Correction of arithmetical mistakes and adjustment of incorrect claim under sub-section (1) of section 143 through Centralised Processing of Returns
Generally, tax administrations across countries adopt a two-stage procedure of assessment as part of risk management strategy. In the first stage, all tax returns are processed to correct arithmetical mistakes, internal inconsistency, tax calculation and verification of tax payment. At this stage, no verification of the income is undertaken. In the second stage, a certain percentage of the tax returns are selected for scrutiny/audit on the basis of the probability of detecting tax evasion. At this stage, the tax administration is concerned with the verification of the income.
In India, the scheme of summary assessment being in force since the 1st day of June, 1999 does not contain any provision allowing for prima facie adjustment. The scope of the present scheme is limited only to checking as to whether taxes have been correctly paid on the income returned. Under the existing provisions of sub- section (1) of section 143, there is no provision for correcting arithmetical mistakes or internal inconsistencies. This leads to avoidable revenue loss. With an objective to reduce such revenue loss, sub-section (1) of section 143 of the Income-tax Act has been amended to provide that the total income of an assessee shall be computed under sub-section (1) of 143 after making the following adjustments to the total income in the return:-
(a) any arithmetical error in the return; or
(b) an incorrect claim, if such incorrect claim is apparent from any information in the return.
Further the meaning of the term “an incorrect claim apparent from any information in the return” has been defined by inserting an explanation in the said section. This term shall mean such claim on the basis of an entry, in the return, –
(a) of an item, which is inconsistent with another entry of the same or some other item in such return;
(b) in respect of which, information required to be furnished under this act to substantiate such entry has not been so furnished; or
(c) 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.
Further, it is clarified that above adjustments would be made only in the course of computerized processing without any human interface. In other words, the software would be designed to detect arithmetical inaccuracies and internal inconsistencies and make appropriate adjustments in the computation of the total income. For this purpose the Department is in the process of establishing a system for Centralized Processing of Returns. To facilitate this, sub-sections (1A), (1B) and (1C) have been inserted in section 143 to provide that –
(a) the Board may make a scheme with a view to expeditiously determine the tax payable by, or refund due to, the assessee;
(b) the Central Government may issue a notification in the Official Gazette, directing 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 the notification. However, such direction shall not be issued after 31st March 2009.
(d) every notification shall be laid before each House of Parliament as soon as such notification is issued. Along with the notification, the scheme referred above is also required to be laid before each House of Parliament.
Similar amendment has also been carried out in section 115WE of the Income Tax Act, relating to fringe benefits.
Applicability: These amendments have been made applicable with effect from 1st April, 2008.