Know new time limit for Belated, Revised, Processing, Scrutiny of Income Tax Returns for FY 2021-22

Assessment Provisions in Budget 2021

Amendment in provisions of processing of returned income u/s 143(1) and issue of notice of scrutiny assessment u/s 143(2)

• Time limit to issue notice for scrutiny proceedings is proposed to be reduced from 6 months to 3 months, from the end of FY in which return has been filed.
• Time limit for sending intimation for processing the return of income u/s 143(1) is also proposed to be reduced from 12 months to 9 months, from the end of FY in which return has been filed.
• Currently, disallowance of expenditure indicated in tax audit report and not included in computation of income was only allowed to be added while computing total income u/s 143(1). It is proposed to provide for increase in income indicated in tax audit report but not taken into account in computation of income while processing returned income u/s 143(1).
• It is proposed to disallow certain income based deductions under section 10AA and section 80H to 8OTT (Chapter VI —A under heading ‘C’) if the return of income is filed after due date and the same was not disallowed in the return of income.

Rationalisation of Time Limit for Completion of Assessments

• The current time limit for the completion of assessment
  proceedings is within 12 months from the end of the AY.
• It is now proposed to reduce the time limit for completion of assessment including reassessment proceedings to 9 months from the end of AY.
• The proposed amendment will be effective from AY 2021­22 i.e. FY 2020-21.

Illustration of various timelines (assuming FY 20-21)

No	Timeline of	Existing	Proposed
1	Belated / Revised Return	Earlier of 31 March 2022 or Completion of Assessment	Earlier of 31 December 2021 or Completion of Assessment
2	Processing of ITR u/s 143(1)	31March 2023	31December 2022
3	Selection of Scrutiny Assessment u/s 143(2)	30 September 2022	30 June 2022
4	Completion of Assessment u/s 143(3)	31 March 2023	31 December 2022

Budget Memorandum

Section 153 of the Act contains provisions in respect of time-limit for completion of assessment, reassessment and re-computation under the Act. The sub-section (1) of the said section provides that the time-limit for passing an assessment order under section 143 or 144 of the Act shall be 21 months from the end of the assessment year in which the income was first assessable.

However, this time limit had earlier been curtailed in order to improve the efficacy and efficiency of the Department to give effect to computerization of processes under the Act. As a result, the time limit for completion of assessment proceedings under sections 143 or 144 of the Act was reduced to 18 months for A.Y. 2018-19 and 12 months for A.Y. 2019-20 and subsequent assessment years vide the Finance Act, 2017.

Since then, the assessment procedure has been completely overhauled by the introduction of the Faceless Assessment Scheme, 2019. The assessment procedure is now conducted in a completely faceless and jurisdiction-less way where all internal and external communication is made electronically and different aspects of the assessment procedure like verification, scrutiny of books of accounts etc. are carried on by different units. The person-to-person interface between the taxpayer and the Department has been eliminated.

This team-based approach for assessment with a dynamic jurisdiction is technologically driven and very efficient. Thus, the time required for completion of assessment procedure needs to be further reduced.

The benefits of shorter time period for scrutiny proceedings are manifold. On the one hand, it reduces the compliance burden on the taxpayers who find it easier to explain matters pertaining to a recent previous year which also improve the ease of doing business. On the other hand, it enhances the ability of the Department to detect and bring to tax any leakages of revenue as the instances of tax evasion come to the notice of the Department within a shorter span of time.

Hence, it has been proposed that the time limit for completion of assessment proceedings may be reduced further by three months. Thus the time for completing of assessment is proposed to be nine months from the end of the assessment year in which the income was first assessable, for the assessment year 2021-22 and subsequent assessment years.

This amendment will take effect from 1st April, 2021.

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