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Is There No Respite From The Dept’s TDS And Refund Harassment?

Subash-Agarwal

Is There No Respite From The Dept’s TDS And Refund Harassment?

Subash Agarwal, Advocate
The author is irked by the fact that despite severe strictures and clear cut directions by the High Court, the CBDT is not taking any steps to address the problem of non-grant of TDS credit in a case where the deductor/ payer is at fault. He cites several judgements to emphasize that in such cases, the taxpayer/ recipient cannot be denied TDS credit and urges the CBDT to speedily issue suitable directions in the matter

Recently, Hon’ble Delhi High Court was seized of, inter alia, the matter under consideration in a case where one Sri Anand Prakash, FCA addressed a letter to the Hon’ble High Court raising various issues facing the helpless assessees and claimed that because of the fault of the department, assessees are being harassed. The Hon’ble High Court took judicial notice of the letter, converted it into a PIL and made CBDT a party. The said case has now been reported as Court On Its Own Motion vs. CIT 352 ITR 273 (Del.)

The CBDT’s inactivity / silence in this regard is perpetuating the assessee/tax deductees’ agony though there was a clear-cut direction by the High Court to the CBDT for issuing suitable directions in this regard

On the issue of denial of justifiable TDS credit by the A.O.s due to wrong uploading of data by the deductor of TDS, the court made the following observations –

“An assessee as a deductee should not suffer because of fault made by deductor or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. The CBDT should issue suitable directions in this regard. The department’s response on the action taken against deductors for non-compliance is unfortunate and unsatisfactory and it purports to express 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 taxpayer because of the fault of the deductor causes unwarranted harassment and inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash their hands and pretend helplessness. S. 234E has now been inserted by the Finance Act, 2012 to levy a fee of Rs.200 per day for default of the deductor to file TDS statement within due date. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till FA 2012. The stand of the Revenue that they can only write a letter to the deductor to persuade him to correct the uploaded entries or to upload the details is not acceptable. The AO must use his power and authority to ensure that the deductor complies with the law”

2. On the issue of wrongful adjustment of the alleged arrear demands against the refunds due by the CPC Bengaluru without any mechanism of affording any opportunity of hearing to the assessees as per the mandate of sec. 245, the department accepted before the Hon’ble High Court that wrong and incorrect demands have been uploaded in the CPC Bengaluru and that the department has also not followed the mandate and requirement of sec.245 before making the adjustment.

3. The Hon’ble High Court was pleased to issue a writ of mandamus with the following observations / directions –

“Inspite of the opportunity given to the Revenue to take steps, prescribe, adopt a just procedure, to correct the records, etc., nothing has been done and they have not taken any decision or steps. The affidavits filed subsequently after 31st August, 2012, are silent on this specific point. In these circumstances, we direct and issue the third mandamus and direction which 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. In such cases, it is directed that:-

A. All such cases will be transferred to the Assessing Officers;

B. The Assessing Officers will issue notice to the assessee which will be served as per the procedure prescribed under the Act;

C. the assessees will be entitled to file response/reply to the notice seeking adjustment of refund;

D. After considering the reply, if any, the Assessing Officers will pass an order under Section 245 of the Act permitting or allowing the refund.

E. The Board will fix time limit and schedule for completing the said process.”

4. Pursuant to the Hon’ble Delhi High Court’s direction in the above mentioned case, CBDT has issued clarification vide letter dated 21.03.2013. In the said clarification, CBDT has dealt with the above-mentioned observations of the High Court and directed the A.O.s to follow the procedure prescribed by section 245 for affording the opportunity to the assessees before making any adjustment of refund against the alleged arrear demands.

Unfortunately the issue relating to the denial of genuine TDS credits has been left untouched.

5. In an earlier Circular 3/2011 dated 13.05.2011 (pdf), CBDT has recognized the prevalent difficulty faced by the assessees due to wrong uploading of data by tax deductors but has fallen short of implementing / suggesting proper steps to mitigate the assessee’s (deductee’s) difficulty. It has merely addressed a limited issue and declared that to overcome the challenge of mismatch between Form 16A and Form No. 26AS, a common link has been created between the TDS certificates in Form No. 16A and Form No. 26AS through a facility in the Tax Information Network (TIN Website) which will enable a deductor to download TDS certificates in Form No. 16A from the TIN website based on the figures reported in e-TDS statement filed by him.

But where there is wrong feeding of data or where the tax deductor fails to file TDS returns but has deducted TDS and the TDS credit is denied to the assessee, there is a stony silence on the part of CBDT. Can the deductee be denied the rightful claim of TDS which has been deducted while making payments to him by the deductor, who is the agent of the government?

The CBDT’s inactivity / silence in this regard is perpetuating the assessee/tax deductees’ agony though there was a clear-cut direction by the High Court to the CBDT for issuing suitable directions in this regard.

CBDT could have obviated the unnecessary confusion and avoided unnecessary litigation by clarifying the issue by directing the A.Os to give the appropriate credit to the deductees in a petition u/s 154 wherever satisfactory proof of tax deduction is furnished and directing strict action upon the erring deductors. But CBDT’s stony silence on the issue is deafening

6. There is no denial of the fact that there is a duty on the part of the deductor to furnish TDS return with correct data and issue a certificate to the payee u/s 203 in the form prescribed by the I.T rules. If the deductor does not conform to the requirements of law, there is violation by the deductor to comply with section 203, so that a penalty of Rs. 100/- per day for each day till the omission is made good is leviable u/s 272A(2)(g) of the Act. However, the power to ensure issue of TDS certificate after filing correct TDS return by the deductor is with department and not the deductee. The deductee is helpless in the situation and has no power to enforce correction or enforce filing of TDS return by the deductor. Where a defect is found, it is the assessing officer who has to take action and get it rectified by the defaulter, being the deductor, who acts as the agent of the govt.

7. The most important provision again in this regard in section 205, which bars a direct demand on an assessee by specifically stipulating that “the assessee shall not be called upon to pay the tax himself to the extent to which the cash has been deducted from that income”.

Though section 199 expects that furnishing of the prescribed certificate to be issued by the deductor, section 205 by barring a direct demand on the assessee, where deduction has been made, gives the right to credit. However, this provision is being overlooked by the department and the assessee’s refund is withheld or he is asked to pay the tax, which is actually paid on his behalf but whose credit is denied wrongfully.

8. CBDT could have obviated the unnecessary confusion and avoided unnecessary litigation by clarifying the issue by directing the A.Os to give the appropriate credit to the deductees in a petition u/s 154 wherever satisfactory proof of tax deduction is furnished and directing strict action upon the erring deductors. But CBDT’s stony silence on the issue is deafening.

9. Fortunately, the Courts/ Tribunals in the country are conscious of the injustice meted out to the assessees by the authorities and has rightfully restored the right of the assessees in the deserving cases. However, these cases pertain to the period when online filing of TDS / I.T. Returns was not in vogue but nonetheless these case-laws highlight the injustice meted out to the assessees by wrongful denial of the justifiable TDS credits by the department and the judiciary’s response to it. These case-laws can be applied in the present situation where TDS credit is not being given due to wrong uploading of TDS data / non filing of TDS return by the tax deductor.

(a) In the case of ACIT vs. Omprakash Gattani 242 ITR 638 (Gau), the A.O refused to give credit for TDS on the ground that the date of actual payment to the government was not intimated. Assessee’s bank account was attached by initiating recovery proceedings. The assessee filed a writ petition and succeeded before the single bench of the Hon’ble Gauhati High Court. The department filed an appeal before the division bench. It was confirmed by the Appeal Court that the assessee was entitled to credit for TDS even though the deductor might not have paid the amount to government account. The High court pointed out that where tax has been deducted, direct demand on the payee is not justified and the department should proceed against the deductor.

(b) Where the employee is unable to get TDS certificate from his employer, but there is evidence to show that tax had been deducted at source, assessee cannot be denied credit. In such a case, the authorities were directed to exercise the powers to enforce the law, while staying the collection of tax. Pl refer Joseph (Capt. J. G.) vs. JCIT 303 ITR (AT) 395 (Mum.)

(c) Even if the deductor did not deposit the tax deducted at source to the credit of the Central Government, revenue cannot recover the amount from the assessee. Pl refer Yashpal Sahni vs. Rekha Hajarnavis, ACIT 293 ITR 539 (Bom)

10. The remedy available to the assessee in the case of denial of TDS credit not reflected in the Form No. 26AS is to file appeal before the CIT(A) where the grievance, in most likelihood, will get redressed.

It is pertinent to note that appeal can be filed even where no assessment has been done u/s 143(3) but the return has been processed u/s 143(1).

Where the time for filing appeal has expired, the assessee may file the petition u/s 154 before the A.O. and produce the TDS certificates issued by the Bank. If he rejects the application, there is remedy in the form of appeal. However, this will be a risky route since the A.O. has very limited jurisdiction in rectification proceedings u/s. 154. Further, the jurisdictional A.O. may refuse to act where the processing is done by CPC, Bengaluru. In such situations, there is only writ remedy, which is costly as well as time consuming.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org
16 comments on “Is There No Respite From The Dept’s TDS And Refund Harassment?
  1. Ashok Garg says:

    The problems of non-matching of TDS deductions are of two types:
    1. TDS deducted and deposited but not reflected in 26 4(A) correctly due to incorrect information by deductor or deductee.
    2. TDS deducted but not deposited by deductor with govt.

    If the department introduce a quartertly return by every Pan holders of TDS deducted from his payments by payee, it will help in the deposit/filing of TDS by the deductor, as all information can be cross-checked by the deductor/department before the close of finanancial year. This will remove a major part of mistakes in the computer data due to mismatch of PAN and accounting mistakes in the deductee accounts. Further, department will be able to monitor the actual deposit of TDS by deductee and can enforce law.

    Ashok Garg

  2. Prachi Khare says:

    What an irony by tax department , When a salaried person file return on the basis on form 16 provided by his employer and due to wrong information in Form 16 regard TAN of employer (especially in big organisation operating over different region) as employee transfer from one place to other during the financial year and every region has different TAN number but at the end employer issue Form 16 for whole TDS deducted under one TAN only to employee.

    On the basis of that Form !6, he file return but CPC issue demand notice intimation U/S 143 (1) denying the claim of assessee due to different TAN number however form 26 AS reflect the same amount as claimed by assessee but due to wrong TAN number, Tax department CPC issue demand notice on assessee. This is hardship on salaried person who is not even defaulter, has to indulge in undue proceeding to settle down IT department claim which is time consuming.

    And even IT department has started Online filing of ITR even then ITR are processed after end of assessment year.

    I think IT department should intimate Assessee regard TDS details mismatch at the time of uploading return only so that they can rectify it in time.

    and where TDS claimed by Assessee and TDs deducted and deposited to dapartment against assessee PAN nu,ber match then there should be no Mis -match in TDS credit.

    As assessee information can be gather through his PAN not through TAN of Employer.

  3. Mahaveer Bhanari says:

    The crux of all problems in IT department is lack of accountability of any officer. The amount of manhours put in by the officers, for department work, in a 5day a week schedule, is pathetic and need to be monitored.

  4. vswami says:

    Owing to a technical problem, balance portiion not appearing.

    For the full text of the comment, please refer the personal Blog @

    http://vswaminathan-swamilook.blogspot.in/2013/05/tds-woes-continues-persistently-with-no.html

  5. vswami says:

    contd.

  6. vswami says:

    In one’s understanding, reflecting on the Delhi HC’s judgment /writ , there has been an alarmingly increasing tendency on the part of the lower authorities not to strictly follow/abide by not only what the law unequivocally declaRES / mandates on several related matters, but also the supposedly binding diretives, notifications, circulars issued by the government (i.e. the Finance Ministry or the CBDT, the highest empowered executive authority). Inh this scenario, there is a growing worrisome recalcitrant behaviour on their part to by pass or neglect even courts’ orders, in the form of mandamus.
    In one’s view, there is an urgency to consider how best the government can try and bring about at least semblance of discipline among its aapponited authoritis. Though commented in a different context, perhaps, it might be worthwhile to accord a serious consideration to the course of action impliedly suggsted as under:

  7. bhaskaran mp says:

    The comments of Subash Agarwal is endorsed. The departmental officers have any number of excuses not to comply with the decisions of the Courts. They can even manouvre the directions of the CBDT. CBDT also only issues ‘directions’. There is no follow up to see whether the directions are followed by the sub-ordinate offices.
    Several posts of Chief Commissioners and Commissisoners have been created. Several more are also reported to be created shortly. All these higher level officers have no time to check whether the CBDT directions are practicable to be carried out. On the issue referred to by Mr. Agarwal the CBDT wanted each CCIT to create a post of Liason Officer to ensure a single window clearance of the requests of tax payers. Some of the CCITs have created the post and nominated certain Addl. CITs. Nothing more has been done even though the Liason Officer was expected to dispose of the tax payers’ requests on a timebound basis. Nobody can save the tax payers from the mess created by the department.

  8. CA. SUNIL BHALOTIA says:

    ADV. SUBHASHJI, RIGHTLY SAID, NOW A DAYS THIS IS THE BURNING ISSUE, RECENTLY CBDT OBSERVE THE DEMAND CORRECTION AND MANAGEMENT MONTH, WITH ZERO RESULT, THEY TAKE ANY ISSUE OF ASSESSEE SIMPLY AS GRAVIENCE AND DOING BLAME GAME.

  9. RAJESH AGARWAL says:

    THIS IS DEFINIETLY A SERIOUS ISSUE, WHICH HAS BEEN TAKEN UP BY ONE OF MEMBERS IS HIGHLY APPRECIATED. I ALSO REQUEST SOME ONE TO TAKE UP THE MATTER OD ONE PAN ISSUED TO TWO PERSONS. THERE SEEMS NO BODY CONCERNED.I WAS TOLD UNOFFICIALY THAT THE MATTER IS KNOWN TO THE DEPARTMENT BUT IF THERE IS ANY RECTIFICATION PROCEDURE IS INTRODUCED THAN THE CAT WILL BE OUT OF THE BAGS. HENCE THERE IS NO DIRCTION ON THIS ISSUE AND PEOPLE ARE MADE TO SUFFER.

  10. CA Sunil Kumar Gupta says:

    Last week , I visited one Dy. Comm for allowing the credit of TDS on Intt. He clearly refused to allow credit and submitted that
    Until the credit is not available in 26AS , no credit will be allowed. These are the instructions of our C.I.T. We have to follow the instructions of our C.I.T. In case the credit is not appearing and the deductee is not correcting it , you may write to our CIT (TDS ) who will take action against the deductee.
    He was not ready to listen about the High Court Order.
    This is creating harrasment and un necessary problems for the assessee.

  11. Murali k murthy says:

    While I agree with the comments of my predecessors, it is my opinion that the department must issue the refunds forthwith and if found incorrect at a later stage, collect the same with interest as per the provisions of law. Withholding / adjustment of refund against incorrect tax demand is wholly against law and unconstitutional. Mentioning that steps are being taken to rectify the defects, etc in their system is not a good reason.

  12. S.PRAKASH says:

    Sir,
    The article highlights the practical problem faced by the taxpayers ,but taken very lightly by the Income Tax Department. While addressing the Chamber of Commerce, Tumkur, recently the Chief Commissioner of Income Tax,Karnataka, expressed nothing about the problem and requested the tax payers to bear with the system as they are computering the TDS. They also expressed that even in their own case they are facing the same problem. If the Tax deductee makes a complaint to the TDS ITO regarding the TDS problmes and 26AS , the ITO is issuing notice to the deductee and not to the deductor and becasue of this number of genuine assesses are coming forward to make the complaint about the TDS poblems. Sir, it i right on our part to make appeal to CIT for this?For the mistakes of the Department, why assessee should make appeal?Why the CPC is not trying to transfer the cases to local jurisdictional assessing officers for rectification of these mistakes by calling the deductor to the OFFICE.?

  13. S S Nagar says:

    It is altogether negligence and mode of harassment by the Assessing officers. Now a days, the AO is looked only into the Form 26AS and if any entry is missing, raised demand without even taking into cognizance of other mode like third party verification, indemnity bond etc.. Even in some cases, order has been passed to delete the entire demand nonetheless fresh notice is being sent without considering the earlier order.

    CBDT should take hard step to reduce such type of harassments.

  14. CA Rajesh Shah says:

    This is a very serious issue and the dept. is taking high handed approach and different practices across different wards has led to chaos.

    If there is an on-line petition against this harassment – we can garner lots of on-line siganture efforts and bring added pressure on CBDT to act decisively. We can bring many live examples to support this. This way lots of On-line Arrear Records of dept. which are erroneous will be rectified.

    We urge you to provide an on-line platform for this as you are in an ideal position.

    Regards

    CA Rajesh Shah

  15. gopal nathani says:

    This subject is so basis that it should be resolved at the first. s. 199 provide for automatic credit for tax deducted. deposit of tax, uploading of details of deduction and deposit etc. are only subsequent actions and default in them cannot take away asessee’s right given to him in s. 199. secondly it is a seriously wrong to ask assessee’s to file indemnity bonds , affidavit etc. for releasing refunds against such credits. rather the assessee must be paid some costs along with refund for any delay in getting credit of taxes deducted from his income. gopal nathani

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