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I-T assessees stumped by adjustment notice of tax arrears with refund amount
April, 23rd 2013

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 confused.

"As per the I-T Department, in these cases, the current refund claims were adjusted against tax arrears 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," explains Pankaj Mathpal, certified financial planner and CEO, Optima Money Managers, whose clients have been served such notices.

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," he says.

"We have come across several cases where assessees have received such demands from I-T. Until a few years ago, the processing of tax return was done manually. It was the local tax department's responsibility to process the return and send intimation to tax payers.

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," adds Vaibhav Sankla, director with tax consultancy firm H&R Block India.

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," he adds.

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," he says.

Errors and mismatch

Even otherwise 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.

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