Income Tax Assessment with Case Laws

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  • By Taxmann
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  • Last Updated on 15 October, 2022

Income Tax Assessment

Table of Contents:

1. Jurisdiction

2. Principles of Natural Justice

3. Burden of Proof, Onus and Shifting of Burden

4. Deeming Provisions

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1. Jurisdiction

(a) The term ‘jurisdiction’ refers to the statutory authority of an officer to decide a particular matter or to take action under that statute. Jurisdiction cannot be waived or conferred by the consent of the parties. The general rule is that vires of jurisdiction can be challenged at any stage.

(b) There is a distinction between ‘jurisdiction’ and ‘venue’. ‘Jurisdiction’ is the statutory power whereas venue is the place of assessment in terms of territorial area, etc.

(c)Venue’ part of jurisdiction of an Assessing Officer is governed by the following factors :

(i) Territorial jurisdiction over the place of business or residence

(ii) Assigned jurisdiction u/s. 127

(iii) Class of person e.g., salaried people, contractors, cine stars, partners of firm

(iv) Scale of returned income or loss

(v) Even such jurisdiction keeps on changing. It may be different when the return of income was filed from the jurisdiction at the time when assessment proceedings are initiated and again when the assessment order is finally to be passed.

(vi) Tax Recovery Officer may be authorised to act as an Assessing Officer as envisaged by the Taxation Laws (Amendment) Act, 2006.

(d) Sec.124 dealing with ‘jurisdiction of Assessing Officer’ deals only with ‘venue’ and not with jurisdiction meaning statutory authority.

(e) An assessee has to challenge jurisdiction of Assessing Officer within the time limit prescribed u/s. 124(3) by raising objections, which has to be determined by the DG, Chief CIT or CIT.

(f) Sec. 124(5) provides for concurrent jurisdiction. The general rule is that a person would be assessed by the Assessing Officer of the area in which the person carries on business or resides. Where the assessee has got branches apart from Head Office, it would be open to the respective Assessing Officers having jurisdiction over the branch office to assess. However, there is an overriding principle that two assessments cannot be made at different places upon the same person.

(g) Sec. 127 authorizes Principal Director General, Director General, Principal Chief Commissioner, Chief Commissioner, Principal Commissioner and Commissioner to transfer any case from one or more Assessing Officers subordinate to him to any other Assessing Officer at any stage of the proceedings.

(h) CBDT by Finance Act 2018 has brought a PAN India E-Assessment Interface to curb the undesirable practices on the part of tax officials and to bring more transparency in the assessment system through faceless assessment scheme. Therefore, question of jurisdiction in assessment u/s. 143(3) and 144 has no significance.

(i) Now the provisions of clause (7A) of section 2, section 92CA, section 120, section 124, section 127, section 129, section 131, section 133, section 133A, section 133C, section 134, section 142, section 142A, section 143, section 144A, section 144BA section 144C and Chapter XXI of the Act shall apply to the assessment made in accordance with the Faceless Assessment Scheme subject to certain exceptions, modifications and adaptations.

CBDT Notification No. 62/2019 dt. 12.9.2019

(j) Jurisdiction for Faceless Assessment

Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 brought section 144B in the Income Tax Act for making Faceless Assessment w.e.f. 1.4.2021. Sub-section (3) of the section 144B state that, for making faceless assessment, the CBDT shall set-up National Faceless Assessment Centre, assessment units, verification units, technical units, review units and specify their respective jurisdiction. The Finance Act, 2020 expanded the scope of faceless assessment to cover the best judgment assessment u/s. 144. The Finance Act 2022 has further extended it to cover Income escaping assessment u/s. 147 as well.

(k) Decisions

      • Sec. 129 provides that whenever, during the pendency of any proceedings, an Income Tax authority is succeeded by another, the successor may continue the proceedings from the stage at which his predecessor left the proceedings. In such a case the assessee has a right to demand that –

(i) the previous proceedings or part thereof should be reopened; and

(ii) thus the assessee should be reheard before passing of the order.

It is necessary that the successor intimates, before passing of the order, to the assessee of his intention to continue the proceedings from the stage at which his predecessor had left-

CIT v. Shankar D. Dhanwatey (1995) 78
Taxman 348/212 ITR 150 (Bom.)

      • Jurisdiction is not a matter of consent.

Smt. Sarita Jain v. CIT (2003) 261
ITR 499/(2004) 134 Taxman  737 (Delhi)

      • Transfer of a case from one Assessing Officer to another without following procedure laid down u/s. 127 –

Mrs. Mukutla Lalita v. CIT (1997) 226 ITR 23/
(1998) 98  Taxman 193 (AP.)

      • Absence of necessary satisfaction during assessment proceedings so as to justify valid initiation of penalty proceedings –

D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC)

CIT v. Super Metal Re-Rollers (P.) Ltd. (2004)
135 Taxman  407/265 ITR 82 (Delhi)

2. Principles of Natural Justice

(a) It is also known as ‘hearing opportunity’ and is based upon the rule of “audi alteram partem”. This principle is known since time immemorial. It is a fundamental rule of law that no decision must be taken which will affect the rights of any person without first giving him an opportunity of putting forward his case.

(b) The principles of natural justice are enshrined in Articles 14 & 21 of the Constitution of India. Adherence to the Principles of Natural Justice is the very soul of the administration of Justice.

(c) The principles of natural justice are fundamental in nature, very basic and it is not to be construed or mistaken as a mere formality.

(d) Decisions

      • Assessment—Faceless assessmentCompleting the assessment well before the time allowed by notice is in violation of principles of natural justice; notice is quashed and the matter is remanded to the respondents for granting fresh opportunity to the appellant for filing reply/objection to the draft assessment notice and, thereafter, to take a decision on the merit.

Pradip Kumar Saha vs. Union of India &
ORS. (2022) 6 NYPCTR 13 (Cal)

      • Question arises as to what will be the consequences of violation of principles of natural justice i.e., when an assessee is denied opportunity of being heard. For example, when confession by a third party is relied upon by the Assessing Officer to draw adverse inference against an assessee with reference to any money received from such third party u/s. 68 and that too without giving copies and such confessional statement of the assessee and without giving opportunity to seek cross examination of the third party, such addition cannot be sustained. This is because the material used by the Assessing Officer was not in the nature of admissible evidence. In such circumstances it has been held that the order, being a violation of principle of natural justice, is void and null –

R.B. Shreeram Durga Prasad & Fatehchand Nursing Das v.
Settlement Commission
43 Taxman 34/176 ITR 169 (SC)

Prakash Chand Nahta v. CIT (2008)
170 Taxman 520/301  ITR 134 (MP)

      • If principles of natural justice are violated at the stage of assumption of jurisdiction, it would nullify the entire action of subsequent orders e.g., block assessment order passed in pursuance of an invalid search –

Dr. C. Balakrishnan Nair v. CIT (1999)
103 Taxman  242/237 ITR 70 (Ker.)

      • Where such violation has occurred during a validly initiated proceedings, it is curable but only before the authority who had faulted in this matter –

Guduthur Brothers v. ITO (1960) 40 ITR 298 (SC)

CIT v. N. Krishnan (1999) 235 ITR 386 (Ker.)

C.G.G. Panicker v. CIT (1999) 237 ITR 443 (Ker.)

      • Reasons for the reassessment must be furnished, if demanded even before the return is filed. Even though there is no provision for communicating the reasons along with the notice, the principles of natural justice would require the same –

Mithlesh Kumar Tripathi v. CIT (2005)
149 Taxman  692/(2006) 280 ITR 16 (All.)

      • It has been held that failure to follow the principles of natural justice cannot be made good in an appeal –

Tin Box Co. v CIT (2001) 116 Taxman 491/249 ITR 216 (SC)

      • In spite of availability of an alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: viz., (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of the principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act are challenged –

Pirai Choodi v. ITO (2008) 302 ITR 40 (Mad.)

3. Burden of Proof, Onus and Shifting of Burden

(a) In assessment proceedings, an important issue comes into play viz. burden of proof. Interestingly, burden of proof keeps on shifting just as football in a football match. Furthermore, there are certain deeming provisions which have to be given their due role to play whereby the initial burden to prove has been placed on assessee’s shoulder e.g., sections 68, 69, 69A, 69B, 69C etc.

(b) Onus is an important rule of evidence. Just as in the game of cricket, the toss decides as to whose obligation it is to ball first, in legal proceedings it is for the person on whose shoulders onus lies to defend him by laying evidence. Let us imagine a situation where there is a deadlock in the sense that neither the department has got any evidence nor the assessee. Question arises as to in such a case, the matter will be decided in whose favour? The answer will depend as to onus was on whose shoulders. Assuming that the onus was on the shoulders of the assessee and if he has failed to discharge the onus, the matter will be decided against him and vice versa.

(c) The general rule is that onus i.e., the initial burden of proof is always on the party who asserts a proposition or fact which is not self-evident. The onus to prove that the apparent is not real is on the party who claims it to be so. If no evidence is offered by a party who asserts a fact which is not self evident, the issue has to be decided against it. If the department alleges that a transaction is sham or bogus or that the assessee is benami or somebody else, burden lies upon the Assessing Officer to prove the same by laying evidence.

(d) A few examples where the onus lies on the revenue are as under :

(i) Burden to prove that the notice was actually served on the assessee.

(ii) To prove that a particular transaction is sham, bogus or a benami.

(iii) To show that a particular receipt constitutes income and that the income is liable to tax.

(iv) A particular income has accrued or arose in a particular place.

(v) Income has escaped assessment and the conditions necessary for invoking the provisions of sec. 147 exist.

(vi) To prove that an assessee has made unexplained investment, expenditure etc

(vii) An isolated transaction constitutes an adventure in the nature of trade.

(viii) The method of accounting followed by an assessee is liable to be rejected.

(ix) To satisfy the Court that there existed reasons to believe to justify search and seizure action u/s. 132.

(x) To bring on record, cogent material/evidence to establish that the trust/charitable institution is hit by the provisions of sec. 13.

(e) An illustrative list of circumstances in which onus of proving is on the assessee:

(i) Where the assessee claims that an income is exempt or a receipt is not income.

(ii) In the case of a cash credit, identity of the creditor, his creditworthiness or capacity to advance loan and the genuineness of the transaction.

(iii) Where an assessee claims deduction of an expenditure.

(iv) To establish that the amount laid out or expended by the assessee was wholly or exclusively used for the purpose of its business.

(v) To prove that a return of income or an appeal was filed in time.

(vi) To prove capital contribution by proprietor/partners.

(vii) The Assessing Officer has acted mala fide.

(f) However, law does not expect an assessee to do an impossible –

Lex cogit ad impossibilia followed in –

Life Insurance Corpn. of India v. CIT (1996)
85 Taxman 313/219  ITR 410 (SC)

4. Deeming Provisions

(a) In an over-simple expression, a deeming provision is one which deems a boy to be a girl and vice-versa.

(b) Deeming provision is a presumptive statement which allows legal proceedings to take place in a timely manner and without inconvenient interruptions.

(c) The word “deemed” is apt to include the obvious, the uncertain and even the impossible. Sometimes, it is used to put beyond doubt a particular construction that might otherwise be uncertain.

(d) A deeming provision is sometimes intended to enlarge the meaning of a particular word which includes matters which otherwise may or may not fall within the provision. Thus, the consequences and incidents following from a legal fiction should also be deemed to be real.

(e) There is difference between a legal fiction and a legal presumption. A legal fiction is a legal provision which creates a fact out of what is not a fact. Legal fictions are only for a definite purpose. They have to be strictly construed and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. There can be no fiction upon fiction. It assumes significance in the context of penalty provision. Since deeming provisions are created by a fiction, there can be no fiction upon fiction and, therefore, the deemed income cannot ipso facto be liable for penalties. The law is fairly well-settled that though the finding recorded in the assessment orders may be relevant to initiate penalty for concealment, yet these cannot be sufficient for holding the assessee guilty of concealment. The fictions created under secs. 68, 69, 69A, 69B and 69C by itself cannot be extended to penalty proceedings to raise the presumption about concealment of such income –

CIT v. Baroda Tin Works (1996) 221 ITR 661 (Guj.)

(f) A legal presumption is a legal inference to be drawn from a particular fact or set of facts etc. When a legal presumption is sought to be raised by a specific and distinct provision, it cannot be said to be simply clarificatory in nature but, for all intents and purposes, it has to be treated to be a substantive provision of law.

(g) An inference of fact drawn from other known or proved facts is a ‘presumption’. Three types of expressions are generally used in this context, viz.

(i) ‘May presume’

(ii) ‘Shall presume’ and

(iii) ‘Conclusive proof’.

(h) ‘May presume’ means such presumption is optional; it may be invoked or it may not be invoked. Such presumption is rebuttable. For example, in sec. 132(4A) of the Act, the words “may be presumed” have been used and presumptions are raised for the books of account, valuables etc. found in the possession of the person searched, that they belong to that person, the contents are true and so on. However, the person so searched is entitled to lead evidence to rebut such presumption.

(i) ‘Shall presume’ does not give any option to the authority but to assume it to be so. However, such presumption is also rebuttable by leading evidence.

Dive Deeper:
What is Advance Tax? How to Calculate and Due Dates of I

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