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Assessees aggrieved by adjustment notice of tax arrears with refund amount

Please refer to the return of income filed by you for PAN AXXXXXXXXA for Assessment Year 2012-13…The refund determined in this proceeding is being adjusted against the outstanding demands….” 

In the last few months, several taxpayers have received similarly worded notices from the I-T Department. Needless to say, most of them are baffled.

As per the I-T Department, in these cases, the current refund claims were adjusted against tax that these assessees owe the department.

In most of these cases, I-T demands for arrears have arisen due to the employers’ failure to file TDS (tax deducted at source) return in the previous years.

In some cases, employers or deductors filed TDS returns but did not mention the correct PAN of the tax payer. “As a result, tax payers didn’t get tax credit.

In many cases, employees have switched jobs and now their ex-employers are refusing to co-operate.

Often these intimations were sent to the taxpayer’s address mentioned in their PAN card application form. However, due to relocation or change of address, there were cases when these intimations were return undelivered to the tax department and the original intimations were never received by many such tax payers.

In other cases, assessees who received the notices did not act upon it. Now, the I-T department has uploaded all such demands on the central server and the CPC (central processing centre) is trying to recover these arrears.

Now, those who never received the intimations in the first place are bound to feel aggrieved about the new demand for arrears or adjustment against refunds.

A lot of these demands were not verified; in fact, in many cases, there was a mismatch in TDS credit. Some of them were due to incorrect data entry by the local department. So, some individuals had approached the courts asking for a discontinuation of the practice of adjusting the arrears with the amount of refunds. The Delhi High Court passed an order in August 2012 in which the tax department was asked to provide the taxpayer an opportunity to be heard before adjusting the tax arrears with the amount of refund.

Taxpayers who have received demands for small amounts have opted to make the payment instead of prolonging the dispute. “In case of larger amounts, taxpayers should obtain copies of the original intimations from the jurisdictional office of the tax department as well as the tax return filed. Causes of variations need to be identified. If there has been an error at the I-T department level, the same should be rectified. Then, demand stands withdrawn. If the demands are correct, the tax payers have to pay taxes.

Errors and mismatch

Even tax payers often face disputes relating to rejection of refund claims. When individuals file their returns online, they are intimated by the tax department under section 143 (1).

In this intimation, the I-T department provides detailed tax computation – as per your return as well as their calculations. If your refund claim has been rejected, the first step would be to study this intimation and differences carefully. Often, the differences pertain to the amount of taxes paid.

This is possible on account of TAN (Tax Deduction and Collection Account Number) of the tax deductor not being correctly mentioned in the tax return form or failure on part of the tax deductor to file the return. It can also arise if the deductor did not file the TDS return correctly, due to which tax deducted by him is not linked to the PAN of the tax payer.

Similarly, if the tax payer did not mention the challan details (of tax payments made) correctly in the tax return, the same may be ignored by the tax department while processing the return. This could result in rejection or lowering of refund.

Technology, too, could induce errors. Now, while filing returns, you have to upload the XML file generated onto the tax portal. It is possible that deductions claimed by you under say 80E or 80D are not reflected in this file, due to software-related issues.

In such cases, the deductions will not be considered while processing the return. Sometimes, tax-payers mention a wrong assessment year while making the tax payment. The tax department, in such cases, would not allow a credit of such tax paid unless the year mentioned in the challan is rectified.

Reclaim your refund

As mentioned earlier, you need to identify the reasons behind differences in computation before deciding your course of action. If you notice that you have made an error while filing your tax return, you will have to file an application for rectification of mistake under section 154.

It has to be filed online if the original return was filed electronically. Some issues like wrong challan number or TAN of your TDS deductor can be fixed by filing such applications.

However, if the refund claim is rejected because of TDS credit not being reflected in Form 26AS, ascertain whether TDS return has been filed by the deductor. If the deductor has not filed the same, write to the entity asking it to either file the claim or rectify any errors, so that it gets reflected in Form 26AS. The next step would be to file the application under section 154, which will pave the way for recalculation of the tax liability and approval of your refund claim.