Income escaping assessment.
279(1)
If, in the case of an assessee, any income chargeable to tax has escaped assessment for any tax year (hereinafter referred to as “the relevant tax year” in this section and sections 280 to 286, the Assessing Officer may, subject to the provisions of sections 280 to 286, for the relevant tax year,––
- (a) assess or reassess income;
- (b) recompute the loss or the depreciation allowance or any other allowance or deduction.
279(2)
For the purposes of the assessment or reassessment or recomputation under this section, Assessing Officer may assess or reassess––
- (a) the income which has escaped assessment;
- (b) income in respect of other issues which come to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of sections 280, 281 and 284 were not complied with.
Section Summary:
Section 279 of the new income tax law deals with income escaping assessment. It grants the Assessing Officer (AO) the authority to reassess or recompute income, losses, or deductions if any income chargeable to tax has been missed or underreported in a previous tax year. This section ensures that the tax authorities can correct errors or omissions in past assessments, even if they come to light later.
Key Changes:
- Expanded Scope of Reassessment: The new law allows the AO to assess or reassess not only the income that escaped assessment but also any other issues that come to their notice during the proceedings, even if procedural requirements under related sections (280, 281, and 284) were not fully complied with.
- Clarification on Timeframe: While the section does not explicitly mention a time limit, it operates within the broader framework of reassessment timelines as per other provisions of the law.
Practical Implications:
- For Taxpayers: Taxpayers must ensure accurate reporting of income and deductions in their original filings. If income is later found to have escaped assessment, they may face reassessment, leading to additional tax liabilities, interest, or penalties.
- For Businesses: Businesses should maintain thorough records to substantiate their income and deductions. Any discrepancies discovered during audits or investigations could trigger reassessment.
- For Compliance Processes: The AO now has greater flexibility to address issues discovered during reassessment proceedings, even if procedural lapses occurred earlier.
Critical Concepts:
- Income Escaping Assessment: This refers to income that was not reported or was underreported in the original tax return, resulting in lower tax liability than what was actually due.
- Reassessment: The process of re-evaluating a taxpayer’s income, deductions, or losses for a specific tax year to correct errors or omissions.
- Recomputation: Adjusting calculations related to losses, depreciation, or other allowances to reflect accurate tax liability.
Compliance Steps:
- Accurate Filing: Ensure all income, deductions, and allowances are accurately reported in the original tax return.
- Documentation: Maintain detailed records of income sources, expenses, and deductions to support claims in case of reassessment.
- Respond Promptly: If notified by the AO about reassessment, provide all requested documentation and explanations promptly to avoid penalties.
Examples:
- Scenario 1: A taxpayer fails to report rental income of ₹5 lakh in their original tax return. During a subsequent audit, the AO discovers this omission and initiates reassessment under Section 279. The taxpayer is now liable to pay tax on the ₹5 lakh, along with interest and potential penalties.
- Scenario 2: A business claims excessive depreciation on machinery in its tax return. The AO, while reassessing another issue, notices this discrepancy and recomputes the depreciation allowance, reducing the claim and increasing the taxable income.
This section ensures that the tax system remains robust by allowing corrections to past assessments, thereby maintaining fairness and accuracy in tax collection.