K.K. Singla, Advocate

Legislative History

Summary assessment was introduced through Income Tax Act 1961 w.e.f. 01/04/1962 with the insertion of Section 143(1) which read as under:-

143(1) Assessment:-

Where a return has been made under section 139 and the Income Tax Officer is satisfied without requiring the presence of the assesse or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assesse, and shall determine the sum payable by him or refundable to him on the basis of such return.

This provision corresponds to section 23(1) of the 1922 Act.

As it evident from wording of the section the ITO was not empowered to make any adjustments even for apparent errors rather he was to determine the tax payable or refundable to the assesse on the basis of such return.

Section 143(1) was amended by the Taxation Laws (Amendment) Act 1970 w.e.f. 01/04/1970 with a view to authorize the officer to make adjustments to income or loss declared in the return. The adjustments could be by way of:-

1. Rectifying any arithmetical errors in the return and the accounts and documents, if any, accompanying it;

2. Allowing any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents is, prima facie, admissible though not claimed in the return; and

3. Disallowing any deduction, allowance or relief claimed in the return but which, on the basis of the information available in such return, accounts and documents, is prima facie, inadmissible.

This section was subsequently amended from time to time as per following Acts:-

Finance Act 1974, Finance Act 1976, Finance (No 2) Act 1980, Finance Act 1987, The Direct Tax Laws (Amendment) Act 1987, The Direct Tax Laws (Amendment) Act 1989, The Direct Tax Laws (Second Amendment) Act 1989, Finance Act 1990, Finance Act 1992,

Finance Act 1993, Finance Act 1994,

Finance Act 1997, Finance Act 1999,

Finance Act 2001, Finance Act 2008,

Finance Act 2012, Finance Act 2016,

Finance Act 2021.

Finally as section 143(1) to 143(1D) which relate to summary assessment and processing of returns stands as on today is reproduced as under:-

Assessment.

143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return

shall be processed in the following manner, namely:—

1. the total income or loss shall be computed after making the following adjustments, namely:—

   1. any arithmetical error in the return;

   2. an incorrect claim, if such incorrect claim is apparent from any information in the return;

   3. disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section of section 139;

   4. disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;

   5. disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or

   6. addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:

      Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

      Provided further that the response received from the assessee, if any,

      shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:

      Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;

2. the tax, interest and fee, if any, shall be computed on the basis of the total income computed under clause (a);

3. the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax, interest and fee, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under section 89, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax, interest or fee;

4. an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

5. the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

   Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax, interest or fee is payable by, or no refund is due to, him:

   Provided further that no intimation under this sub-section shall be sent after the expiry of [nine months] from the end of the financial year in which the return is made.

   Explanation.—For the purposes of this sub-section,—

   1. “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,—

      1. of an item, which is inconsistent with another entry of the same or some other item in such return;

      2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or

      3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

   2. the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).

   (1A) For the purposes of processing of returns under sub-section (1), the Board may make a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required under the said sub- section.

   (1B) Save as otherwise expressly provided, for the purpose of giving effect to the scheme made under sub-section (1A), the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, 2012.

   (1C) Every notification issued under sub- section (1B), along with the scheme made under sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament.

   (1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2):

   Provided that the provisions of this sub- section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017.

   The returns are processed according to the Central Processing of Return Scheme, 2011, vide Notification No. S 016(E) Dt. 04/01/2012, as per the scheme the following points are worth consideration:-

   Rule 13. Service of notice or communication.

   1. The service of a notice or order or any other communication by the Centre may be made by

      1. sending it by post;

      2. delivering or transmitting its copy thereof, electronically to the person sent by the Centre’s e-mail;

      3. placing its copy in the registered electronic account of the person on the official website ; or

      4. any of the modes mentioned in sub- section (1) of section 282 of the Act.

   2. The date of posting of any such communication on official website, email or other electronic medium shall be deemed to be the date of service.

   3. The intimation, orders and notices shall be computer generated and need not carry physical signature of the person signing it.

Rule 6. Invalid or defective return.

1. The Commissioner may declare-

   1. a return invalid for non- compliance of procedure for using any software not validated and approved by the Director General.

   2. a return defective under sub- section (9) of section 139 of the Act on account of incomplete or inconsistent information in the return or in the schedules or for any other reason.

2. In case of a defective return, the Centre shall intimate this to the person through email or by placing a suitable communication on the e-filing website.

3. A person may comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.

4. The Commissioner may, in order to avoid hardship to the person, condone the delay in uploading of rectified return.

5. In case no response is received from the person in reply to the notice of defective return, the Commissioner may declare a return as not having been uploaded at all or process the return on the basis of information available.

Rule 9. Rectification of mistake.

1. With a view to rectifying any mistake apparent from the record under section 154 of the Act, the Centre, on its own or on receiving an application from the person may amend any order or intimation passed or sent by it under the provisions of the Act.

2. An application for rectification shall be filed electronically to the Centre in the format prescribed and will be processed in the same manner as a return of income-tax.

3. Where the rectification order results in a demand of tax, the order under section 154 of the Act passed by the Centre shall be deemed to be a notice of demand under section 156 of the Income-tax Act.

4. In case of error in processing due to an error in data entry or a software error or otherwise, resulting in excess refund being computed or reduction in demand of tax, the same will be corrected on its own by the Centre by passing a rectification order and the excess amount shall be recovered as per the provisions of the Act.

5. Where a rectification has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the person, intimation to this effect shall be sent to the person electronically by the Centre and the reply of the person has to be furnished through electronic mode only.

   Rule 10. Adjustment against outstanding tax demand.

   The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer.

   Further a notification No. SO 17(E) Dt.04/01/2012 was also issued regarding application of provisions of act relating to processing of returns.

   Practical problems faced by the tax payer’s and Tax Professionals and resolution thereof:-

   1. Issue of Notice/Communication

      The service of notice or communication to the assesse sometimes remains unnoticed. If the communication is made by way of placing its copy in the registered electronic account of the person on the official website (ITBA), the same is most likely to go unnoticed because it is not possible for the assesse to login the account on daily basis and sometimes the Email Id is not updated on the portal. The problem can be resolved if the communication is made in more than one modes i.e. through email/SMS etc.

   2. Adjustments to the returned income

      Sometimes the adjustments are made for the lack of evidence in support of the claim of any deduction/allowance or exempt income. It appears that CPC is not empowered to make such adjustments and the adjustments are not within the scope of section 143(1)(a). CBDT had been issuing instructions from time to time. In a recent case of Anita Sethi VS DCIT, CPC Banguluru decided on 18/04/2022 (ITA No. 109/Kol/2022 A/Y 2017-18). It was held that AO has wrongly assumed jurisdiction under the Act and no adjustment could be made.

   3. Response filed by assesse ignored

      Most of the times the response filed by the assesse is not considered. CBDT has been issuing circulars from time to time regarding procedure to be followed at the time of processing of the returns. In this regard Circular No. 1/2018 Dt. 10/01/2018 is relevant, wherein the Board has instructed that based upon response of the taxpayer and the information so available with the CPC-ITR. Such return shall be taken up for processing by CPC as per provisions of section 143(1). 143(1) read with instruction No. 9 and 10/2017 of CBDT.

   4. Same income cannot be taxed twice

      Income declared under one head of income is again taxed under another head of income by way of adjustment U/S 143(1)(a). This is done in spite of the proper response filed by the assesse in response to notice U/S 143(1)

      (a). It is trite law that same income cannot be taxed under different heads or in the hands of two different persons. It was so held by Honorable ITAT Chandigarh Bench A in the case of Haryana Financial Corporation v. Deptt. of Income Tax Dt. 25/07/2014 in ITA No. 353,411&412.

   5. Brought forward losses

      Certain cases have come to notice where carried forward losses in the previous return filed U/S 139(1) have been either not adjusted or were disallowed without giving any notice for making the adjustment. This is again the case of exceeding the jurisdiction by CPC and such mistakes should be avoided at end of CPC

   6. Defective Return

      Rule 6 of the Centralized Processing of return Scheme 2011 provides that the return can be declared defective U/s 139(9) of the Act on account of incomplete or inconsistent information in the return or in the schedules or by any other reason. The assesse is required to comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.

   7. Updation on the portal

Sometimes the assesse receives certain information/notice through SMS and Email id but the information is not updated on the portal for months together. In this regard Grievances raised with the Web Manger or e filing website are not responded.

Portal updation should be prompt and simultaneously.

Conclusion

From the discussion in the foregoing paragraphs of this article it can be inferred that filing of return of income tax is very technical process and the return should be filed by a qualified person very carefully, keeping in view the following points:-

1. The information in the return should be complete in respect of all the declared sources of income and the schedules relating thereto should also be filled up properly. The attachments wherever required should be made.

2. Before preparing the return the information available on the portal relating to the assesse should be thoroughly checked and considered. In case of any inconsistency with the facts of the case in form 26AS, AIS and TIS, a proper feedback should be furnished on the portal.

3. In case of any wrong adjustment in the intimation order, an appeal or rectification should be filed within the permissible time. In my view an appeal should be preferred.

4. In case the notice U/s 143(1)(a) is based on any improper or wrong information in the Audit report then we should obtain a revised audit report after correction and should be approved before submitting the response to the notice.

5. In case the assesse is in receipt of any notice proposing to declare the return defective U/S 139(9), the response should be submitted after removing the defect depending upon the facts and circumstances of each case.

6. As per third proviso to Section 143(1)

   (a) no adjustment/addition of income can be made on the basis of Form 26AS or Form 16A

   or Form 16 in relation to a return furnished for the Assessment year commencing on or after the 1st day of April 2018.

7. It is also worth noting that no intimation under this sub section can be sent after the expiry of nine months from the end of the financial year in which the return is made.

DISCLAIMER

While every care has been taken in the preparation of this article to ensure its accuracy. The author will not be responsible for any error despite all precautions may be found herein. The contents of this article are purely for information purpose.

(Source : Article published in Souvenir released at National Convention 2022 held at Jaipur on 17th & 18th December, 2022)