Changes Proposed in Assessment Procedure (Chapter XIV) of The Income Tax Act, 1961 (“the Act”)
Content
1. Advance Tax on Updated Return: Amendment in Section 140(B) of the Act.
2. Inventory Undervaluation by Nominated Cost Accountant under Section 142 of the Act.
3. Amendments in Reassessment Provisions:
• Section 148 of the Act: Issue of Notice Where Income Has Escaped Assessment
• Section 149 of the Act: Time Limit for Notice
• Section 151 of the Act: Sanction for Issue of Notice
4. Alignment of Timeline Provisions: Section 153 of the Act.
5. Capacity Building: First Appellate Authority.
• Designation of Joint Commissioner (Appeals).
Clarification on Advance Tax on Updated Return
• Section 139 (8A) of the Act was introduced vide finance act 2022 laying down the provision of updated return up to 2 years from the end of the relevant assessment year, subject to fulfillment of certain conditions along with the payment of additional tax.
• Section 140B of the Act was inserted in the Act for determination of the said additional tax amount. Section 140B(4) of the Act provides that interest under Section 234B of the Act for an updated tax return is payable only on the difference between assessed tax and advance tax.
• The Finance Bill, 2023 proposes to amend Section 140B(4) of the Act, so to clarify the said provision by omitting the words “or, as the case maybe, on the amount by which the advance tax paid falls short of the assessed tax” , so as to mean that interest payable under Section 234B of the Act shall be computed on amount equal to the assessed tax as reduced by the amount of advance tax, credit for which has been claimed in the earlier return, if any.
• Effective date: This amendment will take effect retrospectively from April 01, 2022.
Inventory Undervaluation by Nominated Cost Accountant
With regard to the maintenance of books of account, the Central Government has notified Income Computation and Disclosure Standards (ICDS) for the computation of income. The said standards relate to the valuation of inventory. Further, section 148 of the Companies Act 2013 provides for the maintenance of cost records and audits by cost accountants.
To ensure that the inventory is valued in accordance with the aforesaid extant provisions, the Finance Bill, 2023 proposes to amend Section 142 of the Act (Inquiry before Assessment), which is
as below:
• Amendment in Section 142 (2A) of the Act-
To empower the Assessing Officer (“AO”) to direct the Assessee to submit the valuation report of the cost accountant nominated by Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and furnish the report of the inventory valuation in the prescribed form, duly signed and verified by the cost accountant or such other particulars as may be prescribed.
Inventory Undervaluation by Nominated Cost Accountant (Cont.)
• Amendment in Section 142 (2D) of the ActSection 142 (2D) of the Act has been amended to mean that expenses of, and incidental to such inventory valuation (including remuneration of the cost accountant) shall be determined by the Principal Chief Commissioner or Principal Commissioner or Commissioner, in accordance with the prescribed guidelines and that the expenses so determined shall be paid by the Central Government.
• Effective date: This amendment will take effect from April 01, 2023.
Amendments in Reassessment Provisions
To streamline the reassessment provisions, and facilitate their conduct in a seamless manner, the Finance Bill 2023, proposes to amend Section 148 and Section 149 of the Act, and provide that:
Section 148 of the Act
• A return in response to a notice issued under Section 148 of the Act shall be furnished within a period of three months (erstwhile as per the time specified in the notice issued under section 148 A(d) of the Act) from the end of the month in which such notice is issued, or such further period as may be allowed by the AO on the basis of an application by the Assessee.
• Further, a third proviso has been inserted in Section 148 of the Act to provide that any such return furnished beyond the aforesaid period shall not be deemed to be a return under Section 139 of the Act.
Amendments in Reassessment Provisions (Cont.)
Section 149 of the Act: Time Limit for issue of Notice
• Section 149 of the Act provides for the limitation period for issuance of notice under section 148A of the Act. In cases of Search (132 of the Act), requisition (132A of the Act), and cases from which information emanates from the above proceedings are deemed to be the information under section 149 of the Act. In cases of Survey (133A of the Act), the AO has deemed to have information for the purposes of Section 148 of the Act, but proceedings under section 148A of the Act need to be conducted prior to issuance of notice under section 148A(b) of the Act. In cases where search, requisition, or survey is conducted after 15th March, there is very little time to collate information and thereafter, a notice is issued under section 148 of the Act or show cause notice under section 148 A(b) of the Act.
• Due to paucity of time, issuance of notice may go beyond the time limitation provided due to the procedure involved, and therefore, important information related to revenue leakage cannot be proceeded, as a consequence of these searches made in the last few days of any Financial Year (FY).
Amendments in Reassessment Provisions (Cont.)
• After the second proviso of Section 149 of the Act, the Finance Bill, 2023 proposes to insert two provisos providing as summarized below:
• For post-search and post-requisition cases, where a search is initiated or requisition is made after 15th March of any financial year and the period of issue of notice under Section 148 of the Act expires on 31st March of such financial Year, in such cases a period of 15 days shall be excluded in the computation of limitation period and such notice issued under Section 148 of the Act shall be deemed to have been issued on March 31 of such financial year.
• Where information as referred to in Explanation 1 to Section 148 of the Act emanates from a statement recorded or documents impounded under Section 131 or Section 133A of the Act, as the case may be, on or before the 31st March of a financial year, in consequence of, a search which is initiated, a search under Section 132 of the Act for which the last of the authorization is executed, or a requisition is made under Section 132A of the Act after the 15th March of such financial year, a period of 15 days shall be excluded for the purpose of computing the period of limitation for issuance of notice under Section 148A(b) of the Act shall be deemed to have been issued on the 31st March of such financial year.
• The limitation period in the sixth proviso has been substituted to mean that the limitation period should not exceed seven days to AO for passing Section 148A(d) order.
Effective date: Above amendments will take effect from April 01, 2023.
Amendments in Reassessment Provisions (Cont.)
• Section 151 of the Act lays down the provision relating to the specified authority that can grant approval for the purposes of sections 148 and 148A of the Act. The said section provided that the authority would be the Principal Chief Commissioner and where there is no Principal Chief Commissioner, the Chief Commissioner shall give approvals beyond a period of three years.
• To clarify the specified authority for the cases where re-opening was being done after three years from the relevant assessment year, an amendment has been introduced stating that specified authority under clause (ii) of section 151 of the Act shall be Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
Amendments in Reassessment Provisions (Cont.)
• The Finance Bill, 2023 proposes to amend clause (ii) of Section 151 (specified authority to grant approval for the purposes of Sections 148 and 148A) to provide that such specified authority shall be the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than 3 years have elapsed from the end of the relevant assessment year.
• Proviso to Section 151 of the Act has been proposed to be inserted so as to provide that while computing the period of 3 years for the purposes of determining the specified authority, the period which has been excluded or extended as per the provisos in Section 149 of the Act from the time limit for issuance of notice under Section 148 of the Act shall be taken into account.
• Effective date: These amendments will take effect from April 01, 2023.
Alignment of Timeline Provisions: Section 153
• The Finance Bill, 2023 proposes to insert a proviso to Section 153 of the Act to increase the time limit for completion of assessment relating to the assessment year commencing on or after April 1, 2022 to 12 months from the end of the assessment year in which the income was first assessable.
• Vide Finance Act, 2022 sub-section (1A) was inserted in Section 153 of the Act providing that in a case where an updated return under sub-section (8A) of Section 139 of the Act has been furnished by an assessee, an order of assessment or reassessment under Section 143 or Section 144 of the Act may be made at any time before the expiry of 9 months from the end of the financial year in which such return was furnished.
• The period of nine months seemed very short period to complete the entire process of assessment, in terms of providing enough time to the taxpayers to furnish evidence in their favour, It has been proposed to amend section 153(1A) of the Act to increase the time available for completion of assessment proceedings in the case of updated return to 12 months (from exiting 9 months) from the end of the FY in which such return is furnished.
Alignment of Timeline Provisions: Section 153 (Cont.)
• It has further been proposed to amend the provisions of the Act so as to allow the Assessing Officer to conduct proper scrutiny of the case and align the dates of limitation for completion reassessment proceedings for all the assessment years under scrutiny consequent to a search under Section 132 of the Act or requisition under section 132A of the Act.
• In this regard, Finance Bill, 2023 proposes to insert new sub-section (3A) to provide that where an assessment or reassessment is pending on the date of initiation of search under Section 132 or making of requisition under Section 132A of the Act, the period available for completion of assessment or reassessment, as the case may be, under said sub-sections (1), (1A), (2) and (3) of the said section shall be extended by 12 months in all categories of post-search or postrequisition assessments.
Alignment of Timeline Provisions: Section 153 (Cont.)
• Vide Finance Act, 2021, Section 263 of the Act was amended to enable Principal Chief Commissioner and Chief Commissioner to also pass an order of revision under the said section.
• However, the timeline provided in Section 153 of the Act under sub-sections (3), (5) and (6) to pass an order of assessment or reassessment or order under Section 92CA of the Act by the Transfer Pricing Officer does not refer to the orders so passed by Principal Chief Commissioner or Chief Commissioner.
• Therefore, the Finance Bill, 2023 proposes that Section 153 of the Act may be amended to provide that the provision of the said sub-section (3), (5), and (6) shall also be applicable to order under Section 263 or Section 264, passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.
Effective Date: These amendments will take effect from April 01, 2023.
Introduction to the Authority of Joint Commissioner (Appeals)
• The Finance Bill, 2023 proposes to establish a new authority at Joint Commissioner (Appeals) level to be deployed to handle small appeals.
• In this regard, Section 246 of the Act has been proposed to be amended to provide that appeals may be filed before a Joint Commissioner (Appeals) against the following list of orders of an AO:
An Order under section 143(1) of the Act,
An order of assessment, reassessment, or re-computation under section 147 of the Act,
An Order under section 201 of the Act,
An Order under 206 C(6A) of the act,
An Order imposing penalty under Chapter XXI
An Order under 154 or section 155 of the Act
Introduction to the Authority of Joint Commissioner (Appeals) (Contd.)
• Further, consequential amendments are proposed in relevant provisions of the Act in order to ensure that the functioning of the Joint Commissioner (Appeals) is aligned with that of the Commissioner (Appeals)
• Effective Date: These amendments will take effect from the 1st day of April 01, 2023
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