Section 143(1)(a) of the Income-tax Act, 1961 (`Act’) provides for making certain adjustments in the amount of income or loss shown by the assessee in his income tax return on the basis of prescribed criteria before processing the return u/s 143(1).
Clause (a) of sub-section (1) of section 143 provides that a return filed is to be processed and total income or loss is to be computed after making the adjustments on account of any arithmetical error in the return or on account of an incorrect claim if such incorrect claim is apparent from any information in the return.
However, before making any such adjustments, in the interest of natural justice, an intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response received, if any, will be duly considered before making any adjustment. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments.
One of the adjustments that can be made at the time of processing under of return under section 143(1) is “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return.” This is contained in section 143(1)(a)(iv). This adjustment was introduced in the Act vide Finance Act, 2016.
This sub-clause (iv) requires adjustment or addition in the returned income with the amount of expenditure which is indicated in the tax audit report but was not considered while computing the total income by the assessee.
However, there is no provision in the law under which the addition of income reported in the tax audit report but not considered by the assessee in his return of income could be made while processing the return. Therefore, it is felt necessary to plug the drawback and to empower the CPC to make an adjustment for any increase in income due to mismatch in the income disclosed in the tax audit report and income computed in the income-tax return of the assessee while processing the return of Income under section 143(1).
Rationalisation of the provision relating to the processing of returned income
The existing provisions of clause (a) of sub-section (1) of section 143 of the Act provide that at the time of processing of return of income made under section 139, or in response to a notice under sub-section (1) of section 142, the total income or loss shall be computed after making the adjustments specified in clauses (i) to (vi) therein.
It is proposed to amend the following provisions of sub-section (1) of section 143 of the Act,-
Amend sub-clause (iv) of clause (a) of sub-section (1) of section 143 of the Act, to allow for the adjustment on account of increase in income indicated in the audit report but not taken into account in computing the total income.
For this purpose, Clause 34 of the Finance Bill, 2021 proposed to amend section 143(1)(a) as follows-
Amendment of section 143.
34. In section 143 of the Income-tax Act,—
(a) in sub-section (1),–
(i) …..;
(ii) in clause (a),–
(I) in sub-clause (iv), for the words “disallowance of expenditure indicated”, the words “disallowance of expenditure or increase in income indicated” shall be substituted;
……
Amended Provisions Explained
Clause 34 of the Bill seeks to amend section 143 of the Income-tax Act relating to assessment.
Sub-clause (iv) of clause (a) of sub-section (1) of section 143 of the said Act provides for adjustment on account of disallowance of expenditure indicated in the audit report but not taken into account in calculating the total income of the assessee.
It is proposed to amend the said sub-clause so as to allow for the adjustment on account of increase in income indicated in the audit report but not taken into account in computing the total income.
These amendments will take effect from 1st April, 2021.
(a): Budget 2021){kind=link}
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