Comprehensive FAQs on Income-tax Assessments in India

Assessments under the Income Tax Act 1961 determine whether an assessee’s disclosed income, losses, deductions, and tax payments are accurate. This guide explains, in a fresh and simplified manner, the various types of assessments, their procedures, time limits, and remedies available to an assessee when aggrieved by an assessment order.

The discussion covers:

  • Summary assessment under Section 143(1)
  • Scrutiny assessment under Section 143(3)
  • Best judgment assessment under Section 144
  • Income escaping assessment (reassessment) under Section 147
  • Procedural requirements under Sections 148 and 148A
  • Limited scrutiny, conversion to complete scrutiny
  • Timelines, opportunities of hearing, and appellate mechanisms

Q1. What does the term “assessment” mean under the Income-tax Law?

Under the Income Tax Act 1961, every assessee must file a return of income declaring total income, losses (if any), and tax details. After the return is filed, the Income-tax Department processes and examines it to verify correctness and compliance with the law. This process of examination and determination of income, loss, and tax liability is referred to as assessment.

The expression “assessment” is wide enough to include:

  • Regular assessment of a filed return
  • Re-assessment where income has escaped assessment
  • Best judgment assessment under Section 144 when there is non-compliance

Note:
The Finance Act, 2018 inserted Section 143(3A) to roll out an e-assessment scheme for regular assessments under Section 143(3). Subsequently, the Finance Act, 2020 enlarged the e-assessment framework to also include best judgment assessments under Section 144. The Central Government has been empowered to prescribe directions in this regard by 31-03-2022.

Q2. What are the main categories of income-tax assessments?

The Income-tax framework primarily recognises four key types of assessments:

  1. Summary Assessment under Section 143(1) – a preliminary, automated processing without calling the assessee in person.
  2. Scrutiny Assessment under Section 143(3) – a detailed, issue-based or full examination of the return.
  3. Best Judgment Assessment under Section 144 – an assessment made by the Assessing Officer (AO) based on his best judgment when the assessee defaults in compliance.
  4. Income Escaping Assessment (Reassessment) under Section 147 – reassessment when the AO believes that income has escaped assessment.

Q3. What is assessment under Section 143(1)?

Scope of Section 143(1) Assessment

Assessment under Section 143(1) is essentially a preliminary processing of the return of income. It is largely system-driven and does not involve any detailed enquiry into the claims made by the assessee. At this stage, the total income or loss is recomputed only to the extent of certain permitted adjustments, such as:

  • Rectification of arithmetical mistakes in the return.
  • Correction of an incorrect claim that is apparent from the information disclosed in the return.
  • Adjustment for inconsistencies in the current year’s return vis-à-vis prescribed information of a preceding year, as may be notified.
  • Disallowance of loss where the return for the year in which such loss was incurred was filed after the due date under Section 139(1).
  • Disallowance of expenditure that has been indicated as inadmissible in the audit report but not added back while computing income in the return.
  • Disallowance of deductions claimed under Section 10AA, Section 80-IA, Section 80-IB, Section 80-IC, Section 80-ID or Section 80-IE where the return has been filed after the due date under Section 139(1).

No such adjustment can be made unless an intimation is issued to the assessee, either in physical or electronic form. The assessee’s response, if filed, must be considered before finalising the adjustment. If no reply is furnished within 30 days from the date of such intimation, the proposed adjustments can be made.

For this purpose, an “incorrect claim apparent from any information in the return” covers situations where:

  • An entry in the return is inconsistent with another entry in the same or another part of the return.
  • The law requires certain information to substantiate a claim, but such information has not been furnished.
  • A deduction claimed exceeds a prescribed monetary or percentage cap provided in the Act.

Q4. How is an assessment under Section 143(1) carried out in practice?

After making the allowable adjustments mentioned above, the system performs the following steps:

  1. Recomputes income or loss based on adjustments.
  2. Calculates tax, interest, and fee, if any, on the adjusted income.
  3. Determines whether any amount is payable by the assessee or any refund is due.
  4. Generates an intimation specifying the tax/interest/fee payable or refund due and sends it to the assessee.
  5. Even if only the declared loss is modified (with no resulting tax payable or refund), an intimation is still issued.
  6. Where there is no change and no sum is payable or refundable, no separate intimation is sent; in such cases, the acknowledgement of the return itself is treated as the intimation under Section 143(1).

Fee under Section 234F
Where the return is filed after the due date under Section 139(1), a fee is leviable under Section 234F as follows:

  • Rs. 5,000 if the belated return is filed after the prescribed due date;
  • Restricted to Rs. 1,000 where the total income of the assessee does not exceed Rs. 5 lakh.

Q5. What is the time limit for completing assessment under Section 143(1)?

An intimation under Section 143(1) must be issued within 9 months from the end of the financial year in which the return of income is furnished.

Q6. What is assessment under Section 143(3)?

Section 143(3) governs scrutiny assessment, which is a more extensive examination of the return. Here, the AO evaluates the return in depth to verify the genuineness and correctness of:

  • Income declared
  • Deductions and exemptions claimed
  • Losses set off or carried forward
  • Taxes paid, TDS credits, and other claims

This is not an automatic or system-only process; it involves active enquiry and interaction with the assessee or authorised representative.

Q7. What is the objective and scope of scrutiny assessment under Section 143(3)?

The fundamental purpose of scrutiny assessment is to ensure that the assessee has:

  • Not underreported income;
  • Not shown an excessive loss;
  • Not underpaid tax through incorrect claims.

The AO, therefore, examines books of account, supporting documentation, third-party information, and explanations provided by the assessee. Only after considering all relevant material can the AO frame an order determining:

  • Total income or loss, and
  • The tax, interest, and any refund arising therefrom.

Q8.