Court On Its Own Motion vs Commissioner Of Income Tax
2012 Latest Caselaw 5177 Del

$~01
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

+     W.P.(C) 2659/2012

      COURT ON ITS OWN MOTION                   ..... Petitioner
              Through   Mr. P.L. Bansal, Sr. Advocate with
                        Mr. Ruchir Bhatia, Advocate.
                        Mr. S.R. Wadhwa, Advocate.


                    versus

      COMMISSIONER OF INCOME TAX             ..... Respondent
              Through   Mr. Sanjeev Sabharwal, Sr. Standing
                        Counsel and Mr. Puneet Gupta, Jr.
                        Standing Counsel.
                        Mr. Nagesh Behl, CA.
      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE S.P.GARG

                             ORDER

% 31.08.2012

We have examined the counter affidavit filed by the

Revenue/Income Tax Department. In the counter affidavit it has been

acknowledged and accepted that the tax payers are facing difficulties in

receiving credit of Tax Deducted at Source (TDS for short). It is also

accepted that tax payers are facing difficulties in getting refunds on

account of adjustment towards arrears.

2. In the counter affidavit steps taken by the Revenue to eliminate

and rectify the problems and difficulties faced by the tax payers are

mentioned. It is stated that changes in the software and the procedure

have been made or are being undertaken so that the problem, glitches

and difficulties are eliminated.

3. Having heard the parties, we feel that the problems faced by the

tax payers 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 tax payers, 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.

4. With regard to the second category, it is noticed that the Income

Tax Department has initiated process of centralised computerization of

records, centralized computerized 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 centralized 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 upto the financial year 2010-11 vide Board‟s

letter dated 28th April, 2010. This was followed by several other letters

written by the Board wherein it was emphasized 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 for short) at Bengaluru. In the

counter affidavit it is stated that more than 46.23 lac entries of demand

aggregating to Rs. 2.33 lac crores for the period prior to 1st April, 2010,

were uploaded on CPC arrear/demand portal pursuant to the

information uploaded/furnished by the Assessing Officers.

5. It is pointed out by Mr. Nagesh Behl, Chartered Accountant,

who is present in the Court that CPC, Bengaluru has written letter

dated 21st August, 2012 to the Chief Commissioners of Income Tax all

over India pointing out that the figures and demands uploaded by the

Assessing Officers require verification and reconciliation. Obviously,

the reference is to the factual position that several demands uploaded

are incorrect and wrong. Payments made, rectification orders passed

and appeal effects have not been incorporated resulting in uploading of

non-existing demands. The letter states that while processing the

returns, refunds to the extent of Rs. 4800 crores have been adjusted

towards the arrears on the basis of the data of past arrears uploaded by

the Assessing Officers. The said letter indicates that there is need that

this adjustment should be duly recorded in the personal records and

accounts being maintained by the Assessing Officers as the adjustment

is not being given due credit at their end. The relevant portion of the

letter dated 21st August, 2012 reads:-

"Kind reference is invited to the above, wherein the assessing officers have been instructed to verify and reconcile the demands where such demand or adjustment thereof by CPC is disputed by the taxpayer. They have also been advised to upload amended figure of arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru wherever there is balance outstanding arrear demand still remaining after aforesaid correction/reconciliation.

Against the arrear demands uploaded by the assessing officers CPC has collected demands to the tune of Rs.4800 crores by way of adjustment of refunds. The particulars of adjustment already done by CPC in specific cases need to be taken into account by the assessing officers in the course of verification/reconciliation of demands at their end. Besides, the assessing officers have also to taken into consideration the regular tax payments (minor head 400) made by the assessee to arrive at the correct outstanding demand. As the reconciliation has to be done by a large number of assessing officers of respective CCIT(CCA) region there is a need of supervisor and monitoring of this activity by the CIT(CO)."

6. Section 245 of the Income Tax Act, 1961 empowers and

authorizes an Assessing Officer to adjust refunds against demand. The

said Section reads:-

"245. Set off of refunds against tax remaining payable.--Where under any of the provisions of this Act a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section."

7. The respondents in their counter affidavit have accepted that the

Board has from time to time issued directions that the aforesaid Section

and the procedure prescribed should be strictly adhered to. Reference

is made to Instruction Nos. 1952, 1969 and 1989 dated 14 th August,

1998, 20th August, 1999 and 20th October, 2010, respectively. In the

counter affidavit it accordingly stated as under:-

"Accordingly, it was again reiterated that the provisions of section 245 of the I.T. Act, 1961 must be followed and written intimation must be sent to the assesses before adjusting refund of the outstanding demand and any lapse in this regard shall be viewed seriously. The CCsIT/DGsIT/CsIT were direct to ensure compliance of the aforesaid direction. Thus, enough safeguards have been provided not only in the I.T. Act, 1961 but also in the Instructions issued by the CBDT."

(emphasis supplied)

8. There can be no doubt that the aforesaid statement made states

the correct position in law. Section 245 of the Income Tax Act, 1961

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 opportunity of response/reply is given and

after considering the stand and plea of the assesse, 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.

9. In the very next paragraph of the counter affidavit, the Revenue

has taken a different stand and has contradicted themselves. They have

stated as under:-

"After handing over of old demands to the CPC and commencement of processing of returns by CPC, the procedure u/s 245 of the Income Tax Act, 1961 is being followed by CPC before making adjustment of the refunds and assesses are being given full details with regard to the demands which are being adjusted. The intimation u/s 143(1) issued from CPC incorporates the full details of the existing demands that the adjusted against the refunds. Further, when the processing of a return at CPC results in demand, the communication u/s 245 is incorporated into the intimation itself. As far as the demands uploaded by the AOs to CPC portal are concerned, CPC has already issued a communication of the taxpayers through e-mail (wherever e-mail address is available) and by speed post informing him the existence of the demand in the books of the AO

and that such demand is liable for adjustment against refund u/s 245 of the IT Act, 1961. As on dated 14.6 lakh such communications have been sent through e-mail and 8.33 lakh communications have been sent through speed post."

(emphasis supplied)

10. In the said paragraph it is accepted that when a return is

processed under Section 143(1), the CPU itself adjusts the refund due

against the existing demand i.e. there is adjustment, but without

following the procedure prescribed under Section 245, which requires

prior intimation so that the assessees can respond or give their

explanation. It is also stated in the said paragraph that 14.6 lac

communications have been sent by e-mail and 8.33 lac

communications have been sent through speed posts making

adjustments of refunds. The total amount adjusted as per the letter

dated 21st Aug., 2012 is Rs. 4800 crores.

11. At this stage, Mr. Sanjeev Sabharwal, sr. standing counsel states

that in some cases prior intimation was sent. Ms. Prem Lata Bansal,

Sr. Advocate, however, submits that in very few cases prior intimation

was sent and the procedure prescribed under Section 245 was not

followed. She further submits 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.

12. The respondents 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.

13. We issue interim direction to the respondents that they shall in

future follow the procedure prescribed under Section 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 CPC, 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.

14. This brings us to the problem where adjustments of refund has

been made by the CPC, Bengaluru, without following the procedure

prescribed under Section 245 of the Act 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 under Section 245 of the Act based on the wrong data

uploaded by the Assessing Officers. 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 is 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.

15. This brings us to the first problem relating to the failure of the

taxpayers to get credit of the TDS, which has been deducted from the

income payable/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 tax payer 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.

16. The magnitude of the problem can be understood 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. Total demand in Delhi Zone of Rs.3000

crores (approximately) for the financial year 2010-11 was created and

the same became arrears payable in the next financial years. After

rectification applications and consequent corrective orders, the figure

has come down to Rs.1900 crores, which is still a substantial amount.

17. One of the queries/issues, raised in the order dated 30th May,

2012, reads as under:-

"Whether Department has informed the deductors about incorrect details and had asked them to rectify the errors with in a time period? In case of failure, what action is taken? What happens when a complaint is made by a deductee?"

18. 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

tax payer 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 as under:-

"(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 CPC 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 CPC up to April 2011. A deductor-wise consolidated list of such mismatches are sent from CPC to the CIT (TDS) having jurisdiction over the deductor for necessary follow-up with the deductors."

19. 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.

20. Mr. Nagesh Behl, CA has drawn our attention to 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 tax payers that in spite of requests, the deductors fail

to rectify the defects or upload the correct TDS details. 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 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 tax payers including

senior citizens should be taken and implemented.

21. Mr. S.R. Wadhwa, Advocate states that he would like to make a

representation in this regard to the Board and give suggestions. He is

at liberty to do so on his behalf and on behalf of the All India

Federation of Tax Practitioners. Similarly, Ms. Prem Lata Bansal, Sr.

Advocate and Mr. Nagesh Behl, CA are at liberty and can make their

suggestions. Suggestions will be given to Mr. Sanjeev Sabharwal, Sr.

Standing Counsel, who shall within 7 days, forward them to the Board.

22. In the counter affidavit it is stated that there can be small errors

or mistakes which can result in denial of benefit of TDS or self-

assessment tax. In the counter affidavit it is stated as under:-

Mismatch relates to        Possible reasons for       Steps       to      avoid
                           mismatch                   Mismatch
TDS/TCS                    TAN                 of     Furnish the correct
                           deductor/collector         TAN Number of the
                           wrongly quoted in the      Tax Deductor/Collector
                           return                     in the return of Income.
                           TDS relating to salary     Use           appropriate
                           wrongly indicated in       Schedules in the Return
                           the TDS Schedule for       to report TDS on
                           other than salary or       Salaries, and TDS on
                           vice-versa.                Incomes other than
                                                      Salaries.
                           TDS/TCS aggregated         Indicate the TDS/TCS
                           under     one     TAN      amounts effected by
                           Number even though         each
                           TDS/TCS effected by        Deductor/Collector
                           several                    separately      in    the
                           Deductors/Collectors.      Schedules provided in
                                                      the return of Income.

 Advance       Tax/Self- BSR code of the bank           Ensure that BSR code
Assessment tax          branch/challan      serial     of        the        bank
                        number/date             of     branch/challan      serial
                        payment/amount paid            number/date             of
                        stated in return does not      payment/amount paid
                        match with information         as stated in return
                        in 26AS.                       matches              with
                                                       information available in
                                                       26AS.
                           Advance         Tax/Self    Use           appropriate
                           Assessment           Tax    Schedule in the Return
                           Payment       particulars   to    report    Advance
                           filled up wrongly in the    Tax/Self      Assessment
                           Schedules meant for         Tax             Payment
                           TDS/TCS for vice versa      Particulars.
                           Mistake     in     PAN,     Furnish the correct
                           Assessment Year etc.        particulars to the bank
                           committed          while    branch where challan
                           preparing the challan.      was paid and request
                                                       for uploading corrected
                                                       challan data to NSDL.

23. It is further stated in the counter affidavit:-

"Procedure for rectification and correction of mismatch.

(i) While communicating the intimation after processing of the electronic returns, CPC also intimates to the assessee a report of mismatch of tax credit. The template of such mismatch communication (M5) is appended herewith. On receipt of the same, tax payers are requested to examine their records and correct the error(s) of the nature indicated above.

(ii) Thereafter the tax payer ma approach CPC, Bangalore for „Rectification‟ of the earlier intimation based onn corrected entries, and the entitled tax credit is allowed to the taxpayer by CPC.

Procedure for giving credit even when there is slight mismatch.

(i) That the taxpayer is not allowed to credit of taxes even if there is a lightest of mismatch in the TDS particulars reported in form 26AS is not correct

because the board has been issuing Instructions to the filed formations for permitting credit of TDS with or without verification depending upon the facts of the case as mentioned in the instructions. In this regard, a reference may be made to Instruction No.2 of 2011 dated 9th February, 2011 and Instruction No.1 of 2012 dated 2nd February, 2012.

(ii) In the said Instructions, the Board has asked the Assessing Officers to accept the TDS claims without verification in all returns where the difference between the TDS claimed and matching TDS amount reported in AS26 data does not exceed rupees one lac. Therefore, the Department is aware of the inconvenience which may be caused to smaller taxpayers and has taken a very liberal view of the matter."

24. However, during the course of hearing before us it is pointed out

that the figure of Rs. 1 lac has now been reduced to Rs.5,000/- in case

of one assessee. (This Rs.5,000/- does not relate to each or individual

TDS certificate, but one/single assessee).

25. 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 under Section 143(1)

should be passed and the demand should be raised. We issue an

interim direction to this effect.

26. There are two more issues, but these we feel cannot be addressed

and examined in a PIL. Revenue has contended that the decision in the

case of Dr. Prannoy Roy & Another Vs. Commissioner of Income

Tax and Another, (2009) 309 ITR 231 (SC) is not applicable. This

issue/grievance can be raised by the individual assesse concerned. The

second aspect relates to credit of TDS by the taxpayers even when tax

is not been credited or paid to the government. We do not think that it

will be appropriate to address this question in a PIL. We have

entertained this PIL not to decide individual claims but in view of the

general problems faced by the tax payers specially small tax

payers/individuals regarding issue of refunds, which are denied on the

basis of wrong or bogus demands 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 problem is

apparent, real and enormous. It has escalated because of Centralized

Computerization and problems associated with the incorrect and wrong

data which is uploaded by both the deductors or payees and the

Assessing Officers. 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 counter affidavit, wherein it is admitted that 43%

and 39% of the returns in Delhi zone for the Financial Year 2010-11

and 2011-12 respectively were defective. Substantial number of these

defaults relate to mismatch of TDS details and the tax payers have

been denied benefit of TDS claimed by them. For the Financial Year

2010-11, the approximate demand created in Delhi Zone because of the

defective returns was Rs.3000 crores, which stands reduced to Rs.1900

crores after the tax payers approached the Assessing Officers for

corrections. 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 Assessing Officer.

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. On the issue of refunds also, there is

no dispute and it is admitted position that Section 245 of the Income

Tax Act has to be complied with. After computerization and pursuant

to directions issued by the Board, the Assessing Officers have

uploaded data with regard to "past arrears". The amount mentioned in

the counter affidavit is Rs.2.33 lac crores, which is a substantial

amount. Arrears, if payable, must be paid. However, the position is

that the tax payers are claiming and stating that the arrears have been

wrongly shown and the Assessing Officers have not correctly uploaded

the data and have ignored the Board‟s directions. Magnitude and the

number of assessees adversely affected by the uploading of wrong and

incorrect data can be easily appreciated from the figure of Rs.2.33 lac

crores. As per the counter affidavit, on the basis of this data in one

assessment year alone, in about 23 lac adjustments have been made

and the tax payers denied the refund claimed. The follow up and the

procedure adopted after these 23 lac notices were issued, is not

mentioned. This effectively means that most of the said assessees have

been denied refunds. The facts stated above justify issue of notice and

orders passed to activate and impress upon the Revenue to take

appropriate remedial and corrective action.

27. It has been pointed out to us by Ms. Prem Lata Bansal that in

several cases refunds have been adjusted on account of the debit entry

made under the head "modified". These entries are made by the

Assessing Officer and thus the refund is reduced to nil or zero. Copies

of two such adjustment orders have been shown to us. The said orders

will be filed in the Registry and copies will be given to the counsel for

the Revenue, who will take appropriate instructions on this aspect. It is

stated that there are thousands of cases of similar nature. Learned

counsel for the Revenue will obtain instructions whether directions can

be issued to the Assessing Officers to provide full details and

particulars of the entries made under the head „modified‟. We may

note that in these cases, processing has been done for the purpose of

intimation under Section 143(1) of the Income Tax Act, 1961.

28. Relist on 2nd November, 2012. Affidavit in terms of this order

will be filed within six weeks. We permit All India Federation of Tax

Practitioners to intervene in the present matter. W.P.(C) 5443/2012

will be taken up for hearing along with this matter.

Copy of this order be given dasti to the learned counsel for the

parties.

SANJIV KHANNA, J.

S.P.GARG, J.

AUGUST 31, 2012 NA/VKR