Section 143(1) of the Income Tax Act, 1961 has been recommended to be revised by Union Finance minister Nirmala Sitharaman. The Income Tax Department has also released frequently asked questions about this amendment. To decrease taxpayer notices, the Finance Bill 2025 suggests amending Section 143(1) to address discrepancies between prior and current income tax returns. Additionally, it would increase the scope of prima facie adjustments to ITRs.

The FAQs state that, in accordance with rules, the change to Section 143(1) attempts to resolve any disparities between the information on the tax return and that from the return of a prior year.  The FAQ made it clear that precise rules for locating and resolving these discrepancies had not yet been established.  One potential situation, though, would be if a taxpayer claimed a credit on a prior return but neglected to appropriately record the same amounts on the current return.
 
The frequently asked questions said: "Section 143(1) has been amended to provide for checking any inconsistency in the return with respect to the information in the return of any preceding year, as may be prescribed."

What is section 143(1)?
Section 143(1) of the Income Tax Act, which addresses the processing of income tax returns (ITR) following submission and verification by taxpayers, has been amended by the Finance Bill 2025.  Historically, the tax department was able to make prima facie adjustments for mathematical errors or claims that appeared to be inaccurate under this clause.  In order to reduce the number of income tax notices sent, the modification now attempts to rectify discrepancies between the current year's and the prior year's ITR at the time of processing.
 
'(iia) any such contradiction in the return, with respect to the information in the return of the preceding year, as may be prescribed,' states the particular amendment.  The Central Board of Direct Taxes (CBDT) is empowered by this expansive section to recommend different circumstances for adjustment.

Tax professionals claim that Section 143(1) functions as a summary assessment clause that permits the tax office to issue orders without undergoing a thorough review procedure.  Prima facie adjustments have historically been made in this section, but, over time, these have been expanded to include specific disallowances, such as the disallowance of alleged losses or expenses, or increases based on revenue that appears in 26AS.
 
This pattern is maintained by the recently proposed amendment, which broadens the scope to cover discrepancies with returns from prior years.  Although the goal of adjustments under Section 143(1)(a) is to ascertain the entire income or loss, the new modifications may result in legal action if taxpayers contest the adjustments.

With a wider range of potential prima facie adjustments, taxpayers may be significantly impacted by this modification.  Inconsistencies between current and prior ITRs, such as differences in reported income, revealed assets, or carry-forward losses, will be subject to a more extensive examination throughout the processing phase under the new regulations.
 
The expanded scope for adjustments may make disputes more likely, even though taxpayers would have a chance to reply to proposed adjustment notices.  Although the focus on uniformity is intended to expedite the evaluation procedure and lessen the administrative strain of sending letters, it also prompts worries about the possibility of more lawsuits.
 
 

 

 
 
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SIBY JEYYA

26/03/2025 09:14 AM