Module 5: Topics to be Covered

5.1 TDS Compliance for Corporates

5.2 Procedure for Assessment, Appeal, and Revision
5.3 Search and Seizure
5.4 Refund Procedure
5.5 Related Case laws

Provision
Taxable Threshol Other
s Rate Exception
Event d Limit Information
(Section)
As Basic Deducted
Payment of
Section per exemptio monthly; Form
salary to None
192 slab n limit as 16 issued
employees
rates per slabs annually.
1%
(indi
30,000
Payment to vidua Applicable to
per Payments to
Section contractors l/HU work contracts,
contract transporters (with
194C /sub-contra F)​ supply of labor,
or1,00,00 valid PAN) exempt
ctors 2% etc.
0 p.a.
(othe
rs)
10%
Payment of (land
rent for /buil
Not applicable
land/buildi ding)​ Rent paid to
Section 2,40,000 to security
ng​ 2% government/local
194I p.a. deposit/advance
or (plan authorities exempt
rent.
plant/mach t/mac
inery hiner
y)
40,000
Payment of Interest paid by
p.a. PAN mandatory
Section interest firms/companies to
10% (50,000 for lower rate;
194A (other than banks, co-op
for senior else 20%.
securities) societies exempt
citizens)
Payment No TDS on
2% for technical
for payments to
Section 30,000 services (other
professiona 10% entities covered
194J p.a. than
l/technical under section
professional).
services 44AA(1)
Payment of
dividend to Not applicable
Dividend paid to
resident to dividends
Section 5,000 insurance
shareholde 10% paid to
194 p.a. companies, mutual
rs non-residents
funds, etc. exempt
(see Sec 195).
 Rates
Payment to
as Lower rate
non-reside
per possible with
Section nts No Subject to DTAA
Act CA certificate
195 (interest, threshold provisions
or (Form
royalty,
DTA 15CB/15CA).
etc.)
A
Payment
No TDS if
by 5,00,000 Not applicable
participant
Section e-commerc p.a. to foreign
1% furnishes PAN and
194O e operator (individu e-commerce
is an
to al/HUF) operators.
individual/HUF
participant
Payment
by
Section partnership 20,000 No Form
Repayment of
194T​ firm/LLP p.a. 15G/15H/197
capital,
(from 1 to partner 10% (aggregat allowed; 20% if
reimbursement of
April (salary, e per PAN/Aadhaar
expenses exempt
2025) commissio partner) not provided.
n, bonus,
interest)
High
er of:
Payment to Not applicable to
2x
specified salary, lottery, Check deductee
Section appli No
persons horse race, cash status before
206AB cable threshold
(non-filers withdrawal, and deduction.
rate
of ITR) Section 194T
or
5%
 PROCEDURE FOR ASSESSMENT, APPEAL AND REVISION
ASSESSMENT Every person earning taxable income must submit their
income tax return to the Income Tax Department. The next
step after filing the return is the assessment process conducted
by the Income Tax Department. The assessment involves
examining the return for any necessary corrections, known as
[Link] various kinds of assessment are as following​
1. Self Assessment​
[Link] Assessment​
[Link] Assessment
4.​ Best Judgement Assessment
5.​ Protecting Assessment
6.​ Re Assessment or Income Escaping Assessment
7.​ Faceless Assessment​
[Link] Assessment
Self Assessment 1. Submission of Returns: Before submitting returns, the
(s140A) assessee must determine their tax or interest liability as
required by the Income Tax Act.
2. Tax Payment Requirement: If any tax is due based on the
returns under specific sections, the assessee needs to pay the
tax and interest after deducting advance tax paid, TDS/TCS,
relief, and MAT credit.
3. Payment Proof: Proof of tax and interest payment must be
provided along with the income tax return for submission.
Summary Section 143(1) of the Income Tax Act involves a preliminary
Assessment​ check of an income tax return, with the Income Tax
(s143(1)) Department providing a comparative computation from the
taxpayer. The assessment stage does not involve detailed
scrutiny but involves adjustments such as correcting
arithmetic errors, addressing incorrect claims, disallowing
loss claims filed after the due date, disallowing unaccounted
 expenditures mentioned in audit reports, disallowing
deductions for late-filed returns, and adding income not
included in the return but present in forms like 26AS or 16A.

Scrutiny Assessment​ Scrutiny assessment involves examining an individual's

(S 143(3)) income tax return to validate the declared income, expenses,
deductions, losses, and exemptions with evidence. The
assessing officer verifies the accuracy of income disclosure
and the legitimacy of deductions/exemptions claimed, and if
any discrepancies are found, they make their assessment
under section 143(3) of the income tax act. There are two
types of cases for scrutiny assessment namely Manual
scrutiny cases and compulsory scrutiny cases. Manual cases
include instances like not filing returns, discrepancies in
income declaration, TDS credit mismatches, undeclared
income, or large refund claims. Compulsory cases involve
substantial legal or factual questions like high-value
transactions or transfer pricing exceeding specific amounts.
The department can also go for Limited Scrutiny Assessment
and Complete Scrutiny [Link] Limited scrutiny, the
officer seeks details on specific matters, while in Complete
Scrutiny, detailed information on all transactions in the
income return can be requested.
Best Judgement Section 144 of the Income Tax Act, 1961 explains the
Assessment (Section concept of Best Judgment Assessment, where an assessing
144) officer determines an assessment based on their best
reasoning. There are two types of Best Judgment
Assessment: Compulsory and Discretionary.
1. Compulsory best judgment assessment is conducted due to
non-cooperation or default in providing information.
[Link] best judgment assessment is carried out when
the officer questions the authenticity of accounts or the
absence of a regular accounting method.
 The assessment process follows the principle of natural
justice and is applicable if the person fails to file returns,
complies with notices, or if the officer is not satisfied with the
accounts. The assessee has the right to appeal or seek
revision in the case of a best judgment assessment. An
opportunity to be heard should be provided before making a
best judgment assessment, except when prior notice has
already been issued.
Protective Protective Assessment is an administrative measure employed
Assessment by tax authorities when there is uncertainty about which
person should be taxed for a particular income. Although not
explicitly mentioned in the Income Tax Act, 1961, it has
gained judicial recognition through various landmark cases,
particularly Lalji Haridas v. ITO (1961), where the Supreme
Court established that protective assessments are permissible
when ownership of income is unclear due to ongoing
litigation. This practice allows tax authorities to assess the
same income in multiple hands - one substantive (primary)
assessment and one or more protective assessments - to
safeguard revenue interests until the correct liability is
determined. However, while protective assessment is
permissible, "protective recovery" is not; as established in
Jagannath Bawri vs CIT (1998), tax can only be recovered
once, typically from the person against whom substantive
assessment is made. These assessments can be cancelled
under Section 264 of the Income Tax Act once the dispute is
resolved, and they automatically become redundant when the
substantive assessment becomes final through appellate
proceedings. Other significant rulings that have shaped
protective assessment provisions include CIT Vs. Ram Chand
Tilli Works (2013), which confirmed that in cases of doubt
about the real entity to be taxed, the Assessing Officer can
make protective assessments; CIT Vs. Khalid Mehdi (1987),
 which established that when an assessment is protective in
nature, it should be expressly stated; and CIT Vs. Latha
Chandy (2003), which confirmed that the same income
cannot be taxed twice. This mechanism ensures that the
government's right to collect legitimate tax is preserved while
the correct taxpayer is being determined through proper legal
channels.

Income escaping Income Escaping Assessment, also known as Reassessment,

assessment/​ is governed by Section 147 of the Income Tax Act and serves
reassessment​ as a crucial mechanism to bring previously untaxed income
(S 147) into the tax net. This provision empowers the Assessing
Officer (AO) to reopen completed assessments when there is
reason to believe that taxable income has escaped assessment
in any previous year. The AO can initiate reassessment
proceedings within a time limit of 3 years from the end of the
relevant assessment year in normal cases, which extends to 10
years for cases where income escaping assessment exceeds
₹50 lakh. This extended time frame ensures that substantial
tax evasion doesn’t escape the department’s scrutiny due to
time limitations. Reassessment proceedings are typically
triggered by various circumstances, including non-filing of
returns by taxpayers, deliberate underreporting of income,
concealment of material facts, or when new information
comes to the department's attention through investigations,
surveys, or third-party reports. The process begins with the
AO issuing a notice under Section 148, requiring the taxpayer
to file a return of income or explain why previously assessed
income should not be enhanced. This provision balances the
need to protect government revenue against tax evasion while
incorporating safeguards against arbitrary reopening of
 assessments through judicial precedents that require the AO
to have tangible material before initiating such proceedings.

Faceless Assessment​ Faceless Assessment is a revolutionary approach to India's tax

(Section 144B) administration, aiming to improve transparency, efficiency,
and accountability by eliminating human interaction in direct
taxation. The concept began in 2006 with the introduction of
e-filing of tax returns by the Income Tax Department. The
Centralised Processing Centre was established in 2009, and
the concept evolved gradually, with mandatory e-filing for
corporate taxpayers and those requiring audited accounts
under Section 44AB in 2007. The Faceless Assessment
Scheme was introduced in the Union Budget 2019 and later
amended and renamed as the Faceless Assessment Scheme,
which came into effect from April 1, 2021.​
​
The system operates through a structured framework,
including the National e-Assessment Centre (NeAC),
Assessment Units, Review Units, System-Driven Allocation,
Team-Based Approach, Dynamic Jurisdiction, and Electronic
Communication. Advantages of the scheme include reducing
corruption, enhanced transparency, convenience for
taxpayers, expedited processing, reduced scrutiny cases, and
functional specialization. However, the system faces
challenges such as limited real-time interaction, technical
difficulties, handling complex cases, natural justice concerns,
and lack of personal hearings.​
In conclusion, the Faceless Assessment system has
revolutionized India's tax administration by eliminating
human interaction and enhancing transparency, efficiency,
and accountability. However, it also presents challenges such
as limited real-time interaction, technical difficulties,
 handling complex cases, and potential natural justice
concerns.

Block Assessment Block Assessment is a tax assessment procedure under the

Income Tax Act, governed by Sections 158B to 158BI. It
allows tax authorities to evaluate income, expenditures, and
deductions over a defined "block period" rather than
conducting separate assessments for individual years. The
core purpose of Block Assessment is to streamline the process
of assessing undisclosed income discovered during searches,
ensuring efficient tax collection while reducing procedural
complexities and litigation. Under this scheme, undisclosed
income is subject to a higher tax rate (currently 60% plus
applicable surcharge), reflecting its punitive nature toward tax
evasion.​
​
The "block period" encompasses the previous years relevant
to six assessment years preceding the year in which a search
was initiated, plus the period from April 1 of the search year
until the date of execution of the last authorization for such
search. This comprehensive timeframe allows authorities to
examine financial activities over an extended period,
capturing potentially hidden income streams.​
​
The Finance (No. 2) Act, 2024 has reintroduced the Block
Assessment scheme, applicable to searches conducted from
September 1, 2024. This revival represents a significant shift
in tax administration strategy, returning to a consolidated
assessment approach after experimenting with different
mechanisms over the past two decades. Key provisions
introduced in the 2024 Finance Act include:​
​
- Section 158B: Provides definitions of "block period" and
“undisclosed income,” establishing the framework for
assessments.​
- Section 158BA: Outlines the procedure for assessing total
income resulting from searches, including provisions for
abatement of pending assessments.​
- Section 158BB: Details the computation methodology for
total income during the block period.​
- Section 158BC: Specifies procedural aspects, including the
requirement to file returns within 60 days of notice.​
- Section 158BD: Addresses undisclosed income belonging to
third parties discovered during searches.​
- Section 158BE: Sets time limits for completing block
assessments (12 months from the end of the quarter in which
the last search authorization was executed).​
- Section 158BF: Exempts certain interests and penalties from
being levied.​
- Section 158BFA: Establishes penalties (50% of tax due) and
interest (1.5% monthly) for non-compliance.​
- Section 158BG: Identifies authorities competent to make
block assessments.​
​
This historical trajectory reflects the tax administration's
ongoing efforts to find an optimal balance between
comprehensive assessment, procedural efficiency, and
taxpayer compliance.​
​
The reintroduction of the Block Assessment scheme through
the Finance (No. 2) Act, 2024 represents a significant shift in
India's approach to assessing undisclosed income discovered
during searches. By consolidating assessments for the entire
block period, this method aims to simplify what was once a
complicated process, potentially reducing litigation and
improving efficiency.​
​
The scheme’s focus on transparency and the incorporation of
comprehensive evidence, including digital and third-party
records, may improve accuracy and minimize evasion
opportunities. Additionally, the streamlined taxation approach
of merging all income-both disclosed and undisclosed-into a
single framework helps eliminate duplication and
inconsistencies. However, the success of this revived scheme
will depend on addressing the challenges identified above,
particularly regarding realistic timeframes, clear procedural
guidelines, and effective coordination mechanisms. The tax
administration must also ensure that technological systems
support the implementation of these provisions effectively.​
​
As the scheme becomes operational for searches conducted
after September 1, 2024, its practical implementation and
judicial interpretation will determine whether it achieves its
intended objectives of simplifying assessments, reducing
litigation, and ensuring effective tax collection from
undisclosed income. The coming years will reveal whether
the reintroduction of block assessments represents a
sustainable solution or merely another phase in the ongoing
evolution of India’s search and seizure assessment
framework.​
​
The abatement of ongoing assessments is a significant
feature, as it prevents duplicate assessments and streamlines
the process. The total income is determined by aggregating
both disclosed and undisclosed income, with disclosed
income (excluding losses) deducted from the total calculation
since undisclosed income is taxed differently under Section
113.​
​
The scheme mandates filing a return within 60 days
post-search notice, with subsequent scrutiny under Section
143(2). Block assessments must be completed within 12
months from the end of the quarter in which the last search
authorization was executed, with possible extensions up to
180 days. Penalties and interest are imposed unless specific
compliance conditions are met, and delays in filing returns
attract a 1.5% monthly interest.​
​
Coordination mechanisms ensure proper coordination
between assessing officers and jurisdictional authorities,
particularly when undisclosed income is linked to third
parties. Section 158BC(2) explicitly states that provisions of
Section 144C (Faceless Assessments) do not apply to
proceedings under this chapter, indicating a preference for
traditional assessment methods in search cases.​
​
Despite its intended benefits, the reintroduction of the Block
Assessment scheme faces several potential challenges,
including unrealistic time frames, uncertainties in evidence
inclusion, practical filing challenges, conflicting timeframes,
revival of old issues, coordination complexities, treatment of
revised declarations, technological integration, judicial
interpretation, and balancing taxpayer rights.

APPEAL
1. Filing an Appeal
When a taxpayer disagrees with an order passed by the Assessing Officer (AO), they
have the right to file an appeal. The appeal must be filed with the Commissioner of
Income Tax (Appeals) (CIT(A)) within 30 days from the date of receipt of the order.
The appeal should be in the prescribed form and must include the grounds of appeal.
2. Form of Appeal
The appeal is typically filed in Form 35, which requires the taxpayer to provide
details of the order being appealed against, the grounds of appeal, and any other
relevant information.​
​
3. Hearing of Appeal
Once the appeal is filed, the CIT(A) will schedule a hearing. The taxpayer has the
right to present their case, submit additional evidence, and argue their position. The
AO may also be called to present their case.
4. Order by CIT(A)
After considering the submissions from both parties, the CIT(A) will pass an order.
This order can either confirm, modify, or annul the order of the AO. The CIT(A) is
required to provide reasons for their decision.
5. Further Appeals
If the taxpayer or the AO is dissatisfied with the order of the CIT(A), they can further
appeal to the Income Tax Appellate Tribunal (ITAT) within 60 days of receiving the
order. Subsequent appeals can be made to higher courts, including the High Court and
the Supreme Court, based on the legal provisions.
REVISION
1. Power of Revision
The Income Tax Act grants the Commissioner of Income Tax (CIT) the power to
revise any order passed by the AO if it is deemed to be erroneous and prejudicial to
the interests of the revenue. This power can be exercised under Section 263 of the
Act.​
2. Initiation of Revision
The CIT can initiate the revision proceedings on their own or upon receiving
information that an order is erroneous. The taxpayer is typically notified of the
revision proceedings.
3. Opportunity to be Heard
Before passing a revision order, the CIT must provide the taxpayer an opportunity to
present their case. The taxpayer can submit their arguments and any relevant
documents.​
​
4. Order of Revision
After considering the submissions, the CIT may pass an order to cancel, modify, or
confirm the original order. The CIT must provide reasons for their decision in the
revision order.
5. Limitations
Revision procedure cannot be initiated after a period of two years from the end of the
financial year in which the order was passed.

Search and Seizure

The Income Tax Act, 1961 specifies the scope of the powers handed to the income tax
authorities. Given below are some of the important powers of the Income Tax
Authorities and their scope as given in the Sections provided under the Income Tax
Act, 1961:

Power to Transfer Cases [Section 127]: CBDT can transfer the case from Assessing
Officer (A.O) to another A.O. subordinate to him after giving a reasonable
opportunity of being heard to the concerned assessee. However, no opportunity of
being heard shall be required if the case is to be transferred from one A.O. to another
A.O. within the same city, town or locality.

Opportunity of Being Reheard [Section 129]: Whenever, an Income Tax Authority

ceases to exercise jurisdiction over a particular case and is being succeeded by another
Income Tax Authority, then the successor Income Tax Authority shall continue the
pending proceeding from the same stage at which it was left over by the predecessor
Income Tax Authority. ​
​
Discovery, Production of Evidence etc. [Section 131]: The Assessing Officer, Deputy
Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), the Chief
Commissioner and the Dispute Resolution Panel referred to in Section 144C have the
powers vested in a Civil Court under the Code of Civil Procedure, 1908 while dealing
with the following matters: (i) discovery and inspection; (ii) enforcing the attendance
of any person, including any officer of a banking company and examining him on
oath; (iii) compelling the production of books of account and documents; and (iv)
issuing commissions.

Search and Seizure [Section 132]: Today it is not hidden from income tax authorities
that people evade tax and keep unaccounted assets. Under this section, wide powers
of search and seizure are conferred on the income tax authorities. The provisions of
the Criminal Procedure Code relating to searches and seizure would, as far as
possible, apply to the searches and seizures under this Act. Contravention of the
orders issued under this section would be punishable with imprisonment and fine
under Section 275A.
​
Power to call for information [Sections 133]:

The Commissioner, the Assessing Officer or the Joint Commissioner may for the
purpose of this Act:
(a) Can call any firm to provide him with a return of the addresses and names of
partners of the firm and their shares;
(b) Can ask any Hindu Undivided Family to provide him with return of the addresses
and names of members of the family and the manager;
(c) Can ask any person who is a trustee, guardian or an agent to deliver him with
return of the names of persons for or of whom he is an agent, trustee or guardian and
their addresses;
(d) Can ask any person, dealer, agent or broker concerned in the management of stock
or any commodity exchange to provide a statement of the addresses and names of all
the persons to whom the Exchange or he has paid any sum related with the transfer of
assets or the exchange has received any such sum with the particulars of all such
payments and receipts.
​
Power of Survey [Section 133A]: The term 'survey' is not defined by the Income Tax
Act. According to the meaning of dictionary 'survey' means inspection of something.
An Income Tax authority can have a survey for the purpose of this Act. The objectives
of conducting Income Tax surveys are:

(a) To discover new assessees;

(b) To collect useful information for the purpose of assessment;
(c) To verify that the assessee who claims not to maintain any books of accounts is
in-fact maintaining the books;
(d) To check whether the books are maintained, reflect the correct state of affairs.

Power to Collect Certain Information [Section 133B]: For the purpose of collection of
information which may be useful for any purpose, the Income tax authority can enter
any building or place within the limits of the area assigned to such authority, or any
place or building occupied by any person in respect of whom he exercises jurisdiction.
​
Power to Inspect Registers of Companies [Section 134]: The Assessing Officer, the
Joint Commissioner or the Commissioner (Appeals), or any person subordinate to him
authorised in writing in this behalf by the Assessing Officer, the Joint Commissioner
or the Commissioner (Appeals), as the case may be, may inspect and if necessary, take
copies, or cause copies to be taken, of any register of the members, debenture holders
or mortgagees of any company or of any entry in such register.

Other Powers [Sections 135 and 136]: The Director General or Director, the Chief
Commissioner or Commissioner and the Joint Commissioner are competent to make
any enquiry under this act and for all purposes they shall have the powers vested in an
Assessing Officer in relation to the making of enquiries. If the Investigating officer is
denied entry into the premises, the Assessing Officer shall have all the powers vested
in him under Sections 131(1) and (2). All the proceedings before Income tax
authorities are judicial proceedings for purposes of Section 196 of the Indian Penal
Code, 1860, and fall within the meaning of sections 193 and 228 of the Code. An
income tax authority shall be deemed to be a Civil Court for the purposes of Section
195 of the Criminal Procedure Code, 1973.

REFUND
The Income Tax Act, 1961 provides a comprehensive framework for refunding excess
tax paid by taxpayers. Sections 237 to 245 outline the provisions relating to tax
refunds, ensuring that taxpayers receive back any excess amount paid to the
government. Eligibility for tax refunds arises when the taxes paid by an assessee
exceed their actual tax liability for a particular assessment year. Taxpayers become
eligible for refunds in several scenarios: when advance tax paid exceeds the actual tax
liability, when self-assessment tax paid is greater than the actual tax payable, when
Tax Deducted at Source (TDS) from salary, interest, dividends, etc., exceeds the tax
liability, when there is an error in the regular assessment of tax liability that has been
subsequently corrected, when investments qualifying for tax deductions were not
declared earlier, and in cases of double taxation, where income is taxed both in India
and a foreign country. The process to claim an income tax refund has been
streamlined with the introduction of electronic filing. The Finance (No. 2) Act, 2019
amended Section 239 to provide that refunds can be claimed only through filing of
return of income within the time limit prescribed under Section 139. The refund claim
process involves: 1. Filing the Income Tax Return (ITR) before the due date (typically
July 31st of the assessment year). 2. Verifying the return electronically or physically
within 120 days of filing. 3. Ensuring all details, especially bank account information,
are correctly mentioned in the ITR. 4. Providing information about tax-saving
investments and deductions in the ITR. 5. Processing the refund through the following
steps: ​
1. Assessment of the return to verify the accuracy of the claim. ​
2. Approval process to ensure adherence to CBDT guidelines.​
3. Generation of a refund order containing the taxpayer's name, bank details, and
refund amount. ​
4. Initiation of electronic funds transfer (NEFT) to credit the amount to the taxpayer's
account. If the taxpayer has not provided bank details, the refund is issued via a
cheque sent by speed post to the address mentioned in the ITR. Section 244A of the
Income Tax Act provides for interest on delayed refunds. If the refund amount is more
than 10% of the tax paid, the taxpayer is entitled to receive interest at the rate of 0.5%
per month or part of the month on the refund amount.​

​
Refund Reissue If a taxpayer does not receive the refund despite it being processed,
they can request a reissue through the e-Filing portal. The process involves:
1.​ Logging into the e-Filing portal
2.​ Navigating to the 'Services' menu and selecting 'Refund reissue'
3. Creating a refund reissue request with updated bank details if necessary

CASE LAWS
​
Radhasaomi Satsang v. CIT (1991) 100 CTR 267/(1992)

FACTS​
The Assessee is a charitable trust established in 1861 and had been claiming
exemption under section 11. The question of assessing the income for the first time
arose in the assessment year 1937-38. For assessment years 1937-38 and 1938-39, the
Commissioner deleted additions holding that the offerings made to the trust were not
used for personal benefit and such offerings were exempt under section 4(3)(i) of the
1922 Act. In assessment year 1939-40 the AO rejected the claim for exemption, but
the same was allowed in appeal before the ACC. Until assessment year 1963-64, the
refund applications made by the assessee were
accepted on the basis that income was exempt and that tax had been deducted at
source. For the first time claim for refund in the years 1964-65 to 1966-67 was not
allowed and the assessee was treated as an AOP and taxed. For the assessment years
1966-67 to 1969-70 assessments were completed and the AO did not accept the
assessee’s claim of exemption under section 11.

ISSUE​
Whether, in the absence of any change in the circumstances, could the revenue reopen
a question which had been decided upon in the earlier years?​
​

HELD​
Res judicata does not apply to income-tax proceedings as each assessment year is
treated separately, but if a fundamental aspect has been established in multiple years
without challenge, it should not be changed in a subsequent year. It is inappropriate to
reopen a tax question without any material change justifying a different view from
what was decided in earlier proceedings by the Commissioner.
​

Kachwala Gems v. Jt. CIT (2006) 206 CTR 585/(2007)

Facts
The assessee deals in precious and semi-precious stones. The AO noticed various
defects in the books of account of the assessee. The AO therefore rejected the books
of account and proceeded to make a best judgement assessment under section 144.
Issue
Whether there is necessarily some estimation involved in a best judgment
assessment?
Views
The authorities concerned should try to make an honest and fair estimate of the
income even in a best judgment assessment, and should not act totally arbitrarily, but
there is necessarily some amount of guess work involved in a best judgment
assessment, and it is the assessee himself who is to blame as he did not submit proper
accounts.
Held
Even though there is always a certain degree of guess work in a best judgment
assessment, the authority should try to make an honest and fair estimate of the income
and should not act totally arbitrarily. (CA No. 5809 of 2006

Basir Ahmed Sisodiya v. ITO (2020) 424 ITR 1/188 DTR 20/314
​
Facts
The case of assessee was selected for scrutiny proceedings vide notice issued
under section 143(2) of the Act by ‘AO’ for assessment year 1998-1999. In
assessment order passed by ‘AO’ one of the addition contested before the apex court,
was pertaining to unexplained cash credits under section 68 of the Act of Rs. 226,000
which pertained to purchase of marbles from unregistered dealers. This addition made
in the assessment order passed by ‘AO’ was sustained successively and concurrently
by CIT(A), ITAT and high court under section 68 of the Act, where they confirmed
the ‘AO’ view that said creditors are bogus and are not genuine creditors. Although
assessee raised a jurisdictional question that after books are rejected to estimate the
profit, very same books cannot be relied to invoke section 68 of the Act qua stated
purchase creditors, the same was rejected by High court. It viewed these credits were
nothing but bogus entries and same are rightly added to the income of the assessee. In
its appeal before the apex court assessee raised that jurisdictional contention again
which is noted extensively in the order of apex court. However said jurisdictional
contention on possible applicability of section 68 where books are rejected is not
adjudicated in the order of apex court. Before apex court one interlocutory application
was filed by assessee pointing to the CIT(A) order in penalty appeal proceedings
under
section 271(1)(c) of the Act vis-a-vis very same addition of alleged unexplained
credits (which is contested on merits before apex court).In this order of CIT(A)
deleting the penalty under section 271(1)(c) on very same additions under section 68
of the Act. The reason which weighed with CIT(A) leading to deletion of penalty
under section 271(1)(c) was assessee produced affidavits of 13 unregistered dealers
out of whom 12 were examined by the officer. In the examination in their statements
no infirmity was found.. The dealers stood by the assertion made by the assessee
about the purchases on credit from them; and which explanation has been accepted by
the CIT(A) in paragraphs 17 and 19 of the penalty appeal order dated 13.1.2011.
Issue
Can addition made under section 68 of the Act in quantum assessment
proceedings be sustained in wake of subsequent CIT(A) order deleting the penalty
under section 271(1)(c) of the Act, on very same additions, after holding that assessee
has proved genuineness of its purchase creditors (on basis of affidavits filed and their
positive statements recorded) and which acceptance of genuineness of said purchase
creditors in said penalty proceedings under section 271(1)(c) of the Act has attained
finality?
Held
The court noted that “… it has now come on record that the appellant/assessee in
penalty proceedings offered explanation and caused to produce affidavits and record
statements of the concerned unregistered dealers and establish their credentials. That
explanation has been accepted by the CIT(A) vide order dated 13.1.2011.”

Allowing assessee’s appeal the court held that, the factual basis on which
the Officer formed his opinion in the assessment order dated 30.11.2000 (for
assessment year 19981999), in regard to addition of Rs.2,26,000, stands dispelled by
the affidavits and statements of the concerned unregistered dealers in penalty
proceedings. It was further noted that, this evidence fully supports the claim of the
appellant/assessee. It observed that, “The appellate authority vide order dated
13.1.2011, had not only accepted the explanation offered by the appellant/assessee but
also recorded a clear finding of fact that there was no concealment of income or
furnishing of any inaccurate particulars of income by the appellant/assessee for the
assessment year 19981999. That now being the indisputable position, it must
necessarily follow that the addition of amount of Rs.2,26,000 cannot be justified,
much less, maintained.” Finally it was concluded by the court that, “…accordingly,
this appeal ought to succeed on this count alone and it would be unnecessary for us to
dilate on other questions/contentions urged by the parties as referred to in the earlier
part of this judgment. Accordingly, this appeal is allowed. The addition of
Rs.2,26,000/(Rupees two lakhs twenty-six thousand only) by the Officer under
Section 68 of the 1961 Act, towards cash credit amount shown against the names of
concerned unregistered dealers for the assessment year 19981999, is hereby set
aside.” (AY. 1998-99) (CA No. 6110 of 2009 dt. 24-04-2020)

ITO v. Techspan India (P) Ltd. (2018) 404 ITR 10/165

​
FACTS​
The assessee was engaged in the business of development and export of computer
software and human resource services. Assessee filed its return declaring a loss after
claiming a deduction common expenses from its two sources of income, namely,
software development and human resource development. The assessee also claimed
deduction under section 10A for the income from software development. The return
was selected for assessment under section 143(2) and a specific query was raised
regarding the allocation of common expenses between the two heads, viz., software
development and human resource development. The issue was duly explained and an
order passed assessing the income as ‘Nil’. Subsequently a notice under section 148
was issued on the ground that an excess deduction under section 10A had been
allowed. The assessee filed objections against the proposed reopening. The objections
of the assessee were rejected. On writ, the High Court set aside reassessment notice.

Issue
Whether an assessment could be reopened on the issue of excess deductions
claimed under section 10A, where during the original assessment proceedings, the
question of allocation of expenses was considered?

Held
Before interfering with the proposed re-opening of the assessment on the ground that
the same is based only on a change in opinion, the court ought to verify whether the
assessment earlier made has either express or necessary implication expressed an
opinion on a matter that is the basis of the alleged escapement of income. If the
assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult
to attribute to the assessing officer any opinion on the questions that are raised in the
proposed re-assessment proceedings. In the present case, a bare perusal of the notice
made it clear that the point on which the re-assessment proceedings were initiated was
well considered in the original proceedings.

Initiation of the re-assessment proceedings under section 147, merely because of the
fact that now the AO is of the view that the excess deduction was allowed, was based
on nothing but a change of opinion on the same facts and circumstances which were
already in his knowledge even during the original assessment proceedings. (AY.
2001-02) (CA No.2732 of 2007 dt. 24-4-2018)

NK Proteins Limited vs DCIT SC 2017​

​
The case revolved around additions made by income tax authorities in the block
assessment framed under Chapter XIV-B of the Income Tax Act, 1961. The
proceedings followed a search at the premises of N.K. Group companies involved in
trading and speculation of castor seed and export of castor oil. During the search, tax
authorities seized incriminating material including blank signed cheque books,
vouchers, blank bill books, letterheads of various concerns, and endorsed blank
cheques of N.K. Proteins, which led the Assessing Officer (AO) to treat purchases
from these concerns as 'bogus'. The total value of these alleged bogus purchases ran
into crores of rupees across different assessment years. ​
​
One of the main issues before the Gujarat High Court in several tax appeals was the
quantum of addition to be made on account of these alleged bogus purchases. The AO
had treated the entire purchase amounts as undisclosed income. However, the Income
Tax Appellate Tribunal (ITAT) had, in certain instances, restricted the addition to 25%
of the total value of these purchases. The assessee challenged this 25% addition,
arguing that the Tribunal erred in making any addition without specific evidence of
undisclosed income found during the search. The assessee contended that if purchases
were genuine but from questionable suppliers, only potential profit on such
transactions could be considered, and any such addition should fall under regular
assessment, not block assessment. ​
​
The Revenue argued that the Tribunal should have added 100% of the bogus purchase
amount, referencing the Rajasthan High Court’s ruling in Indian Woollen Carpet
Factory v. ITAT regarding peak credits in the accounts of bogus suppliers and the
Gujarat High Court’s own prior decision in Vijay Proteins Ltd. v. CIT which had
upheld a similar 25% addition made by the ITAT in comparable circumstances. The
court ultimately found the facts of the case similar to those in Indian Woollen Carpet
Factory and Vijay Proteins Ltd. While seemingly highlighting the inconsistency, the
court’s decision to dismiss the appeals, particularly the assessee’s appeals against the
25% addition, effectively upheld the Tribunal’s approach, largely influenced by the
precedent set in Vijay Proteins Ltd. The court also distinguished the N.R. Paper &
Board Ltd. case, stating that if search material reveals falsified entries in regular
books, the resulting concealed income can be included in block assessment,
countering the assessee’s argument that this should only be in regular assessment.