Intimation Issued Under Section 143(1) of the Income-Tax Act, 1961…

24^th 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 assessees.

            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.

1.  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 80TTA 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. 80TTA 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.  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

  Thus, in the above example,
the gross income of the assessee would be as under:

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:

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 overshadows 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