DEMAND U/S 143(1) BY
INCOME TAX DEPARTMENT AND RECTIFICATION THEREOF U/S 154
Income
Tax Return filing season for certain class of assessees including individuals not
falling under tax audit provisions has just been over and by now the Income Tax
Department (the Department) has already started processing of these returns. In
fact, return filing and processing thereof are an ongoing process for different
class of assessees.
At
times, income tax payers get intimation of demand from the Department u/s
143(1).
Following
is the text of section 143(1) of the Income Tax Act, 1961;
“Where a return has been made u/s 139, or in response to a notice under
sub-section (1) of section 142, such return shall be processed in the following
manner, namely:—
(a) the
total income or loss shall be computed after making the following adjustments,
namely:—
(i) any
arithmetical error in the return; or
(ii) an
incorrect claim, if such incorrect claim is apparent from any information in
the return;
(b) the
tax and interest, if any, shall be computed on the basis of the total income
computed under clause (a);
(c) the
sum payable by, or the amount of refund due to, the assessee shall be
determined after adjustment of the tax and interest, if any, computed under
clause (b) by any tax deducted
at source, any tax collected at source, any advance tax paid, any relief
allowable under an agreement u/s 90 or section 90A, or any relief allowable u/s
91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment
and any amount paid otherwise by way of tax or interest;
(d) an
intimation shall be prepared or generated and sent to the assessee specifying
the sum determined to be payable by, or the amount of refund due to, the
assessee under clause (c); and
(e) the
amount of refund due to the assessee in pursuance of the determination under
clause (c) shall be granted to
the assessee:
Provided that an
intimation shall also be sent to the assessee in a case where the loss declared
in the return by the assessee is adjusted but no tax or interest is payable by,
or no refund is due to, him:
Provided further that no
intimation under this sub-section shall be sent after the expiry of one year
from the end of the financial year in which the return is made.
Explanation.— For the purposes of this sub-section,—
(a) "an
incorrect claim apparent from any information in the return" shall mean a
claim, on the basis of an entry, in the return,—
(i) of an item, which is inconsistent with another
entry of the same or some other item in such return;
(ii) in
respect of which the information required to be furnished under this Act to
substantiate such entry has not been so furnished; or
(iii) in
respect of a deduction, where such deduction exceeds specified statutory limit
which may have been expressed as monetary amount or percentage or ratio or
fraction;
(b) the
acknowledgement of the return shall be deemed to be the intimation in a case
where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been
made under clause (a).”
Most
of such cases are generated due to discrepancy in income tax return and the
documents on the basis of which such return is prepared including TDS
certificates, Form 16/Form 16A or Form 26AS etc.
RECTIFICATION U/S 154
Taxpayers
need not worry if they get such intimation u/s 143(1). Instead, they should try
to understand the reason for the demand and act accordingly.
Income Tax Act provides for the rectification u/s 154 for the
cases where demand has been intimated under above said section 143(1).
The text of section 154 is as under;
Rectification of
mistake.
“154. [(1) With a view to
rectifying any mistake apparent from the record an income-tax authority
referred to in section 116 may,—
(a) amend
any order passed by it under the provisions of this Act ;
[(b) amend any intimation or deemed
intimation under sub-section (1) of section 143;]]
[(c) amend any intimation under
sub-section (1) of section 200A.]
[(1A) Where any matter has been considered and decided in any
proceeding by way of appeal or revision relating to an order referred to in
sub-section (1), the authority passing such order may, notwithstanding anything
contained in any law for the time being in force, amend the order under that
sub-section in relation to any matter other than the matter which has been so
considered and decided.]
(2) Subject to the other provisions of this section, the authority
concerned—
(a) may
make an amendment under sub-section (1) of its own motion, and
(b) shall
make such amendment for rectifying any such mistake which has been brought to
its notice by the assessee [or by the deductor], and where the authority
concerned is the [Commissioner (Appeals)], by the [Assessing] Officer also.
(3) An amendment, which has the
effect of enhancing an assessment or reducing a refund or otherwise increasing
the liability of the assessee [or the deductor], shall not be made under this
section unless the authority concerned has given notice to the assessee [or the
deductor] of its intention so to do and has allowed the assessee [or the
deductor] a reasonable opportunity of being heard.
(4) Where an amendment is made under this section, an order shall be
passed in writing by the income-tax authority concerned.
[(5) Where any such amendment has the effect of reducing the assessment
or otherwise reducing the liability of the assessee or the deductor, the
Assessing Officer shall make any refund which may be due to such assessee or
the deductor.]
(6) Where any such amendment has the effect of enhancing the assessment
or reducing a refund [already made or otherwise increasing the liability of the
assessee or the deductor, the Assessing Officer shall serve on the assessee or
the deductor, as the case may be] a notice of demand in the prescribed form
specifying the sum payable, and such notice of demand shall be deemed to be
issued u/s 156 and the provisions of this Act shall apply accordingly.
(7) Save as otherwise provided in section 155 or sub-section (4) of section
186 no amendment under this section shall be made after the expiry of four
years [from the end of the financial year in which the order sought to be
amended was passed.]
[(8) Without prejudice to the provisions of sub-section (7), where an application
for amendment under this section is made by the assessee [or by the deductor]
on or after the 1st day of June, 2001 to an income-tax authority referred to in
sub-section (1), the authority shall pass an order, within a period of six
months from the end of the month in which the application is received by it,—
(a) making
the amendment; or
(b) refusing
to allow the claim.]”
Therefore,
the taxpayer should collect all relevant documents including Form 16 (in case
of salaried employees), Form 16A, TDS Certificates, Form 26AS and Computation
of total income etc.
On
the basis of the above documents, a proper rectification request should be
prepared and submitted to the income tax department.
PROVISION
OF THE ACT WHERE TDS IS NOT DEPOSITED/WRONGLY DEPOSITED
It is emphasized that if the Tax Deducted at Source (TDS)
credit is available in Form 26AS and the same has not been considered in the
intimation letter u/s 143(1), the same shall be provided while processing the
rectification request u/s 154.
However, The Income Tax Department may deny credit of TDS in
cases where TDS is available in Form 16/Form 16A/TDS Certificates but not
available in Form 26AS. Also in some cases employer/deductor may not have
deposited the said TDS or deposited in wrong PAN number. In such cases,
following provision of the Act shall be helpful to the taxpayer/professional;
Section
205 of the Act in clear terms, provides that the assessee shall not be called
upon to pay the tax himself to the extent to which tax has been deducted from
that income.
Text
of section 205 is as follows;
“Where tax is deductible at the source under [the foregoing provisions
of this Chapter], the assessee shall not be called upon to pay the tax himself
to the extent to which tax has been deducted from that income.”
SOME
IMPORTANT CASE LAWS WHERE TDS IS NOT DEPOSITED/WRONGLY DEPOSITED
There
are various judgments of the different Hon’ble High Courts where it has been
decided that if the TDS is reflecting in Form 16/Form 16A or TDS certificates
or the fact of TDS deduction is established, then the Department must provide
the credit of the same to the concerned assessee and he/she shall not be called
upon to pay the tax again to the extent to which tax has been deducted.
Taxpayers/Professionals may take help of following case laws
in above mentioned situations;
1. Sumit Devendra Rajani Versus Assistant
Commissioner Of Income Tax
In
this recently decided case, Sumit Devendra Rajani Versus Assistant Commissioner
of Income Tax, the Hon’ble High Court of Gujarat has decided as under;
“It is held that the petitioner
assessee deductee is entitled to credit of the tax deducted at source with
respect to amount of TDS for which Form No.16A issued by the employer deductor
– M/s. Amar Remedies Limited has been produced and consequently department is
directed to give credit of tax deducted at source to the petitioner assessee –
deductee to the extent form no.16 A issued by the deductor have been issued.
Consequently, the impugned demand notice dated 6.1.2012 (Annexure D) is quashed
and set aside. However, it is clarified and observed that if the department is
of the opinion deductor has not deposited the said amount of tax deducted at
source, it will always been open for the department to recover the same from
the deductor….”
2. ACIT
vs. Om Prakash Gattani (2000) 242 ITR 638.
In
this case, the Hon’ble Gauhati High has decided as under;
“It would not be possible to
proceed to recover the amount of tax from the assessee. The assessee cannot be
doubly saddled with the tax liability. Deduction of tax at source is only one
of the modes. Once this mode is adopted and by virtue of the statutory
provisions the person responsible to deduct the tax at source deducts the
amount, only that mode should be pursued for the purpose of recovery of tax
liability and the assessee should not be subjected to other modes of recovery
of tax by recovering the amount once again to satisfy the tax liability. It is,
therefore, provided u/s 201 of the Income-tax Act that the person responsible
to deduct the tax at source would be deemed to be an assessee in default in case
he deducts the amount and fails to deposit it in the Government treasury. As
observed earlier, the assessee has no control over such person who is
responsible to deduct the income-tax at source, but fails to deposit the same
in the Government treasury. In this light of the matter, in our view, the
notices issued under Section 226(3) of the Income-tax Act to the bankers of the
petitioner-respondent to satisfy the tax liability from the bank account of the
petitioner-respondent are illegal. It is not that the Income-tax Department was
helpless in the matter. The person responsible to deduct the tax at source
would move into the shoes of the assessee and he would be deemed to be an
assessee in default. Whatever process or coercive measures are permissible
under the law would only be taken against such person and not the assessee.”
3. Yashpal Sahni vs. ACIT
(2007) 293 ITR 539.
Hon’ble
Bombay High Court in this has observed as under;
“Although it is obligatory on the
part of the person collecting tax at source to pay the said TDS amount to the
credit of the Central Government within the stipulated time, if such person
fails to pay the TDS amount within the stipulated time, then, Section 201 of
the Act provides that such person shall be deemed to be an assessee in default
and the revenue will be entitled to recover the TDS amount with interest at 12%
p.a. and till the said TDS amount with interest is recovered there shall be a
charge on all the assets of such person or the company. Penalty u/s 221 of the
Act and rigorous imprisonment u/s 276B of the Act can also be imposed upon such
defaulting person or the company. Thus, complete machinery is provided under
the Act for recovery of tax deducted at source from the person who has deducted
such tax at source and the revenue is barred from recovering the TDS amount
from the person from whose income, tax has been deducted at source. Therefore,
the fact that the revenue is unable to recover the tax deducted at source from
the person who has deducted such tax would not entitle the revenue to recover
the said amount once again from the employee-assessee, in view of the specific
bar contained in Section 205 of the Act.”
4.
Smt.
Anusuya Alva vs. Deputy Commissioner of Income Tax and Others
(2005) 278 ITR 206 (Karn).
In
this case Hon’ble Karnataka High Court has decided as follows;
“In the circumstances, I am of the
view that the Revenue is to be definitely restrained in terms of
Section 205 of the Act from
enforcing any demand on the assessee-petitioner insofar as the demand with reference
to the amount of tax which had been deducted by the tenant of the assessee in
the present case, and assuming that the tenant had not remitted the amount to
the Central Government. The only course open to the Revenue is to recover the
amount from the very person who has deducted and not from the petitioner.”
5.
Commissioner
of Income Tax vs. Ranoli Investment P. Ltd. and Others
(1999) 235 ITR 433(Guj).
The
Hon’ble High Court of Gujarat in this case has decided as follows;
“As provided by s. 205 of the Act,
where tax is deductible at source, the assessee shall not be called upon to pay
the tax himself to the extent to which it has been deducted from the relevant
income. Thus, from the aforesaid provisions it emerges that as soon as the tax is
actually deducted at source by the person responsible to make payment, the
liability of the assessee to pay that tax gets discharged and it is for the
person who has deducted the tax at source to deposit the same with the Government.”
CA. Brijesh
Baranwal
Mumbai
Note:
1.
The Author is a
Practicing Chartered Accountant and based in Andheri (West), Mumbai,
2.
Please feel free
to share with your friends and everyone without any copy right issues,
3.
The write up is
only for awareness purpose and should not be considered as expert opinion,
