Module-3

A) Income Tax Authorities: Powers & Functions

IT Authorities under Section 116:

A) Central Board of Direct Taxes (CBDT)

B) Directors- General of Income tax or Chief

commissioner of income tax

C) Additional directors of income tax or additional

commissioner of income tax

D)Joint directors or joint commissioner of income

tax

E) Deputy director or deputy commissioner of

income tax
 F) Assistant directors or assistant commissioner
of income tax

G) Income tax officers

H)Tax recovery officers

I) Inspectors of income tax

Powers of these Authorities:

1. Power relating to Discovery, Production of

evidence, etc: The Assessing Officer, The
Joint Commissioner, The Chief
Commissioner or the Commissioner has the
powers as are provided in a court under the
code of Civil Procedure, 1908 when trying
to suit for the following matters:

(a) Discovery and inspection;

 (b) To enforce any person for
attendance, and examining him on
oath;

(c) issuing commissions; and

(d) Compelling the production of books

of account and another document.

2. Power of Search and Seizure: It is not

hidden from income tax authorities that
people evade tax and keep unaccounted
assets. When the prosecution fails to
prevent tax evasion, the department has to
take actions like search and seizure.

3. Power of Survey: The term ‘survey’ is not

defined by the Income Tax Act. According to
the meaning of dictionary ‘survey’ means
casting of eyes or mind over something, an
inspection of something, etc. An Income Tax
 authority can have a survey for the purpose
of this Act.

4. Collection of Information: For the purpose

of collection of information which may be
useful for any purpose, the Income-tax
authority can enter any building or place
within the limits of the area assigned to
such authority, or any place or building
occupied by any person in respect of whom
he exercises jurisdiction.
Functions of these authorities:

The functions of income tax authorities can be

categorized into several key areas:

1. Registration and Assessment:

- Registration: Income tax authorities

are responsible for registering
individuals and entities liable to pay
income tax. They maintain a database
of taxpayers and issue unique
identification numbers.

- Assessment: They assess the taxable

income of individuals and entities
based on the information provided in
tax returns. This involves verifying
income, deductions, exemptions, and
any other relevant financial details.
2. Collection of Taxes:

- Collection Process: Income tax

authorities are responsible for
collecting taxes from taxpayers. They
establish procedures for tax payment
and provide various channels for
taxpayers to fulfill their tax
obligations.

- Tax Deduction at Source (TDS): They

ensure that taxes are deducted at the
source by employers, financial
institutions, and other entities as per
the applicable rates. This helps in the
timely collection of taxes.
3. Tax Refunds and Appeals:

- Refunds: Income tax authorities

process and issue tax refunds to
eligible taxpayers who have paid
excess tax or have claimed a refund
due to certain provisions.

- Appeals: They handle appeals and

grievances filed by taxpayers who are
dissatisfied with the assessment or
any other tax-related decision. The
authorities provide a platform for
resolving disputes through appeals
and ensure fair treatment of
taxpayers.
4. Tax Compliance and Enforcement:

- Tax Compliance: Income tax authorities

monitor and enforce tax compliance by
conducting audits, investigations, and
inspections. They verify tax returns,
conduct inquiries, and take necessary
actions to ensure accurate reporting
and payment of taxes.

- Penalties and Prosecution: In cases of

non-compliance or tax evasion, the
authorities have the power to impose
penalties, initiate legal proceedings,
and prosecute offenders. This helps
deter tax evasion and maintain the
integrity of the tax system.

5. Tax Policy and Administration:

 - Policy Development: Income tax
authorities contribute to the
development of tax policies and
regulations. They provide insights and
recommendations to policymakers
regarding changes and improvements
in the income tax system.

- Tax Education and Awareness: The

authorities play a role in creating
awareness among taxpayers about
their rights, obligations, and benefits
related to income tax. They conduct
workshops, seminars, and campaigns
to educate taxpayers and improve tax
literacy.

B) Filing of Returns & Procedure of Assessment

 • Who are required to file Income Tax Return?

1. Company

2. Firms

3. Any other Person

& if income exceeds the maximum amount not

chargeable to tax:

4. Charitable/ Religious Trusts (under S.11)

5. Political Parties (under S.12A)

6. Hospitals, medical institutions and colleges

(under S.10) etc.
Timings for filing depend upon the person
(company/ firm or any other assessee) filing.

If total income of the assessee exceeds 5 lakh then

late fine upto 31st Dec of the assessment year is
limited to Rs 1000 while others whose income is
more than Rs 5 lakh have to pay Rs 5000 fine which
is increased to Rs 10000 after 31 st Dec.

Also charitable/ religious trusts won’t get

exemptions under S.11 & 12 if ITR if filed after due
date.
Types of Assessment

1. Scrutiny Assessment

After submitting an income tax return, an Income

Tax Officer may be assigned by the Income Tax
Department to assess the tax filing. The taxpayer is
informed of this through an Income Tax Notice
under Section 143(2). The officer may request
information, documents, and books of accounts for
scrutiny assessment, which will be thoroughly
examined. The officer then calculates the income
tax payable by the taxpayer, and if there is a
mismatch between the income and the tax due, the
taxpayer can either pay the extra amount or receive
a refund.

If the taxpayer is not satisfied with the assessment,

they can apply for recitation under Section 154 or
submit a revision application under Section 263 or
Section 264. If the Scrutiny Assessment order is still
considered invalid, the taxpayer can appeal to
higher authorities such as CIT (A), ITAT, High Court,
and The Supreme Court, in that order.
 2. Best Judgement Assessment

This assessment gets invoked in the following

scenarios:

a. If the assessee fails to respond to a notice

issued by the department instructs him to
produce certain information or books of
accounts

b. If he/she fails to comply with a Special Audit

ordered by the Income tax authorities

c. The assessee fails to file the return within

due date or such extended time limit as
allowed by the CBDT

d. The assessee fails to comply with the terms

as contained in the notice issued under
Summary Assessment. After providing an
opportunity to hear the assessee’s
argument, the assessing officer passes an
 order based on all the relevant materials
and evidence available to him. This is
known as Best Judgement Assessment.

3. Income Escaping Assessment

When the assessing officer has sufficient reasons to

believe that any taxable income has escaped
assessment, he has the authority to assess or
reassess the assessee’s income. The time limit for
issuing a notice to reopen an assessment is 4 years
from the end of the relevant assessment Year.

C) Calling For Info

Under this section, it grants the power to the below

officers those who can call for the information
from:
1. Any person defined under section 2(31) by
the Income Tax Act,1961, including the
banking officer or any concerned officer.
 2. A list of persons those who have made the
term or recurring deposits of 50,000 and
above along with their addresses in the co-
operative banks

3. Any person with a valid reason to believe to

be a trustee, guardian or agent, to provide
him/her with the return of the names of the
persons for or who is trustee, guardian or
agent, and of their addresses

D)Regulatory Mechanism & Appeal Provision

under Tax Laws

Income tax liability is primarily determined at the

level of Assessing Officer. Where the Income Tax
department (the government) disagrees with the
tax computed by the taxpayer, they can levy an
additional tax. In such a situation, as per Income Tax
Act, 1961 the liability is determined at the level of
Assessing Officer. Where a taxpayer is aggrieved
certain action of Assessing Officer, he can move an
appeal.

(I) Appeals Before Commisioner of IT

PROCEDURE FOR APPEAL:

An appeal to Commissioner of Income-tax must be

in Form No. 35 along with details of “Relief claimed
in appeal”, “Statement of Facts” and “Grounds of
appeal”, signed and verified by the individual
taxpayer himself or by a person duly authorized by
him holding valid power of attorney. Further, e-
filing of Form has been made mandatory by
Income-tax (3rd Amendment) Rules, 2016, for
persons for whom e-filing of return of income is
mandatory.

The prescribed fees for any such appeal is as under:

 1. Rs. 250, where the assessed income is Rs 1lakh
or less

2. Rs. 500, where assessed income is more than

Rs. 1 lakh but less than Rs. 2 lakhs

3. Rs.1,000, where assessed income is more than

Rs. 2 lakhs

On receipt of Form no. 35, Commissioner of Income-

tax fixes date and place for hearing the appeal by
issuing notice to the taxpayer and the Assessing
Officer, against whose order appeal is preferred.
Before passing the order, the Commissioner of
Income-tax may make such further inquiries as he
thinks fit, or may direct the Assessing Officer to
make further inquiry and report the result to him.
As a rule, a taxpayer is not entitled to produce any
evidence, whether oral or documentary other than
what was already produced before the Assessing
Officer. However, in certain exceptional
circumstances as provided below, additional
evidence are accepted by the Commissioner of
Income-tax (Appeals);

1. Where the Assessing Officer has refused to

admit evidence which ought to have been
admitted; or

2. Where the appellant was prevented by

sufficient cause from producing the evidence
which he was called upon to be produced by the
Assessing Officer; or [As amended by Finance
Act, 2016]

3. Where the appellant was prevented by

sufficient cause from producing any evidence
before the Assessing Officer which is relevant
to any ground of appeal; or

4. Where the Assessing Officer has made the

order appealed against without giving sufficient
opportunity to the appellant to adduce
evidence relevant to any ground of appeal.
ORDER OF COMMISSIONER OF INCOME- TAX:

After hearing the case/arguments, the

Commissioner of Income-tax passes his order, and
the same is recorded in writing. Where the order
passed is that for disposal of the appeal and the
Commissioner must supply reasons for the same.
While disposing of an appeal, the Commissioner of
Income-tax may consider and decide any matter
arising out of the proceedings in which order
appealed against was passed, even if such matter
was not raised by the taxpayer before the
Commissioner of Income-tax. The order should be
issued within 15 days of last hearing.

(II) Appeals before ITAT

Income Tax Appellate Tribunal (ITAT) is the second

appellate authority in order after The Commissioner
of Income Tax. This body is constituted by the
Central Government, and functions under the
Ministry of Law. It consists of 2 classes of member,
i.e., Judicial and Accountant. An appeal to ITAT can
be filed either by the taxpayer or by the Assessing
Officer.

An appeal to ITAT must be in Form No. 36- in

triplicate. The prescribed fees for any such appeal is
as under:

1. Rs. 500, where the assessed income is Rs 1lakh

or less

2. Rs. 1,500, where assessed income is more than

Rs. 1 lakh but less than Rs. 2 lakhs

3. 1% of assessed income, subject to maximum of

Rs.10, 000, where assessed income is more
than Rs. 2 lakhs

4. Where the subject matter of appeal relates to

any other matter, fee of Rs 500/- is to be paid.
An application for stay of demand is to be
accompanied by fee of Rs. 500.
The appellant may submit a paper book in duplicate
containing documents or statements or other
papers referred to in the assessment or appellate
order, which it may wish to rely upon, at least a day
before the hearing of the appeal along-with proof
of service of copy of the same on the other side at
least a week before. Parties to the appeal are
neither entitled to produce additional evidence of
any kind, nor oral or documentary before the
Tribunal.

The Appellate Tribunal then fixes the date for

hearing the appeal and notifies the parties
specifying date and place of hearing of the appeal.
A copy of memorandum of appeal is sent to the
respondent either before or along with such notice.
The appeal is heard on the date fixed and on other
dates to which it may be adjourned.

ORDER OF ITAT:

The Appellate Bench comprises of one judicial

member and one accountant member. Appeals
where total income computed by the Assessing
Officer does not exceed Rs. 5lakh may be disposed
of by single member Bench.

If members are equally divided in their opinion, the

points of difference are stated by each member and
the case is referred by the President of the ITAT for
hearing such points by one or more of other
members of the ITAT. Such point or points is decided
according to opinion of majority of the members of
ITAT who have heard the case, including those who
first heard it.

(III) Appeals before HC

Where the High Court is satisfied that the case

involves substantial question of law, an appeal shall
lie against the order/ judgment of ITAT. Such appeal
may be filed either by the taxpayer or the Chief
Commissioner/Commissioner. An appeal against
order of ITAT shall lie only within 120 days of
receipt of such order and in the form of
memorandum of appeal, precisely stating the
substantial question of law. The High Court then
goes on to formulate the question. An appeal filed
before the High Court is heard by a bench of not
less than two judges.

(IV) Appeals before SC

Appeal against an order of High Court in respect of

Appellate Tribunal’s order lies with the Supreme
Court. Appeal lies only against cases, which are
certified to be fit one for appeal to the Supreme
Court. Special leave can also be granted by the
Supreme Court under Article 136 of the
constitution of India against the order of the High
Court.

E) Offences & Penalties

1. Failure to make payment of taxes- Amount

as directed by the assessing officer.
However, the amount of penalty cannot
exceed the amount of tax in arrears.
 2. Failure to file return with respect to TDS/
TCS within the prescribed time period-
Rs.200 for every day until you file the
return

The penalty cannot be more than the TDS/TCS

amount.

3. Penalty for under-reporting of income-

50% of the amount of tax payable on
under-reported income.

4. Penalty for under-reporting on account of

misreporting of income- In case of
misreporting, 200% of the amount of tax
payable on under-reported income.

5. Failure to keep, maintain or retain the

books of account, documents as required
under Section 44AA- Rs. 25,000
 6. Failure to collect tax at source- Sum equal
to the amount of tax not collected

F) Double Taxation

Double taxation, as the name suggests, occurs

when an income is subjected to taxes twice. It is
classified into two categories – economic and
juridical. Economic double taxation refers to a
situation wherein an income or part of it is taxed
twice within the same country in the hands of two
individuals.

Juridical double taxation occurs when an individual

earns an income outside India and pays taxes on it
twice, once in the home country and once abroad.

• Impact of Double Taxation

When you start a business, it is vital to decide the

product or service you will sell. Another crucial
decision is the organisation’s structure and
associated tax liabilities.

A partnership firm or private limited company must

pay business taxes as a separate legal identity. A
dividend tax is also levied if they declare dividends.
But, the dividend received by the shareholder of
the company is exempt from income tax.

A Corporation is taxed at the corporate level on

profits, and the owners of the company are taxed
on the dividends paid from the corporation. Thus,
the corporation pays corporate income tax, and the
shareholders and owners pay personal income tax
on the dividends.

Additionally, if a company owner or shareholder

draws a salary from Corporation’s earnings, they
will pay personal income taxes. So, if you are the
owner of a Corporation, you have to pay taxes twice
on your earnings, once on the corporate profits and
once on the salaries you earn from the business.