The First Substantive Ground of Appeal against an adjustment made under Section 143(1)(a)(iv)

It has been 15 years since the Income Tax Department hastily introduced e-filing, without proper testing and we CAs who filed the returns for our clients had to bear the brunt of the beta testing. Though e-filing was introduced in 2006, it took nearly 8 years for the system to become workable and today we are back again to becoming guinea pigs with the new version of the website. This series of articles is based on our experience with e-filing and processing of returns under Section 143(1). In the initial year of e-filing, which did not have the backing of statute, we accepted the procedural irregularities in the anticipation that in the long run we will have a system which will benefit all stakeholders. We were not wrong. The system which was in place before the recent upgradation met many of our expectations though a lot remained to be done. A major area calling for improvement in the existing system has been the manner of processing of returns under Section 143(1). We do not see the rules of natural justice being followed. Officers of CPC saying that they are helpless as they cannot control the output. Based on my experience, I have raised certain grounds of appeal which are still pending before the tribunal since the last two years. That appeal maybe finally decided on the substantive issues without going into the procedural issues discussed in this and subsequent articles. Hence sharing my thoughts so that somebody can put it successfully across and I may have a precedent in my favour when my case finally comes up for hearing.

Word APPEAL composed of wooden letters. Statue of Themis and judge's gavel in the background

Also Read: Second Substantive Ground of Appeal against an Adjustment U/s 143(1)(A)(IV)

The genesis of the grounds of appeal in this article came from a comment made by the CIT Appeals, in response to my submission that there was no application of mind while passing the intimation under Section 143(1) or the order under Section 154 denying my rectification petition. In his appellate order, the learned CIT-Appeals stated that under Section 143(1) only processing of the return takes place and there is no assessment and hence there is no requirement for application of mind. This prompted me to look into Section 143 (1) as appearing in the statute and I found that the CIT Appeals was right! Section 143 (1) only talks about processing the return and making adjustments to the income returned. The term “assess” has been dropped from Section 143 (1) from AY 1989-90. In fact, reference to assessing officer itself has been dropped from the said Sub Section from AY 1989-90. Instead of the words “assess”, the process to be followed in determining the tax payable or refund due was defined, without calling the process as an assessment. From 1-6-1999 till 31-3-2008, the concept of “prima facie adjustments” was removed and the process under Section 143(1) was only limited to determining the tax payable or refund due based on the return. From Asst year 2008-09, the direction in Subsection 143(1) was on how to “process” the return and the concept of prima facie adjustment was re-introduced, but worded differently. The present section is based on the amendment made from AY 2017-18. Therefore, the trend in the language of the Sub section over the recent years, viz. the dropping of the word “assess” and removal of the reference to the “assessing officer” indicates a move to outsourcing of the “processing” function to agencies outside the Department and not necessarily to be done internally. The Central Processing Centre which was established in Bangalore, is operated by outside agencies.

For this purpose, subsection (1A) was introduced in Section 143, by which the Board was given powers to notify a scheme by which returns could be processed under Subsection 143 (1) for which the Board has accordingly framed the Central Processing of Returns Scheme, 2011. The first few clauses of the Scheme deal with the definitions, the scope of the Scheme, Receipt and Acknowledgement of a Return, filing of revised return, determination of the validity of a return and establishment of a Centralised Processing Centre.

Clause 8 deals with how the Centre can process a valid Return. As per Clause 8, the CPC can process the return as under:

“8. Processing of Returns.—

(i) The Centre shall process a valid return of income in the following manner, namely:-

(a) the sum payable to, or the amount of refund due to, the person shall be determined after credit of such Tax collected at Source (TCS), Tax Deducted at Source (TDS) and tax payment claims which can be automatically validated with reference to data uploaded through TDS and TCS statements by the deductors or the collectors, as the case may be, and tax payment challans reported through authorised banks in accordance with the procedures adopted by the Centre in this regard.

(b) an intimation shall be generated electronically and sent to the person by e-mail specifying the sum determined to be payable by, or the amount of the refund due to, the person; and

(c) any intimation to the person to pay any sum determined to be payable shall be deemed to be a notice of demand as per the provisions of section 156 of the Act and all other provisions of the Act shall be applicable accordingly.”

(ii) The Commissioner may, –

(a) adopt appropriate procedure for processing of returns; or

(b) decide the order of priority for processing of returns of income based on administrative requirements.

(iii) Wherever a return cannot be processed in the Centre for any reasons, the Commissioner shall arrange to transmit such return to the Assessing Officer having jurisdiction for processing.

From the above, the following propositions emerge:

  • There is no provision in the Scheme for the Central Processing Centre to make the adjustments contemplated under Section 143(1)(a). It can only determine the tax payable or refund due after giving credit for the taxes paid. The words used in Rule 8 are similar to the words used in Section 143(1) between 1-6-1999 and 31-3-2008. Hence nothing more was envisaged.
  • As per the Scheme any return which cannot be processed at the Centre it has to be sent to the jurisdictional AO for further processing. It is not the case of AO-CPC who digitally signs the return that the return which could not be received at CPC was processed by him under Rule 8(2).
  • The Centre is headed by the Commissioner. There is no role for any Income Tax Authority below the Commissioner rank to carry out the duties assigned to the Commissioner under the Scheme notified under Section 143(1A). Hence, under the Scheme, the AO-CPC is only a name lender to the return processed by the Centre, so that the assessee has a respondent in an appeal which can be made to CIT-A. The appeal would have had to be made to the Tribunal had the intimation been attributed to the Commissioner.

If there is any doubt about the above proposition reference is invited to the press release dated 24-6-2019 issued by the CBDT regarding the CPC 2.0 project, that “the CPC 2.0 Project would significantly improve transparency and accountability of Income-tax Department as processing of returns and issuance of refunds would take place without any interface with the Department”. Hence it is not surprising that the processing of returns has been limited by the CBDT in the Scheme notified under Section 143(1A) only to the determination of tax payable or refund due after giving credit for prepaid taxes in CPC 1.0.

From the above discussion, our first substantive ground of appeal emerges:

“The additions/ adjustments now made to the returned income as reflected in the intimation are beyond the powers of the Respondent under Rule 8 of the Scheme notified by the CBDT under Section 143(1A) viz. Centralised Processing of Return Scheme, 2011.

Notification No. 8016(E) [No 2/2012 etc] dated 04.01.2012].”

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