Issue of income tax notice for prima facie adjustment u/s 143(1)(a) – ITBA Instruction

Issue of notice for prima facie adjustment u/s 143(1)(a) of the Income Tax Act. ITBA Instruction for processing of ITR for AY 2017-18

With effect from AY 2017-18 amendments have been done in the Income Tax Act with regard to processing of cases under 143(1). Provision of section 143(1D) of the Act has been amended, as per which all the returns are required to be processed. Section 241A allowing withholding of refund determined under section 143(1) in cases where notice u/s 143(2) is issued has also been introduced.

Income Tax Department has accordingly also modified/enhanced ITBA functionality.

Further, provision of section 143(1)(a) have been amended w.e.f 01.04.2017 as per which certain adjustments on income of loss submitted by assessee in ITR are allowed. As per the proviso to the section, no such adjustment is allowed unless notice for such adjustment is given to the assessee.

The assessee is allowed to submit response within a period of 30 days of issue of notice. All E-filed ITRs are pushed by CPC to AO for processing either due to the fact that the case was selected for scrutiny or where taxpayer has claimed Foreign Tax Credit. AO is required to submit such e-returns to CPC with necessary data entries in respect of specified fields. Such cases are further examined by CPC and notice to assessee for the purpose of prima facie adjustment, if any.

The AO is not required issue notice of adjustment in such cases. The taxpayer will submit their reply electronically through the e-filing portal which will be considered by CPC before final processing u/s 143(1)(a).

In view of the fact that the returns of AY 2017-18 filed in FY 2017-18 are required to be processed by 31.03.2019, CBDT has issued ITBA-ITR Processing Instruction No. 6 requesting that any action pending with AO for E-filed ITRs may be disposed off on priority preferably before 28 th Feb 2019 so that CPC has sufficient time to process the cases under 143(1)(a).

The Instruction provides for detailed procedure to be followed in:

(a) Notice for adjustment under 143(1)(a) in paper returns  with Sample of the PFA notice.

(b) Action to be taken by AO after response of taxpayer is received

Once the response of assessee is received, the same is to be analysed by AO and following actions can be taken.

(i) E-filed Return

(a) Taxpayer Agrees or Partially Agrees for Adjustment at e-filing and submits revised return. This is treated as a fresh ITR and same rules will apply as far as PFA is concerned and AO will follow same procedure for processing u/s 143(1),

(b) Taxpayer disagrees for Adjustment at e-filing. Response will be verified by CPC and accordingly return will be processed with or without adjustment as mentioned in Para 3(i) above.

(c) No response received within 30 days from date of issue of notice. CPC will carry out the adjustment and process the return as mentioned in Para 3(i) above.

(d) Return filed u/s 142(1) cannot be revised and therefore, CPC will decide based on response submitted by taxpayer as mentioned in Para 3(i) above

(ii) Paper Return

(a) Response of PFA notice can be submitted either with or without Revised Return. Where justification given by taxpayer, the AO can either do correction of data entry in ITR and ITR data resubmitted to CPC on the basis of response submitted by taxpayer to AO. Where revised return is furnished within the time limit under the Income Tax Act, the same may be entered and submitted for processing to CPC. The Original paper ITR will be treated as closed in view of the revised ITR filed. AO should consider the data in the revised ITR and assure that the taxpayer has included the income proposed for prima facie adjustment or has provided an acceptable explanation for partial or noninclusion. On the basis of modified data or the revised return submitted by AO the ITR will be processed. Intimation to taxpayer will be issued by CPC as per the extant procedure.

(b) If the assessing officer comes to conclusion that no adjustment in the case is warranted, he can click on the button “No PFA” in Part A General and submit the data to CPC. Based on AO’s request, the CPC will not apply any rule for Prima Facie Adjustment and return will be processed. The process described in (a) & (b) can be carried out simultaneously.

(c) Issue PFA notice: If AO wishes to issue the PFA notice the same can be done by pressing the button “Issue PFA notice” which is available at the bottom of screen along with other buttons. As per provision of Act, assessee is required to respond to notice within 30 days of the date of issue of notice, therefore, 30 days period will come by default as period of compliance by assessee. The AO is required to submit the modified data or the revised return to CPC again after obtaining the response from the taxpayer as per process in para (a) & (b).

(c) If AO does not submit modified data or the revised return as a consequence of nonresponsiveness of the taxpayer within 30 days of issue of notice, the return will be processed with adjustments as provided under s. 143(1)(a) by CPC on the basis of PFA notice issued.

The Instruction mandates that as all the returns of AY 2017-18 are required to be processed by 31.03.2019, therefore,

(i) All data of paper returns should be submitted to CPC for processing by 28.02.2019 so that CPC can apply the rules to identify cases for any PFA before processing ITR.

(ii) The response of assessee to AO on the notices issued under PFA should be submitted to CPC expeditiously well before time barring date.

(iii) If any paper ITR is not submitted to CPC as on 28.02.2019, it will be the responsibility of AO to issue PFA notice. For all such cases CPC will process the ITR as if the AO has completed the PFA notice process and the data submitted is final without the requirement of any adjustment.

Download Instruction Click Here >>

Also Read:
How to submit response to intimation u/s 143(1)(a)(vi) for mismatch of income from 26AS Form-16 or 16A Click Here >>