 234A, interest is levied for delay in filing the return of income, filing of an updated return or filing of a return in response to notice issued under section 142(1). 

Basic provisions

 Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard or files an updated return, interest under section 234A will be levied.

Rate of interest

Interest under section 234A is levied for delay in filing the return of income. Interest is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income. 

Period of levy of interest under section 234A Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144. It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as a full month. 

Amount liable to interest under section 234A

Interest under section 234A is levied on the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 89/90/90A/91 and tax credit claimed under section 115JAA/115JD.

 Note: 

1. Tax on the total income determined under section 143(1) shall not include the additional income tax, if any, payable under section 140B or section 143. 2. Tax on the total income determined under regular assessment shall not include the additional income tax payable under section 140B.

Interest for default in payment of advance tax [Section 234B]

Section 234B provides for the levy of interest for default in payment of advance tax. 

Basic provisions

 Interest under section 234B is levied in the following two cases: 

a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or

 b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax (meaning of assessed tax is discussed later). 

      As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if the estimated tax liability of the assessee during that year is ten thousand rupees or more.

Rate of interest

Under section 234B, interest for default in payment of advance tax is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax. 

Amount liable for interest 

Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short-paid. 

The amount of unpaid/short-paid advance tax is computed as follows: 

 Assessed tax  -  Advance tax paid (if any) = Amount of unpaid/short paid advance tax

Period of levy of interest 

Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.

     In a case where the income is increased on account of assessment/re-computation, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of assessment/re-computation. In a case where an application is made to the Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of making the application. Further, if the income as declared in the application is increased by the Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of such order. If as a result of the rectification order of the Settlement Commission, income is increased/decreased, interest will also be increased/decreased accordingly. 

   If the taxpayer has paid any tax before the completion of the assessment, then interest will be levied as follows: 

(a) Up to the date of payment of self-assessment tax, interest will be computed on the amount of unpaid advance tax.

 (b) From the date of payment of the self-assessment tax, interest will be levied on the unpaid amount of advance tax after deducting the self-assessment tax paid by the taxpayer.