Court On Its Own Motion vs. CIT (Delhi High Court)

High Court seeks to end TDS & Refund harassment by Department

One Anand Parkash, FCA, addressed a letter dated 30.4.2012 to the High Court in which he set out the numerous problems being faced by the assesses across the Country owing to the faulty processing of the Income Tax Returns and non-grant of TDS credit & refunds. He claimed that because of the department’s fault, the assessees were being harassed. The High Court took judicial notice of the letter, converted it into a public interest writ petition and directed the CBDT to answer each of the allegations made in the letter and certain other queries that the Court raised. The Court also appointed eminent senior counsel to assist it. The department accepted that tax payers are facing difficulties in receiving credit of TDS & refunds on account of adjustment towards arrears. As an interim measure to provide immediate relief to the assessees, the Court passed the following order:

(i) The problem is apparent, real and enormous. It has escalated because of Centralized Computerization and problems associated with incorrect and wrong data which is uploaded by both the deductors or payees and the AOs. The issue is of general governance, failure of administration, fairness and arbitrariness. The magnitude of the problem and the number of tax payers adversely affected thereby is apparent from the fact that 43% and 39% of the returns in Delhi zone for the FYs 2010-11 and 2011-12 were defective. Huge demands are created on this count. Every attempt possible has to be made to redress the grievance of the tax payers. The tax payers should not be made to run around, make repeated visits to deductor or the AO. Rejection of TDS, which has been deducted and paid, hurts the assessee and puts him to needless inconvenience, harassment and costs. It gives bad name to the Revenue. The problems faced by tax payers can be broadly classified into two categories. First, failure and difficulties in getting credit of TDS paid and second, adjustment of past demands or arrears of tax from refunds payable.

(ii) As regards the first problem of failure of taxpayers to get credit for TDS on account of (a) incorrect entries/ mismatch in Form 26AS and (b) failure of the deductor to correctly upload the TDS return, the department’s 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. Denying benefit of TDS to a tax payer because of fault of the deductor, which is not attributable to the deductee, is a serious matter and causes unwarranted 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 CAs 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 AO. The CBDT should examine the issue and take appropriate steps to ameliorate and help small tax payers and senior citizens;

(iii) If there are small and insignificant mismatches in the TDS details, they 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. If the AO still 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 demand should be raised. An interim direction to this effect is issued;

(iv) As regards the second problem, CPC has stated in letter dated 21.8.2012 that refunds to the extent of Rs. 4800 crores have been adjusted against arrears at the s. 143(1) stage by the CPU. The department’s action of adjusting the refunds without giving prior intimation to the assessee is contrary to s. 245. In a few cases where prior intimation is given and the assessee approaches the AO, he is told to approach the CPC, Bengaluru, and when he approaches the CPC, he is told to approach the AO. The department should file an affidavit stating whether prior intimation is sent or not and set out the procedure followed if an assessee objects to the adjustment. In the meanwhile, the department shall not adjust the refunds against the demands at the s. 143(1) stage without giving the assessee an opportunity to file a reply. The AO should deal with the reply and communicate his findings to the CPC before processing the refund or adjustment of demand.