Vide Finance Act 2017, certain other adjustments were allowed in processing of ITR, including in cases where income appearing in TDS certificate/ tax credit statement of a taxpayer, is not included in total income of the taxpayer as reflected in the ITR.
Last year, the government had enlarged the scope of adjustments permitted in processing of income tax returns (ITR) and also made processing of ITR a mandatory step, even before scrutiny assessment is initiated in case of a taxpayer. Prior to Finance Act 2017, only correction of arithmetic errors and a prima-facie incorrect claim was allowed at the time of processing of returns under Section 143(1) of the Income Tax Act. Vide Finance Act 2017, certain other adjustments were allowed in processing of ITR, including in cases where income appearing in TDS certificate/ tax credit statement of a taxpayer, is not included in total income of the taxpayer as reflected in the ITR.
Practical hardship to taxpayers
As per above provisions, in all cases, where income reported by a taxpayer does not match with income reported in TDS certificate/ tax credit statement based on TDS returns, tax authorities were permitted to make an adjustment to the extent of such difference. However, this created significant hardship for taxpayers, where this difference arose due to legitimate reasons such as: (a) Difference in method of accounting of payer and income recipient, (b) TDS deducted by payer on provision basis, but no invoice or invoice of a different value raised later or cancellation of an invoice, (c) gross revenues of a taxpayer containing both types of receipts, (i) on which TDS is deducted and (ii) on which TDS is not deducted, (d) taxable income reported in ITR on net basis after claiming certain permitted deductions, but TDS certificates/ tax credit statement issued to them in respect of TDS deducted by various payers reflected gross amount of payments (e) cases, where ITR form (such as ITR-1) required particulars of ‘income’ to be filled on “net basis’, whereas corresponding payment was reported in Form 26AS on “gross basis”, etc.
Notices received by taxpayers
On account of this provision, a number of taxpayers received notices in the current financial year and even tax demands in some cases, on account of such apparent mismatch, when there was no legal basis/ reason for any adjustment. This further resulted in unnecessary correspondence with tax department for correction of these tax demands raised on processing of ITR and reply to such notices. CBDT tried to remove the anomalies and grant relaxation to certain classes of taxpayers by issuing various instructions during current year. However, it was not possible to cover all possible genuine reasons/ cases in CBDT circulars due to this very widely worded provision and the anomaly still remained to haunt taxpayers.
Finance Bill 2018 to cure anomaly
Apparently, realising the hardship of the taxpayers, the government has now proposed to withdraw the clause (vi) of Section 143(1) vide Finance Bill 2018, which earlier provided for adjustment in cases where income appearing in TDS certificate/ tax credit statement of a taxpayer, is not included in total income of the taxpayer as reflected in ITR. This is a welcome step, to promptly make correction in the law and withdraw a provision, which was providing onerous, both for the taxpayers as well as the tax administrating authorities.
The writer is managing partner, Nangia & Co LLP