CHAPTER-XVI PROCEDURE FOR ASSESSMENT A.—Procedure for assessment
Inquiry before assessment.
268(1)
For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 263 or in whose case the time allowed under section 263(1) for furnishing the return has expired, a notice requiring him, on a date to be specified therein,—
- (a) where such person has not made a return within the time allowed under section 263(1) or before the end of the financial year succeeding the relevant tax year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in such form and verified in such manner and setting forth such other particulars as prescribed;
- (b) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require;
- (c) to furnish in writing and verified in the manner as prescribed information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require.
268(2)
For the purposes of sub-section (1),––
- (a) the previous approval of the Joint Commissioner shall be obtained by the Assessing Officer before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;
- (b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the relavant tax year.
268(3)
A notice under sub-section (1)(a) may also be served by the prescribed income-tax authority.
268(4)
For the purposes of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.
268(5)
If, at any stage of the proceedings before him, the Assessing Officer, having regard to––
- (a) the nature and complexity of the accounts;
- (b) volume of the accounts;
- (c) doubts about the correctness of the accounts;
- (d) multiplicity of transactions in the accounts; or
- (e) specialised nature of business activity of the assessee, and interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, after giving the assessee a reasonable opportunity of being heard, direct him to get either or both of the following— (i) to get the accounts audited by an accountant, and to furnish a report of such audit in the such form duly signed and verified by such accountant and setting forth such particulars, as prescribed, and such other particulars as the Assessing Officer may require; (ii) to get the inventory valued by a cost accountant, and to furnish a report of such inventory valuation in the prescribed as duly signed and verified by such cost accountant and setting forth such particulars, as prescribed, and such other particulars as the Assessing Officer may require.
268(6)
The accountant or the cost accountant as referred to in sub-section (5) shall be nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner for the purposes of the said sub-section.
268(7)
The provisions of sub-section (5) shall have effect irrespective of whether or not accounts of the assessee have been audited under any other law in force or otherwise.
268(8)
Every report under sub-section (5) shall be furnished by the assessee to the Assessing Officer within such period as specified by the Assessing Officer.
268(9)
The Assessing Officer may, on his own motion, or on an application made in this behalf by the assessee and for any good and sufficient reason, subject to the provisions of sub-section (10), extend the period referred to in sub-section (8) by such further period or periods as he thinks fit.
268(10)
The aggregate of the period originally fixed under sub-section (8) and the period or periods so extended, as referred to in sub-section (9), shall not, in any case, exceed six months from the end of the month in which the direction under sub-section (5) is received by the assessee.
268(11)
The expenses of any audit or inventory valuation under sub-section (5) (including incidental expenses and remuneration of the accountant or the cost accountant) shall be—
- (a) determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as per such guidelines as prescribed; and
- (b) paid by the Central Government.
268(12)
The assessee shall, except where the assessment is made under section 271, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (4), or any audit or inventory valuation under sub-section (5) and proposed to be utilised for the purposes of the assessment.
268(13)
In this section, “cost accountant” means a cost accountant as defined in section 2(1)(b) of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under section 6(1) of the said Act.
Section Summary:
Section 268 of the Income Tax Act outlines the procedure for inquiry before assessment. It grants the Assessing Officer (AO) the authority to gather information, documents, and conduct audits or inventory valuations to ensure accurate assessment of income. This section ensures that the AO has the necessary tools to verify the correctness of the taxpayer's income and compliance with tax laws.
Key Changes:
- Expanded Scope of Inquiry: The AO can now require taxpayers to furnish a statement of all assets and liabilities, even if not included in the accounts, with prior approval from the Joint Commissioner.
- Audit and Inventory Valuation: The AO can mandate a special audit or inventory valuation by a nominated accountant or cost accountant, even if the accounts have already been audited under other laws.
- Time Limits: The total time for submitting audit or valuation reports, including extensions, cannot exceed six months from the date of the AO's direction.
- Cost of Audit: The expenses for audits or inventory valuations are borne by the Central Government, not the taxpayer.
Practical Implications:
- For Taxpayers:
- Taxpayers may face additional compliance burdens, such as providing detailed asset and liability statements or undergoing special audits.
- Businesses with complex accounts or high transaction volumes may be more likely to be subject to audits or inventory valuations.
- For Assessing Officers:
- The AO has enhanced powers to ensure accurate assessments, especially in cases of complex accounts or suspected discrepancies.
- The AO must obtain prior approvals for certain actions, such as requiring asset-liability statements or ordering audits.
- For Accountants and Cost Accountants:
- Nominated professionals will be involved in conducting audits or inventory valuations, with their remuneration and expenses covered by the government.
Critical Concepts:
- Assessing Officer (AO): The tax authority responsible for assessing and verifying the taxpayer's income.
- Cost Accountant: A professional certified under the Cost and Works Accountants Act, 1959, who can conduct inventory valuations.
- Special Audit: An audit ordered by the AO, independent of any other audits conducted under other laws.
- Inventory Valuation: The process of determining the value of a taxpayer's inventory, often required for businesses with significant stock holdings.
Compliance Steps:
- Respond to Notices: If served a notice under Section 268(1), furnish the required return, documents, or information within the specified time.
- Prepare for Audits or Valuations: If directed, arrange for a special audit or inventory valuation by the nominated professional.
- Submit Reports: Ensure audit or valuation reports are submitted within the prescribed time limits, including any approved extensions.
- Maintain Records: Keep detailed records of assets, liabilities, and transactions to facilitate compliance with AO inquiries.
Examples:
- Scenario 1: A taxpayer fails to file a return within the due date. The AO issues a notice under Section 268(1)(a), requiring the taxpayer to file the return and provide details of assets and liabilities. The taxpayer must comply within the specified time.
- Scenario 2: A business with complex financial transactions and high-volume accounts is flagged by the AO. The AO, with prior approval, orders a special audit. The taxpayer must engage the nominated accountant, complete the audit, and submit the report within six months.
- Scenario 3: A manufacturing company is directed to get its inventory valued by a cost accountant. The valuation report must be submitted within the time frame specified by the AO, and the expenses for the valuation are paid by the government.
This section ensures that the AO has the necessary tools to verify income accurately while balancing taxpayer rights and compliance burdens.