Income escaping assessment refers to income which has been omitted from the income tax assessment of a particular taxpayer. The proceedings which govern a case of income escaping assessment can be initiated by the income tax department if certain incomes have escaped assessment or income has been assessed at a lower rate or excessive loss or allowances have been allowed. In such a scenario, the assessing officer is entitled to reassess the assessment of the relevant assessment year. An assessing officer should not merely act on rumour or suspicion, but rely on substantial evidence before initiating procedures. It is necessary that the assessing officer conducts his operations in good faith. This article discusses the concept of income-escaping assessment.

Time Limit for the Completion of Income Escaping Assessment

Income-escaping assessment must be completed within a period of 9 months from the end of the financial year from which the notice of invoice was served. This will be effective until the financial year of 2019-20, post which the time for completing the same would be 12 months.

Time Limit for Issue of Notice

A notice indicating the conduction of an assessment can be given to the concerned assessee within a period of 4 years from the end of the relevant assessment year, and 6 years in case the value escaped is more than 1,00,000 rupees. On the other hand, if the escaped income is related to a particular asset located out of the Indian borders, a period of 16 years can be allowed.

Appeals and Revision

If a particular assessment is subject to a revision or an appeal, the assessing officer, despite finding causes for re-assessment, shall not assess the particular assessment.

Reassessment of Proceedings

If the assessing officer feels that any other provisions, other than the items of escaped income have been omitted for assessment, the assessing officer may reassess the income. Reassessment proceedings can be pursued multiple times, but not while an assessment is pending completion.

Example of Income Escaping Assessment

Let us overview the various cases of the deemed escapement as specified in Explanation 2 of Section 147 of the Income Tax Act, 1961:

1. Where the assessee has not furnished the return of income, and no assessment has been made despite the fact that the assessee’s total income; or the total income of any other person in respect of which the concerned person is assessable under this Act during the previous year exceeds the basic exemption limit.
2. Where the assessee has filed his return of income, and the assessing officer observes that the assessee has either understated his income; or has claimed excessive loss, deduction, allowance or relief. This would qualify for Income-escaping assessment provided that scrutiny/best judgement assessment was not conducted.
3. Undervaluing assessment of income chargeable to tax.
4. Income chargeable to tax has been the subject of excessive relief under the Income-tax Act.
5. Computation of excessive loss or depreciation allowance, or for that matter any allowance.
6. Where a taxpayer is found to be having an asset or financial interest outside the Indian territory.

Judicial Decisions relating to Income Escaping Assessment

1. Income cannot be considered to have escaped if the proceedings have not resulted in a final assessment.
   
2. Reassessments shall be pursued only after the issue of notice to the assessee.
3. The assessment should only be pursued by the officer who has issued the notice.
4. The Assessing Officer must record his reasons before proceeding with the issue of notice.
5. The reasons so recorded must be produced to the assessee if demanded.
6. Reassessments can’t be performed where the assessing officer had a mere change in opinion.
7. Where the previous officer has already stated the reasons, the officer succeeding him cannot add to it.

Persons Authorised to Issue a Reassessment Notice

1. No Assessing Officer (‘AO’) who is currently ranked below the position of an Assistant Commissioner or Deputy Commissioner will be permitted to issue a notice to an assessee.
2. This can only be circumvented by the Joint Commissioner, provided he or she is content that the reasons given by the Assessing Officer are valid enough for the issuance of any notice to an assessee.