Overview of Changes in Provisions:
The Finance Act of 2023 brings forth substantial alterations in the assessment and refund provisions, intending to overhaul the existing framework for enhanced efficiency, clarity, and compliance. Notable changes empower Assessing Officers (AOs) with new directives, particularly in response to notices, aiming to establish a more structured and transparent process.
Power Given to the AO to Value Inventory (Section 142(2A)): Section 142(2A) undergoes a significant expansion, granting AOs the authority to compel the valuation of inventory. While this move is aligned with the ICDS-II standards, ensuring uniformity in valuation practices, the introduction of the provision for inventory valuation through a Cost Accountant may pose practical challenges. Companies obligated under the Companies Act to maintain cost records and undergo cost audits might experience increased compliance and litigation costs.
Time Period Specified for Furnishing Return (Section 148): A pivotal amendment within Section 148 mandates a strict three-month timeline for filing returns in response to Section 148 notices. This change, effective in eliminating ambiguity and providing clear deadlines, aligns with the broader government objective of enhancing the efficiency of the assessment process.
Exclusion of 15 Days from Limitation Period (Section 149): Section 149 sees nuanced amendments to address practical challenges faced by AOs, particularly after search or requisition activities. The introduction of two provisos, allowing an additional 15 days for issuing notices post-search or requisition, is a strategic move to facilitate more effective and thorough assessment processes, acknowledging the time constraints faced by AOs.
Matching Authority for Notice Sanction (Section 151): Section 151 undergoes a notable change by expanding the list of authorities empowered to sanction notices under Sections 148 and 148A. The amendment removes the condition of the absence of Principal Chief Commissioner or Principal Director General, allowing any of these four authorities to grant sanction. The proviso added to Section 151 ensures a comprehensive assessment of the time elapsed since the end of the relevant assessment year.
Change in the Limitation Period for Completion of Assessment (Section 153): The Finance Act of 2023 introduces noteworthy amendments to Section 153, specifically addressing the limitation period for the completion of assessments or reassessments. The changes have significant implications for different aspects of the income tax assessment process.
Limitation Period for Completion of Assessment under Section 143 or Section 144 (Section 153(1)): The nine-month limitation period, previously applicable to assessments under Section 143 or Section 144, is now narrowed to the assessment year 2021-22 alone. A new proviso extends the limitation period for completing assessments for the assessment year commencing on or after April 1, 2022, to 12 months.
Limitation Period for Completion of Assessment in Case of Updated Return (Section 153(1A)): Another critical amendment pertains to the limitation period for completing assessments in cases involving updated returns filed under Section 139(8A). The previous nine-month limit has been extended to twelve months, affecting assessments related to different assessment years.
Limitation Period for Fresh Assessment in Pursuance to Order of Authorities (Section 153(3)): The recent amendment introduces a 12-month limitation period for such fresh assessments, with specific timeframes based on the receipt of orders.
Limitation Period for Completing the Assessment Pending on the Date of Search or Requisition (Section 153(3A)): A significant addition through the Finance Act, 2023, is the insertion of sub-section (3A) in Section 153. This new provision extends the limitation by twelve months for completing assessments or reassessments pending on the date of a search or requisition.
Consequential Amendment in Section 153(4): The amendment to Section 153(4) is consequential, extending the available period for completing assessment or reassessment by twelve months, even when a reference is made under Section 92CA(1).
Limitation Period for Giving Effect to Appeal Results (Section 153(5)): The amendment introduces changes in the limitation period for implementing orders from appellate authorities or revision orders under Section 263 or Section 264. The time frame is set at three months, with a provision for a six-month extension upon request, under certain circumstances.
Consequential Amendment in Section 153(6): This amendment addresses the time frame for assessments or reassessments resulting from appealable orders, revision orders, or court directives. It establishes a 12-month limitation period from the end of the month in which such orders are received or passed by the Principal CIT or CIT. The recent change includes the replacement of "Principal Commissioner or Commissioner" with "Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner," extending the 12-month limitation to effect findings or directions in these orders.
Exclusion of Time Taken in the Valuation of Inventory from the Limitation Period (Explanation 1 to Section 153): Explanation 1 to Section 153 introduces a provision excluding the time taken for the valuation of inventory from the overall limitation period. The recent amendment extends this exclusion to cover the period from the date the AO directs the valuation of inventory until the last date for furnishing the valuation report.
Consequential Amendment in the First Proviso to Explanation 1 to Section 153: This amendment relates to the first proviso to Explanation 1 of Section 153. It extends the limitation period to 60 days if, after excluding time under various clauses, the available period is less than 60 days. The new sub-section (1A) emphasizes that this extension also applies if the limitation available under sub-section (1A) is less than 60 days.
Consequential Amendment in Section 154: In response to the establishment of the Joint Commissioner (Appeals) forum, Section 154 undergoes a consequential amendment. The change allows the rectification of orders passed by Joint Commissioner (Appeals) if any mistakes apparent from the record are found, replacing "the Commissioner (Appeals)" with "the Joint Commissioner (Appeals) or the Commissioner (Appeals)."
Integration of Provision Relating to Withholding and Set-off of Tax Refund (Section 245):
Pre-Amendment Provisions: The existing Sections 241A and 245 are merged, presenting a comprehensive approach to withholding and setting off tax refunds. Section 245(1) addresses the set-off of refunds, while Section 245(2) pertains to the withholding of refunds. Challenges in the pre-amendment provisions, including overlapping rules, limited withholding conditions, and issues related to pending assessments, are outlined.
Amendment by the Finance Act, 2023: The Finance Act, 2023 introduces a new provision under Section 245, allowing the set-off and withholding of refunds based on the assessment or reassessment status of the taxpayer.
Analysis of Section 245(1) [Set off of Refund]:
Sum Payable: The "sum payable" is the net tax due after considering advance tax and Section 140A payments. Refund set-off cannot be applied to dues under other Acts. It does not apply to tax dues of a firm against a partner's personal refund. Section 245(1) cannot set off refunds against sums not evident from a demand order.
Intimation: "Intimation" means informing or declaring. Prior written intimation is crucial for set-off actions, not requiring a show-cause notice. Intimation is meant to enable the assessee to voice objections, ensuring fairness. Judicial rulings emphasize the necessity of prior written intimation.
Power to Set Off: Revenue lacks the power to adjust admitted refund amounts against unadjudicated future tax dues. The power under Section 245 is discretionary and requires prior written intimation and an opportunity for the assessee to be heard.
Analysis of Section 245(2) [Withholding of Refund]:
Pending Proceedings: The term "pending" signifies undecided or not concluded, starting from the commencement of proceedings. Issuing a notice under Section 142(1) does not mean "assessment is pending." Conducting an enquiry under Section 148A does not imply "assessment is pending."
AO is of the Opinion: The AO can withhold refunds if the grant is deemed to adversely affect revenue. Several cases provide instances where withholding is justified or unjustified based on specific circumstances.
Reasons to be Recorded: Section 241A mandates a separate recording of satisfaction, with prior intimation, for withholding a refund. Issuing a notice under Section 143(2) is not enough to withhold a refund. Refunds cannot be avoided due to pending notices, and reasoned orders are required for withholding.
Section 245(1) v. Section 245(2):
| **Particulars: | Section 245(1) | Section 245(2)** |
|---|---|---|
| Scope: | Refund due to the assessee can be used to offset any remaining sum payable under the Act. | Refund due to the assessee, not set-off, can be withheld under this provision if assessment or reassessment proceedings are pending. |
| Reason for action: | Some sum is remaining payable by the assessee under the Act. | Grant of refund may adversely affect the revenue. |
| Authority: | Assessing Officer, Commissioner, Principal Commissioner, Chief Commissioner, or Principal Chief Commissioner. | Assessing Officer. |
| Duty of authority: | Give a prior intimation in writing to the assessee of the proposed action. | Record reasons in writing and take approval from the Commissioner or Principal Commissioner. |
| Status of assessment: | No specific condition regarding the assessment status. | Assessment or reassessment should be pending. |
| Mutual Exclusivity: | Can work independently or in conjunction with Section 245(2). | Can work independently or in conjunction with Section 245(1). |
| Example: | Mr. X faced scrutiny for AY 2020-21 with a tax liability of Rs. 8 lakhs. AO offsets the refund of Rs. 8 lakhs using Section 245(1). The AO withholds the remaining refund of Rs. 2 lakhs and any future refund until AY 2022-23 concludes. | Mr. Y filed his return for AY 2021-22, resulting in a refund of Rs. 10 lakhs. The AO initiated scrutiny for AY 2022-23, expecting an addition of Rs. 50 lakhs. The AO can use Section 245(1) to offset Rs. 8 lakhs and withhold the remaining Rs. 2 lakhs and any future refunds pending the assessment. |
Amendment in the provision relating to interest on refund (Section 244A):
(a) Interest on Rectification Order: A new proviso under Section 244A introduces interest on refunds arising from rectification orders allowing TDS credit of earlier years, effective from 01-10-2023. The interest rate is set at 0.5% per month.
(b) No Additional Interest on Withheld Refund: Another proviso under Section 244A, effective from 01-04-2023, specifies that no additional interest is payable on refunds withheld under Section 245(2). This exclusion considers the period during which the refund is withheld for calculating additional interest.
Amendment in the provision relating to amendment in assessment order (Section 155):
(a) Recomputation for Sugarcane Price: The Finance Act, 2023 introduces Sub-section (19) in Section 155, effective from 01-04-2023. It allows the re-computation of income for sugar co-operative societies, considering the deduction for differential sugarcane prices.
(b) TDS Credit Amendment: Sub-section (20) is added to Section 155, effective from 01-10-2023. It addresses TDS credit amendments when there's a mismatch due to accrual basis reporting. The taxpayer can apply within two years of tax withholding, and interest payment under Section 244A(1) is also allowed for this rectification.
Overall Sections Covered: The comprehensive overview spans Sections 142, 148, 149, 151, 153, 154, 241A, 245, 244A, and 155. These amendments collectively aim to enhance clarity, efficiency, and compliance within the income tax framework, offering a more robust and structured assessment and refund process.
