Bogus refund claims. - Income Tax - 1594/CBDT

INSTRUCTION NO. 1594/CBDT Dated: January 10, 1985 It had come to notice that a fraud in claiming refunds had been committed by persons who are in a position to control a number of concerns. This has been done through associated operations involving a group of companies/concerns. It was also seen that some concerns failed to deposit the TDS within the statutory period. A study of the case by the Inspection Division has revealed the following:- It is possible to claim refund on the basis of bogus certificates because there is no proper check as to whether any assessee responsible for paying interest has actually deducted the tax at source u/s.194 A at the time of giving credit of interest to the account of the payee or at the time of payment of cash or by issue of cheque or by any other mode and also as to whether the tax so deducted has actually been paid within the prescribed time to the credit of the Central Government as provided in sec.200 of the I.T.Act read with rule 30 of the I.T.Rules. Under the provisions of sec.203 of the I.T.Act every person deducting tax in accordance with the terms of the sections mentioned therein shall at the time of credit or payment of the same or as the case may be at the time of issue of cheque or warrant for payment of dividend to the share-holders shall furnish to the person to whose account such credit is given or to whom such payment is made a certificate to the effect that the tax has been deducted and specifying the amount so deducted and the rate at which tax has been deducted, and such other particulars as prescribed under Rule 37. A person making deduction of tax in accordance with sec.194A from income by way of interest is also required under rule 37(2A) to send to the I.T.O. having jurisdiction to assess him a statement in Form No.26A quarterly(on July 15, October 15, Jan 15 and April 15) in respect of the deductions made by him during the immediately preceding quarter. If an assessee is liable to deduct at source u/s.192, 193, 194, 194A, 194B, 194BB, 194C, 194D or 195 he is required to furnish the information on the following points in the relevant part of the Return of Income: (i) The amount of tax deducted at source; (ii) Whether such tax has been paid to the central Government and (iii) Whether the prescribed return have been furnished to the ITO concerned. It would clearly appear from the cases studied by us that those columns of the return are generally either ignored completely by the ITO's or at best are perfunctorily checked. Barring one or two circles, it was also found that the returns submitted under sub-rule 2A or rule 37 are not checked at all. Registers are not generally maintained for such return and even if maintained the entries are not at all made therein. In some circles, one common register is maintained for all the wards. As such the assessing ITOs do not even care to see the register. It was also seen that details of creditors, to whom interest is either paid/payable are not obtained and their accounts are not checked to ascertain whether those have been credited with the interest due and the tax thereon has been deducted. The question of checking of the challans evidencing the payments in such circumstances does not arise, even though along with the returns submitted under sub-rule 2A of Rule 37 the TDS challans are also required to be filed. The work which requires top most priority has thus been completely ignored and no significance to this work has been attached by most of the ITOs. You are requested to reiterate those instructions to all the officers staff so that this important area of work is not neglected.