Types of assessment and time limits for completion of assessments

Intimation u/s 143(1) of the IT Act

The tax returns filed with the income tax department are processed to determine the sum (including interest) recoverable from the taxpayer or amount to be refunded (after adjustment of advance tax, TDS and self assessment tax paid). An intimation of the sum recoverable/refundable is sent to the taxpayer. In case if no sum is recoverable or refundable, the acknowledgement of tax return is considered as intimation.

Assessments

Various types of assessments under the IT Act are:


Scrutiny Assessment

To ensure that the taxpayer has not understated his income or has not computed excessive loss or has not underpaid his taxes, the Assessing Officer (‘AO’) may serve a notice on the taxpayer requiring him to produce evidence in support of his return of income.

The notice is required to be served upon the taxpayer before the expiry of 12 months from the end of the month in which return was filed (e.g. if the return is filed on July 21, 2007, the notice is required to be served by July 31, 2008). After perusing evidence produced by the taxpayer and based on the relevant material gathered, the AO passes an assessment order determining the total income/loss and the consequential tax payable/refundable.

The time limit for completing the scrutiny assessment is 21 months from the end of the assessment year (stands extended to 33 months in some cases).

The CBDT specifies the criteria based on which the returns for scrutiny assessment are selected every year.

Best Judgment Assessment

In the following situations, the AO may make an assessment of the total income of the taxpayer to the best of his judgment and based on the information available with him
Where the taxpayer fails to file an income tax return as required by the law or file a revised return, as the case may be;

Where the taxpayer fails to comply with:

- the notice issued by tax authorities to file a return of income; or

- a direction to get his accounts audited; or

- the notice issued by the tax authorities requiring his presence or production of evidence and documents.
Where the AO is not satisfied about the correctness and completeness of the accounts of the taxpayer or where the prescribed method of accounting or accounting standards have not been regularly followed by the taxpayer.

However, the taxpayer should be issued a notice to show cause as to why the assessment should not be completed to the best of the AO’s judgment.

The time limit for completing the best judgment assessment is 21 months from the end of the assessment year (stands extended to 33 months in some cases).

Income Escaping assessment/reassessment:
Where the AO has reasons to believe that
· Any income chargeable to income-tax has escaped assessment; or

· Income chargeable to tax has escaped assessment due to failure on the part of the taxpayer to either file a return of income or to disclose fully or truly all material facts necessary for the assessment,


in such cases, the AO may choose to assess / reassess such income by issuing a notice.

The following shall also be deemed to be cases of income escaping assessment

· Whereno return has been filed by the taxpayer although total income is above the taxable limit;

· Where a return of income has been furnished, but no assessment has been made and the taxpayer is found to have understated his income or claimed excessive loss/ deduction in his return;

· Where an assessment has been made, but income chargeable to tax has been under assessed or has been assessed at a lower rate or any excessive loss or relief or depreciation allowance or any other allowance under the Act has been allowed.

A notice for assessment/ reassessment of escaped income can be served on the taxpayer within 4 years from the end of the assessment year (6 years in cases where the income escaping assessment or likely to escape assessment exceeds Rs. 100,000).

The assessment is to be completed within 9 months (21 months in some cases) from the end of the year in which the notice of assessment/reassessment of escaped income is served upon the taxpayer.


Assessment in case of search

Where a search has been initiated on any person, the AO may assess or reassess his income for 6 preceding assessment years. He is required to issue a notice to the taxpayer, requiring him to file his return for all the 6 assessment years.
The assessment is required to be completed within 2 years from the end of the year in which last of the authorizations for search is executed.


Source : Mail Forwards/Incometax Site

Tax sleuths join Sathyam probe

The income tax department has joined the various other agencies in

forming a special team to probe the affairs in Satyam Computer
Services.

IT sources told TOI that Satyam used to pay around Rs 100 crore per annum as income tax. "The confession by B Ramalinga Raju that profits were cooked up over successive years has forced us to launch an enquiry into the returns filed by the company as by showing what now is turning to be inflated figures, they had availed of a lot of concessions," said an official.

The special team, which was constituted on January 12, has got down to business. "The team will examine the balance sheets, financial statements and IT returns filed by the Satyam computers in the past few years," the official said.

Amlendu Das, Director General (investigation) Income Tax, Hyderabad, told TOI that the IT department has began investigation into the Satyam issue and that they were in touch with the Serious Fraud Investigation Office (SFIO) personnel and SEBI officials.

On the baffling question as to how did the IT department not detect the `inflated' profits, department officials said: "If any firm is inconsistent in paying tax or suddenly started paying less amount as tax, one would examine the accounts. But in Satyam's case, no abnormal filing of returns was noticed."

So far, the IT special team has not visited any of the Satyam offices. IT officials said the need to seize any documents under Section 132 of the Income-Tax Act did not arise so far as most of the tax related records of Satyam are already in the IT department's possession.

Failure to remit tax will invite prosecution: IT dept

Noticing instances of non-remittance of Tax Deducted at Source (TDS),

the Income Tax department on Thursday said that any failure
to remit the tax would
attract serious consequences including prosecution.

The stipulated dates in respect of tax deducted to be remitted to central government were - "if deduction is by or on behalf of government, it should be paid on the same day. If it is credited/ paid during a month, the last date is before 7th of the following month and if it is credited on March 31 - the tax should be remitted within two months i.e. May 31".

The IT department said it was also stepping up TDS inspections to check compliance with TDS provisions and take stringent action against defaulters. According to an official release here, it has come to the notice that a large number of assessees have filed and were filing returns of income without payment of self assessment tax.

For this failure, the assessee would be deemed to be an assessee in default in respect of the unpaid tax or interest or both which is liable for penalty. The defaulting asseessees should immediately pay the taxes due on the returned income to avoid coercive action by the IT department for recovery, it said.

Budget 2007 Update

BASIC EXEMPTION

The small service provider exemption is increased to Rs.8 lakhs from Rs.4 lakhs. About two lakh service providers may benefit.

RATE OF TAX

There is no change in the service tax rate of 12%.

EDUCATION CESS

In addition to the present levy of 2% Education Cess, Secondary and Higher Education Cess on taxable services at the rate of one per cent., calculated on the tax which is levied and collected under section 66 of the Finance Act, 1994.

NEW SERVICES

Telecommunication services. Definition of Leased Circuit, subscriber in relation to telephone connection and pager, communication through telegraph, communication through telex and facsimile (FAX) communication and definition of taxable service in relation to these services omitted consequent to inclusion under Telecommunication services

Service in relation to mining of mineral, oil or gas

Service in relation to renting of immovable property for use in the course or furtherance of business or commerce

Service in relation to the execution of a works contract. Assesses can opt to pay at 2% on total contract value

Development and supply of content or retrieval services

Asset management service

Design services

SCOPE OF TAXABLE SERVICES WIDENED

Banking and Other Financial Services – The expression ", but does not include cash management" omitted from sub clause (v) relating to Asset Management

Maintenance or Repair - Explanation inserted to clarify that that for the purposes of this clause, "goods" includes computer software;

Management or Business Consultant – Service renamed to include business consulting

Mandap Keeper - Explanation inserted to include marriages under social functions

Pandal or Shamiana - Explanation inserted to include marriages under social functions

EXEMPTIONS

Club or Association Services - Exemption to taxable services, provided by a resident welfare association where the total consideration received from an individual member does not exceed three thousand rupees per month.

Exemption to service in relation to delivery of the content of a cinematograph film, content of which is in digitised form and is transmitted directly to a cinema theatre for exhibition through the use of satellite, microwave or terrestrial communication line and not by any physical means including CD and DVD

Exemption to service provided by a Clinical Research Organization approved to conduct clinical trials by the Drugs Controller General of India, in relation to testing and analysis of newly developed drugs, including vaccines and herbal remedies, on human participants so as to ascertain the safety and efficacy of such drugs on human participants.

Exemption to taxable services provided by an entrepreneur located within the premises of a Technology Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology Government of India subject to the conditions specified.

Exemption to all taxable services, provided by a Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Government of India, subject to conditions specified.

EXPORT OF SERVICES

Export of Services Rules, 2005 Rule 3(2) – conditions for treating a service provided as export of service - Sub rule substituted. ( substantial amendment is in sub clause (a) which reads as "such service is provided from India and used outside India" for "such service is delivered outside India and used outside India")

PAYMENT OF TAX

Adjustment in subsequent period of Excess of Payment of Service Tax subject to conditions

FILING OF REVISED RETURNS

An assessee may file revised return within 60 days of filing of original return

DELAYED RETURNS ATTRACT LATE FILING FEE

Returns filed beyond the due date to attract late not exceeding Rs.2000/-

OTHER AMENDMENTS

Section 83 - Application of Certain Provisions Central Excise Act – Provisions of Section 14AA - Special audit in cases where credit of duty availed or utilised is not within the normal limits, etc. and "38A - Effect of amendments, etc., of rules, notifications or orders." , made applicable to service tax.

Section 96-A - Advance Rulings – Definitions – Explanation inserted defining "Joint Venture"

Four million private PF subscribers may lose tax benefits

Over four mn employees affiliated to over 2,500 private provident funds face the threat of losing income tax benefits on their PF contributions, as the government seems to be having second thoughts over giving these bodies permanent recognition. Taking a plea that privately-run PFs are violating investment accounting norms, the Labour Ministry is not inclined to award final approvals to these trusts. Over 2,500 private PFs are operational, but under a temporary recognition given by the Employees Provident Fund Organisation (EPFO). The temporary EPFO recognition enables them to qualify for tax exemptions. However, the Income Tax authorities had been warning the privately-run PFs that the tax benefits to their subscribers would be in jeopardy if they did not get a final approval from the Labour Ministry. But the ministry found that several of these funds were not following the norms and not maintaining the accounts as per the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, Joint Secretary in the Ministry of Labour S K Srivastava said at a PHDCCI function here. “Even today we held a meeting over this. It will take some time for us to formulate how to go about this. Under the circumstances, it seems difficult to allow final approval to any of the trusts unless things are in order,” he said. Subscribers to the private PFs are allowed income tax exemptions under section 17(1)-A of the IT Act.

Double Taxation

One of the important terms that occurs in all the Double Taxation Avoidance Agreements is the term 'Permanent Establishment' (PE) which has not been defined in the Income- tax Act. However as per the Double Taxation Avoidance Agreements, PE includes, a vide variety of arrangements i.e. a place of management, a branch, an office, a factory, a workshop or a warehouse, a mine, a quarry, an oilfield etc. Imposition of tax on a foreign enterprise is done only if it has a PE in the contracting state. Tax is computed by treating the PE as a distinct and independent enterprise.
In order to avoid double taxation it is provided that if a resident of India becomes liable to pay tax either directly or by deduction in the other country in respect of income from any source, he shall be allowed credit against the Indian tax payable in respect of such income in an amount

not exceeding the tax borne by him in the other country on that portion of the income which is taxed in the said other country. The same benefit is available to the resident of the other Country, on income taxed in India.

In respect of incomes on which taxes are either exempted or reduced, the country of residence will not take the exempted income into account while determining the tax to be imposed on the rest of the income.
Taxation of income from Air and Shipping Transport under DTA agreement
Income derived from the operation of Air transport in international traffic by an enterprise of one contracting state will not be taxed in the other contracting state. In respect of an enterprise of one contracting state, income earned in the other contracting state from the operation of ships in international traffic, will be taxed in that contracting state wherein the place of effective management of enterprise is situated. However some DTA agreement contain provisions to tax the income in the other contracting state also, although at reduced rate. These provisions do not apply to coastal traffic.

Taxation of income from Associated Enterprises under DTA agreements :
In order to plug loop holes for tax evasion, a separate article in DTA agreement provides for taxing the notional income deemed to arise on account of an enterprise of one contracting state participating directly / indirectly in the management of another enterprise in the other contracting state or where some persons participate directly or indirectly in both the enterprises under conditions different from those existing between the independent enterprises.

Taxation of Dividend income under DTA agreement :
Dividend paid by a Company which is a resident of a Contracting State to a resident of the other Contracting State will be taxed in both the States.

Taxation of Interest Income under DTA agreement : Interest paid in a Contracting State to a resident of the other Contracting State is chargeable in both the States.
Taxation of income from Royalties under DTA agreement :

Regarding Royalties arising in a Contracting State and paid to a resident of the other Contracting State:-Some DTA agreements provide for taxation in the other Contracting State.
Some agreements provide for taxation in the contracting State.
Some agreements provide for taxation in both the States.
Taxation of Income from Capital Gains under DTA agreement :
Capital Gains will be taxed in the state where the capital asset is situated at the time of sale.

Taxation of income from Professional Services under DTA Agreement :
Income will be taxed in the state where the person is resident. However if he has a fixed base in the other Contracting State, the income attributable to the fixed base will be taxed in the other contracting state.