Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

GUARD YOUR TAX REFUNDS!

Get set to crusade against unlawful adjustment of grossly erroneous tax demands against your rightful tax refunds!

               For the first time in the history of Indian tax administration, an All India Workshop is being organised for ‘Rectification & Reconciliation of Arrear Demands’ by the Centralized Processing Centre (CPC) at Bangalore, on 28th August, 2012. Justifying the need for the workshop, CPC has admitted vide its letter dated 21/08/2012 that nearly Rs.4,800 crores worth of tax refunds have been adjusted against disputed demands on the basis of the data uploaded by the assessing officers and there was an urgent need to rectify and reconcile the said arrear demand.

             Infact, there has been a huge hue and cry amongst taxpayers at large on this issue and taxpayers are very sore and highly agitated with grossly erroneous demands of earlier assessment years wrongly shown as outstanding against them and uploaded on the CPC portal, as a result of which their legitimate tax refunds have been gobbled down by the computerized system. This problem in the recent past assumed such an alarming proportion that the Central Board of Direct Taxes (CBDT) had to issue Circular No.4, dated 20/06/2012 to urgently take necessary corrective measures.

NO ADJUSTMENT WITHOUT HEARING    

              It is indeed lamentable that the Income-tax Department has been adjusting tax refunds against tax demands outstanding against the taxpayer, flouting the clear provisions of Section 245 of the Income-tax Act. It is even more unfortunate that the clear mandate of the CBDT vide its Instruction No.1989, dated 20/10/2000 to follow the procedure prescribed by law is being openly contravened by its own officials. As held by several High Courts in their judicial pronouncements from time to time, the latest decision being that of the Delhi High Court in the case of ‘Genpact India v/s. ACIT (2012) 17 taxmann.com 145, (Del.),’ an assessing officer cannot adjust a demand outstanding for an earlier assessment year against the amount of refund due to the taxpayer, without following the procedure prescribed under Section 245 i.e. an advance intimation and opportunity of hearing and if such an unlawful adjustment is made the same is required to be set aside.

              Quite often, tax officials decide to make an adjustment, inform the taxpayer that the same has been done and contend that they have duly discharged the obligation cast on them. In this context, the Bombay High Court in the case of ‘ITO vs. Suresh Jain, (1986) 29 Taxman 191 (Bom.), has held that “Section 245 clearly requires a previous intimation of the proposed action for adjustment and not a simultaneous intimation.”

             The Calcutta High Court in the case of ‘CIT vs. J. K. Industries (2000) 111 Taxman 369 (Cal.)’ has logically explained that, “The proceedings for adjusting an amount towards tax liability under section 245 out of any sum due to an assessee by way of refund, are quasi-judicial in nature. Without anything more, the taxpayer is entitled on the principles of the natural justice to a reasonable notice to represent his case before the authority before an order of adjustment is passed. Moreover, there is no provision of appeal against the set-off order under section 245. Therefore, it was all the more necessary to give intimation to the assessee before set-off of his amount of refund due. Any such set-off without any prior intimation or opportunity was not only illegal but void and non est in the eye of law.”

WHEN ISSUE DECIDED IN TAXPAYER’S FAVOUR

              And here is a piece of some great news for taxpayers. In an unprecedented landmark verdict, the Delhi High Court has, in the case of ‘Maruti Suzuki India Ltd. v. Dy. CIT [2012] 204 Taxman 48,’ held that invoking the provisions of Section 245, no adjustment of refund of one year is permissible against the demand of another year, in respect of such issues which have been decided by the higher appellate authorities in favour of the taxpayer. The High Court clearly held that decisions of the CIT (Appeals) or the ITAT in favour of the taxpayer should not be ignored as they have not become inconsequential, so as to  allow adjustment under Section 245 or to recover demand on issues that have been decided in favour of the taxpayer, in his own case in other years.

             The Delhi High Court finally concluded that it had no hesitation in holding that conduct and action of the Revenue in recovering the disputed tax in respect of additions to the extent of Rs.96 crores, on issues which were covered against them by the earlier orders of the ITAT or CIT (Appeals) was unjustified and contrary to law. Accordingly, it issued directions to the Department to refund Rs.30 crores being the tax due on Rs.96 crores, which had come to be wrongly adjusted under Section 245.

FIGHT WITH ALL MIGHT FOR YOUR RIGHT

            Drawing inspiration and strength from the ratio of the above referred judicial pronouncements and     CBDT Instructions on the subject, every taxpayer, who is wrongfully deprived of his right to legitimate refund on account of wrongful adjustment under Section 245, must determine to fight with all might for his right!

 

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