Processing of Income Tax Return and Intimation Letter u/s 143(1)

What is processing?

When you file an Income tax return electronically, it is received in the database of Income tax Department at Centralized Processing Centre (CPC), Bengaluru. Such a receipt of ITR is acknowledged by Income tax Department through issue of ITR-V (acknowledgement). The ITR filed by electronically must be confirmed that you only have filed it or is filed on your behalf. Therefore, this needs to be verified. Such verification is done

  • Physically by sending signed ITR-V acknowledgement to CPC within 120 days of submitting ITR electronically
  • electronic verification through Aadhar OTP or Internet banking

Once the ITR is verified, it is taken up for checking defects. It is subjected to business rules framed for defective returns. If no defect is found, then it is pushed further for processing and if the defect are found then a defective return notice u/s 139(9) of the Income tax Act is generated and issued to you. You are required to correct those defects within 30 days. This is also done entirely online.

The ITRs in which no defects are found or whose defects are corrected, are pushed for processing.

In processing, the ITR is checked for following things:

  • Tax Payment
  • Whether the TDS credit claimed by you in ITR matches with that deposited by your deductor
  • The income claimed by you in your ITR matches with other details in ITR
  • The deductions claimed by you are arithmetically correct
  • The loss claimed by you in ITR is in order

The processing of ITR is also called as ‘summary assessment’.

Then the ITR is processed and the intimation letter is generated. This processing means that the Income tax Department has accepted your ITR formally. The intimation letter is of three kinds depending upon the adjustments done in processing.

Sr. No.

Type of intimation

Type of ITR

Description

What you should do?

1

No demand and no refund

In case of ITR where no refund is claimed.

In this case, the CPC doesn’t find any fault with your computation of income and tax and since you have not claimed refund, no refund will be shown in intimation letter

Nothing needs to be done. Keep safe for future reference.

2

Refund

In case of ITR where refund is claimed.

The CPC computes your refund as claimed by you. Sometimes, it may compute refund more than your claim. This happens generally when it pays you interest on the amount of refund as per section 244A of the I T Act.

Check if you have received refund in your bank account. If NO, then write email to CPC

3

Demand

In both cases of ITR

In these cases, the CPC doesn’t agree with your computation of income or tax or your tax payment or TDS credit doesn’t match. In these cases, the demand intimation letter is generated. Such amount of demand is either shown as payable in the intimation or in case you have claimed refund in your ITR, such demand is adjusted against your refund claim and refund claim is reduced or fully adjusted.

If you agree with the computation of CPC, then accept the less refund or pay the demand asked.

If you don’t agree, then you must submit online rectification application to CPC.

Centralized processing Centre (CPC)

Earlier, the Income tax returns were processed manually in every income tax office by each of the Assessing Officer. After the advent of compulsory electronic filing of returns, it was logical that the e-returns should be processed at one place electronically. Accordingly, the Central Government issued a scheme called ‘Centralized Processing of Returns Scheme (CPRS)-2011’ vide Notification dated 04.01.2012. This scheme specified everything related to the processing at CPC. Through this scheme the Centralized Processing Centre was born and developed at Bengaluru.

The CPC is headed by the Commissioner of Income tax and is responsible for following activities.

  • Receipt of electronic returns
  • Scanning of documents received like ITR-V acknowledgments
  • Data entry related activities related to receipt of ITRs and processing of them
  • Processing of ITRs
  • Prioritizing the kind of returns which need to be processed on priority
  • Issue of refunds through refund banker scheme
  • Validation of return filing softwares
  • Storage and retrieval of records
  • Receipt of rectification applications and carrying out rectifications
  • Issue of defective return notices and carrying out relevant corrections
  • Adjustments of refunds in cases of demands
  • Making rules and scheme for all the above tasks

The address of the CPC for communication is as follows:

1st Floor, Prestige Alpha No 48/1 48/2, Beratenaagrahara, Begur Hobli, Hosur Road, Bengaluru, Karnataka 560100.

Or

Post Bag No.1,
Electronic City Post Office,

Bengaluru, Karnataka 560100

What is Intimation Letter u/s 143(1)?

When the processing is done by CPC, Bengaluru, the outcome of such a processing is the Intimation Letter. This is generated electronically after processing. The intimation letter is of three kinds depending upon the adjustments done in processing. The actions that you need to take on such intimations is shown below.

Sr. No.

Type of intimation

Type of ITR

Description

What you should do?

1

No demand and no refund

In case of ITR where no refund is claimed.

In this case, the CPC doesn’t find any fault with your computation of income and tax and since you have not claimed refund, no refund will be shown in intimation letter

Nothing needs to be done. Keep safe for future reference.

2

Refund

In case of ITR where refund is claimed.

The CPC computes your refund as claimed by you. Sometimes, it may compute refund more than your claim. This happens generally when it pays you interest on the amount of refund as per section 244A of the I T Act.

Check if you have received refund in your bank account. If NO, then write email to CPC

3

Demand

In both cases of ITR

In these cases, the CPC doesn’t agree with your computation of income or tax or your tax payment or TDS credit doesn’t match. In these cases, the demand intimation letter is generated. Such amount of demand is either shown as payable in the intimation or in case you have claimed refund in your ITR, such demand is adjusted against your refund claim and refund claim is reduced or fully adjusted.

If you agree with the computation of CPC, then accept the less refund or pay the demand asked.

If you don’t agree, then you must submit online rectification application to CPC.

The format of intimation letter is different for different kinds of intimation letters. The format of intimation letter for ITR-1 is represented as below:



What to do with Intimation Letter?

After you receive the Intimation Letter, the first thing that you need to check is whether you have received refund that you claimed, or demand has been raised against you. The action which you need to take on the intimation depends upon the type of intimation letter received by you. Let taxbuddy do it

Sr. No.

Type of intimation

What you should do?

1

No demand and no refund

Nothing needs to be done. Keep safe for future reference.

2

Refund

Check if you have received refund in your bank account. If NO, then write email to CPC

3

Demand

Check whether demand is raised on you because of mismatch on reported income or mismatch in tax or TDS payment or mismatch in the deductions or losses claimed.

·         If you agree with the computation of CPC, then accept the less refund or pay the demand asked.

·         If you don’t agree, then you must submit online rectification application to CPC. Let taxbuddy do it

Section 143(1) explained

As a taxpayer, you file return of income or ITR under section 139(1) of the Income Tax Act. This ITR is filed electronically and is received in electronic database of CPC, Bengaluru. The return filed by you is checked by the Income tax Department for accuracy of taxes paid or arithmetical errors. This job is done by CPC. They must ensure that the returns filed are accurate. This process of checking the ITRs for their accuracy is called as ‘processing’. The legal back up of this process is given in the Income tax Act through its section 143(1). This processing is the final acknowledgement by the Income tax Department saying that ‘we have received your ITR and have seen it and acknowledged it.’

Section 143(1) sets the scope and limitations and parameters for processing:

  1. The income disclosed by the taxpayer in the ITR is to be computed after checking following things and making adjustments to the income, if necessary
    1. Any arithmetical error or calculation mistake in the ITR
    2. Any wrong claim if on verification of other information in the ITR if such claim is found to be false, wrong or inconsistent
    3. In case if you have filed tax audit report and some expenditure is mentioned in the said report as not allowable, then such an expenditure will be disallowed
    4. Incorrect claim of brought forward loss (if the ITR to which loss belongs was filed late)
    5. If the ITR is filed late and deduction or exemption under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE is claimed then such deduction shall be withdrawn
  2. The taxable income of the taxpayer is to be computed after considering above adjustments and the tax amount is to be computed on such income.
  3. The taxes paid by the taxpayer while filing ITR or before that via TDS, advance tax, self-assessment tax etc. is to be adjusted against the tax computed in processing
  4. If after such adjustment, the refund is determined to be paid to the taxpayer then the refund is to be granted
  5. If after such an adjustment, there is a demand against the taxpayer, such demand should be intimated to the taxpayer
  6. After such processing, an intimation letter is to be generated and issued to the taxpayer

Thus, entire process of processing and intimation is mandated as per section 143(1) of the Income tax Act

Adjustments in ITR and tax computation in processing

As per section 143(1) FIVE kinds of adjustments can be made to the income in ITR to compute taxable income through processing. These five types of adjustments are as under:

  1. Any arithmetical error or calculation mistake in the ITR

This means if there is a calculation mistake or rounding off mistake in the ITR that should be corrected in the processing. This will not correct the substantive mistakes like wrong reporting of income like if you have taxable income of Rs.150,000/- and by mistake you have entered Rs.15,00,000/-. Such mistake needs to be corrected by filing revised return only.

  1. Any wrong claim if on verification of other information in the ITR if such claim is found to be false, wrong or inconsistent

When you make a certain claim in your ITR in respect of computation of income or claim of deductions or exemptions, you need to give some additional information in different columns of ITR in respect of such a claim. If such an information about the claim is not consistent with the claim of the taxpayer or such an information is not filled in, then the claim made by the taxpayer will not be allowed and taxable income will be computed after disallowing this claim.

  1. In case if you have filed tax audit report and some expenditure is mentioned in the said report as not allowable, then such an expenditure will be disallowed

If you are covered under the tax audit and such an audit report lists the expenses claimed by you as not allowable expenses but still you have claimed such expenses in the ITR. Then during processing, such disallowable expenses are picked up by the CPC and disallowed while computing taxable income in the intimation letter.

  1. Incorrect claim of brought forward loss (if the ITR to which loss belongs was filed late)

The deduction against losses brought forward from ITRs filed in earlier years are allowable only when those ITRs of earlier years were filed well within time. The information regarding timely filing of those ITRs is with CPC. So, when you claim deduction for brought forward loss in the ITR from previous year’s ITR, then CPC checks the previous year’s ITR and if it is filed late then it shall disallow the claim of brought forward loss.

  1. If the ITR is filed late and deduction or exemption under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE is claimed then such deduction shall be withdrawn

The deductions under these sections can be claimed in ITR only when the ITR is filed by you well within time. If you haven’t filed your ITR well within time, then the deductions

under these sections shall not be allowed to you.

What is notice u/s 143 (1) (a)?

The Intimation Letter is issued to the taxpayer under section 143(1) of the Income tax Act. Such an intimation letter is a product of the processing of the ITR. This is generated after computing taxable income and tax payable or refund of the taxpayer. The processing of the ITR involves adjustments as mentioned in section 143(1) (a) of the I T Act. There are FIVE adjustments in total. However, before these adjustments are made, the CPC is required to send a letter to the taxpayer proposing these adjustments. This letter is called as ‘Notice u/s 141(1) (a).  The taxpayer receives such notice in his email or by post or he can find this notice in his account on the e-filing portal of CPC. The taxpayer is required to respond to this notice within 30 days of receiving of such a notice.

  • The taxpayer may accept such an adjustment or
  • The taxpayer may not accept such adjustment
  • The taxpayer doesn’t respond to such a notice

If the taxpayer doesn’t respond to such a notice, then it is considered that he accepts such an adjustment and accordingly, his ITR will be processed after considering this adjustment and intimation letter is issued.

If the taxpayer accepts the adjustment, he may revise his ITR within 15 days of such an acceptance.

The adjustments proposed in the notice under section 143(1) (a) are the same as are required to be done while processing the ITR.