In my previous article ‘The First Substantive Ground of Appeal against an adjustment u/s 143(1)(a)(iv)‘, the following propositions were advanced:
♦ Under the present Section 143(1) only processing of a return takes place and it is no longer an assessment.
♦ Processing of a return under Section 143(1) need not be done by the AO or even departmentally. It could be outsourced.
♦ As it could be outsourced, the manner of processing the return has been specified by CBDT u/s 143(1A) through the Centralised Processing of Returns Scheme, 2011. Under this Scheme, the processing of returns by the Central Processing Centre is limited to that of granting credit for the taxes paid and determining the refund due or balance payable.
♦ Only returns which cannot be processed at the CPC are sent to the jurisdictional AO.
♦ The CPC is headed by a CIT. The role of the AO is not discussed in the Scheme.
♦ In fact in CPC-2 the processing is proposed to take place without the intervention of the Department.
Hence, the First Ground challenges the very act of adjustment under Section 143(1) (a)(iv) as beyond the powers of the Centralised Processing Centre.
The boundaries over the processing under Section 143(1)(a) are now coming before the Tribunal for adjudication. In a recent decision in ITA No. 1657/Bang/2019, JPC Solutions vs ITO Ward 7(1)(1), Bangalore, the Honourable Vice President of the Tribunal, sitting as a Single Member, allowed the appeal of the assessee on the ground that the issue whether income earned by the Assessee has to be taxed u/s.44AD or Sec.44ADA of the Act, cannot be subject matter of processing u/s.143(1) (a) of the Act.
Through this article I would like to raise a question on a fundamental issue- can an intimation be passed on a return which is not accompanied by all the documents which are required to accompany a return, which if they had not accompanied a return would have entitled the AO to hold the return as defective under Section 139(9). In other words, is an adjustment made u/s 143(1)(a) on the basis of a “defective return” valid?
To understand this issue better we have to see Section 143(1) as it was on 1-4-1961:
“143. (1) Where a return has been made under section 139 and the Income-tax Officer is satisfied without requiring the presence of the assessee 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 assessee, and shall determine the sum payable by him or refundable to him on the basis of such return.”
The whole objective of Section 143(1) since last 60 years was to determine the income based on the return without requiring the presence of the assessee. That was possible if the return was found to be correct and complete. If the return was either found lacking, in being correct or in being complete, then a notice had to be issued under Section 143(2) and the assessment made under Section 143(3). All the amendments to this Sub Section made over the last 60 years till date, add, amend, withdraw, reinstate and again withdraw the powers to make any adjustments to the returned income without going for a regular assessment.
To ensure that the return filed was correct and complete, the AO was empowered under Subsection 139(9) to declare a return as defective if it was not accompanied by certain documents listed in the Explanation to that Subsection. Under Section 139C(1) the Board was empowered to make rules providing for a class or classes of persons who may not be required to furnish documents, statements, receipts, certificates, reports of audit or any other documents, which are otherwise under any other provisions of this Act, except section 139D, required to be furnished along with the return but on demand to be produced before the Assessing Officer. Accordingly, Rule 12(2) provides that the following, viz. “a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or form or report of audit required to be attached with the return of income under any of the provisions of the Act” need not accompany the return and are to be produced when called for by the AO. (However, the tax audit report with the accompanying accounts, is required to be filed electronically since AY 2013-14). Section 139C was introduced in the context of a return being processed by CPC which would enter the system as an xml file. The other documents required to accompany a return to render it not defective under Section 139(9) cannot be processed by CPC and hence are not required to accompany a return and are to be produced before the AO when called for.
Therefore, the question now posed is whether any adjustment is possible under Secction 143(1)(a) without having the full return when the following adjustments which are required to be made, would necessarily require the financial statements and the computation of income:
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) 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 (1) of section 139;
(iv) disallowance of expenditure 82[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;
(v) disallowance of deduction claimed under 83[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
(vi) 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:
Usually, the computation of income would have a note which would indicate why a certain claim apparently inadmissible is claimed by the assessee as allowable or why any item ( say a receipt) is not considered as income. Therefore, it is my considered opinion that when the CPC refers the return to the AO for processing, the AO should send a notice to the assessee calling for the documents not enclosed with the return and complete his processing of the return only after having all the documents required to accompany a return with him. Any adjustment made without having called for all the documents required to assess the income would render the processing meaningless and a waste of the precious time of both the assessee and the Department. The process of assessment is not meant to be adversarial. In fact the Board Circular No Circular : No. 14(XL-35), dated 11-4-1955 emphasises that only the legitimate tax due must be collected and the Department must not take advantage of the ignorance of an assessee. Therefore, an adjustment made u/s 143(1)(a) without calling for the documents referred to in Rule 12(2) would call for the following Ground to be urged:
“The learned AO has erred in making the adjustment u/s 143(1) (a) without having before him all the documents required to accompany the return but dispensed by the Board. Hence the adjustment be held as bad in law and cancelled” .
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