[Court On Its Own Motion Vs. CIT; (2012) 25 taxman. com 131 (Del):]
By way of suo moto public interest writ petition, the Delhi High Court considered the general problems faced by the taxpayers specially small taxpayers/ individuals regarding issue of refunds, which are denied on the basis of wrong or bogus demand or incorrect record maintenance and the problem faced by them in getting full credit of the tax, which is deducted from their income and paid to the Revenue.
The Revenue/Income tax department, had filed counter-affidavit and acknowledged and accepted that the taxpayers are facing difficulties in receiving credit of Tax Deducted at Source (TDS for short). It is also accepted that taxpayers are facing difficulties in getting refunds on account of adjustment towards arrears.
In the counter-affidavit, steps taken by the revenue to eliminate and rectify the problems and difficulties faced by the taxpayers were mentioned. It is stated that changes in the software and the procedure have been made or are being undertaken so that the problems, glitches and difficulties are eliminated.
The High Court held/directed as under:
“1. Problems faced by taxpayers
1.1 The problems faced by the taxpayers can be broadly classified into two categories. Firstly, failure and difficulties in getting credit of TDS paid. The said amount is deducted from the income earned by the assessee, but even for several reasons not attributable to the taxpayers, they are denied credit. The second category consists of adjustment of past demands or arrears of the tax from the refund payable. The two problems have to be addressed and tackled separately.
1.2 With regard to the second category, it is noticed that the Income Tax Department has initiated process of centralised computerisation of records, centralised computerised filing and processing of returns and issue of refunds, which is to be appreciated and is laudable. The problem is not for the said reason, but because of the wrong and incorrect data uploaded in the centralised computer system. In the counter-affidavit, it is stated that the Assessing Officers were asked to carry out physical verification of the past demands and to create manual arrears D&CR for up to the financial year 2010-11 vide Board’s letter dated 28-4-2010. This was followed by several other letters written by the Board, wherein it was emphasised that the Assessing Officer must verify and correct the arrears recorded in the D&CR. This was necessary as the arrears or demands were to be uploaded in the Central Processing Unit (CPU) at Bengaluru. In the counter affidavit, it is stated that more than 46.23 lakh entries of demand aggregating to Rs. 2.33 lakh crore for the period prior to 1-4-2010, were uploaded on CPU arrear/demand portal pursuant to the information uploaded/furnished by the Assessing Officers.
2. Applicability of section 245
Section 245 envisages prior intimation to the assessee, so that he can respond before any adjustment of refund is made towards a “demand” relating to any other assessment year. Thus, the opportunity of response/reply is given and after considering the stand and plea of the assessee, an order/direction for adjustment when justified and proper is made. The section postulates and mandates a two stage action. Prior intimation, and then a subsequent action when warranted and necessary of adjustment, of the refund towards arrears.
3. Stand taken by revenue in counter-affidavit
3.1 In the counter-affidavit, the revenue had accepted that when a return is processed u/s. 143(1), the CPU itself adjusts the refund due against the existing demand i.e. there is adjustment, but without following the procedure prescribed u/s. 245, which requires prior intimation so that the assessees can respond or give their explanation. It is also stated in the said affidavit that 14.6 lakh communications have been sent by e-mail and 8.33 lakh communications have been sent through speed posts making adjustments of refunds. The total amount adjusted as per the letter dated 21-8-2012 is Rs. 4800 crore.
3.2 At this stage, it is stated that in very few cases prior intimation was sent and the procedure prescribed u/s. 245 was not followed. It is further submitted that in cases where prior intimation was given, the assessees were required to get in touch with the Assessing Officer and file response. But the Assessing Officer did not accept the reply/response on the ground that the assessee should approach CPU, Bengaluru. At the same time, CPU, Bengaluru did not accept the reply/ response on the ground that the assessee should approach the Assessing Officer. It is submitted that the procedure is contrary to statute as an order of adjustment after issue of prior intimation has to be passed by the Assessing Officer. The difference between the first and second stage is being obliterated and the section violated.
4. Directions issued to department
4.1 The department will file an affidavit in this regard explaining the true and correct position. They shall clearly indicate whether prior intimation was sent before adjustment or with the first intimation itself adjustment was made and in how many cases prior intimation was sent or was not sent before making adjustments. They shall also indicate the procedure followed, if an assessee wants to file or has filed a response/reply pursuant to the prior intimation and whether such responses are/were entertained, examined, verified and opinion of the Assessing Officers are/ were taken. It shall be stated whether any adjustment order is subsequently passed by the Assessing Officer.
4.2 Thus, interim directions were issued to the department that they shall in future follow the procedure prescribed u/s. 245 before making any adjustment of refund payable by the CPU at Bengaluru. The assessees must be given an opportunity to file response or reply and the reply will be considered and examined by the Assessing Officer before any direction for adjustment is made. The process of issue of prior intimation and service thereof on the assessee will be as per the law. The assessees will be entitled to file their response before the Assessing Officer mentioned in the prior intimation. The Assessing Officer will thereafter examine the reply and communicate his findings to the CPU, Bengaluru, who will then process the refund and adjust the demand, if any payable. CBDT can fix a time limit for communication of findings by the Assessing Officer. The final adjustment will also be communicated to the assessees.
5. Computerised adjustment of refund without following procedure prescribed u/s. 245
This brings to the problem where adjustments of refund has been made by the CPU, Bengaluru, without following the procedure prescribed u/s. 245 and adjustment has been made for non-existing or fictitious demands. Obviously, the Revenue cannot take a stand that they can make adjustments contrary to the procedure prescribed u/s. 245 based on the wrong data uploaded by the Assessing Officers as question of payment of interest also arises. However, before issuing final directions in this regard, an affidavit as directed above explaining the procedure adopted by them should be brought on record. Opportunity must be given to the Revenue, to adopt a just and fair procedure to rectify and correct their records and issue refunds with interest, without putting a harsh burden and causing inconvenience to the assessee.
6. Problem relating to failure of taxpayers to get credit of TDS
6.1 This brings to the first problem relating to the failure of the taxpayers to get credit of the TDS, which has been deducted from the income pay-able/paid to them. The said problem can be further bifurcated into two categories. The first category relates to cases where the amount is reflected in Form 26AS, but because of incorrect entries in the return or small mismatch with the return data, the taxpayers do not get credit. The second category pertains to the cases where the TDS has been deducted by the deductor, but the taxpayer has been denied and deprived credit for the failure of the deductor to correctly upload the TDS return or details. Thus, the taxpayers do not get credit of the same in spite of payment. Thus, they are forced and compelled to make double tax payment.
6.2 The magnitude of the problem can be under-stood and appreciated, as it is stated that in the financial years 2010-11 and 2011-12, as many as 43% and 39% of the returns processed in Delhi charge were found to be defective. The total demand in Delhi Zone of Rs.3000 crore (approximately) for the financial year 2010-11 was created and the same became arrears payable in the next financial years. After rectification of applications and consequent corrective orders, the figure has come down to Rs.1900 crore, which is still a substantial amount.
6.3 Most of the assessees have a grievance that in spite of writing letters to the deductors to rectify and correct the TDS details, the deductors fail and neglect to do so, as the failure does not entail any adverse consequence or action against them. The deductee being the taxpayer is out of pocket and is harassed, but the deductor does not suffer, when the deductee does not get benefit of the tax paid. The response given by the Revenue is that (i) When returns are processed u/s. 200A by TDS Assessing Officers, the deductors are informed about the errors in such returns. In case of failure to correct such errors by the deductors, no penal provision is provided under the Act. They can only be persuaded to correct such errors. (ii) While processing returns at CPU if any TDS credit claimed by the taxpayer in the return doesn’t match with the details uploaded by the deductor list of such mismatches is sent to the tax deductors total of 20119 such communications had been issued by CPU up to April 2011. A deductorwise consolidated list of such mismatches are sent from CPU to the CIT (TDS) having jurisdiction over the deductor for necessary follow-up with the deductors.
6.4 The response is unconvincing and unsatisfactory. It expresses complete helplessness on the part of the Revenue to take steps and seeks to absolve them from any responsibility.
7. Applicability of section 272BB
Attention is drawn towards section 272BB, wherein penalty of Rs. 10,000 has been prescribed for failures on the part of the deductor. The Board will examine the said provision and whether the same can be invoked in cases where complaints are received from the taxpayers that in spite of requests, the deductors fail to rectify the defects or upload the correct TDS details. Denying benefit of TDS to a taxpayer because of fault of the deductor, which is not attributable to the deductee, is a serious matter and causes unwar-ranted harassment and inconvenience. Revenue cannot be a silent spectator and wash their hands or express helplessness. This problem is normally faced by the small taxpayers including senior citizens as they do not have Chartered Accountants and Advocates on their pay roles. The marginal amount involved compared to the efforts, costs and frustration, makes it an unviable and a futile exercise to first approach the deductor and then the Assessing Officer. Rectification and getting the corrections done and to get them uploaded is not easy. Most of the assessees will and do write letters, but without response and desired results. This aspect must be examined by the Board and appropriate steps to ameliorate and help the small taxpayers including senior citizens, should be taken and implemented.
8. Conclusion
There can be small and insignificant mismatches, which if purely technical should be condoned or ignored. After, all tax has been paid or credited in the name of the assessee. Once the amount is correctly and rightly reflected in Form AS26, small or technical mismatch in the return should not be a ground to deny credit of the amount paid. In such cases, if the Assessing Officer feels that benefit of TDS reflected in AS26 should not be given, he should issue notice to the assessee to revise or correct the mistake and only if the necessary rectification or correction is not made, an order u/s. 143(1) should be passed and the demand should be raised. We issue an interim direction to this effect.”
