Library / Income-tax Act, 2025: The Professional's Master Guide

42. Assessment and Reassessment

42.1 Assessment and reassessment (sections 268 to 286)

Procedure

New

Old

In simple words

Inquiry before assessment

268

142(1)

Notice to file return or produce documents

Processing and scrutiny assessment

270

143(1), 143(3)

CPC processes the return; scrutiny if selected

Best judgment assessment

271

144

When the taxpayer does not comply

Faceless assessment

273

144B

All communication through the portal

Dispute Resolution Panel

275

144C

For eligible assessees (foreign companies, TP cases): draft order, then DRP directions

Income escaping assessment / notice / procedure

279 / 280 / 281

147 / 148 / 148A

Reopening a completed year after show cause and order

Time limit for notices

282

149

Generally 3 years; up to 5 years if escaped income is Rs. 50 lakh or more

Time limit for completion

286

153

Statutory deadlines for orders

Illustration 147: Processing adjustment

Firm X claims a deduction that its own audit report (Form 26) says is not allowable. CPC can adjust it during processing under section 270 after an intimation and a chance to respond. Reconcile the return with the audit report before filing.

42.2 Appeals

Stage

Forum

Time limit (broad)

Scope

First appeal

Commissioner (Appeals) or Joint Commissioner (Appeals)

Within 30 days of the order

Facts and law

Second appeal

Income Tax Appellate Tribunal

Within 2 months from the end of the month the order is received

Last fact-finding authority

Further appeal

High Court

Within 120 days

Substantial question of law only

Final

Supreme Court

As per its rules

Law

Practice note

Keep a notice register with DIN, issue date, due date, section and status. For years up to FY 2025-26, the 1961 Act procedure continues; check the section quoted in each notice.

42.3 Processing of returns (section 270)

Every return is processed by the Centralised Processing Centre. Adjustments allowed at this stage are limited to: arithmetical errors; incorrect claims apparent from information in the return; disallowance of losses where the return was late; disallowances indicated in the audit report but not made in the return; deductions claimed under certain sections where the return was late; income appearing in Form 168, Form 130 or Form 131 but not included in the return; and inconsistencies with earlier years as prescribed. Before making an adjustment, the CPC must give an intimation and consider the response within 30 days.

42.4 Scrutiny assessment

Stage

Details

Selection

Through computer-based risk parameters or specified criteria (search, survey, information from other agencies)

Notice

Scrutiny notice within 3 months from the end of the tax year in which the return was filed

Faceless procedure

All notices, submissions and hearings through the e-filing portal; personal hearing by video conference on request in specified cases

Show cause

A draft assessment order or show cause notice before any variation prejudicial to the taxpayer

Order

Generally within 12 months from the end of the tax year in which the return was filed (longer where TP reference or other special circumstances apply)

42.5 Responding to a notice: a practical checklist

  • Read the notice fully: section, tax year, DIN, due date, specific queries, and whether it is a verification or a scrutiny.
  • Check the portal for any earlier notices or intimations for the same year.
  • Gather evidence against each query (bank statements, contracts, invoices, confirmations with PAN, Form 168 reconciliation).
  • Draft a point-wise reply, attaching indexed documents. Keep language factual.
  • If more time is needed, seek an adjournment on the portal before the due date, giving reasons.
  • Save acknowledgements and keep the notice register updated.
  • On receiving a show cause or draft order, reply specifically to each proposed addition; this is the last opportunity before the order.

Illustration 148: Bank credits notice

A salaried taxpayer receives a notice asking him to explain cash deposits of Rs. 6 lakh and credits of Rs. 15 lakh in his savings account. He prepares a reconciliation: Rs. 9 lakh salary (matches Form 130), Rs. 4 lakh maturity of an FD (bank certificate), Rs. 2 lakh gift from his father (gift deed and father's bank statement), and Rs. 6 lakh cash deposits from withdrawals made earlier in the year (bank statement showing withdrawals). Each item is linked to documents. The notice is closed without addition.

42.6 Best judgment assessment

If the taxpayer fails to file a return, or to comply with notices, or to produce books, the Assessing Officer can make an assessment to the best of his judgment after giving a show cause notice. The assessment must be based on material, not a guess; but it can be substantial. Penalty and loss of the right to carry forward losses may follow.

42.7 Reassessment (sections 279 to 286)

Step

Details

Information

The Assessing Officer must have information suggesting that income has escaped assessment (flagged by the risk management system, audit objections, information from other agencies, search or survey)

Show cause before notice (section 281)

Notice with the information relied on, giving the taxpayer time to respond

Order

Speaking order deciding whether it is a fit case, with approval of the specified authority

Notice (section 280)

Issued with the order; the taxpayer files a return in response

Time limit (section 282)

Generally up to 3 years from the relevant year; up to 5 years if escaped income is Rs. 50 lakh or more and represented in an asset, expenditure or entries

Assessment

Can cover the escaped income and other issues that come to notice in the course of proceedings

Judicial view: Reassessment

CIT v. Kelvinator of India Ltd. (Supreme Court, 2010): reopening requires tangible material; a mere change of opinion on the same facts is not a valid ground.

GKN Driveshafts (India) Ltd. v. ITO (Supreme Court, 2002): the taxpayer is entitled to the reasons for reopening and to have objections decided by a speaking order before the reassessment proceeds.

Union of India v. Ashish Agarwal (Supreme Court, 2022): notices issued under the old procedure after the 2021 amendments were treated as show cause notices under the new procedure, and the department was allowed to proceed under the new law.

Since the 2025 Act carries over the post 2021 scheme (information, show cause, order, notice), these principles on tangible information and fair procedure continue to guide reassessments.

Judicial view: Time limits for reassessment

Union of India v. Rajeev Bansal (Supreme Court, 2024): clarified how the time limits for reassessment notices apply to notices issued during the period covered by the pandemic relaxation law (TOLA), holding that the relaxation extends the time for issuing notices and explaining how the balance of limitation is computed after the Ashish Agarwal show cause stage.

42.8 Rectification and revision

  • Rectification: a mistake apparent from the record (arithmetical errors, wrong application of a clear provision, failure to consider a document on record) can be rectified by the authority on its own or on the taxpayer's application, generally within 4 years from the end of the year in which the order was passed. The application must be decided within 6 months.
  • Revision prejudicial to revenue: the Principal Commissioner can revise an order that is erroneous and prejudicial to the interests of revenue, within 2 years from the end of the year of the order, after hearing the taxpayer.
  • Revision in favour of the taxpayer: on the taxpayer's application, within 1 year of the order, where no appeal has been filed.

Judicial view: Rectification and revision

T.S. Balaram, ITO v. Volkart Brothers (Supreme Court, 1971): a mistake apparent from the record must be obvious and patent; it cannot be something established by a long-drawn process of reasoning on points where there may be two opinions.

Malabar Industrial Co. Ltd. v. CIT (Supreme Court, 2000): revision is possible only if the order is both erroneous and prejudicial to the revenue. Where the Assessing Officer has taken one of two possible views, the order cannot be revised merely because the Commissioner prefers the other view.

Chapter summary

• Processing under section 270 is limited to specified adjustments with prior intimation.

• Scrutiny is faceless with show cause before adverse orders.

• Reassessment requires information, show cause, order and notice within time limits.

• Rectification and revision correct mistakes and erroneous orders.

© Vipin Nair. This guide is for reading online only. Copying, downloading, printing and redistribution are not permitted. For study and general reference; not legal, tax or investment advice.