All You Need To Know About Section 68 & Section 143 (1) of the Income Tax Act

Section 68 – Cash Credit

When there is any amount credited in the books of accounts of the assessee and the assessee has no clarification whatsoever about the source of the same or the clarification provided is not satisfactory to the officer, provisions of section 68 of the Income Tax Act comes into action.

Current article highlights the background, scope and applicability of section 68, specific provisions of section 68 which are applicable to the company and income tax and penalty provisions thereon.

Background and Scope of Section 68

1. The section was first introduced and made effective from 1^st April, 1962;
2. Section 68 is based on the rule of evidence;
3. The onus to prove the genuineness of the transaction has been burdened upon the assessee.

Applicability of Section 68 

1. Any sum has been credited in the books of accounts for any previous year;
2. Assessee offers no explanation about the nature and source of such credit;
3. In the case where explanation has been provided by the assessee, the Assessing officer is not satisfied with the explanation so provided;
4. In such case, a sum so credited may be charged to income tax as the income of the assessee of that previous year.

Specific Provisions for the Company 

In case the company, other than company in which the public are substantially interested, has credited any amount by way of share application money, share capital, share premium or by any other name, the person in whose name the credit has been recorded is also required to give an explanation about the nature and the scope of the source of income.

It must be noted here that the above rule is however not applicable if the investment is done by the venture capital company or a venture capital fund.

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Criteria to Prove the Genuineness of the Transaction

As per the ruling of the Honorable Calcutta High Court in the case of CIT vs. Precision Finance Pvt. Ltd., the assessee is under the obligation to prove following criteria in order to avoid application of the deeming provision;

1. The identity of his creditors;
2. The creditworthiness / financial soundness of the creditors; and
3. The genuineness of the transaction.

Income Tax Payable When Income Is Added As Per Section 68

When income has been added by the invocation of the provisions of section 68 of the Income Tax Act, the tax on the said income is payable as per section 115BBE of the Act.

The provisions of section 115BBE, clearly provide that, when the total income of any person includes income referred in section 68, then under such circumstances, income tax shall be calculated @60%. Further, no deduction in respect of any of the expenditure or allowance or set off of any loss shall be permissible to the assessee in computing his income referred in section 115BBE.

Applicability of Penalty Section 271aac 

If the following conditions are satisfied, the assessee is liable to pay the penalty under section 271AAC –

1. Income determined includes the income referred to in section 68; and
2. Income so determined in section 68 has not been included in the income tax return furnished under section 139; or
3. Income tax as ascertained under section 115BBE (1)(i) has not been paid on or before the end of the relevant previous year.

Penalty amount, if above-mentioned conditions of section 271AAC are satisfied, would be 10% of the tax payable under section 115BBE(1)(i).

Section 143 (1) of the Income Tax Act

Once the assessee files the income tax return either on its own, voluntarily, as per section 139 or in response to the notice under section 142 (1), the department carries out the preliminary assessment and intimates the same to the assessee. The intimation generated on the basis of the preliminary assessment is referred to as intimation under section 143 (1) of the Income Tax Act.

The current article helps to understand the process which is undertaken by the department once the return has been filed by the assessee and the steps to be followed by the assessee to respond to the said intimation.

Preliminary Assessment of the Income Tax Return

After filing of the income tax return by the assessee, the ‘preliminary assessment’ of the return and generation of intimation thereof, by the department, is completely computerized. Centralized Processing Center (CPC) compares the data provided by the assessee in the income tax return against the details available with the department in the form of Form 26AS, Form 16, TDS returns etc.

While conducting the ‘preliminary assessment’ various adjustment are being done to the total income / loss and the list of the said adjustment is being provided in the below mentioned paras.

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Various Adjustment to the Total Income / Loss

1. An Arithmetical error;
2. Any incorrect claim which is apparent from the information in the return;
3. Dis-allowance of expenditure mentioned in the audit report, however, the same has not been taken into account while computing the total income in the return;
4. Dis-allowance of loss claimed when the return of the previous year for which set-off of loss is claimed was furnished beyond the due date as provided under section 139(1);
5. Dis-allowance of the deduction claimed under section 10AA, 80IA to 80IE when the income tax return has been furnished beyond the due date as provided under section 139(1);
6. Details of income, challan no., TAN, BSR code as reflected in Form 26AS, Form 16 or Form 16A are compared;
7. Advance tax, self-assessment tax and TDS etc. are compared with the details in form 26AS;

Understanding The Intimation

The Notice / Intimation Received Under Section 143 (1) Of The Income Tax Act Is Computer Generated And The Same Has Two Columns Namely –

‘As Provided By The Taxpayer In The Return Of Income’ And

‘As Computed Under Section 143 (1)’.

Income Under Various Heads Along-With Deductions There of, TDS And Self-Tax Payments Would Be Compared And Any Discrepancy Under The Same Would Be Reflected In The Notice / Intimation.

There Are Possibly Following 3 Types Of Intimation

1. Intimation With No Demand / Refund.
2. Intimation With A Tax Demand.
3. Intimation With A Tax Refund.

Steps to be Followed By the Assessee on Receipt of The Intimation

1. Visit site https://www.incometaxindiaefiling.gov.in/home
2. Click on Login Here;
3. Navigate path e-Proceeding > e-Proceedings > Prima Facie Adjustment u/s 143(1)(a);
4. List of income tax notice would be displayed and on clicking the appropriate ‘reference ID’ the process of submitting the response would be initiated;
5. List of mis-match would be displayed and one needs to either ‘agree’ or ‘disagree’ the same;
6. In case one select ‘Agree’, the assessee needs to undertake relevant addition / modification in the return and file the revise return. However, in case the ‘Disagree’ is selected the assessee needs to provide the reason for the said disagreement;
7. In case there are any supporting documents, as a proof towards the amount of discrepancy the same needs to be attached;
8. The final step would be to click on ‘SUBMIT’ and on clicking it the acknowledgment would be displayed.

Time Limit

Assessment under section 143 (1) can be undertaken within a period of one year from the end of the financial year in which the income tax return has been filed.