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Total Number of Subscribers: 426 |
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Date: 18 June 2008 |
Compiled by Mr. M. Sathya Kumar |
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Assessments and Monitored (?)(!) Assessments under the
Income-tax Act, 1961 All taxpayers are assessed u/s.143,
u/s.147,
u/s.148 and u/s.153 of the Income-tax Act, 1961. After
filing of return, when an asses see is being assessed by an Assessing
Officer, he/she is required to file his/her submissions before the respective
authority during the course of assessment. All these assessments are
popularly known as ‘Scrutiny’ assessments. In case of these assessments, the authority before
whom these proceedings are going on is supposed to form his opinion after
verifying books of accounts, documents, submissions, proofs, evidences,
statement of cross-examination of the parties concerned, etc. by bringing on
record all or some of these things from the assessee, his/her representative and
also by collecting independent evidences, proofs, documents, etc. To collect
information, the assessing authority also can call outsiders by taking
his/her statement on oath u/s.131 or u/s.133. After doing this exercise in
full or in part, if the assessing authority is satisfied on issues arising
out of the assessment proceedings, he records his findings in respect of the
said assessment and he passes an order known as assessment order. The following information is
necessary in the assessment order : (i) Section under which the assessee
is being assessed, (ii) Assessment year for which he is
being assessed, (iii) Dates of hearing, (iv) Date of filing return by the
assessee, (v) Amount of income at which he has
assessed him, (vi) Amount of income declared by
the assessee in his return of income, (vii) Why the assessing authority is
making addition, if any ? (viii) Details of records verified
by him during the course of assessment, (ix) Date of passing assessment
order, (x) Demand, if any, arising after
the assessment proceedings. While raising the demand he will have to give
proper credit of the taxes paid by the assessee as advance tax,
self-assessment tax and TDS/TCS, if any. While forming his opinion, he will
have to give proper consideration to the submissions made by the assessee
during the course of scrutiny. He has to consider the proofs, documents,
evidences, etc. produced by the assessee. He may verify the statements,
trading, Profit & Loss A/c, balance sheet & relevant schedules with
the books of accounts of the assessee. He may take relevant extracts of one
or more accounts from the books of accounts of the assessee. He may further
cross-examine the account extract given by the assessee with those of the
extracts he has called from the relevant parties from their own books of
accounts. Such parties may be the debtors, creditors, suppliers or customers
of the assessee concerned. The Assessing Officer is supposed to know the
following important things : (i) The nature of business, (ii) All important characteristics
of business, (iii) Nature of transactions being
carried out in the business, (iv) All uncommon terms used in the
business under assessment before him. The Assessing Officer must know the
following things before starting the assessments of some uncommon types of
assessees. The Assessing Officers are generally conversant with the way of
common transactions of trading, manufacturing and professional income and its
assessments, but many times are found non-conversant with the following types
of assessees and the terminology being used in these types of businesses. For example : A. In lottery business : (i) Prize Winning Tickets : In case of lottery business, the stallholder from whom the
customer purchases lottery tickets makes the payment to the buyer of the
winning lottery ticket, which has got prize. The stallholder in turn, while
making his payment to his supplier (wholesaler) makes payment partly in terms
of cash/cheque and partly in terms of these winning tickets. This chain of
payment continues till end to the govt. under which the lottery is monitored.
The amount seen on the assets side of any balance sheet of lottery dealer
(whether wholesaler, retailer, distributor, stockist or sole stockist) is the
balance of such tickets held by him on the particular day received by him
from his customers in discharge of their liability of price of tickets. These
are awaited for sending to the supplier in the chain as payment of his cost
of tickets. (ii) Cost of Participation
in Draw (CPD) : While framing a scheme of
lottery, the expenses on cost of printing tickets, royalty payable to govt.,
local taxes (sales tax, octroi, etc.), profit of the parties involved in the
chain including sole distributor, cost of transport, cost of distribution, etc.
are taken into account for deciding the amount available for distribution by
way of winning, to the people taking part in the lottery. This is termed as
Cost of Participation in the Draw i.e., CPD. (iii) Cost towards Prize
Fund (CPF) : While forming a scheme of lottery
after allowing the expenses referred above which are termed as CPD, whatever
is kept for distribution by way of various prizes of lottery is collectively
termed in lottery business as Cost towards Prize Fund (CPF). This amount remains
unchanged from the govt. till the final consumer. The amount of CPD goes on
changing at each point due to addition of expenses and margin of profit of
each party involved in the chain. (iv) Unsold Loss : After the scheduled time of draw of a particular lottery, if
some tickets remain in balance with the seller, these tickets become
nonsaleable and are required to be scrapped. Amount paid as purchase price of
these tickets is known as unsold loss. (v) Unsold Winnings : After the scheduled time of draw of a particular lottery, if
some tickets remain in balance with the seller, these tickets become
nonsaleable and are required to be scrapped. Out of these scrapped tickets if
some ticket wins some prize, it is known as unsold winnings. B. In case of a labour
contractor : (i) Mess Charges : Amount paid by the labour contractor towards food charges of
the labourers and their families is termed as mess charges and deducted as
expenditure from the income of the labour contractor. (ii) Tent charges : Amount paid by the labour contractor towards lodging and
accommodation facilities of labourers and their families is termed as tent
charges and deducted as expenditure from the income of the labour contractor. For giving proper justice to the
assessment, it is necessary that the Assessing Officer should know the terms
used by the assessee in his business in detail; otherwise, he cannot do
proper justice to the work of assessment entrusted to him. The above detailed
examples are given to elaborate the essence of knowledge of these terms to an
Assessing Officer in respect of uncommon terms used in such uncommon
businesses. Many times before the higher forums
of appeal, it is seen that the Assessing Officer has : (i) Not given proper justice to the
submissions made by the assessee, (ii) Not understood the nature of
transaction and therefore misinterpreted it and added it to the assessee’s income, (iii) Not understood the exact
nature of business of the assessee, (iv) Acted beyond his authority, (v) Not given proper time to the
assessee for proving his case, (vi) Misinterpreted the facts
brought before him by the assessee, (vii) Not called for information
independently, which he could have otherwise collected easily, for want of
proper justice, (viii) Not allowed the opportunity
of cross-examination (ix) Not given the assessee the
opportunity of natural justice, (x) Not given the assessee the
opportunity of being heard, (xi) Decided the case only with oral
directions of his higher authorities without giving thought to the
interpretations made by such authorities, whether the same are correct or
otherwise. (xii) Decided the case on the basis
of some irrelevant papers, proofs, records, etc. not related to the case. For giving justice to the assessee,
for want of proper interpretation of facts of each case, for helping the
Assessing Officer to interpret the facts in a proper manner, thereby to avoid
the loss of revenue as well as loss of assessee, to avoid scenario of
apparent mistakes or errors of facts in assessments, the system of monitored
assessments must have been introduced in the statute. The intention of the
statute behind introducing the above system must be to reduce unnecessary
paperwork, reduction in appeals and proper justice to the assessee at the
assessment stage only, due to wrong interpretation, if any which may take
place because of misunderstanding of facts of each case by the assessing
officer at assessment stage only. Though the intention of the statute was
genuinely to help the assessee, what is the present position ? The present
position is not as the statute has expected at the time of its introduction,
but is totally different. The Assessing Officer is required to
act on the directions of the senior authorities . During the course of
assessment, the Assessing Officer generally presents views of his senior
official to the assessee or his representative in respect of a point of
disagreement that, though he is satisfied with the explanation given by the assessee
or his representative, the Additional Commissioner or the Administrative
Commissioner to whom he has to report, is in disagreement with the view. He
may say that the senior authorities are hardpressing for making addition on
some point or the other on any of the grounds for the various reasons. In such a situation, generally the
assessee or their representatives try to narrate the case orally before the
senior authority with or without the consent of the Assessing Officer. In
fact, such type of oral representation has no legal standing. In some cases,
it may have helped the assessee to avoid the proposed addition. But as
opposed to the few times the assessee may have got justice by this exercise
of meeting senior authorities and explaining before them the case, in
majority of the times the senior authorities may put the ball in the court of
the Assessing Officer by giving some oral reply which is not legally binding
on them. At the same time, they direct their junior regarding their own
interpretation and ask him to pass an assessment order as per their oral
directions, which in their opinion is the correct interpretation of facts. On
such interpretation, the Assessing Officer is bound (though not legally) to
pass the assessment order as per the interpretation of the senior authority.
But, in such situations, we tax professionals should not choose this path of
meeting and explaining orally to the concerned senior authority the facts of
the case, but we should choose the legal available path to come out of the
situation at the assessment stage only. This gives us a legal tool for
avoiding the situation of appeals and thereby avoiding expending of time,
money and man-hours. The following steps can be taken : In case an Assessing Officer during
the course of assessment is in disagreement with the views taken by the
assessee and puts it that the view is not taken by him but is a directive
given by his senior (Additional Commissioner/Administrative Commissioner), if
an assessee or his representative finds that a particular interpretation of
facts in a case is not being correctly done by the Assessing Officer, then
the assessee can present his case by giving the facts in detail in writing to
such senior authority (generally, an Additional Commissioner or Administrative
Commissioner) of the Assessing Officer and ask him his view of the matter in
writing u/s.144-A. S. 144-A of the Income-tax Act, 1961 is a very important
legal tool in our hand in the situation narrated above. In present situation,
when there are a number of cases being selected for scrutiny, occurrence of
such a situation may be so frequent. S. 144-A of the Income-tax Act, 1961
reads as follows : “A Joint
Commissioner may, on his own motion or on a reference being made to him by
the (Assessing) Officer or on the application of an assessee, call for and
examine the record of any proceeding in which an assessment is pending and,
if he considers that, having regard to the nature of the case or the amount
involved or for any other reason, it is necessary or expedient so to do, he
may issue such directions as he thinks fit for the guidance of the
(Assessing) Officer to enable him to complete the assessment and such
directions shall be binding on the (Assessing) Officer. Provided that no directions, which
are prejudicial to the assessee shall be issued before an opportunity is
given to the assessee to be heard. Explanation : For the purposes of this Section, no direction as to the lines
on which an investigation connected with the assessment should be made, shall
be deemed to be direction prejudicial to the assessee.” Interpretation of the above Section
clearly shows that an Additional Commissioner is bound to answer the
application made under this Section. If the senior authority agrees with the
view taken by the assessee, then on getting the answer in writing the lower
authority is bound to accept that view in respect of the assessment and frame
his assessment by considering the same. At the same time, we may file a
letter in writing to the assessing authority that he may wait till the reply
of application made by the assessee to the senior authority u/s.144-A is
received. The above-referred situation to the
best of my knowledge, in present times, is only a theoretical situation. In
day-to-day practice, neither the practitioners nor the assessees use this
Section, and in effect do not use an important weapon in the hands of the
assessee. This Section is a very important tool, which the assessee and practitioners
may use for their benefit and thereby reduce the wastage of time and energy
to some extent. In fact, neither the senior officers
in the Income-tax Department in capacity of Administrative Commissioners or
Additional Commissioners want to give their opinion in writing. What is going
on practically is the hybrid mix of the Section, whereby the assessee and
practitioners are put into trouble and the Departmental senior officials are
not bound by anything directed by them to their juniors, as they are neither
giving anything in writing to the junior officer, nor to the assessee, who is
finally becoming the victim of such wrong directions. At the same time, the
senior officer in the Department is not bound by any of his directions. The
present practice of monitored (!) (?) assessments is therefore wrong,
impractical and hence required to be immediately changed with the use of
available tool of S. 144 by the assessee as well as by the tax professionals. I sincerely feel that the present
system of monitored assessments is wrong for reasons given above. The
submissions made by the assessee are, in his absence, being interpreted by
the Assessing Officer to his senior authorities or the senior as per his own
understanding. He may interpret the submissions made by the assessee, without
going into the details of the case from the assessee or his counsel. The
interpretation of the senior authorities may be different if the assessee
himself or his counsel explains the fact to the authority. On explanation by
the assessing officer in the absence of the assessee, the senior forms his
views and gives his opinion to the Assessing Officer, who in turn raises the
views of the senior before the assessee, and the assessee is required to
answer the questions so raised. In this system, there is every possibility of
misinterpretation of facts by the senior authority, non-consideration of an
important fact by the authority while forming his opinion and dictating it to
his junior Assessing Officer. Also, there is every possibility of improper
representation of a case by the Assessing Officer to his senior for various
reasons given above, thereby resulting in injustice. I therefore sincerely feel that the
present system of monitored assessments should be changed with the use of available
tool of S. 144 by the assessee as well as by the tax professionals. But in
cases having higher tax stake, points raised by the higher authorities should
be heard by both the Assessing Officer and the monitoring authority
simultaneously. Opinion formed by both of them after such hearing will have
some sense. Otherwise, the present system of monitored assessments, without
using the tool of S. 144-A, will result in assessments without doing proper
justice to the assessees. Article by Mr. Santhosh S. Sharma, Tax Consultant |
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