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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 15
LESSON 15.41
TAX RETURNS & ASSESSMENT OF INCOME
UNIVERSAL SELF ASSESSMENT SCHEME
Assessments
Process whereby claims of taxpayers are verified by tax authorities and taxable income & tax thereon is
determined according to the ordinance.
Ways of Framing Assessment under Normal Tax Regime
1. Normal Assessment/ USAS
2. Provisional Assessment
3. Best Judgment Assessment
1. Normal Assessment/Universal Self assessment Scheme (Sec. 120)
Where complete return furnished by taxpayer:
(Other than revised return u/s 114(6) which can be submitted within five years of original return)
The commissioner shall be taken to have made an assessment of taxable income for tax year and
tax thereon, equal to amount as specified in the return.
Return shall be taken as Assessment Order by the commissioner.
Return shall be taken as complete if in accordance with Sec. 114(2)
(a) If return is incomplete, notice by CIT to rectify omissions, deficiencies by due date (However,
errors pertaining to taxable income and tax payable not rectifiable under this section)
(b) If reply not submitted by due date incomplete return submitted shall be treated as invalid Return.
(c) Return submitted shall be treated as complete, if tax payer complied with requirements of notice
under Sub. Sec. (3)
(d) No notice u/s 120(3) after expiration of one year. (Return & Assessment attains finality after
expiration of one year)
Best Judgment Assessment Sec. 121 (1) where a person:
(a) Fails to furnish a return u/s 114(3) or 114(4)
(b) Fails to furnish return u/s 143 or 144
(c) (Return to be filed by non-resident Air Carriers or Shipping Companies)
(d) Fails to furnish return u/s 116 (Wealth Statement on notice by CIT or where income is rupees
500,000/ and above.)
(e) Fails to furnish documents u/s 174 (prescribed documents)
Assessment Order by Commissioner
Shall state the following details:
Taxable Income
Tax Due
Amount of Tax Paid.
Tax Payable
Time, place & manner of appealing the assessment order.
Amendment of Assessments (Sec 122)
Amendments shall be made when the commissioner is satisfied on the basis of definite information that:
Any income chargeable to tax has escaped assessment; or
Total income has been under-assessed, or assessed at too low a rate, or has been the subject of
excessive relief or refund; or
Any amount under a head of income has been misclassified.
Revision by the Commissioner Sec 122 A
The commissioner shall not revised any order, if
(a) an appeal against the order lies to the commissioner ( Appeals) or to the appellate tribunal, the
time within which such appeal may be made has not expired; or
(b) the order is pending in appeal before the commissioner ( appeals) or has been made the subject of
appeal to the appellate tribunal.
Revision by the Regional Commissioner Sec 122 B
Revision can be made by RCIT at his own or on an application made by the tax payer relating to issuance of
an exemption or lower rate certificate with regard to collection or deduction of tax at source.
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Taxation Management ­ FIN 623
VU
2. Provisional Assessment
(Sec. 123)
Sec. 123(1) Where, Concealed assets impounded by any department, agency of federal or provincial govt.
the commissioner may issue to the person a provisional assessment order or provisional amended
assessment order, as the case may be, for the last completed tax year of the person taking into account the
concealed asset.
Concealed asset means any property or asset acquired from any income subject to tax, in the opinion of
CIT.
Assessment giving effect to an order Sec. 124
Special Provisions with respect to Assessment Sec. 125
In relation to disputed properties assessment within one year from the date of decision by court.
Sec. 126 Evidence of Assessment:
Production of assessment order or certified copy thereof shall be conclusive evidence.
An assessment order may not deem void, void able for want of form, hence not to be quashed.
An order may not be affected by reason of any mistake, defect or omission therein, if in substance &
effect in conformity with the ordinance.
Sec. 124-A modification of an Order by Commissioner
CIT shall follow a decision on a question of law by H.C or ITAT even in cases where appeal has been
filed. On reversal CIT shall modify order.
Sec. 124: Assessment to give effect to an order of CIT (A), ITAT, High Court, Supreme Court.
3. Self Assessment Scheme
Salient features of Universal Self Assessment Scheme
1) Scope of the scheme:
Section 120 (1) (2):
(1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-
section (6) of section 114) for a tax year ending or after the 1st day of July, 2002
(a) the commissioner shall be taken to have made an assessment of taxable income for that tax
year, and the tax due thereon, equal to those respective amounts specified in the return; and
scheme.
(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to
the taxpayer by the Commissioner on the day the return was furnished.
(2) A return of income shall be taken to be complete if it is in accordance with the provisions of sub-
section (2) of section 114. (Prescribed Form, Relevant particulars & Signed)
Section 114 (2)
(2) A return of income:
(a) shall be in the prescribed form and shall be accompanied by such annexure statements or
documents as may be prescribed;
(b) Shall fully state all the relevant particulars or information as specified in the form of return,
including a declaration of the records kept by the taxpayers;
(c) shall be signed by the person, being an individual, or the person's representatives where section
172 applies.
2) Requirements of a Return
Rule 34 sub-rule (2), (3) and (4):
(2) a return of income as required to be furnished under section 114 shall be in the form specified in
(a) Part-i (for companies);
(b) Part-ii (for non- salaried individuals and association of persons)
(c) Part-iii A (for salaried individuals having other sources of income etc, as attachment to
employer's certificate in lieu of return of income); of the Second Schedule to these rules
(3) A return of income shall be verified in the manner specified in the form
(4) A return of in come shall be accompanied by the following namely;
a.  Applicable documents;
b. Statements;
c.  Certificates; and
d. Annexes
3) Short Documents Notice
Section 120 (3) (4) (5) (6)
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Taxation Management ­ FIN 623
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(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the
taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable
income, as specified in the return, or short payment of tax payable) and directing him to provide such
information, particulars, statement or documents by such date specified in the notice.
(4) Where a taxpayer fails to fully comply by the due date, with the requirements, of the notice under sub-
section (3), the return furnished shall be treated as an invalid return as if it had not been furnished.
(5) Where, in response to a notice under sub-section (3), the taxpayer has, by the due date, fully complied
with the requirements of the notice, the return furnished shall be treated to be complete on the day it
was furnished and the provisions of sub-section (1) shall apply accordingly
(6) No notice under Sub-section (3) shall be issued after the end of the financial year in which return was
furnished, and the provisions of sub-section (1) shall apply accordingly.
4) Selection for Audit Section 177
The Central Board of Revenue may lay down criteria for selection of any person for any audit of
person's income tax affairs, by the Commissioner.
The Commissioner shall select a person for audit in accordance with the criteria laid down by the
Central Board of Revenue under sub-section (1)
The Central Board of Revenue shall keep the criteria confidential.
(4) In addition to the selection referred to in sub-section (2), the Commissioner may also select a person
for an audit of the person's income tax affairs having regard to--
i. the person's history of compliance or non- compliance with this Ordinance;
ii. the amount of tax payable by the person;
iii. the class of business conducted by the person; and
iv. any other matter which in the opinion of Commissioner is material for
determination of correct income.
(5) After selection of a person for audit under sub-section (2) and (4), the Commissioner shall conduct an
audit of the income tax affairs (including examination of accounts and records, enquiry into
expenditure, assets and liabilities) of that person.
(6) After completion of the audit under sub-section (5) or sub-section (8), the Commissioner may, if
considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend
the assessment under sub-section (1) or sub-section (4) of section `122, as the case may be.
(7) The fact that a person has been audited in a year shall not preclude the person from being audited again
in the next and following years where there are reasonable grounds for such audits, particularly having
regard to the factors in sub-section (4).
(8) The Central Board of Revenue may appoint a firm of Chartered Accountants to conduct an audit of the
income tax affairs of any person and the scope of such audit shall be as determined by the Central
Board of Revenue on a case to case basis.
(9) Any person employed by a firm referred to in sub-section (8) may be authorized by the Commissioner,
in writing, to exercise the powers in sections 175 and 176for the purpose of conducting an audit under
that sub-section. (Power to enter and search premises & Notice to obtain information or evidence
respectively)
Section 120 (1A)
Notwithstanding the provisions of sub-section (1) of Section 120, the Commissioner may select a person
for an Audit of his income tax affairs under Section 177 and all the provision of that section shall apply
accordingly.
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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS