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Law & Procedure of Income Tax Scrutiny Assessments

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As Amended by Finance Act, 2023

Category: Tags: ,

Author: Ram Dutt Sharma

ISBN: 9789356033931

Publisher: Commercial Law Publishers

Edition: April 2023

No of Pages: 1072

CONTENTS

Chapter 1—Introduction Objective of Scrutiny Assessment……………………………………………………….. 1

Procedure of assessment under section 143(1) ………………………………………………1

Procedure of assessment under section 143(3) ………………………………………………2

Sections dealing with Income-tax Scrutiny assessment proceedings……………..2

Chapter 2—Return of Income [Section 139] What is Income-tax Return (ITR)………………………..4

Purpose of Income-tax return………………………………………………………………………..4

Benefits of filing of income-tax return …………………………………………………………..4

Different modes of filing the return of income………………………………………………4

Who can file ITR manually (i.e., paper returns) …………………………………………….5 [1]

Obligation to File Return of Income [Section 139(1)]……………………………..7 [2]

Return of loss [Section 139(3)] ……………………………………………………………….9 [3]

Belated return [Section 139(4)]……………………………………………………………..11 [4]

Return of Income of Charitable Trusts and Institutions [Section 139(4A)]…………………………12 [5]

Return of Income of Political Parties [Section 139(4B)]…………………………14 [6]

Furnishing of ITR of certain entities claiming income-tax benefits under Section 10 [Section 139(4C)…………………………………………..14 [7]

Return by University, College or other institution [Section 139(4D)]……16 [8]

Return by Business trust [Section 139(4E)]…………………………………………..17 [9]

Return by investment fund [Section 139(4F)]……………………………………….17 [10]

Revision of return [Section 139(5)]……………………………………………………….17 [11]

Updated Return [Section 139(8A)]……………………………………………………….21 [12]

Defective return [Section 139(9)]………………………………………………………….24 [13]

Return of income under section 170A [Rule 12AD of Income-tax Rules, 1962]……………………………..27

Chapter 3—Condonation of delay in filing of return of income [Section 119(2)(b)] Genuine hardship’ as occurring in section 119(2)(b) of the Income-tax Act, 1961…………………………33

Authorities who can grant or reject such condonation applications…………….35

Conditions prescribed for Acceptance/Rejection of Income-tax Refund Claim………………….35 (x)

CONTENTS  Supplementary (Additional) Claim of Income-tax Refund after completion of assessment…………………………………………………………………….36

Remedy to an assessee against order under section 119(2)(b) ……………………..36

Time limit for filing Application………………………………………………………………….36

Time limit for processing Application…………………………………………………………37

Extended Time limit for Filing Application…………………………………………………37

Where to file return under section 119(2)(b)………………………………………………..37 Procedure of Condonation Request for filing ITR after time-barred ……………37

Specimen of Application for condonation of delay in filing of return claiming refunds exceeding Rs. 50,00,000…………………………………………….38

Chapter 4—Permanent account number [Section 139A] Application for allotment of a permanent account number [Rule 114]………..77

Penalty for failure to comply with the provisions of section 139A [Section 272B]…………..89

Applicability of penalty provisions of section 272B …………………………………….90

PANs are issued without de facto verification, these cannot solely divulge real identity of individual……………………………………………………….97

Chapter 5—Quoting of Aadhaar Number [Section 139AA] Fee for failure to intimate Aadhaar number [Section 234H] ………………………101

Nature of default……………………………………………………………………………………….101

How much fee is levied?……………………………………………………………………………102

Time of payment ……………………………………………………………………………………….102

Chapter 6—Scheme for submission of returns through tax return preparers [Section 139B] Text of Section 139B…………………………………………………………………………………..106

Chapter 7—Power of Board to dispense with furnishing documents, etc., with return [Section 139C]. 116

Chapter 8—Filing of return in electronic form [Section 139D]…………. 117

Chapter 9—Return by whom to be verified [Section 140A] ……………… 119

Who can verify and sign? ………………………………………………………………………….120

Prescribed person for the purposes of clause (c) and clause (cd) of section 140 [Rule 12AA]…….123

Chapter 10—Self-assessment [Section 140]……………………………………….. 130

Assessee is not entitled to interest under section 244A on refund of excess-self assessment tax deposited by assessee under section 140A voluntarily……………………133

CONTENTS (xi) Assessee would be entitled to interest under section 244A(1)(b) on amount of refund which was deposited by it by way of selfassessment tax under section 140A………….133

Refund arising on account of self-assessment tax is eligible for interest…….134

Chapter 11—Tax on updated return [Section 140B]…………………………… 138

Chapter 12—Provisional assessment {Section 141] …………………………… 141

CBDT Letter F. No. 9/30/66-IT(A-I), Dated 13.02.1967 ……………………………..142

 Chapter 13—Provisional assessment for refund [Section 141A] Under section 141A,

ITO is only empowered to pass an order granting refund to assesses and not an order demanding any tax ……..150

Chapter 14—Power of Assessing Officer to make enquiry before assessment [Section 142]

Purpose of Notice under section 142(1)……………………………………………………..152

Notice under section 142(1)(i) to the Assessee to file return of income [Section 142(1)(i)]………153

Notice to the Assessee under Section 142(1)(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require [Section 142(1)(ii)]………………………………………………153

Making Inquiry- Empowers him to collect information from sources other than the assessee [Section 142(2)] ……………………………………………..158

Giving Opportunity of being Heard [Section 142(3)]…………………………………158

Madras High Court quashes section 142(1) notice issued giving only one working day time to respondent …………………………………………………163

Co-operative societies being persons, can be issued notices under section 142(1) for furnishing certain information……………………………….163

Documents/information required must be specified in the body of the notice itself……………………………………………………………………………….163

Chapter 15—Special audit before assessment under Income-tax Act provisions [Section 142(2A), 142(2B), 142(2C), 142(2D), 142(3)) and 142(4] Giving direction to get Books of Account Audited [Section 142(2A)] ………..167 Direction of audit can be given even if the accounts are already audited under the Income-tax Act or under any other law [Section 142(2B)] ……….169

Form and time limit for submission of report [Section 142(2C)] ………………..169

Expense for Special Audit required to be paid by the Department [Section 142(2D)]………………………………………………………………………………..170

Chapter 16—Estimate of value of assets by Valuation Officer [Section 142A] Reference by Assessing Officer to the Valuation Officer for estimate of the value including fair market value of any asset, property, or investment [Section 142A(1) and (2)]……………………………………………..188

Power of Valuation Officer and procedure to make the estimate of the value of the asset, property or investment [Section 142A(3), (4) and (5)]………………………………………………………………188

Time period of submitting valuation report [Section 142A(6)]…………………..188

Assessing Officer may take such report into account in making assessment or reassessment [Section 142A(7)]……………………………………188

Specimen order of referenceto the Valuation Officer…………………………………189

Chapter 17—Faceless inquiry or valuation [Section 142B] Faceless inquiry or valuation [Section 142B]………………………………………………208

Purpose of Scheme…………………….209

Issue of directions ……………………………………………………………………………………..209

Faceless Inquiry or Valuation Scheme, 2022 ………………………………………………209

Chapter 18—Processing of an income-tax return – Scope of adjustments under section 143(1) [Section 143] …………………………. 211

Scope of adjustments to be made under section 143(1)(a)………………………….211

An incorrect claim, if such incorrect claim is apparent from any information in the return [Sec-tion 143(1)(a)(ii)]…………………………………214

Meaning of ‘prima facie’ ……………………………………………………………………………215

Remedy available………………………………………………………………………………………215

Chapter 19—Scrutiny notice under section 143(2) Time limit for issuance of notice under section 143(2)……………………………….252

Consequences of not complying with the notice issued under section 143(2)…………252

Revised format of Issue of notices under section 143(2) of Income-tax Act, 1961…………..255

Limited Scrutiny (Computer Aided Scrutiny Selection)…………………………….255

Complete Scrutiny (Computer Aided Scrutiny Selection)………………………….256

Compulsory Manual Selection…………………………………………………………………..257

Non-issuance of Section 143(2) notice, ‘foundational infirmity’ & fatal to reassessment…………..267

No section 143(2) notice requirement if no valid return filed by Assessee………………268

Chapter 20—Scrutiny Assessment [Section 143(3)] Assessee needs to establish genuineness of the expenditure and that expenditure was incurred wholly and exclusively for the purpose of the business of the assessee ………………………………………..280

Quashes assessment framed by Addl. CIT/ JCIT but initiated by ACIT, in absence of orders under Sections 120(4)(b) & 127 ………………..282

Income-tax proceedings cannot continue against corporate debtor during pendency of insolvency proceedings ……………………………………..283

Draft order coupled with demand, penalty notice not final assessment order where Section 144C regime duly followed ……………………………….284

CIT cannot direct Assessing Officer to add items to compute book profit for MAT without giving a reference of empowering provision……………………………………………………………………………………………285

Chapter 21—Best judgment assessment [Section 144] Reasons for Best Judgment Assessment ……….288

Assessing Officer to record finding of non-compliance ……………………………..290

Requirement of giving an opportunity – When may be dispensed with [Second proviso to section 144(1)] ……………………………………………..290

Power to reject the books of accounts by the Assessing Officer is to be exercised judicially………..290 Opportunity to the assessee……………………………………………………………………….291

Chapter 22—Concept of Protective Assessment Why protective assessments ?………………………317

Object of a protective assessment………………………………………………………………318

Protective assessment is a precautionary assessment ………………………………..318

For making substantive or protective addition satisfaction of the same Assessing Officer is necessary ……………………………………………………………318

For substantive and protective addition, income must accrue or arise and must be received or receivable ……………………………………………………318

Addition of deemed income cannot be made on protective basis………………319 Where substantive addition is confirmed, protective addition cannot survive……………………………319

Nature of income does not change in case of substantive/protective addition………….319

No Protective Recovery on Protective Assessment ……………………………………320

Chapter 23—Power of Joint Commissioner/Additional Commissioner to issue directions in certain cases—[Section 144A] Scope of the sections and procedure there under……………………………………..334

Conditions to be satisfied before invoking section 144A……………………………334

Provisions of section 144A come into play:………………………………………………..335

Direction once issued is binding on the Assessing Officer…………………………335

Chapter 24—Faceless Assessment [Section 144B] Introduction of Faceless Assessment……….348

Faceless Assessment System ……………………………………………………………………..348

Changes made in Section 144B by Finance Act, 2022, with effect from 01.04.2022……………349

Introduced faceless schemes extended to 31.03.2024………………………………….349

CBDT excludes survey cases from Section 144B, transfers them to Central Charges with exception of International Tax cases ………………..350

Chapter 25—Scheme of faceless assessment with 32 steps [Section 144B(1)] Remands assessment for ‘strict compliance’ of Section 144B(1)(xvi) procedure…………………………360

Chapter 26—Scope/Cases to be handled under Faceless Assessment Scheme prescribed by CBDT [Section 144B(2)] Cases are covered under section 144B(2)……………………………………………………362

Cases are outside the scope of the Faceless Assessment regime…………………362

Chapter 27—Centres and Units [Section 144B(3)] ………………………………..365

Chapter 28—Composition of various units [Section 144B(4)]……………..367

Chapter 29—Defines about how all communications in faceless assessment centre shall be exchanged exclusively by electronic mode [Section 144B(5)]…………………………………………………..368

Chapter 30—Internal and external communications through electronic mode [Section 144B(6)]…………………………………………………..369

Less than two days’ time for responding to Section 144B show cause notice, inadequate & illusory……………………………………………………………..370

Chapter 31—Discuss about special audit case [Section 144B(7)] ………..372

Chapter 32—In exceptional case, transfer to jurisdictional Assessing Officer [Section 144B(8)]……………………………………………….373

Chapter 33—Assessment not made in accordance with the scheme – bad in law [Section 144B(9)] Now omitted by the Finance Act, 2022, with retrospective effect from 01-04-2021…………………………………………..377

Chapter 34—Standard Operating Procedure (SOP) for Faceless Income-tax Assessment under Section 144B [dated 03.08.2022] National Faceless Assessment Centre, Delhi Letter F. No. NaFAC/Delhi/CIT-1/2022-23/112/92/, dated 03.08.2022………………..380

Subject: Standard Operating Procedure (SOP) for Assessment Unit (AU) Under the Faceless Assessment provisions of Section 144B of the Income-tax Act…………………………………………………………………………………..380

Chapter 35—Reference to Principal Commissioner or Commissioner in certain cases [Section 144BA] Reference by Assessing Officer to PCIT/CIT [Section 144BA(1)]……………….405

Formation of opinion by PCIT/CIT [Section 144BA(2)]……………………………..405

No objection is furnished by the assessee [Section 144BA(3)]…………………….406

PCIT/CIT is satisfied by reply of assessee [Section 144BA(5)]……………………406

Opportunity of being heard by Approving Panel [Section 144BA(7)]………..406

Opinion of majority of members of Approving Panel [Section 144BA(9)] …………………….406

Prior approval of PCIT/CIT before passing of order by Assessing Officer [Section 144BA(12)]……………406

No Appeal under Income-tax Act against directions of Approving Panel [Section 144BA(14)]…….407

Section 144BA(15) to (21) …………………………………………………………………………..407

Chapter 36—Reference to Dispute Resolution Panel [Section 144C] Applicability of Draft Assessment Order…………………………………………………..417

Eligible assessee[Section 144C(15)(b)]………………………………………………………..417

Matters to be considered by DRP ………………………………………………………………417

Time limit for issuing directions and passing an order ……………………………..417

Documents/information to be submitted along with Form 35A………………..418

Income-tax (Dispute Resolution Panel) Rules, 2009 …………………………………..418

Chapter 37—Method of Accounting [Section 145] What is Method of Accounting………….434

Methods of Accounting Recognized………………………………………………………….435

Apex Court’s Observation on recognized methods……………………………………435

What are Books of Account? ……………………………………………………………………..435

Choice and Change in the Method of Accounting……………………………………..436

Assessee has the choice on method, but such method should be shown as regularly followed ……….436

Only two systems of accounting recognised now………………………………………438

Cash system ………………………………………………………………………………………………438

Mercantile System……………………………………………………………………………………..440

Benefits of Mercantile System ……………………………………………………………………440

Valuation of Closing Stock ………………………………………………………………………..441

Difference between Cash Method of Accounting and Mercantile method of Accounting ……………………………………………………………………….442

Income Computation and Disclosure Standards (ICDS) [Section 145(2)]………………442

Constitutional Validity of ICDS…………………………………………………………………443

Aim of notified standards – Transparency in financial statements …………….443

Rejection of Books of Accounts [Section 145(3)]…………………………………………452

Assessing Officer’s Power to Reject Accounts ……………………………………………453

A clear finding is necessary before invoking the Section 145(3) of the Act………… 454

Power to be exercised judicially…………………………………………………………………455

Justification for rejection ……………………………………………………………………………456

Power of the Assessing Officer to estimate profits …………………………………….456

Comparing gross profit of earlier years……………………………………………………..456

Estimate of turnover………………………………………………………………………………….457

Peak credit…………………………………………………………………………………………………457

Reference to Valuation Officer…………………………………………………………………..457

Chapter 38—CBDT – Notification No. 87/2016, dated 29.09.2016

Annexure A—Income Computation and Disclosure Standard I relating to accounting policies……506

Annexure B—Income Computation and Disclosure Standard II relating to valuation of inventories……508

Annexure C—Income Computation and Disclosure Standard III relating to construction contracts…….513

Annexure D—Income Computation and Disclosure Standard IV relating to revenue recognition …….517

Annexure E—Income Computation and Disclosure Standard V relating to tangible fixed assets ……. 520

Annexure F—Income Computation and Disclosure Standard VI relating to the effects of changes in foreign exchange rates………………..523

Annexure G—Income Computation and Disclosure Standard VII relating to government grants ……….527

Annexure H—Income Computation and Disclosure Standard VIII relating to securities ……………..529

Annexure I—Income Computation and Disclosure Standard IX relating to borrowing costs………..532

Annexure J—Income Computation and Disclosure Standard X relating to provisions, contingent liabilities and contingent assets …….535

Chapter 39—Method of accounting in certain cases [Section 145A]………………………………..539

Chapter 40—Taxability of certain income [Section 145B] ……………………545

Chapter 41—Re-opening of assessment at the instance of the assessee [Section 146] [Omitted by Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1989] ………………………….546

Chapter 42—Income Escaping Assessment [Section 147] Scope and effect of section 147 as substituted by the Finance Act, 2021 …….553

Chapter 43—Issue of notice under section 148 where income has escaped assessment [Section 148] Consequences of not complying with the notice issued under section 148………………..572

Guidelines for issuance of notice under section 148 of the Income Tax Act, 1961 [CBDT Letter F. No. 299/10/2022-Dir (lnv.III)/611, Dated: 01.08.2022]………………………….573

Substituted service of Section 148 notice without having due diligence for locating assessee is not valid …………………………………………590

Reassessment notice issued for wrong Assessment year cannot be corrected by issuing letter of corrigendum…………………………………………590

Chapter 44—Conducting inquiry, providing opportunity before issue of notice under section 148 [Section 148A] Guidelines for pre-notice procedure under new reassessment regime as amended by the Finance Act, 2022 …………………………………….603

Conducting Inquiry [Section 148A(a)]……………………………………………………….604

Granting an opportunity of being heard [Notice under Section 148A(b)]…………………………………………………………………………………604

Notice under Section 148A(d)……………………………………………………………………604

Procedure under section 148A is not applicable [Proviso to Section 148A] [Exception] ……….605

Where the Procedure under section 148A is required/not required to be followed………………605

Chapter 45—Prior approval for assessment, reassessment, or recomputation in certain cases [Section 148B] Prior Approval of superior authority before passing of the order of assessment, reassessment or recomputation………………………………………649

National Faceless Appeal Centre (NFAC) is bound to follow the circulars of the Central Board of Direct Taxes (CBDT)……………………….650

Chapter 46—Time limit for issue of notice under section 148 {Section 149] Years where limitation has expired under the old regime cannot be reopened under the new extended time limit [First proviso to Section 149]………………………………………………………………………………………..655

Searches taking places on or before 31.03.2021 would be continued to be governed by Section 153A and 153C [Second proviso to Section 149]………………………………………………………….655

Time Exclusion in case of Search/Requisition/Survey Action conducted after 15th March of a financial year [Third proviso to Section 149(1)] …………………………………………………………………..655

While calculating the limitation period as per section 149, the time allowed to respond under section 148A(b) (7 to 30 days or extended time) and if the proceedings under section 148A are stayed by any Court, period of operation of such stay is required to be excluded [Fourth proviso to Section 149]…………………….656

Extend the limitation period so as to provide atleast 7 days to Assessing Officer for passing Section 148A(d) order [Sixth proviso to Section 149(1)]…………………………………………………………656

Reopening assessments for multiple years [Section 149(1A)]…………………….656

Chapter 47—Provision for cases where assessment is in pursuance of an order on appeal, etc. [Section 150] Finding or direction (Section 149)………………………………………………………………664

Extension of Time for issue of Notice ………………………………………………………..665

Exceptions to time limits given in section 149(1) ……………………………………….665

Section 150 overrides section 149(2) also, section 151 is not applicable where section 150 applies…………………………………………………………………..665

Chapter 48—Sanction for issue of notice under section 148 [Section 151A] Approving Authority [Clause (ii) of Section 151] ………………………………………677

Competent sanctioning authority to issue notice under section 148…………..678

Chapter 49—Faceless Assessment of Income Escaping Assessment [Section 151A] CBDT Notification No. 18/2022, dated 29.03.2022 on e-Assessment of Income Escaping Assessment Scheme, 2022……..683

Chapter 50—Other Provisions [Section 152] Tax rates for the assessment year [Section 152(1)]………684

Assessment year 2017-18 or subsequent year as per section 115BBE………….685

Dropping of Proceedings [Section 152(2)]………………………………………………….686

When can the reassessment proceedings under section 147 be dropped [Section 152(2)]……….686

When real income is not more than the total income proposed to be assessed [Section 152(2)]……….687

Chapter 51—Time limit for completion of assessment, reassessment and recomputation [Section 153] Periods of Limitation in Brief…………………………………………………………………….696

Chapter 52—Assessment in case of search or requisition [Section 153A] Proviso to section 153A(1)….712

Abatement of Assessment Proceedings [Second Proviso to Section 153A(1)]………….712

No separate form prescribed for filing return of income in pursuance of notice under section 153A….712

Returns filed deemed to be filed under section 139……………………………………713

Six Assessment Years in respect of Section 153A……………………………………….715

Notice under section 153A can be issued to the assessee in whose name warrant is executed or requisition is made……………………………….715

Abated proceedings revive if assessment under section 153A is annulled [Section 153A(2)]………717

When the commencement and conclusion of search falls in two different financial years …………….717

Kind of additions can be made in the case of assessment/reassessment pursuant to notice under section 153A ………………………………………………717

Chapter 53—Time-limit for completion of assessment under section 153A [Section 153B] Time limit for passing assessment order under section 153A [Section 153B]………………………..736

Time limit for passing assessment order under section 153C [Section 153B]…………………………………………………………………………………….737

Where the time limit available with the Assessing Officer is less than 60 days after exclusion of the aforesaid period [Proviso to Section 153B]………………………………………………………………………………….739

Old provisions of section 153B shall be applicable in certain cases [Section 153B(3)] ………………………………………………………………………………..739

Chapter 54—Assessment of income of any other person [Section 153C] Assumption of jurisdiction under section 153C …………………………………………742

As per provisions of Section 153C, the other person is also required to be assessed or reassessed for earlier six years ………………………………..742

Conditions for making assessment of other persons under section 153C………………………742

Recording satisfaction ……………………………………………………………………………….743

No time limit prescribed for issuing notice under section 153C…………………743

Prior Approval of Joint/Addl. Commissioner is required …………………………743

Chapter 55—Prior approval necessary for assessment in cases of search or requisition [Section 153D] Siphoning off of funds by founder-Approval given on same day by Additional Commissioner Stationed 250 Kms. away from Assessing Officer’s Office – No record regarding movement of files – Approval given without application of mind – Assessment null and void……………………………………………………………………………………..769

Provisions of section 153D do not require any opportunity of hearing to be given to assessee by authority who has to approve draft assessment order passed by Assessing Authority ……….770

An assessment order under section 153C can be passed by Assessing Officer only after obtaining prior approval under section 153D of Joint Commissioner……………………………………………………………………….771

Chapter 56—Rectification of mistake [Section 154] [1] Order which can be rectified under section 154 – Mistake apparent from record [Section 154(1)]……………………………………………………………….774

[2] Where if any matter has been considered and decided in any proceeding by way of appeal or revision, contained in any law for the time being in force, such order shall not be amended [Section 154(1A)]………………………………………………………………………………..775

[3]  Who can make application for rectification of mistake under section 154 of Income-tax Act, 1961 to authority concerned? [Section 154(2)]…………………………………………………………………………………..775

[4] Opportunity of being heard where income is to be increased or loss to be decreased, refund claimed is to be reduced or tax liability is to be increased [Section 154(3)]………………………………………….776

[5] Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned [Section 154(4)]…………………………………………………………………………………..776

[6] Refund can be allowed on basis of rectification order under section 154 where any such amendment has the effect of reducing the assessment [Section 154(5)]……………………………………………776

[7] Notice of demand is required to be issued in case of amendment is carried out under section 154 where any such amendment has the effect of enhancing the assessment or reducing a refund already made [Section 154(6)]…………………………………………………………………………776

[8] No amendment under this section shall be made after the expiry of four years from the end of the financial year in which the order sought to be amended was passed [Section 154(7)] ………..776

[9] Time limit for passing rectification order [Section 154(8)] ………………….777

Chapter 57—Other amendments [Section 155] Relief to sugar co-operatives from past demand [Section 155(19)] …………….815 Credit Mismatch – Facilitating TDS credit for income already disclosed in the return of income of past year [Sections 155(20), 244A]……………………………………………………………………..816

Chapter 58—Notice of Demand [Section 156] What is Demand Notice? ………………………820

No time limit prescribed for service of the notice of demand…………………….821

Time Limit for payment of tax specified in demand notice………………………..821

In appropriate cases the Assessing Officer may reduce the said period of 30 days with the approval of JC/Addl. CIT………………………..821

If there is enhancement of demand……………………………………………………………822

If there is reduction of demand………………………………………………………………….822

Form of notice of demand………………………………………………………………………….823

Assessing Officer’s power to curtail the period of payment of 30 days ………………………………….832

Chapter 59—Modification and revision of notice in certain cases [Section 156A]………..836 Background……………………………………………………………………………………………….836

Modifying Demand Orders in Insolvency Resolution Processes ……………….838

Dismisses appeal for non-impleadment of Interim Resolution Professional (IRP); Remarks on demand modification, per Section 156A ………………………………………………………………………………..838

Chapter 60—Intimation of loss [Section 157] ……………………………………….840

Chapter 61—Faceless rectification, amendments and issuance of notice or intimation [Section 157A]…………………………………..844

Chapter 62—Notice deemed to be valid in certain circumstances [Section 292BB] Background……………………………………………………………………………………………….846

Text of Section 292BB…………………………………………………………………………………847

Ingredients of section 292BB ……………………………………………………………………..847

Section 292BB provides a deeming fiction………………………………………………….848

Section 292BB incorporates principle of estoppel ………………………………………848

Chapter 63—Limited scrutiny cases Procedure for handling ‘Limited Scrutiny’ cases………859

Conversion of Limited Scrutiny into Complete scrutiny in case potential escapement of income exceeds Rs. 5/10 lakhs …………………….859

Formation of reasonable view……………………………………………………………………859

Procedure on conversion into Complete Scrutiny ……………………………………..860

Chapter 64—Complete scrutiny cases Examples of some areas requiring Deeper Scrutiny………..872

Income-tax department cannot carry out any scrutiny Assessment of Corporate debtor for period covered by resolution plan ……………………872

Chapter 65—Guidelines for compulsory selection of returns for complete scrutiny CBDT Letter F. No. 225/81/2022/ITA-II, Dated 26.09.2022……………………….874

CBDT Letter F. No. 225/61/2021/ITA-II, 10.06.2021 – during the Financial Year 2021-22 ……………………………………………………………………….880

CBDT Letter F.No.225/126/2020/ITA-II, Dated 17.09.2020……………………….882

Chapter 66—Framing of Quality Assessments Natural Justice and Assessment Procedure ……………………………………………….886

Initiatives taken by the CBDT to improve the quality………………………………..888

Chapter 67—High pitched income-tax assessments What is high pitched assessment? ……………………………………………………………..889

Wanchoo committee report—Reasons for arrears ……………………………………..889

Reasons for High-Pitched Assessments……………………………………………………..889

Role of professionals………………………………………………………………………………….890

Availability of recourses with the assessee in High Pitched Assessments under Income-tax Law ………………………………………………….890

Application to the Local committee for high pitched scrutiny assessment…………………………………………………………………………………………890

Norms for constitution of Committee to deal with taxpayers’ grievance from high pitched assessments ………………………………………….891

Chapter 68—Concept of “Real Income Theory” under Income-tax Laws Real income theory…….911

Real income and accrual of income……………………………………………………………911

Real income and Statutory Provisions ……………………………………………………….914

Income accrued must be considered from a realistic & practical angle………917

‘Statutory levy’ could not be equated as the ‘real income’ of the assessee ……………….919

Income-tax is a tax on real income …………………………………………………………….920 I

ncome-tax cannot be levied on hypothetical income ………………………………..920

What is to be subject for taxation is only real income over which the assessee possesses a right and not any other thing …………………………….920

Chapter 69—Principles of cross-examination in income-tax proceedings What is Cross-Examination? ……………………………………………………………………..923

Section 3 of Indian Evidence Act, 1872 ………………………………………………………923

Types of Evidence ……………………………………………………………………………………..923

Rules of Evidence –Cross-examination………………………………………………………924

Addition under Section 69C Bogus purchases – No opportunity provided to assessee to cross-examine the witness…………………………….929

Demand could not be set aside solely on ground of denying permission to cross-examine witness…….930

Burden was on assessee …………………………………………………………………………….931

Principles of natural justice and cross-examination …………………………………..933

Statements without cross-examination become legally fragile, deletes bogus diamond purchases disallowance………………………………..934

Opportunity for cross examination – Entire order cannot be set aside ……….937

Principles of Natural justice and Cross Examination in the Income Tax Proceedings…………….939

Cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant………………………………………………………………………………………940

Principles of natural justice are applicable to the proceedings under the Income-tax Act …………………………………………………………………………….942

Subsequent explanations cannot sustain a decision …………………………………..943

Chapter 70—Admissibility of circumstantial evidence in income-tax proceedings Meaning of evidence………………………………………………………………………………….944 Evidence – Direct Evidence ……………………………………………………………………….944

Circumstantial evidence…………………………………………………………………………….944

Circumstantial evidence how to be used……………………………………………………945

Conditions – Circumstantial Evidence ……………………………………………………….946

Assessing Officer should have ‘reason to believe’ that income chargeable to tax has escaped assessment………………………………………….947

A circumstantial evidence whenever used has to be conclusive in nature……………….947

Totality of circumstances must be considered in circumstantial evidence …………….951

Chapter 71—Theory of the test of human probabilities and surrounding circumstances and its applicability to the provisions of Income-tax Act, 1961 Revenue can look into the surrounding facts and circumstances to determine genuineness of a transaction……………………………………………..954

Surrounding circumstances and test of applying human probabilities………954

Despite lack of direct evidence, tax evasion can be assessed ……………………..965

Onus to prove that the apparent is not real is on the party who claims it to be so……………..968

Assessment could not be based on background of suspicion and in absence of any evidence to support the same …………………………………….969

No addition can be made on the basis of surmises, suspicion and conjectures …………………………………………………………………………………………970

Chapter 72—Theory of telescoping in determining the taxablity of undisclosed income What is theory of Telescoping……………………………………………………………………971

Brief background of Telescoping……………………………………………………………….972

Manner of application of the theory of telescoping……………………………………973

Income of one person can be telescoped in the hands of another ………………973

Benefit of Telescoping while making addition under Section 69C……………..974

Assessee to get benefit of telescoping if there were cash deposits and withdrawals of almost equal amounts ……………………………………………….974

Grants telescopic benefit against income offered during search; Deletes addition under section 69 on unaccounted land purchase …………………975

Addition under section 68 – Whether cash credits be deemed to have origin in the added income ………………………………………………………………..981

Same income cannot be taxed under two different heads ………………………….984

Income-taxed in earlier year telescoped to subsequent year………………………985

One type of income already taxed could be telescoped into another …………986

Telescoping – Income to investment and income to expenditure ………………986

Assessee to prove that it is income from the source which has already been taxed…………..988

Onus of proving the source of a sum of money found to have been credited by the assessse…………..990

Chapter 73—Concept of principle of natural justice in income-tax proceedings Basic principles of natural justice ………………………………………………………………992 Adjournments……………………………………………………………………………………………992

Situations of violation of principles of natural justice in taxation laws………992

Rule against bias………………………………………………………………………………………..993

Right to fair hearing…………………………………………………………………………………..995

The approach of the income-tax authorities shall not be unreasonable ……1001

Proper service of notice……………………………………………………………………………1001

Opportunity of being heard …………………………………………………………………….1002

Right to inspection of records ………………………………………………………………….1004

The government authorities must act in a fair and not partisan manner….1004

The assessing authority shall not be biased ……………………………………………..1004

An Order shall be a speaking order…………………………………………………………1004

Chapter 74—Cardinal principles of interpretation of taxing statutes

[1] Literal rule of interpretation : Language of Statute should be read as it is …………………………1014

[2] Strict rule of Interpretation – Words to be construed strictly…………….1016

[3] The Golden Rule : Purposive interpretation …………………………………….1018

[4] Harmonious Interpretation………………………………………………………………1019

[5] Rule of beneficial construction …………………………………………………………1020

[6] Rule of Ejusdem generis or noscitur a sociis …………………………………….1022

[7] The Mischief Rule of Interpretation (Heyden’s rule)………………………..1023

Chapter 75—Understanding certain legal terms Casus omissus: means “cases of omission”………………………………………………1027

Objective of Income-tax Act, 1961 ……………………………………………………………1037

Ratio decidendi ……………………………………………………………………………………….1040

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