Income Tax 2025

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Other provisions. ​

285(1) ​

In an assessment, reassessment or recomputation made under section 279, the tax shall be chargeable at the rate or rates at which it would have been charged had the income not escaped assessment.

285(2) ​

The Assessing Officer may drop the proceedings initiated under section 279 on a claim made by the assessee to the effect that—

  • (a) he had been assessed on an amount not lower than what he would be rightly liable for, even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made; and
  • (b) he has not impugned any part of the original assessment order for the relevant year under section 356 or 357 or 378.

285(3) Where a claim has been made by an assessee under sub-section (2), he ​

shall not be entitled to reopen matters concluded by an order under section 287 or 288 or 365(10) or 368 or 377.

Explanation

Section Summary: ​

Section 285 of the Income Tax Act deals with the tax treatment and procedural aspects when income has escaped assessment (i.e., income that was not reported or taxed in the original assessment). It outlines how tax is charged in such cases and provides conditions under which the Assessing Officer (AO) may drop proceedings related to escaped income. The section also restricts the taxpayer from reopening certain matters if they make a claim under this provision.

Key Changes: ​

  1. Clarification on Tax Rates: Section 285(1) clarifies that the tax rate applicable to escaped income will be the same as it would have been if the income had been properly assessed in the original assessment. This ensures consistency in tax treatment.
  2. Conditions for Dropping Proceedings: Section 285(2) introduces specific conditions under which the AO can drop proceedings related to escaped income. These conditions are based on the taxpayer’s claim that:
    • Their original assessment was not lower than what they would owe even if the escaped income were included.
    • They have not challenged the original assessment order under sections 356, 357, or 378.
  3. Restriction on Reopening Matters: Section 285(3) prevents the taxpayer from reopening matters that were concluded under other sections (e.g., 287, 288, 365(10), 368, or 377) if they make a claim under Section 285(2).

Practical Implications: ​

  1. For Taxpayers:

    • If income has escaped assessment, taxpayers must be prepared to pay tax at the same rate as originally applicable.
    • Taxpayers can request the AO to drop proceedings if they can demonstrate that their original assessment was not understated and they have not challenged the original assessment.
    • Once a claim is made under Section 285(2), taxpayers lose the right to reopen certain concluded matters, which could limit their ability to challenge past assessments.

  2. For Assessing Officers:

    • AOs must carefully evaluate claims made by taxpayers under Section 285(2) to determine if proceedings can be dropped.
    • AOs must ensure that the taxpayer has not challenged the original assessment before considering dropping proceedings.

Critical Concepts: ​

  1. Escaped Assessment: Income that was not reported or taxed in the original assessment but is later discovered by the tax authorities.
  2. Dropping Proceedings: The AO can stop further action on escaped income if the taxpayer meets the conditions under Section 285(2).
  3. Reopening Matters: Refers to challenging or revisiting past assessments or orders. Section 285(3) restricts this if a claim is made under Section 285(2).

Compliance Steps: ​

  1. For Taxpayers:

    • If income has escaped assessment, ensure that the tax is calculated at the original applicable rate.
    • If eligible, submit a claim to the AO under Section 285(2) with supporting evidence to show that the original assessment was not understated.
    • Avoid challenging the original assessment if planning to make a claim under Section 285(2).

  2. For Assessing Officers:

    • Verify the taxpayer’s claim under Section 285(2) by cross-checking the original assessment and ensuring no challenges were made under sections 356, 357, or 378.
    • Ensure that the taxpayer is aware of the restrictions under Section 285(3) before accepting their claim.

Examples: ​

  1. Example 1:

    • A taxpayer originally reported income of ₹10 lakh and was taxed at 20%. Later, the AO discovers an additional ₹2 lakh of income that escaped assessment. Under Section 285(1), the ₹2 lakh will also be taxed at 20%.

  2. Example 2:

    • A taxpayer claims under Section 285(2) that their original assessment of ₹10 lakh was correct, even if the escaped income of ₹2 lakh were included. If the AO agrees, the proceedings for the escaped income will be dropped. However, the taxpayer cannot later challenge the original assessment under sections 287 or 288.

This section ensures fairness in taxing escaped income while providing a mechanism for taxpayers to avoid additional proceedings if they can prove their original assessment was accurate.