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Five months back, Rakesh Kumar received an “arrear demand notice” from the income tax department for 2008-09. Kumar was in a fix. He had filed his return on time and had paid all his dues. There must be some mistake on the part of the tax authorities but how does he set it right? Kumar, however, is not the only one. Many taxpayers had received similar notices, but they need not worry. The Central Board of Direct Taxes has come to their rescue.
Under the provisions of Section 154 of the Income Tax Act, 1961, tax officials have the power to rectify any mistake that appears in an assessee’s record. Such rectifications can be made by the income tax authorities on their own or on the basis of applications filed by the assessees.
However, a rectification cannot be made after the expiry of four years from the end of a financial year in which an order is sought to be amended. Assessees often have to face great difficulty once the four-year time limit lapses.
Practical problem
Taxpayers had a tough time when they sought rectification in the arrear demand. The Central Board of Direct Taxes (CBDT) found that many assessees questioned the arrear claims that were shown outstanding against them in the records of the assessing officers. In such cases, assessees generally make an application to the assessing officer, requesting for a rectification. However, assessing officers expressed their inability to make the necessary correction in many cases as the time limit of four years had expired. Thus, taxpayers faced a great practical problem for no fault of theirs.
In many cases, assessing officers uploaded such disputed demands on the Financial Accounting System portal of the centralised processing centre (CPC) in Bengaluru, resulting in an adjustment in the refunds arising out of the processing of returns against the arrear claims.
Assessees, however, claimed that the arrears had already been paid or reduced/eliminated. The arrear demands in these cases were also not corrected on the ground that the four-year limit had expired.
Rule tweak
The provisions of Section 154 is aimed at keeping the taxpayers updated about the rectification of certain mistakes which may have occurred during the assessments.
The CBDT, realising the practical difficulties faced by the taxpayers, have come out with a circular, dated June 20, 2012, wherein they have asked the assessing officers to make appropriate corrections in such disputed arrear demands after due verification even if the time limit has lapsed.
In cases where the central processing centre in Bengaluru had already adjusted any refund arising out of the processing of return but disputed by the assessee, the assessing officer should verify the claim of the assessee on the merits, the CBDT said.
After verification, the assessing officer shall refund the excess amount, if any, that has been adjusted by the CPC because of incorrect figures uploaded by the concerned official.
The assessing officer will also upload the amended figure on the CPC, wherever it shows that there is some outstanding arrear even after the correction, the CBDT added.
In cases where the assessees dispute and request for correction in arrear demand — whether uploaded on the CPC or not and still lying in the records of the assessing officer — the jurisdictional assessing officer shall verify the claim of the assessee and, after due verification, make correction in his records and upload the corrected figure on the portal of the central processing centre.
Take it easy
As a result of the guidelines and clarification given by the Central Board of Direct Taxes, the life of taxpayers will become easy.
Taxpayers can approach their assessing officers if they find that an arrear demand has wrongly been imposed on them or adjustments have not been made by the assessing officer in cases where they have either partially paid the due or the outstanding amount has been reduced or waived by appellate authorities.
The problem is while the centralised processing centre makes the adjustment according to the details received from the assessing officer, the arrear dues may actually be wrong because of incorrect calculations by the concerned assessing officer.
In such a situation, the assessees should contact their assessing officers and request them to carry out a rectification even if the time limit has lapsed.
However, one must remember that the rules have been relaxed by the CBDT only for cases related to disputed arrear demands and not for other rectifications sought by an assessee.
