Assessment after Evidence [Section 143(3)]

Section 143(3) deals with the scrutiny assessment process in Indian income tax law. This assessment is undertaken by the Assessing Officer (AO) after a detailed examination of the evidence and information submitted by the taxpayer, along with any additional evidence gathered by the AO.

Key Steps in Assessment After Evidence

1. Initiation: Notice Under Section 143(2)

• If the AO selects a tax return for scrutiny, they issue a notice under Section 143(2).
• The assessee is required to appear in person or via representative, and/or to submit evidence and documents as required to support the claims made in the tax return.

2. Submission and Evaluation of Evidence

• The assessee must provide relevant documents, records, and explanations supporting their income, deductions, exemptions, and other claims.
• The AO may also use statutory powers (e.g., under Section 131 or 133 of the Act) to summon additional evidence or third-party information if necessary.

3. Consideration of All Material

• The AO evaluates:
  • Evidence provided by the assessee.
  • Any oral or documentary evidence.
  • Information independently collected during inquiry.
• The evaluation must be fair and must consider all materials available on record.

4. Hearing the Assessee

• The AO gives the assessee an opportunity to present their case and respond to any adverse material or proposed additions/disallowances.
• Submissions can be made in person or, increasingly, online under the faceless assessment scheme.

5. Passing the Assessment Order

• After considering all evidence and submissions,the AO issues a written assessment order under Section 143(3).
• The order details:
  • The total taxable income or loss of the assessee for the relevant assessment year.
  • The tax or refund that becomes payable based on this assessment.

Important Points

• The AO’s order must be based on documentary evidence and records provided during the scrutiny process.
• Proper documentation and timely, comprehensive evidence submission by the assessee influence the outcome positively.
• The AO may accept or reject claims made by the assessee, with decisions supported by evidence and legal provisions.

6. Time Limits

• The assessment order must be completed within the statutory period as per Section 153, which has been progressively reduced (e.g., within nine months from the end of the assessment year for AY 2021-22 onwards)

11.  Deduction Not to Be Allowed If Claim Is Not Made in The Return of Income

Under Indian income tax law, a deduction cannot be allowed if the claim is not made in the return of income. This principle is primarily reflected in:

1. Statutory Basis

• Section 80A(5) of Income Tax Act, 1961:
  • Explicitly mandates that no deduction under Chapter VI-A(80C to 80U) shall be allowed unless claimed in the return of income
  • Applies even if eligible and supported by documentary evidence

2. Key Judicial Precedents

1. Goetze India Ltd. vs CIT (2006) – Supreme Court Ruling:
   • Restricts taxpayers from making new claimsduring assessment proceedings
   • Only permits verification of already claimed deductions
2. Pruthvi Brokers & Shareholders (2012) – Bombay HC Exception:
   • Allows additional claims through revised returnbefore assessment completion
   • Permits raising new claims in appellate proceedings
3. CIT vs Essar Teleholdings (2018):
   • Confirms AO cannot suo motoallow unclaimed deductions

3. Practical Implications

• For Regular Returns:
  • Must claim all deductions in original/revised return (filed before 31 Dec of AY)
  • Supporting documents must be available for verification
• For Revised Returns:
  • Permitted to add omitted deductions (Section 139(5))
  • Time-bound – must be filed before assessment completion
• For Appellate Proceedings:
  • Additional claims may be made before CIT(A)/Tribunal
  • Requires sufficient cause for omission in original return

4. Exceptions and Special Cases

1. Court-Directed Claims:
   • Appellate authorities/Tribunals may direct consideration of new claims
2. Rectification Proceedings:
   • Limited to apparent mistakes (Section 154)
3. CBDT Circulars:
   • Some relaxation for government employees/senior citizens

5. Consequences of Non-Claim

• Absolute Baron deduction allowance during assessment
• No Writ Remedytypically available for such omissions
• Potential Lossof legitimate tax benefits permanently

2.  Assessment of Certain Institutions Without Granting Section 10 Exemptions [First Proviso to Section 143(3)]

The First Proviso to Section 143(3) of the Income Tax Act deals with how income is assessed for certain trusts and institutions. This provision specifically addresses situations where the exemption under Section 10 (particularly Section 10(23C)) is not given, even if the institution is otherwise eligible or approved.

1. Legislative Intent

This proviso carves out an exception to the normal assessment procedure, allowing the Assessing Officer (AO) to:

• Deny exemptionsunder Section 10 (like 10(23C), and
• Compute total incomewithout considering such exemptions
  for specified entities when conditions are violated.

2. Applicable Institutions

The proviso primarily targets:

1. Charitable/Religious Trustsclaiming exemption under:
   • Section 10(23C)(iv)/(v)/(vi)/(via) (educational/medical institutions)
   • Section 11 (general charitable trusts)
2. Political Partiesunder Section 13A
3. Scientific Research Associationsunder Section 10(21)

3. Trigger Conditions for Denial

Exemptions may be disallowed during assessment if:

• Registration(under Section 12AB/80G) is revoked/not obtained
• Violationof conditions like:
  • Non-application of 85% income for charitable purposes
  • Benefit to specified persons (Section 13(1)(c))
  • Political activity by charitable trusts
  • Non-maintenance of proper books of account

4. Assessment Procedure

1. Show Cause Notice:
   • AO must give opportunity to explain violations
   • Minimum 30 days to respond
2. Evidentiary Requirements:
   • AO must establish violation through:
     • Field inquiries
     • Third-party information
     • Audit reports

3. Order Specifications:
   • Must contain detailed reasoning for denial
   • Should quantify taxable income after exemption denial

5. Judicial Safeguards

• Burden of Proof: Initially on revenue to demonstrate violation (CIT vs. Thanthi Trust)
• Natural Justice: Mandatory hearing before denial (Sahara India vs. CIT)
• Proportionality: Denial only for relevant assessment years of violation

6. Consequences

1. Tax Impact:
   • Entire income becomes taxable (except corpus donations)
   • Maximum marginal rate (30%) often applies
2. Penal Implications:
   • Section 271(1)(c) penalty possible for concealment
   • Section 276C prosecution in severe cases
3. Registration Impact:
   • Potential cancellation of 12AA/12AB registration

7. Recent Trends

• Increased scrutiny of:
  • Foreign donations (FCRA compliance)
  • Related party transactions
  • High-value expenditures

8. Remedial Options

1. Rectification(Section 154) for apparent errors
2. Appealto CIT(A) within 30 days
3. Fresh Applicationfor registration post-compliance

Practical Advice:

• Maintain strict compliance with exemption conditions
• Conduct internal audits before filing returns
• Respond comprehensively to show cause notices
• Consider Vivad se Vishwas for dispute resolution

3.  Assessment of Universities/Colleges After Withdrawal of Exemption Under Section 35(1)(ii)/(iii) [Second Proviso to Section 143(3)]

1. Context & Legislative Intent

The second proviso to Section 143(3) provides special assessment rules when:

• The Central Government withdrawsa notification granting tax exemption
• Applies specifically to institutions approved under Section 35(1)(ii)/(iii)for:
  • Scientific research associations
  • Universities/colleges engaged in research

2. Trigger Condition

• Applies when retrospective withdrawalof approval is made
• Government may withdraw if institution:
  • Violates approval conditions
  • Engages in non-research activities
  • Fails to maintain proper accounts

3. Special Assessment Mechanism

1. Deemed Application:
   • Even if institution doesn’t file return, AO must assess income
   • Applies from FY when exemption was withdrawn
2. Income Computation:
   • All research grants/income become taxable
   • Expenses must meet Section 37 criteria (not capital/personal)
3. Time Limit:
   • Normal assessment timelines apply
   • Extended period available for complex cases

4. Judicial Safeguards

• Natural Justice:
  • Mandatory hearing before assessment
  • Right to inspect adverse material
• Burden of Proof:
  • On revenue to show valid withdrawal
  • On assessee to claim allowable expenses

5. Consequences

1. Tax Liability:
   • Regular tax rates apply (not maximum marginal rate)
   • No Section 10/11 exemptions available
2. Donor Impact:
   • Donors may lose Section 80G benefits
   • Research expenditure deduction may be denied
3. Future Approvals:
   • Blacklisting possible for serious violations

6. Case Law

• Indian Institute of Astrophysics (2021):
  • Withdrawal must follow principles of natural justice
  • Cannot be arbitrary
• Tata Institute (2019):
  • Retrospective withdrawal valid only for fraud cases

7. Compliance Checklist

1. Immediate Actions:
   • File revised returns if needed
   • Segregate research/non-research funds
2. Documentation:
   • Maintain research activity proofs
   • Preserve all government correspondence
3. Appeal Options:
   • Challenge withdrawal notification separately
   • Appeal against assessment order

4.  Impact of Commercial Receipts on Tax Exemptions for Charitable Organizations [Third Proviso to Section 143(3)]

The third proviso to Section 143(3) of the Income Tax Act, 1961, imposes a critical restriction on tax exemptions for charitable organizations if their commercial receipts exceed 20% of total receipts. Here’s a detailed analysis of this provision:

1. Key Provision

• Exemption Denial Trigger:
  Charitable trusts/institutions lose tax exemptionsunder Sections 11/12 or 10(23C) if:
  • Commercial receipts(e.g., fees for services, sale of goods) exceed 20% of total receipts in a financial year.
  • Such receipts are not incidentalto the organization’s charitable objectives.
• Applicable Entities:
  • Trusts registered under Section 12AB.
  • Institutions approved under Section 10(23C) (iv)/(v)/(vi)/(via)(e.g., educational/medical institutions).

2. Consequences of Violation

• Taxable Status:
  • Entire income (including donations) becomes taxable at maximum marginal rate (30%).
  • Exemptions under Sections 11/12/10(23C)are withdrawn prospectively.
• Assessment Process:
  • AO must issue a show-cause noticebefore denying exemptions.
  • Opportunity to explain/comply within 30 days.
• Penalties:
  • Section 271(1)(c): Penalty for concealment (50–200% of tax evaded).
  • Section 276C: Prosecution for wilful evasion.

3. Judicial Precedents

• CIT vs. Queen’s Educational Society (2015):
  Supreme Court held that fee receiptsfrom students in educational institutions are not commercial if:
  • Fees are reasonableand aligned with charitable objectives.
  • Surplus is reinvestedfor educational purposes.
• Ahmedabad Urban Development Authority Case (2022):
  Rental incomefrom properties held for charitable purposes is excluded from the 20% limit if used for core activities.

4. Compliance Strategies

• Segregate Receipts:
  Maintain separate accounts for charitablecommercial receipts.
• Reinvest Surplus:
  Ensure commercial surplus is applied to charitable objectives(85% rule under Section 11).
• Documentation:
  Retain proof of fee structures, utilization certificates, and governing body resolutions

5.  New Scheme for Scrutiny Assessment [Sections 143(3A), 143(3B), and 143(3C)]

The Finance Act, 2018 introduced Sections 143(3A), 143(3B), and 143(3C) to revolutionize the scrutiny assessment process under the Income Tax Act, 1961. These provisions empower the Central Government to implement a faceless, technology-driven assessment scheme aimed at enhancing transparency, efficiency, and accountability in tax administration.

1. Key Provisions of the New Scheme

(A) Section 143(3A): Framework for Faceless Assessments

• The Central Governmentis authorized to notify a scheme for conducting scrutiny assessments under Section 143(3) (and later extended to Section 144 for best judgment assessments).
• Objectives:
  • Eliminate physical interfacebetween taxpayers and tax officers.
  • Optimize resource utilizationthrough centralized processing and automation.
  • Introduce team-based assessmentswith dynamic jurisdiction (random allocation of cases).
• Implementation:
  • Launched as the E-Assessment Scheme, 2019(later replaced by the Faceless Assessment Scheme, 2020).
  • Operated through National e-Assessment Centre (NeAC)and Regional e-Assessment Centres (ReACs).

(B) Section 143(3B): Power to Modify Existing Provisions

• Allows the Central Governmentto override or adapt existing assessment-related provisions to align with the new scheme.
• Time-bound authority: No modifications could be notified after 31 March 2020(extended to 31 March 2022).
• Ensures legal flexibilityto implement digital assessments without legislative delays.

(C) Section 143(3C): Parliamentary Oversight

• Requires all notifications under Sections 143(3A) and 143(3B)to be tabled before Parliament for review.
• Ensures legislative accountabilityin the adoption of the new system.

2. Features of the Faceless Assessment Scheme

1. Automated Case Allocation
   • Cases are randomly assignedto assessment units across India.
   • No fixed jurisdiction; reduces bias and corruption risks.
2. Digital-Only Communication
   • All notices, orders, and responses are exchanged electronicallyvia the e-filing portal.
   • Taxpayers receive real-time alertsvia email/SMS.
3. Team-Based Review
   • Each case is reviewed by:
     • Assessment Unit(scrutiny),
     • Verification Unit(document checks),
     • Technical Unit(specialized advice),
     • Review Unit(quality control).

4. Video Conferencing Hearings
   • Personal hearings (if needed) are conducted via video conferencing.
5. Time-Bound Process
   • Strict deadlines for:
     • Taxpayer responses (15 daysfor most notices).
     • Final assessment orders (12 monthsfrom FY end for AY 2022-23 onwards).

3. Benefits of the New Scheme

✅ Transparency: Reduces discretion and human intervention.

✅ Efficiency: Faster processing due to automation.

✅ Convenience: No physical visits to tax offices required.

✅ Fairness: Random case allocation minimizes bias.

4. Challenges & Criticisms

• Technical Glitches: Delays in portal functionality.
• Limited Personal Interaction: Some taxpayers struggle with digital compliance.
• Jurisdictional Confusion: Post-assessment penalties/recovery still handled by local AOs