Is It Fair
Introduction:
The Income Tax Department is undergoing computerisation with
an undue haste and in the process creating chaotic situations for honest
taxpayers. Initially, with effect from 1st April, 2005 the transition from
manual to computerised system was planned with respect to TDS credit. The
Finance (No.2) Act, 2004 had amended the provisions to dispense with the
requirement of issuing TDS certificates by the deductors, the requirement of
submitting TDS certificates along with returns, and provide for the issuance of
Annual Tax Statement (Form 26AS), etc. Then, the implementation of these
proposals was postponed, the last postponement being made to 1st April, 2010 by
the Finance Act, 2008 — for the reason that the information technology
infrastructure of the Income-tax Department was not yet operational at the
national level. Therefore, at the time when the Finance Bill, 2008 was presented
before parliament, it was hoped that the department would be able to make its
information technology infrastructure ready by 1st April, 2010. However,
immediately thereafter, Rule 37BA was introduced with effect from 1st April,
2009 to provide that TDS credit shall be given on the basis of information
relating to deduction of tax furnished by the deductor. Therefore, it seems that
by virtue of some miracle what could not be achieved in spite of the combined
efforts of more than four years, has been achieved in just one year! The
implementation, therefore, has now been preponed by one year in an indirect
form.
The unfairness
In almost all the cases, while processing returns u/s.
143(1), for A.Y. 2007-08 & 2008-09, TDS credit has been denied either in part or
in full for the assumed reason that the information furnished by the assessee is
not matching with the information available with the department.
First of all, it needs to be examined whether the Assessing
Officer has a power to deny credit of TDS for such a reason, particularly for
A.Y. 2007-08 & 2008-09. Section 199, as it existed prior to its substitution by
the Finance Act 2008 with effect from 1st April 2008, provides for the credit of
TDS on the basis of production of the TDS certificate. Credit for TDS on the
basis of Annual Tax Statement in Form 26AS was only for the deduction of TDS
made on or after 1st April, 2008. Therefore, for A.Y. 2007-08 & 2008-09, TDS
credit should have been granted on the production of TDS certificates.
Although it was mandatory on the part of the assessee to
attach proof of TDS claim along with the return, as per provisions of
Explanation to Section 139(9), Rule 12(2) read with section 139C, has
specifically exempted assessees from submitting proof of TDS claimed along with
the return. However, it was required to be produced before the Assessing Officer
if demanded, as specifically spelt out in section 139C.
Therefore, if at all TDS credit was not matching with the
data available with the department, it was obligatory on the part of the
Assessing Officer to call for the proof of the TDS claim in the form of a TDS
certificate, and to allow the credit if the claim was found to be proper. This
view is further supported by Instruction No.6/2008, dated 18th June, 2008
whereby Assessing Officers were instructed that where the aggregate TDS claim
does not exceed Rs 5 lakh, and where the refund computed does not exceed Rs
25,000, the TDS claim of the taxpayer should be accepted at the time of
processing of returns; and in all remaining returns, the Assessing Officer shall
verify the TDS claim from the deductor or assessee, as the case may be, before
processing the return (Instruction was applicable for A.Y. 2007-08).
Without considering the legal position, the Assessing
Officers have resorted to denial of TDS credit wherever there was a mismatch and
that too even without explaining as to which TDS claim is not matching as per
their database!
The problem will be further aggravated for A.Y. 2009-10 and
subsequent years where the new section 199, read with Rule 37BA, will empower
Assessing Officers to deny credit wherever there is mismatch. Even without any
mistake on the part of the assessee, the credit will be denied — may be due to
some error on the part of the deductors in filing the relevant statements or on
the part of the banks in uploading the information on the challans.
There are many practical issues other than those caused by
the errors of the deductors or banks, which the department is not geared up yet
to tackle. For example, it has been experienced that the department has sent TDS
data verification report by email to the e-filer of the returns of A.Y. 2009-10
in which the credit has not been granted even on account of the differences in
Assessment Year, i.e., if the assessee has claimed the TDS credit pertaining to
an earlier Assessment Year on account of his cash system of accounting, the
difference has been reported to that extent in such reports sent by the
department. Therefore, in such cases, even without any mistake on the part of
any of the parties, the assessees have had to suffer only due to the technical
problems of the department.
As a result of denial of TDS credit, either the refund is not
granted to the assessee or the demand is raised with interest. In cases where
the demand has been raised due to such denial of TDS credit, the assessee can
take recourse to section 205 which provides that where tax is deductible at the
source, the assessee shall not be called upon to pay the tax himself to the
extent to which tax has been deducted. Therefore, at least in such cases where
the demand is arising due to the denial of TDS credit, the assessee should be
given an opportunity to prove that TDS has been deducted from his income. If it
is proved so by the assessee, the demand should not be enforced against the
assessee or refunds should not be adjusted against such demands automatically.
Conclusion
In a scenario where it has been accepted that the system is
not yet fully operational, and therefore, it has been made mandatory for the
deductor to issue TDS certificates till 31st March 2010, it is unfair to make
provisions at the same time to provide TDS credit merely on the basis of data
available in the system, ignoring TDS certificates. Necessary instructions
should be issued by CBDT to ensure that credit of TDS is given on production of
a certificate by the ‘Deductor’.
