The Seeds of Litigation Plant – “Assessment Proceedings”


CA Prarthana Jalan has pictorially described assessment proceedings as a “seeds of litigation plant“. She has offered detailed and valuable step-by-step guidance on how assessment proceedings should be handled and what documentation should be kept and checked by the taxpayer so that the taxpayer can ensure that he is not saddled with a high-pitched or arbitrary assessment order

Assessment Proceedings can be termed as seeds of litigation plant because it is the very seeds that germinate and forms the plant i.e Assessment Order that the assessee and department litigate about. We usually take little care of these seeds and which results in thorny plant for the assessee (high pitched assessment order) containing the thorns of appeals, huge demand, penalty, rectifications etc. As said “as you sow, so shall you reap “so if we take little extra care of these seeds then they can turn out to be a blossom plant, which will provide shelter in the coming assessment proceedings also.

If certain sunshine, manure, water, air in the form of following points are spread on the seeds then they can be grown up to the plant of our choice.

1) Writing The Date Of Receiving Of Notice:- Whenever a notice is received from the Income Tax Department, It is prudence to write the receiving date on the notice and the same should also be as far as possible be quoted in making the replies against the said notices. They help in demonstrating that whether the proper service of notice on time has been done or not, was sufficient time available to respond to the notice or not.

2) Power Of Attorney:- It is utmost necessary to take Proper Power Of Attorney and to get it signed by the person itself . If Possible then the stamp paper for Power Of Attorney should be purchased in the name of the assessee itself, as this can be a weapon to save the counsels in case any adverse comment or appearance is challenged by the assessee at the later stage.

3) Jurisdiction Should Be Challenged Within 30 Days Of Receiving The Notice:- After receiving the notice, if one feels that the jurisdiction is not correct then that has to be challenged/objected within 30 days of receiving of the notice. A formal letter to the effect should be given.

4) Notice U/S 143(2) Received Or Not:- If 143(2) notice is not properly served then that should also be challenged during assessment proceedings formally in writing. As it is statutory necessary for the A.O to properly serve notice u/s 143(2) within the stipulated time or else the proceedings becomes null and void.

5) Adjournments Should Be In Writing:- Many times adjournments are sought verbally by the counsels, accountants , assessee or any other person connected with the assessee . The same should be sought in writing , one copy should be kept for further records so that especially in case of 144 assessment or 271(1)(b) penalty the same acts as a savior.

6) Stick A Page Inside The Assessee’s File (Order Sheet Of The Counsel):- It is important to have one page sticked inside the cover of the file, so that as order sheets are maintained by the A.O, same can be maintained by the counsel. It helps in knowing the progress of the proceedings and are also very handy in litigation proceedings. Even adjournments taken should be mentioned in the sheet depicting the name of the person, who sought adjournment.

7) Writing Reply

i) Clearly give reference of the notice along with date of issuance and date of receiving

ii) Mention the date on the reply

iii) Always try to answer in sequence of the points as per the notice.

iv) Language used in the reply should be plain ,simple and humble. Ambiguity in language should not be there.

v) The photocopy of papers/documents furnished should be legible

vi) Enclosures should be Annexed properly and if voluminous in number then stick ons should be used on them. The Annexure number should be clearly mentioned  along with the point of reply. The relevant amount or name or any other information as the case may be should also be highlighted.

vii) Though we have the habit of writing to the point replies but as the “E-assessments” are about to take place, it is prudent to write descriptive replies as per the requirement of the questioner. Example – While mentioning about the unsecured loans- the details of the documents and how the identity, creditworthiness and genuineness of the transaction is established should be clearly denoted.

viii) Always keep one copy of complete reply containing all its annexures for the office purpose also.

ix) In the office copy of the reply, it should be mentioned that the reply was submitted to whom and on which date.

8. Punctual And Full Compliance Should Be Done:- Unnecessary adjournments, delay in making compliances, not producing the requisite information should be avoided. It is necessary to have a cordial relationship with the A.O.

9. Reassessment Proceedings:- Return of income should always be filed in response to notice u/s 147. If return already filed is being relied upon then the acknowledgement copy of the same should also be placed on record with a proper covering.Always in writing seek reasons of reopening of assessments and do challenge the reasons by a separate reply.

10. Show Cause Notice:- As per the CBDT’S Scrutiny guidelines, It is incumbent upon the A.O to issue show cause notice on the proposed additions to be made in assessments. The show cause notice should be replied properly and it should be seen that it  gives sufficient time for compliance or not.

11. Selected Reason For Scrutiny:- it is necessary to see the reason for scrutiny and do make its compliance fully. If possible then a separate reply about the main reason due to which scrutiny is taking place should be filed in detail. It also helps when the file is inspected by the department’s audit team. In case of selective scrutiny only i.e AIR etc the reason for which the scrutiny is selected can only be looked into by the A.O. In case the A.O makes further enquiry then in the reply it should be clearly brought in his knowledge that the case is only for selective scrutiny purpose.

12. Requests In Writing:- Many times the A.O possesses some information or have certain evidence or documents against the assessee. It is necessary that whenever any request is done to the A.O for getting any information/documents/ cross examination of people or asking for summoning of the people. The same should be done in writing.

13. Assessment Order – After the order is received the following points should be done

(i) The date of receiving the order should be noted.

(ii) 156 demand notice should be checked especially interest component u/s 234B.

(ii) If Appeal has to be filed, then the same should be done

(iii) If not filing any appeal and certain tax is payable the same should be deposited

(iv) If demand is huge then stay of demand application should be moved.

(v) Penalty notice u/s 271(1)(c ) are annexed with the order, the same should be responded.

(vi) if any rectification application u/s 154  is to be filed, the same should be done.

14. Order Sheet:- It is prudent to obtain the certified copy of order sheet after the assessment is over, especially in cases when appeals are preferred. 

15. Arrangement Of File:- All the papers in the file should be properly tagged and unnecessary papers should be removed.

Though the aforesaid individually are just certain ways which are necessary during the assessment proceedings but collectively they can become a bright sunshine which can be helpful to show the light not only in assessment proceedings but also in the appellate proceedings as Assessment Proceedings are seeds of litigation plant

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of
7 comments on “The Seeds of Litigation Plant – “Assessment Proceedings”

    CA Prarthana Jalan & Rajesh bhardwaj:

    The above CBDT Instruction No.7/2014 Dated 26.09.2014 says it is applicable for FY 2014 – 15. Are there any similar circulars for other financial years?.

    Can somebody clarify please?

  2. Rajesh bhardwaj says:

    Sir, it is an informative and useful article. I find tax payers not noting the date of receipt of notice/ letter etc from AO which as pointed out by Ms Jalan is an essential prerequisite in assessment proceedings. Ms Jalan or itatonline may consider printing this article in newspapers for guidance of tax payers and wider audience of laymen interested in tax matters . Regarding selective selection for scrutiny under CASS she is right that if AO goes beyond the reasons for selection it should be challenged. In this connection the following instruction of CBDT is useful:-Instruction No. 7/2014
    Government of India
    Ministry of Finance
    Department of Revenue (CBDT)
    Room No. 143E, North-Block,  New-Delhi
    Dated the 26 th of September 2014
    All Pr. Chief-Commissioners  of Income-tax/Chief-Commissioners of Income-tax
    All Pr. Directors-General of Income-tax/Directors-General of Income-tax
    sub: Scope of enquiry in cases selected for scrutiny
    It has come to the notice of the Board that during the scrutiny assessment proceedings some of the AOs are routinely calling for information which is not relevant, for enquiry into the issues to be considered. This has been causing undue harassment to the taxpayers and has also drawn adverse criticism from several quarters.  Further, feedback and analysis of such orders indicates that many times the core issues, which formed the basis of selection of the case for scrutiny were not examined properly. Such instances primarily occurred in cases selected for scrutiny under Computer Aided Scrutiny Selection (‘CASS’)  for verification of specific information obtained from third party sources  which apparently did not match with the details submitted by the tax payer in the return of income.
    2. Therefore, for proper administration of the lncome-tax Act, 1961 (‘Act’), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, ere by directs that the cases selected for scrutiny during the Financial Year 2014-20 5 under CASS, on the basis of either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer s   hall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.
    3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer  in AST  application  and  notice  u/s  143(2), after  generation from  AST, is issued to the taxpayer  with the  remark  “Selected under  Computer Aided Scrutiny Selection {CASS)”. The functionality in AST  is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalised by 15 th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be mad to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date.
    4. In case, during the course of assessment proceedings it is found that there is potential escapement  of income exceeding Rs. 10 lakhs (for  non-metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.
    The contents of this Instruction should be immediately hi-ought to the notice of all concerned for strict compliance.
    Hindi version to follow
    (Rohit Garg)
    Deputy Secretary to the Government of India”
    In the interest of transparency and fair play CBDT should consider the suggestion for providing certified copy of order sheet( which is considered ” mirror of entire assessment proceedings” ) to the tax payer free of cost.

  3. Viswanathan says:

    Very useful one

  4. vijay singh says:

    Its a good article and desrrves appreciation.

  5. gopal nathani says:

    the author has brought out a fantastic subject which cannot be ignored. it is therefore important that CBDT should issue an instruction immediately in this regard and direct AOs to provide certified copies of order sheet notings ( and not just providing extracts) as soon as the assessment proceedings are completed on the basis of requistion/application of the assessee for free. this document can be of immense use in resolving disputed in appeals and besides other facts it will reflect on the entire conduct and basis of assessment whether in accordance with the law. at times such notings are so clinching that the appeal could be decided like instant noodles. the instructions should also have effect over the appellate proceedings before Commissioner (Appeals). thanks prarthana for writing this and also thanks rajesh for raising a doubt.

  6. Rajesh Shah says:

    Generally officers does not grant certified copies of proceedings.

  7. gopal nathani says:

    very good article except for ‘It is necessary to have a cordial relationship with the A.O.’

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