The Bombay High Court in the case of Hindustan Unilever Limited vs. Deputy Commissioner of Income Tax-1 (1) and Others, 2015 (7) TMI 366, has held that adjustment of refund due is discretionary power of the assessing officer and depends upon the circumstances of each case.
The Hon’ble Delhi High Court in the case of Court on its Own Motion vs. Commissioner of Income Tax, 352 ITR 273 (Del) on 31.8.2012 has also expressed similar view.
Provisions of Section 245 of the Income Tax Act:
Section 245 of the Income Tax Act empowers an Assessing Officer to adjust refunds against outstanding dues. It states that where under any provision of the Act, a refund is due to any person, the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) or the Chief Commissioner or the Commissioner may, in exchange of payment of the refund, set off the amount or any part of it against the amount payable under this Act by the person to whom it is due, after giving a written intimation to such person about the action sought to be taken under the Act.
Brief facts involved in the case:
The petitioners filed a Public Interest Litigation for many difficulties faced by assessees on account of the faulty processing of income tax returns and tax deducted at source, and prayed before the Court to issue proper directions.
Issues raised before the court:
The first issue was relating to the delay in disposing of rectification applications filed under section 154 of the Act.
The second issue raised was relating to uploading of incorrect demand in the Central Processing Unit (CPU) at Bangalore. The verifications of demands uploaded were disputed by the assessees. It was claimed that the demands were not properly recorded.
The third issue was relating to the adjustment of refunds without giving prior written intimation to the assessee against the provisions of section 245 of the Act.
The fourth issue was relating to interest on refunds under section 244A wherein it is provided that interest was payable if assessee had no fault. However, the revenue contended that interest under section 244A was not payable on income tax based on self assessment, but on that based on advance tax.
The fifth issue was relating to intimation which is not communicated under section 143(1) resulting either in demand or decrease in refund.
The sixth issue was relating to the TDS in Form 26AS which is not verified.
The seventh issue was relating to credit of TDS or dismissal of credit, even when the TDS has been paid by the deductor due to mismatch between the details stated in Form 26AS and the details filed by assessee in his return.
The grievance of the assessees was that in spite of requesting deductors to correct the TDS details, deductors neglected and/or failed to do so. Though the deductors did not face any adverse consequences, the deductees were harassed.
To remove the aforesaid difficulties, a writ in the form of mandamus was issued relating to the following:
(i) Maintenance of register for receiving and disposing of correction applications under section 154 of the Act;
(ii) Procedure laid down in section 245 to be followed prior to making adjustment of refund payable with outstanding demand;
(iii) Past adjustments, if any, in case procedure as per section 245 had not been followed;
(iv) Interest under section 244A to be allowed when assessee has no fault;
(v) Intimation which is not communicated under section 143(1);
(vi) Verification of unverified TDS in Form 26AS and unmatched challans, within a due time;
(vii) Credit of TDS to an assessee when TDS has been deposited but wrong particulars have been uploaded by the deductor.
It was held by the High Court that online uploading of the details of the said registers should be made within six months in accordance with the mandate of the Citizen Charter of the Department which provides equity and transparency.
It was held that every application under section 154 should be disposed of by a written order. It should be communicated to the assessee and a separate column in the register should be maintained.
Regarding adjustment of refund contrary to section 245 it was held that the respondents accept that when a return of income is processed under section 143(1) at CPU at Bangalore, the refund is adjusted against the existing demand but without following the procedure prescribed in section 245 of the act.
In the order the respondents were directed to follow the procedure of section 245 before making any adjustment payable by the CPC at Bangalore. The assessees should also be given an opportunity to file a reply and it must be considered by the Assessing Officer before any order for adjustment is made. The process of issue of prior intimation upon the assessee should be according to the law. The assessees would be allowed to file their response before the Assessing Officer as stated in the intimation. The Assessing Officer would then examine the reply and communicate his views to the CPC, Bangalore, who would process the refund and adjust the demand, if any. The final order would also be communicated to the assessee.
The interim order was confirmed. It was noticed that the respondents have taken steps to ensure compliance of section 245.
In connection with past adjustments it was held that in spite of the opportunity given to the Revenue to take steps, nothing has been done and they have not taken proper steps. In such circumstances, direction was issued in cases where returns have been processed by the CPC, Bangalore and refunds have been adjusted against the past dues while passing the order without following the procedure under section 245.
It was directed that such cases will be transferred to the Assessing Officer and they will issue notice to the assessee and serve them as per the procedure. The assessees may file a reply to the notice asking adjustment of refund. Upon considering the reply, the Assessing Officer will pass an order under section 245 regarding the refund.
In connection with the interest on refund under section 244A it was held that an assessee can be denied interest if delay is due to him as per section 244. However, when the delay is due to the fault of the Revenue, then interest should be paid. False or wrong uploading of past arrears cannot be treated as a fault on behalf of the assessee. These are latches on the part of the Revenue. Interest cannot be denied to the assessees.
In connection with the intimations which are not communicated under section 143(1), it was held that the grievance of the petitioner is a serious challenge and a matter of concern. The law requires that intimation under section 143(1) should be communicated if there is an adjustment made resulting in demand or decrease in refund. The intimations which are not communicated cannot be enforced. Such intimation or order will be treated as invalid.
The onus of proof as to show that the order was communicated to the assessee is upon the Revenue and not upon the assessee.
Regarding unverified TDS it was held that the problem relates to the use of alphabets ‘U’, ‘M’ and ‘P’ in Form 26AS which stand for ‘unmatched challan’, ‘matched challan’, etc. The respondents will fix a time limit to verify and correct all such challans. This will also require communication with the deductor. The time limit fixed should consider the due date of filing and processing of the return. An assessee should not suffer because of the fault made by deductor. If payment has already been received by the Revenue, credit should be given to the assessee.
In connection with the failure of deductor to file correct TDS statements within due time, it was directed that when an assessee will approach an Assessing Officer with all particulars, the said Assessing Officer should verify the payment of the TDS and if it has been made, credit should be given to the assessee. The Assessing Officer will be at liberty to ask for further clarification.