The CPC – ICAI has requested that the concerns raised by automatic processing under Section 143(1) of the Act be addressed.

As a partner in nation building, the ICAI plays a critical role in strengthening the connection between taxpayers and the Department by bringing to the Department’s attention actual problems suffered by assessees under the Income-tax Act and ensuring early redressal of the same. Continuing in this vein, we call to your attention the issues taxpayers are experiencing due to CPC’s processing of returns under Section 143(1) of the Income-tax Act of 1961, which includes adding income twice as recorded in Clause 16 of Form 3CD. This is evident in thousands of indications.

Section 143(1)(a)(iv) authorizes the CPC to process income tax returns automatically. Certain assessees who are required to have their accounts audited additionally provide information in Form 3CD. Adjustments for disallowance of expenditure or increase in income, etc., are noted on Form No. 3CD but not considered in total computing income in the return

Clause 16 of Form 3CD requires the tax auditor to record amounts not credited to the profit and loss account, such as (a) items falling within the meaning of section 28, and (d) any other item of income. The amount reported under this provision is added to the income reported in the ITR.

Issues and concerns raised by taxpayers as a result of erroneous automatic adjustments made by the CPC under section 143(1) based on information provided in clauses 16(a) and 16(d) of Form 3CD



However, assessees and our members have complained that taxpayers are receiving notifications from CPC under section 143(1)(a) for income declared in clauses 16(a) and 16(d) of Form No. 3CD. This adjustment is made without taking into account the fact that such income has previously been offered to tax in the ITR Form furnished by the assessee, either under another head of income or under other particulars of business income head.

The online replies given by the assessee in response to such a proposed increase in income under section 143(1)(a) are also not taken into account. The assessee’s online comments are completely ignored, although clearly stating that the revenues provided in clauses 16(a) and 16(d) of Form 3CD are taxed/reported on the ITR Form at relevant places designed for reporting such incomes.

Where an amount of income is contained in Form No. 3CD at clauses 16(a) and 16(d), assessees have generally included the such amount in income computation and, as a result, in ITR. In the event of a lone proprietorship, for example, savings bank interest or residential property rent received (which is not commercial revenue) is credited to the proprietor’s profit and loss account and capital account. When calculating income, it is included in taxable income and shown in the ITR provided by him.

After receiving notice under section 143(1), an application under section 154 of the Act can be made to correct any obvious error. However, no rectification request is permissible in the case of such revenue addition.



Once again to explain the above issue, consider a situation where an assessee say, Mr. A has an income of Rs 500 from a partnership firm (i.e. remuneration, interest, etc) and Rs 400 from a proprietorship firm. Both firms are liable for tax audits under the Act. The income from the partnership firm is not included in the profit and loss account of the proprietorship firm but is directly taken in the computation of income for the purposes of furnishing the ITR Form. The tax auditor while reporting in Form 3CD (of proprietorship firm) in clause 16(a) – Amounts not credited to the profit and loss account, being the items falling within the scope of section 28 – has reported Rs 500, which is the income from the partnership firm not credited to the profit and loss account. Now, in ITR Form 3 of Mr. A, he has included the income from partnership firm i.e. Rs 500 in Schedule BP Clause 24 – Any other income not included in profit and loss account/any other expense not allowable (including income from salary, commission, bonus, and interest from firms in which individual/HUF/prop. concern is a partner). However, CPC on the basis of the tax audit report is making adjustments u/s 143(1)(a) and again added Rs 500 in Schedule BP clause 23 (Any other item of addition under section 28 to 44DA).


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Similar is the case with various other assessees wherein income as reported in clauses 16(a) and 16(d) of Form 3CD are being added under section 143(1)(a). In other cases, any item in the nature of income eg Interest income, rental income, agricultural income, etc which is credited to the capital account (since non-business income) is reported under clause 16(d) of Form 3CD of the assessee. While filing ITR, these items of income are offered for taxation under the respective heads of income. While processing such ITRs by the CPC, entire such income(s) though offered for taxation is added back & demand is raised. The same is being done without considering the response submitted against the intimation of the proposed adjustment under section 143(1)(a).

This error in programming for processing ITR is resulting into:

(a) raising unwarranted demands

(b) costing time, efforts, and money to taxpayers, besides mental agony,

(c) costing time, efforts, and cost to the Government,

(d) contrary to the policy of the Hon’ble Prime Minister of Ease of Doing Business,

(e) receding status of the country in ease of doing business ranking.



Request for Consideration

As is clear from above, automatic additions of income under section 143(1)(a) incomes reported in clauses 16(a) and 16(d) of Form 3CD without considering income based on incorrect computation. The online responses submitted against such proposed additions should be considered before raising demand and even rectification applications also must be permitted in such cases.


It is suggested that:

(1) The CBDT may look into the matter of automatic additions to income based on reporting under clauses 16(a) and 16(d) of Form 3CD without considering the fact that such incomes may have been offered by taxpayers in their ITR Form.

(2) The online responses against such intimations should necessarily be considered.

(3) Application for rectification should be allowed in the program and be considered on merit.

(4) Where response or application for rectification has been rejected, all such cases be revisited for doing justice.

MSME- Recoveries redefined; Working Capital Assistance by Professionals!

MSME- Recoveries redefined; Working Capital Assistance by Professionals!

MSME units are facing working capital issues because on one side they are facing challenges of timely credit from formal banking channels and paying the comparatively higher interest rates and on the other, they have to extend interest-free credit to their customers as well as delayed recovery which is ultimately triggering sickness in the MSME sector.

MSME Development Act (the Act) has incorporated necessary provisions for ensuring prompt and smooth flow of funds to MSMEs and measures also to ensure timely payment to the MSME sector.

As per provisions of the Act, the buyer is duty-bound to release payment on or before the agreed date or within a period of 45 days, whichever is earlier from the day of acceptance or deemed acceptance of supply of goods and services done by MSME. Further, if the payment to MSMEs is delayed beyond the agreed period of forty-five days, the buyer is liable to pay compound interest with monthly interest at the rate of 3 times the bank rate notified by the Reserve bank of India, for the delayed period.

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If the buyer fails to make the payment within the stipulated deadline, registered MSMEs can take up the issue directly with the Micro and Small Enterprises Facilitation Council of the state (created by respective state government’s) in which their unit is situated for recovery of dues along with interest on delayed payments.

MSE Facilitation Council acts as conciliator or arbitrator and is duty-bound to solve the issue within 90 days. MSEFC is gradually gaining prominence vis-a-vis recovery suit. Where the conciliation initiated is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any Institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to In sub-section (i) of section 7 of that Act.

Is it difficult to file an income tax return in India?

Every reference made under this section shall be decided within a period of ninety days from the date of making such reference.”

 An appeal (by any person other than supplier) against the award, decree or other orders of MSEFC or Centre or institution referred by the MSEFC can be entertained by any court only after deposition of 75% of the amount in terms of the decree, award to other order. Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case subject to such conditions as it deems necessary to impose. These provision has been validated by higher courts including Supreme Court.

In the years to come, MSEFC constituted by States will gain momentum and will become a decisive factor.

It is a great opportunity for CA in practice as they can play a vital role in hand holding the MSME sector to overcome their working capital issues and render professional services in helping them in approaching the MSE Facilitation Council for recovery of their overdue along with interest as specified in the Act. This will ultimately result in the growth of cliental, MSME sector and Nation.

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