Delhi HC Comes to Rescue of Taxpayers Denied TDS Credit

At times tax payers are denied TDS credit because of a mismatch between the TDS claimed by them in their returns and that uploaded by the tax deductor.

The Delhi high court has directed that tax authorities should not adjust refunds due against past outstanding demands under any circumstances, without prior communication with the tax payers. 

Other key judicial remedies issued by the Delhi HC include that interest on refund should be paid to taxpayers for delays not attributable to the tax payer. 

Another related issue was also addressed by the Delhi HC. At times tax payers are denied TDS credit because of a mismatch between the TDS claimed by them in their returns and that uploaded by the tax deductor. The HC has directed that in such cases, the tax payer must not suffer and tax authorities must take up the issue with the tax deductor for rectification. On the tax payer furnishing proof of TDS, the tax officer should verify the same and grant him the benefit of the tax deducted at source. 

It is learnt that following the HC's order, the Directorate of Income tax (Systems) has issued instructions a few days ago to rectify the procedures. 

A Central Processing Unit (CPU) was set up by the tax authorities in Bangalore for pan India processing of returns and issue of refunds. Prior to March 31, 2010 this exercise was decentralized and undertaken manually. However, teething problems at the CPU resulted in tax payers being denied TDS credit. 

Even when tax had already been deducted at source, either tax demands were raised on tax payers or refunds due to them were adjusted against the tax demand. 

The tax authorities have admitted to the Delhi high court (HC) that the data uploaded in the CPU has errors and faults. According to this data Rs 2.33 lakh crore was due and payable as past arrears (payable before March 31,2010) by tax payers. 

"The magnitude and number of tax payers adversely affected can be appreciated from the past arrear's figure of Rs 2.33 lakh crore, which the tax authorities accept may not be correct," states the Delhi HC's order. 

The exact quantum of the erroneous amount is not known. However, based on this figure of past arrears, 23 lakh adjustments, in respect of one year alone, were made by the tax authorities. "This effectively means that  23 lakh tax payers were denied refund or have been refused full refund on account of past arrears," observes the Delhi HC order. 

"Rejection of TDS or failure to get credit of TDS which has been deducted and paid, hurts the tax payer and puts him to needless harassment, inconvenience and costs. It also gives a bad name to the Revenue. The problem being systematic and institutional has to be addressed on a general scale," explained the Delhi HC. 

Tax is deducted at source against a multitude of income, be it by banks deducting tax at source against interest on fixed deposits, or companies deducting tax at source against their employee's salary. 

Anand Prakash a chartered accountant addressed a letter to the Delhi high court last April pointing out the difficulties being faced by the tax payers. 

His letter said the tax authorities give credit of TDS which stands reflected in its online computer record (ie: Form 26AS). Even if there is a slightest of mismatch in reporting the particulars of the deductee (say a bank account holder/salaried employee), the TDS will not reflect in Form 26AS and no credit would be given to the deductee resulting in unnecessary demands being raised and the hassle of getting the issue resolved. 

The letter was treated as public interest litigation by the Delhi HC. Subsequently, the All India Federation for Tax Practioners also filed another writ petition on similar lines. 

The HC asked the tax authorities to answer the points raised in the letter. After obtaining their response, the Delhi HC in its final order has issued detailed directions to tax authorities by way of 'mandamus' (judicial remedies) on seven issues (see below). 

"The Delhi HC has rightly empathised with tax payers, especially smaller tax payers for whom redressal of wrong demands is even more cumbersome. One may shortly expect further steps by the tax authorities to comply with the other directions of the HC also," states Sudhir Kapadia, tax leader, Ernst & Young. 

Seven judicial remedies issued to the tax authorities 

1. Dispose off rectification applications filed by tax payers regarding non credit of TDS expeditiously (a separate register for such applications should be kept) 

2. Do not adjust refunds against past outstanding demands without prior intimation to the tax payers 

3. If refunds have been suo-moto adjusted, transfer the matter to the concerned tax officer for remedial action in a time bound manner 

4. Pay interest on delayed refunds where the tax payer is not at fault 

5. If demand orders for past arrears (for the period prior to March 31,2010) were not properly communicated to tax payers, they will be treated as invalid, unless the tax authorities can prove otherwise 

6. Communicate with tax detectors in case of mistakes made by them in uploading TDS details and get it rectified 

7. Give the benefit of TDS when tax payers furnish evidence, even if the tax deductor has made mistakes in uploading details 

Times of India, New Delhi, 24-03-2013