BCAS has submitted a representation on “Issuance of Intimation under Section 143(1) of the Act without Detailed Analysis” and “Challenges and Potential Consequences in relation to Returns Processed by CPC”, to the Chairman CBDT. Text of the Representation is as follows :-
24th August 2017
To,
Mr. Sushil Chandra,
Chairman Central Board of Direct Taxes,
North Block,
New Delhi
Dear Mr. Chandra
Sub: 1) Intimation issued under section 143(1) of the Income-tax Act, 1961 (`the Act’) displays mismatch of income without detailed analysis or reconciliation, of income tax returns filed by assesses.
2) Challenges and potential consequences in relation to returns processed by CPC
On behalf of our members and on behalf of thousands of affected tax payers of the country, we would like to bring to your kind attention some serious issues which have been brought to our notice by some of our members on the captioned subject.
I. Issuance of intimation under section 143(1) of the Act without detailed analysis
It is noted that while issuing Intimations issued u/s. 143(1) for A.Y. 2016-17, in a large number of cases, notices have been sent to tax payers pointing out alleged discrepancies in the income shown in the return of income. These notices are based on a reconciliation done by the CPC between Form 26AS, Form 16 (in case of salaried tax payers) and the figures reflected in the ITR forms. In most cases, the notices state that the difference between the figure as per the ITR and the figure as per Form 16 / 26AS represents under reported income or over reported deductions and therefore adjustments will be made in the Intimation to be issued u/s. 143(1).
Some of the sample adjustments that have been proposed to be made in several cases are given below:
a. Denial of Allowances, Deductions and extra additions made at the issuance in Income Tax Return
a.1 Allowances which are exempt under section 10(14)(ii) of the Act read with Rule 2BB of the Income-tax Rules, 1962 (`the Rules’), claimed in the Income-tax return has been disallowed since the same has not been considered in Form 16 issued to the assesses say Transport Allowance
a.2 Chapter VI- A deductions- mainly u/s. 80C, 80D and 8OTTA have been denied on the ground that the same are not reflected in the Form 16.
It is respectfully submitted that these types of comparisons are completely unfair and unwarranted u/s. 143(1). First of all, Form 16 cannot be made the basis for computing the total income of an assessee. At best, the salary income can be verified with the Form 16. An assessee has every right to claim deductions and/or exemptions if he/she is entitled to do so under the Income-tax Act even if the same are not reflected in the Form 16. It may be appreciated that issuance of Form 16 is not in the control of a salaried person. It is done by the employer. If an employer makes a mistake or if an employer provides incomplete information in the Form 16, that cannot be taken as the basis for making upward adjustments in an employee’s total income. In any case, deduction u/s. 8OTTA can never form part of Form 16 since it is a deduction in respect of interest on savings bank account. This deduction will never appear in the Form 16 unless the employee has provided details of his income from savings bank account to his employer.
Further, it is common knowledge that many times, employees prefer to pay advance tax on their non salary income instead of disclosing the said income to the employer and getting a TDS done from that income by the employer. This stand is taken across the country by thousands of employees. There could be various reasons for this. One very strong reason for taking such a stand is to protect the privacy of one’s other income from the employer. In such cases, the income as well as deductions claimed under Chapter VI-A against such income will not appear in the Form 16.
It is respectfully submitted that proposing adjustments to the income based on such a comparison will only add to the problems faced by taxpayers. This is in stark contrast to the Finance Minister’s repeated statements that the government would like to make tax laws simple and easy to comply with for taxpayers.
As regards the exemptions like transport allowance, there are multiple situations where the Form 16 generated by an employer is not accurate in all respects. Often, employers show only net taxable salary income in the e-TDS statements and Form 16 instead of showing the gross separately and the exemptions separately. On the other hand, an employee, while filing his own return, would show the correct amounts (i.e. gross and exemptions). In such cases, the employee cannot be penalised because of the lapse of the employer. At the end of it, the employer has every right to disclose his true and correct income in the return.
b. Amounts on which Tax is Collected at Source is being considered as Other Income
In certain cases, the seller of certain goods has to collect tax at source and pay it to the government. This TCS appears in the Form 26AS of the tax collector. In several cases, it has been brought to our notice that the gross amount (on which the seller has collected the tax at source) is being added to the total income of such person based on Part B of Form 26AS which displays the details of tax collected at source (TCS) by the seller.
c. of notice u/s. 139(9) of the Act
In a large number of cases, tax payers have received notices u/s. 139(9) stating that the return filed is defective. In such cases, the reason given for such a stand is that certain amounts as shown in the ITR in the fields of income do not match with the amounts shown in the ITR in the Balance Sheet / Profit & Loss Account fields.
In this regard, certain examples brought to our notice by some of our members are given below:
Case one:
When a taxpayer has Capital Gains which is credited to the Profit & Loss Account, the same is reduced from the figure of Net Profit in the computation and then offered for tax under the head “Capital Gains“. The amount that is reduced from the Net Profit as per Profit & Loss Account would be the book profit. On the other hand, the amount of capital gains offered for tax in the return would be as computed under the provisions of the Income-tax Act. Therefore, in case of long term capital gains, the gain offered to tax would be indexed gain which would naturally be different from the figure of book profit.
In such genuine cases also, the income tax return has been treated as defective return under section 139(9) of the Act to the extent of mismatch between the schedules of Business Profit with reference to CG schedule.
Case two:
The Income tax return has been rejected on the basis of difference between schedules of Business Profit and Income from Other Source as illustrated hereunder:
Actual facts of the case – income earned by Mr. A
| Sr. No. | Particulars | Amount (Rs.) | Amount (Rs.) |
| 1. | Net Profit as per Profit & Loss Account (includes Interest income of parent) | 35,000 | |
| 2. | Other Sources | ||
| Interest Income | |||
| Parent | 10,000 | ||
| Minor’s income (which would obviously not be credited to P&L Account of the parent) | 15,000 | ||
| 25,000 |
Thus, in the above example, the gross income of the assessee would be as under:
| Business Income (35,000 less 10,000) = | Rs. 25,000 |
| Income from Other Sources (own + minor’s income) | Rs. 25,000 |
| Total | Rs. 50,000 |
In the return of income filed by Mr. A, the above data would be shown as under. As against this, the last column shows the stand that the CPC is taking while processing the returns:
| Particulars | As per Return | Stand taken by CPC |
| Business Profits | 35,000 | |
| Less: Interest Income – Parent | 10,000 | Mismatch of Interest income offered under other sources as reduced from Business Income. |
| Net Business Income | 25,000 | |
| Other Sources | ||
| Interest Income | ||
| Parent | 10,000 | |
| Minor’s income | 15,000 | |
| Total Income from Other Sources | 25,000 | Interest income offered for tax is not matching with interest income reduced fror Schedule Business Profits |
| Gross Income | 50,000 |
Thus, in such cases, while processing the return, non-existent defects are pointed out by the CPC and the return is treated as defective.
Case three:
In Form ITR 1 – Income from salary (net) has to be mentioned in Part B. On the other hand, the employer is required to show gross salary, various exemptions (like HRA, LTA) and the net taxable salary in the TDS return filed in Form 24. As a result, Form 26AS shows gross salary based on the TDs return filed by the employer.
In such cases, the income tax return has been treated as defective return under section 139(9) of the Act due to the mismatch of salary income shown in ITR 1 and Form 26AS. It may be appreciated that in such cases, the tax payer cannot, even if he wants to, show the gross salary and the deductions/exemptions separately in ITR 1.
In ITR 2, in salary schedule, gross salary, exempt allowances and net salary can be shown and hence 139(9) notices are not received if ITR 2 is filed.
2. Challenges and potential consequences in relation to returns processed by CPC
Quoting from the maiden budget speech of the Hon’ble Finance Minister in 2014 “…………… I would like to convey to this August House and also the investors community at large that we are committed to provide a stable and predictable taxation regime that would be investor friendly and spur growth….”.
However, receipt of notices of defective returns as mentioned in preceding paragraphs not only negate the stated objective of the government but also create huge challenges and hardship on the affected assessees. In this process, the good work done by the income-tax department of expeditious disbursement of refunds in several cases goes unnoticed and the negativity created by such wrongful and inappropriate adjustments / proposed adjustments to the income over shadows the minds of tax payers.
We humbly request your goodself to resolve the issues and issue necessary directions to the CPC so that before issuing any notices to the assessees, proper care is taken and unnecessary hardship is not caused to tax payers.
Thanking you,
Yours sincerely,
For Bombay Chartered Accountants’ Society
Narayan R. Pasari Ameet N. Patel
President Chairman, Taxation Committee
I doubt whether the CBDT people themselves are interested to understand the issues related to section 143(1)(a). CBDT is only a tax collection machinery. They wish to collect taxes by any means. Even by harassing common and honest tax payers.Finance Ministry is least interested in these issues though they are aware of this.
I have been watching for any development.
It appears that the Chairman CBDT has sent your representation to his faithful, layal and ever obedient Secretary Shri.W.P.Baket (Waste Paper Basket).
No one in Goverment ever appears to bother about honest Tax Payers.
yes, income tax is issuing notices under section 143 (1) (a)………in respect of if above deduction claimed by employee or if HRA/Medical/Transport allowance under section 10/17(2) claimed by employee.
This communication to the CBDT by BCAS is really needed as the issues faced by salaried taxpayers are enormous. Also, many salaried employees even do not know what to do when such notices are received and they just end up confused and helpless.
An appropriate action taken at the time of need. Hopefully next year the practitioners and the assessee won’t have to undergo this kind of harrassment. People are surprised at the disallowance of the investments U/S 80C, 80D and 80TTA.
This problem is faced by any assessees. There is one forum to take up this issue i am very glad. This will help many CA’s and many assessees. I have also received for one of my assessee that the deductions under 80D, 80C and 80TTA is not allowed and the CPC has sent intimation under sec. 143(1) (a) to rectify the features and resubmit other wise the assessment will be done on the basis of the comments or additions proposed. Hope the CPC will do the needful with interference of the concerned commissioners or finance dept.
Kudos to BCAS. This CPC is highly mechanical and without any brain applies the provisions causing undue harassment to common taxpayers. Simple matching of figures is not what the income tax law provides to tax. The CPC fails to understand that income tax law in India is so complicated that their computer assisted programming commands will fail to capture and apply the whole law. Instead of accepting their lacuna and limitations, they are imposing hardshipness to a common man who himself disclosed all the true and correct income.
At 73, I am paying Income Tax for 50 years.I am Income Tax Samman Patra Awardee, I fail to understand the basics. We are required to pay 100% taxes as Advance Tax? What is self assessment Tax?
I am also not able to understand the reason for not paying Income Tax Refund if the tax is due in some other years. This is amounting to shifting refunds to any year. If at the end of the day, the case is cleared from Appeal, in the mean time the refund is already adjusted, and there is no automatic arrangement of the refund being paid, and the tax payer normally looses the money.
3. Paying Income Tax is our duty, but the laws are not simple , and even filing of Income Tax Returns is becoming more and more tedious job today. There is penalty in every thing. There is Rs. 200/- per day penalty for late filing of TDS or TCS return.
4. The Late filing of Income Tax Return is going to attract penalty in the current financial year, and the amount is not less, it is Rs. 5000/- or Rs. 10000/-.
This all is a negative way of governance.
Just superb, to the point and necessary for the tax payers. I was just waiting for somebody as powerful as the above body to take up the matter. I am now confident enough to as them for a review personally. Glad to know that you all are living to the expectations of all of us. THANKS !!!!
What a sigh of relief to see your representation to Notices issued u/s 143(1) of IT Act,1961. In my case on an exempted income of Rs.25 lacs as Accumulated PF withdrawl u/s 8(ii) of Part A of Fourth Schedule of Income Tax act,1961 on account of cessation of employment beyond reasonable control of employee ,I am being asked to include the same in my gross income and pay tax @34.8% since I did not complete 5 years of PF membership though penulimate paragraph of Section 8 of Fourth schedule says that I can claim the same as exempted income even if I have not completed 5 years in case of cessation of employment beyond reasonable control of empoloyee.I have sent my reply to CPC awaiting their response.
What a sigh of relief to see your representation to Notices issued u/s 143(1) of IT Act,1961. In my case on an exempted income of Rs.25 lacs as Accumulated PF withdrawl u/s 8(ii) of Part A of Fourth Schedule of Income Tax act,1961 on account of cessation of employment beyond reasonable control of employee ,I am being asked to include the same in my gross income and pay tax @34.8% since I did not complete 5 years of PF membership though penulimate paragraph of Section 8 of Fourth schedule says that I can claim the same as exempted income even if I have not completed 5 years in case of cessation of employment beyond reasonable control of empoloyee.I have sent my reply to CPC awaiting their response.
What a sigh of relief to see your representation to Notices issued u/s 143(1) of IT Act,1961. In my case on an exempted income of Rs.25 lacs as Accumulated PF withdrawl u/s 8(ii) of Part A of Fourth Schedule of Income Tax act,1961 on account of cessation of employment beyond reasonable control of employee ,I am being asked to include the same in my gross income and pay tax @34.8% since I did not complete 5 years of PF membership though penulimate paragraph of Section 8 of Fourth schedule says that I can claim the same as exempted income even if I have not completed 5 years in case of cessation of employment beyond reasonable control of empoloyee.I have sent my reply to CPC awaiting their response.
in fact this year return form 2 & 3 are still now corrected in the TDS column. Still showing year of deduction as 2015 instead of 2016.
Hope Assesses will not be put into trouble
CA. K.Vishweshwara Bhat
Excellent Analysis.Response format available on e-procceding page is vague,confusing and is not tax payer friendly to fill.My DDO refused to include my PPF contribution in FORM 16 issued to me for AY 2017-18 on the plea that deduction ihas been made at your own level.Kindly let me know if there is any provision wide which DDO is bound to include such deduction in FORM 16.Similar situtution will be there during next year..In ITR itself there should be provision tu upload such documents in order to make processing efficient.There should be definite date for for 26 AS to be updated.
Even in some case the double addition is proposed on the basis of deduction not shown in form 16 and due to that the same amount is differ in the gross total income.
Thanks for letter to Chairman CBDT raising this issue in favor of genuine tax payer. But this is for A.Y. 2017-18 and not relates to A.Y. 2016-17 as mentioned in the letter. Moreover the information to be filled in eproceeding is not clear. I T Deptt has to provide help how and what to fill in the required column.
My pension is 5,10,000
Gross Income shown in Form 16 is 5,10,000
Form 26As shows it as 2,90,000
My interest income including SB interest of 30,000 which I have reflected in ITR is 13,50,000
In Form 26AS the Bank Interest shown is 13,20,000
I have claimed Tax Saving Instrument under 80C – 1,50,000
Under 80TTA -10,000
Total – 1,60,000
Thus Taxable income as per me -17,00,000
Taxable income, as per Form 16+Form 26AS is (2,90,000+13,20,000),is 16,10,000
I have paid Tax on 17,00,000
What sort of notice will I get ?
I have the same problem of intimation u/s 143(1)(a).
Income in 26 as form is not considered, form 16 is not showing deduction u/s 80 C,80TTA,80G etc.In Return of A S 2017 18 I have claimed but not considered on the other
R hand invisible income is added in intimation. Case is give to CA but I am satisfied pl guide what to do ,whom to consult. Thanks waiting for answer.
I am grateful to inform you that the aforesaid representation made by the Group is highly appreciated
RIDER
Reference to sec 143 (1A) be corrected and read as- sec 143 (1).
The implications of sec 143 (1A) call for a separate consideration and comment.
The applicability or otherwise of the amendments (insertion of the new sub-clauses (iii) to (vi)) of clause (a), made w.e.f 1-4-2017, to processing of returns for asst.year 2016-17 (that is, with retrospective effect) like wise requires a separate consideration and comment.
Any eminent tax consultant has any more related thoughts to be of use, to share ?!
A decade back, I had the opportunity of observing tax returns filing in the UK. There, the assessee is asked specific questions in response to which he is to reply with figures. (e.g. What was your interest income…..etc). And finally, “have you any other income to report?” With this last answer, the assessment is completed and the web site states please pay so much towards tax due. If one click his consent, the amount is immediately debited to his bank account (records already available with the IRA) and an Assessment Order is generated then and there. Every year a new password is generated and sent to the assessee which has to be typed to seek entry into the tax portal of Government of UK. Because of the question answer method, no room for doubt or ambiguity remains. Can we do something like that (instead of the peremptory Forms ITR 1, 2 and 3 etc.)
THANK YOU FOR THE REPRESENTATION ON BEHALF OF TAX PAYERS! Simple arthimatic was complicated by IT DEPARTMENT!!
OFFHAND
On the first blush, based on a quick reading and understanding, the need for a special focus arises, on what the two sections 143 (1A) (the very limited types of adjustments open to be made), and 139 (9) (the limited scope for AO to consider as defective return), in terms, clearly provide, To be precise, if so satisfied after a mindful reading, word by word, of the provisions of relevance, the representation made to the CBDT might have to be suitably supplemented, so as to make it more forceful , with all such aspects, in details; which obviously have been over-sighted by the CPC in the process of issuance of the Intimation in the manner complained of.
As, otherwise, a procrastination of the matter (areas) of dispute seems inevitable!
Over to the CAs in field practice, besides the aggrieved taxpayers, for taking on the points of issue with the CBDT, in better light.
thanks to BCAS for for representing to Income tax on behalf of tax payers. I hope this issue which results in unnecessary harassment to the tax payers.
I am grateful that the BCA has taken up this issue which results in unnecessary harassment to senior citizens who draw their pension through bank. They have been put to lot of inconvenience in responding to the notice u/s 143(1) and wait for the refund because of non-reflection of deduction u/a 80C and 80TTA in Form 16 issued by the bank to the pensioner.
Hope Govt. will take immediate action to resolve this unnecessary harassment faced by the taxpayers.
Good and necessary representation. Many many problems related to the Trust return processing. We should increase our representation on issues to the necessary authority so the duplication of work reduces. All these are problems of over dependence on the artificial intelligence.
AT CPC CREDIT OF BF TDS IN CASE OF ASSESSEE FOLLOWING CASH METHOD OF AC IS NOT CONSIDERD.THEY CONSIDER ONLY 26AS OF RETURN PERIOD AND NOT PRECEEDING YEAR INCOME OFFERED TO TAX IN THE YEAR OF RECEIPTS
THERE IS ALSO PROBLEM IN NOT ALLOWING DEDUCTION US 11(1a)&11(1b,) IN CASE OF PUBLIC CHARITSBL AND RELEGIOUS TRUST WHEN THEY CLAIM
DEDUCTIO OF 15% OF GROSS INCOMR SET ASIDE AS PER LAW
Thank God that you have taken up the case. Hope, some sense prevails atleast now. What CPC is doing is sheer harassment.
As I had mentioned somewhere else we are going back in time. Once upon a time we were filing proof of of claims under various heads in physical form; now they may require them in electronic frm; still they may say it is in variance with Form 26AS or 16 or 16A.
Why TDS at all ? Let them introduce a Form 15J so that Assessees undertake to pay monthly thei dues rather than getting various TDS Forms and landing up in trouble due to mistakes in them.
The aforesaid representation made by the Group is highly appreciated.
Further i appreciate that BCAS has taken initiative to write this letter!!
Dear Sir,
Thank you for representing to Income tax on behalf of tax payers.
Dear Sir,
In one of my case, assessee has reported PPF Interest under the head Exempt Income. The aforesaid notice has been issued to add exempt income in your taxable income. My asseesee is saying from next year he will neither report EXEMPT INCOME NOR SAVINGS BANK INTEREST in his return of income. Those who are offering correct income are being harrased by department and those who skip their bank interest and exempt income are enjoying as they have not received any such proposed adjustment notice. This is what the feed back of assessee.
I have another request to make to the Group regarding Intimation issued under section 143(1) of the Income-tax Act, 1961, if it could also be placed in Assessee’s Income Tax login account so that it can be downloaded any time like ITR – V and Tax Return(s) filed.
This suggestion can be taken up in future.