Income Tax--Current Issues

Practice Update

V.K. Subramani

VALIDITY OF REASSESSMENT PROCEEDINGS AFTER INTIMATION UNDER SECTION 143(1) WITHOUT ANY ADDITIONAL INFORMATION/EVIDENCE

When the ITR is filed under section 139 or in response to notice under section 142(1) such ITR would be processed under section 143(1). Some of the adjustments are prima facie which are apparent on perusal of ITR and those could be adjusted by way of increase or decrease to the returned income. They are (i) any arithmetical error; (ii) any incorrect claim, if such incorrect claim is apparent from the information in the ITR; (iii) disallowance of loss relating to earlier year set off when the ITR of that year was filed beyond the 'due date' specified under section 139(1); (iv) disallowance of expenditure or increase in income based on the information indicated in the audit report; (v) disallowance of deduction claimed under section 10AA or under Chapter VI-A (under the heading 'C-Deduction in respect of certain incomes) when the ITR is filed beyond the 'due date' specified in section 139(1); and (vi) addition to income based on Form 26AS or Form 16A or Form 16 when it is not included in the total income correctly.

The first proviso to section 143(1) says that no adjustment could be made without an intimation being given to the assessee of such adjustment either in writing or in electronic mode. The second proviso says that any response received from the assessee shall be considered before making any adjustment. It also says that time limit for such response as 30 days from the date of such intimation of the proposed adjustment. The third proviso says that no such adjustment be made from the assessment year 2018-19, where there is discrepancy between the contents of Form 26-AS vis a vis the respective income admitted in the ITR.

One of the contentious issues has been the validity of invoking section 147 after processing the ITR under section 143(1) without any further information or evidence. With CPC processing the ITRs in computer aided environment, there could be no chance of omitting the prima facie additions listed in section 143(1). But there are legal decisions to hold that intimation under section 143(1) has no application of mind of the Assessing Officer and issue of notice for reassessment hence would not amount to change of opinion as there was no opinion per se in the case.

The Finance Act, 2021 has changed the procedure for reassessment by seeking preliminary enquiry and granting an opportunity to the assessee for providing explanations to deny escapement of income by inserting section 148A. This would not however apply to proceedings initiated post-search and seizure cases.

It is worth noting that in CIT v. Orient Craft Ltd. (2013) 354 ITR 536 (Del) : 2013 TaxPub(DT) 1623 (Del-HC) it was held that in the absence of any tangible material in the possession of the assessing authority after issuing intimation under section 143(1), it is not permissible to invoke reassessment proceedings.