The Hindu Business Line : Will work be done in a hurry?

The amendment implies that the time-barring date is shifted from March 31 of the financial year to December 31. But most of the important assessments are taken up for scrutiny only from January. The proposal to reduce the time limit for completion of assessments defies logic

The Income-Tax Act prescribes time limits for completion of assessments and re-assessments. Normally, such assessments must be completed within two years from the end of the financial year in which notice under Section 148 is served, irrespective of whether it is failure to file a return or concealment.

Section 153 mandates that no order of assessment shall be made after the expiry of two years from the end of the assessment year in which the income was first assessable. For search assessment, Section 153B lays down a similar period of two years from the end of the financial year in which the last of the authorisations for search under Section 132 was executed.

Since the crucial date ends on March 31 of the financial year, income-tax officers (ITOs) get busy between January and March to get the assessments completed before they get time barred. Hasty assessments are made with incomplete data resulting in the assessments being set aside in appeal.

The law was amended with effect from June 1, 2001, to divest the first appellate authority of the powers to set aside an assessment and issue directions. The Income Tax Appellate Tribunal (ITAT), however, is vested with the power to set aside an assessment.

The Finance Bill, 2006 has amended Sections 153 and 153D so as to reduce the time limit for completion of assessments and reassessments. It is proposed that the revised time limits shall be the time limits specified under Section 153 and 153B, as reduced by three months.

A similar amendment is made in the Wealth Tax Act too. The amendment implies that the time-barring date is shifted from March 31 of the financial year to December 31. Most of the important assessments are taken up for scrutiny only from January. Different dates are laid down for filing returns. The last of the returns filed are generally from companies and invariably they file them with audited balance-sheets by October.

Major departure

It is only after the filing of returns that the ITO can take up scrutiny work. Whereas the ITO hitherto had 17 months to complete the assessments on the returns, the said time limit for scrutiny is now sought to be reduced to 14 months. This will mean a radical departure in procedure and both the companies and the departmental officers will have to work in a hurry.

Generally, the bulk of the demand in big cases is raised between January and March. By making it obligatory for the ITO to complete the time-barring assessment before December 31 instead of March 31, the Finance Bill seeks to ensure that demands raised on the basis of scrutiny assessments will be collected before March of the financial year. Annexure 10 of the Receipts Budgets 2006-07 gives data about tax revenues raised but not realised.

No timeframe

Interestingly, though the assessment must be completed within the time limit specified in Section 153, the Act nowhere imposes any time limit for serving notice of demand. Courts have, however, held that though the statute has not laid down any time limit, the notice of demand must be issued within a reasonable time. Assessment, as Nani Palkhivala noted, is one integrated process involving not only the assessment of total income but also the determination of the tax; the latter is as crucial as the former, and both must be done within time.

An incidental question arises from this amendment. In the light of the proposal for reducing the time limits for completion of assessments, will it be appropriate to bring in an amendment curtailing the time limit for filing of returns, especially by companies?

(The author is a former Chief Commissioner of Income-Tax.)