2013 (3) TMI 316 - HC - Income Tax

Whether computerisation and Central Processing of Income Tax Returns is a boon or bane - Letter by CA Anand Prakash was treated as PIL - held that - the respondents have taken a right decision to computerise the income tax records, have Central Processing Unit for processing of returns and issue of refunds. Besides, these steps relate to policy and fall within the exclusive domain of the respondents. These steps have to be appreciated as they ensure transparency, openness, eliminate high handedness and curtail corruption/red tapism. UPLOADING OF WRONG OR FICTITIOUS DEMAND - Rectification u/s 154 - held that - Each application under Section 154 has to be disposed of and decided by a speaking order. This is the mandate of the Act. The order has to be communicated to the assessee and there is a relevant column to be filled in the register, which is now required to be maintained. The Board should issue specific directions to ensure that there is full compliance of the said requirements and directions by the Assessing Officers, Dak counters and Aayakar Sewa Kendras. This is the first mandamus or direction we have issued in the present judgment. ADJUSTMENT OF REFUND CONTRARY TO THE MANDATE OF SECTION 245 OF THE INCOME TAX ACT - held that - have taken remedial steps to ensure compliance of Section 245 of the Act as they now give an option to the assessee to approach the Assessing Officer. This is the second mandamus which we have issued. As noticed above, the interim order passed in the writ petition 2012 (9) TMI 163 - DELHI HIGH COURT has been implemented. Directions given in the order dated 21-8-2012, will be applicable only to cases where returns have been processed by the CPC Bengaluru and refunds have been fully or partly adjusted against the past arrears while passing or communicating the order under Section 143(1) of the Act, without following the procedure under Section 245 of the Act. The problem was created and caused by the respondents who did not realise the effect and impact of incorrect and wrong arrears being uploaded in CPU Bengaluru and did not follow the statutory requirements of Section 245 of the Act. Interest u/s 244A - held that - An assessee can be certainly denied interest if delay is attributable to him in terms of sub-section (2) to Section 244A. However, when the delay is not attributable to the assessee but due to the fault of the Revenue, then interest should be paid under the said Section. False or wrong uploading of past arrears and failure to follow the mandate before adjustment is made under Section 245 of the Act, cannot be attributed and treated as a fault of the assessee. These are lapses on the part of the Assessing Officer i.e. the Revenue. Interest cannot be denied to the assessees when the twin conditions are satisfied and in favour of the assessee. However, even in such cases Assessing officer may deny interest for reasons to be recorded in writing if the assessee was in fault and responsible for the delay. This is the fourth mandamus which we have issued. Uncommunicated intimiations under Section 143(1) - held that - The onus to show that the order was communicated and was served on the assessee is on the Revenue and not upon the assessee. We may note in case an order under Section 143(1) is not communicated or served on the assessee, the return as declared/filed is treated as deemed intimation and an order under Section 143(1). Therefore, if an assessee does not receive or is not communicated an order under Section 143(1), he will never know that some adjustments on account of rejection of TDS or tax paid has been made. While deciding applications under Section 154, or passing an order under Section 245, the Assessing Officers are required to know and follow the said principle. CREDIT OF TAX DEDUCTED AT SOURCE (TDS) - held that - There can be mismatch because of deductor and the assessee may be following different methods of accounting. Further, the assessee may treat the income on which tax has been deducted as income for two or more different years. The respondents must take remedial steps and ensure that in such cases TDS is not rejected on the ground that the amounts do not tally. Of course, while issuing corrective steps, the respondents can ensure that fraudulent or double claims for TDS are not made. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till Finance Act, 2012, when Section 234E was enacted. Mere writing of a letter by the Assessing Officer to the deductor by no stretch can be treated as sufficient action on the part of the respondents. Even this, it appears, was done in a few cases as the respondents in the counter affidavit have stated that they have written 20119 communications to the tax deductors, where TDS credit claimed by the taxpayers did not match with the details loaded by the deductors. The Act empowers and authorises the Assessing Officer to verify the contents of the return and notices can be issued to a third party, i.e. the deductor, to furnish information and details. The deductor, the principal officer or person responsible for making deduction, once issued notice to appear, in most cases, would like to comply with the statutory requirements and also furnish details with regard to TDS deducted from the income of the assessee. - AO to exercise powers u/s 133.

Summary

Issues Involved:

1. Faulty processing of Income Tax Returns and TDS mismatches.
2. Adjustment of refunds against past demands without following Section 245 of the Income Tax Act.
3. Non-communication of intimation under Section 143(1).
4. Maintenance of records and rectification of demands.
5. Credit of Tax Deducted at Source (TDS).

Issue-wise Detailed Analysis:

1. Faulty Processing of Income Tax Returns and TDS Mismatches:

The court acknowledged the significant benefits of computerization in processing Income Tax Returns, which ensures transparency and efficiency. However, it highlighted the problems arising from human errors and the faulty processing of returns, particularly due to mismatches in TDS claims. The court noted that mismatches occur when deductors fail to correctly upload details, leading to unnecessary demands and rectification processes for taxpayers. The court emphasized the need for a systematic approach to rectify these issues and reduce taxpayer harassment.

2. Adjustment of Refunds Against Past Demands Without Following Section 245 of the Income Tax Act:

The court addressed the issue of refunds being adjusted against past demands without following the mandatory procedure under Section 245 of the Income Tax Act, which requires prior intimation to the assessee. The court confirmed its interim order requiring the Revenue to follow the procedure under Section 245 before making any adjustments. The court directed that all cases where adjustments were made without following this procedure should be transferred to the Assessing Officers for proper notice and response from the assessee, followed by a justified order.

3. Non-communication of Intimation Under Section 143(1):

The court expressed serious concern over the non-communication of intimations under Section 143(1) when adjustments are made, resulting in demands or reduced refunds. It emphasized that such uncommunicated orders are invalid and cannot be enforced. The court directed that the Revenue must ensure that all intimations are properly communicated to the assessee, and the onus to prove communication rests with the Revenue.

4. Maintenance of Records and Rectification of Demands:

The court highlighted the issue of incorrect and fictitious demands being uploaded in the Central Processing Unit (CPU) due to manual errors by Assessing Officers. It directed the Revenue to maintain proper records and ensure accurate data entry. The court mandated that a register for rectification applications under Section 154 be maintained, and all applications should be properly recorded and acknowledged. It also directed the Revenue to upload details of rectification applications online for transparency.

5. Credit of Tax Deducted at Source (TDS):

The court addressed the widespread problem of assessees not receiving credit for TDS due to mismatches or errors by deductors. It directed the Revenue to ensure that assessees receive credit for TDS deducted and paid to the government. The court mandated that when an assessee provides evidence of TDS, the Assessing Officer must verify and give credit, even if the deductor has not correctly uploaded the details. The court also directed the Revenue to take action against defaulting deductors and ensure timely correction of mismatched challans.

Summary of Directions Issued:

1. Proper maintenance of registers for Section 154 applications and ensuring their timely disposal.
2. Confirming the interim order requiring compliance with Section 245 before refund adjustments.
3. Transferring cases of past adjustments without following Section 245 to Assessing Officers for proper notice and response.
4. Ensuring interest under Section 244A is paid when the delay is not attributable to the assessee.
5. Treating uncommunicated intimations under Section 143(1) as invalid.
6. Verifying and correcting unmatched challans within a specified time frame.
7. Ensuring credit of TDS to assessees when the tax deducted has been deposited with the Revenue.

The court emphasized the need for the Revenue to be responsive and address the genuine grievances of taxpayers, particularly small and middle-class taxpayers who face significant harassment and inconvenience due to these systemic issues.