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Taxmen demand income tax paid three years ago
April, 20th 2009

Have you received a letter from the income-tax (I-T) department demanding an enormous amount of tax even though you had paid your taxes on time? Don't panic. You are not alone.

Sourabh Shelke (name changed) got such a notice early this month. "He earns Rs10 lakh and his company deducted Rs3.9 lakh as tax. But instead of getting a rightful refund of Rs1.83 lakh, which he had claimed, Shelke was asked to cough up Rs2.75 lakh," said chartered accountant PT Poladia, who filed Shelke's returns.

Most other clients whose returns Poladia filed have been told to pay additional tax. To top it, the I-T department has also demanded interest on the amount.

The department hasn't taken into account the tax deducted at source (TDS). The discrepancy has occurred in processing the returns for assessment year 2007-08 (for income earned between April 1, 2006, and March 31, 2007). This was the year when the department stopped asking for income proof such as form 16 or 16A and the TDS certificates. Instead, the income-tax return (ITR) form was the only document to be submitted.

"This is not just the case with salaried employees but also with companies, self-employed people, and all others," said CA Mehul Sheth. Almost every other client of his has received such letters, he said.

What to do about it
Though the problem is with the department's systems, chartered accountants and taxpayers will have to take remedial action. What is needed is a written clarification to the department, with essential income proofs such as form 16 or 16 A and the TDS certificates, issued by an employer in the case of salaried individuals and banks/post offices in the case of tax deducted on investments.

Shishir Jha, spokesman for the Central Board of Direct Taxes, said, "They have to enclose the documents and inform the department within the time specified. Write back to the assessing officer stating that the demand for payment of the said taxes is not applicable in view of the tax already deducted (TDS)."

Jha said a time of 30 days is prescribed and if the clarification is not given within this period, the department has the right to take steps to recover the taxes, including "attachment of an individual's bank account".

The letters sent to hundreds of taxpayers say that if the amount is not paid within 30 days of "service of intimation", then the person would have to pay a simple interest of 1.5% for each month of default. A penalty, which may be as much as the amount of tax demanded, would also have to be paid, according to the department.

Why this happened?
This has not happened because of a mistake while filing the returns. It is the result of an information mismatch while processing the returns.

The problem is so rampant that the Bombay Chartered Accountants' Society, The Chamber of Tax Consultants, and the Western India Regional Council of the Institute of Chartered Accountants of India have written to the chief commissioner of income tax in Mumbai, saying the mistake may lead to harassment of taxpayers.

In a letter (dated April 13, 2009), they wrote, "The errors are resulting in determining demands which are not payable by the assessees. In fact, in some cases the erroneous demands are being adjusted against past refunds... If rectifications as sought by the assessees are not carried out in time or after being carried out are not updated, then the assessees may end up paying taxes which are not due or which are not payable on the correct income returned/assessed.

"If the intimations are not rectified expeditiously it would lead to unwarranted recovery proceedings which may result in unpleasantness and harassment."

BB Goyal, commissioner of income tax (salaried) in Mumbai, told DNA: "At the last minute TDS verification could not be done, so the assesses have to submit the TDS certificates again. It was a systemic problem. We have also written to the board (CBDT)."

Jha of the CBDT said: "Such problems may happen because of short payment of tax. Another reason is not getting credit for the tax paid and the TDS or if the employer or individual has not given details such as permanent account number (PAN) to the I-T department."

He said the CBDT had already instructed officers to process returns where TDS is up to Rs5 lakh and refund is below Rs25,000 without verifying the details.

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