Court On Its Own Motion v. Commissioner Of Income Tax

* IN THE HIGH COURT OF DELHI AT NEW DELHI + WRIT PETITION (CIVIL) 2659/2012 Date of decision: 14[th] March, 2013 COURT ON ITS OWN MOTION ..... Petitioner Through Ms. Premlata Bansal, Sr. Advocate with Mr. V.P. Gupta & Mr. Anuj Bansal, Advocates along with Mr. Nagesh Behl, Chartered Accountant. versus COMMISSIONER OF INCOME TAX ..... Respondent Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel & Mr. Puneet Gupta, Jr. Standing Counsel for the Revenue. WRIT PETITION (CIVIL) 5443/2012 ALL INDIA FEDERATION OF TAX PRACTITIONERS ..... Petitioner Through Ms. Premlata Bansal, Sr. Advocate with Mr. V.P. Gupta & Mr. Anuj Bansal, Advocates along with Mr. Nagesh Behl, Chartered Accountant. versus UNION OF INDIA AND OTHERS ..... Respondents Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel & Mr. Puneet Gupta, Jr Standing Counsel for the Revenue. CORAM:HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SIDDHARTH MRIDUL SANJIV KHANNA, J. (ORAL) Whether computerisation and Central Processing of Income Tax Returns is a boon or bane is rather sample to answer, as benefits of computerisation easily outweigh and out score any argument to the contrary. Computerization does away with human or manual element and the frailties attached and ensures transparency besides being quick and fool proof. Alas, it is a human element and frailties which have resulted in the present Public Interest Litigation (PIL) which was initiated pursuant to the letter dated 30[th] April, 2012 written by Anand Prakash, F.C.A. Chartered Accountant. The said letter was treated as PIL and marked to this Court. Subsequently, All India Federation for Tax Practitioner filed the second writ petition on identical or similar lines. For the sake of convenience, we reproduce the letter dated 30[th] April, 2012 in verbatim: “1. I am a regular income tax practitioner. I draw the attention of this Hon‟ble Court towards the numerous difficulties faced by Income Tax assessees country wide due to the faulty processing of the Income Tax Returns and the TDS deducted at source and request that certain directions be issued by this Hon‟ble Court so that lakhs of tax payers are saved from the harassment in filing revised returns/rectification petitions every year. 2. The Income tax assessees filing Income Tax returns, on receipt of intimations u/s 143(1), generally are required to pay huge demands which are created because of mismatch of TDS as claimed in the Income Tax return. This is primarily because of the fact that department gives credit of TDS which stands reflected in their online computer records i.e Form No.26AS. 3. Whenever any Department/Govt Office/Bank deducts TDS on behalf of the assessee he has to file quarterly statement of TDS deducted, along with PAN of deductee and other details. Even if there is slightest of mismatch in reporting the particulars of deductee, the TDS deducted W.P. (C) Nos. 2659/2012 & 5443/2012 Page 2 of 45 by the Department will not reflect in the Form 26AS and as such, no credit of TDS will be allowed to the assessee resulting in unnecessary demands and hassles of getting the rectifications done. 4. To get the rectification done, at first the assessee has to request the concerned department to file a revised statement with correct particulars of deductee and only after revised statement is filed, the same will start reflecting in the 26AS and thereafter, the rectification is possible which is a very lengthy procedure. In many cases the concerned department refuses to revise the statement. W.P. (C) Nos. 2659/2012 & 5443/2012 Page 2 of 45 by the Department will not reflect in the Form 26AS and as such, no credit of TDS will be allowed to the assessee resulting in unnecessary demands and hassles of getting the rectifications done. 4. To get the rectification done, at first the assessee has to request the concerned department to file a revised statement with correct particulars of deductee and only after revised statement is filed, the same will start reflecting in the 26AS and thereafter, the rectification is possible which is a very lengthy procedure. In many cases the concerned department refuses to revise the statement. 5. The department has communicated the demands outstanding for various years in their records to the Central Processing Unit without carrying out the necessary rectifications lying pending at their end and without reconciling their records. Now Central Process Unit while issuing refunds in the later years adjusts demands for earlier years. Sometimes the demands for earlier years may not have been communicated to the assessee. This is totally against the law. To get the necessary rectification done the assessee has to first approach the assessing officer for necessary rectification for that assessment year. Then that will be communicated by the Assessing Officer to the CPC online or as per their records. And thereafter CPC would issue refund for the Balance amount. 6. The Returns of the assesses who have expired are filed by legal heirs and in case of refund the same is issued by CPC in the name of dead person only. This causes great harassment to get the same rectified online or through assessing officer. 7. In case of ITR filed in ITR 4S by the assessee CPC is not considering the taxes paid by the assesses even if they are being reflected in Form 26AS. This is some technical problem in their software. 8. Assesses who are filing their Income Tax return u/s 44AD are not obliged to pay any Advance Tax as per the provisions of the Income Tax Act, 1961. But, while processing the Income Tax returns CPC is charging interest u/s 234B, 234-C in all such cases which is causing unnecessary rectification and paper work as the same should not be levied at all. 9. If an assessee has duly paid the taxes due to the Income W.P. (C) Nos. 2659/2012 & 5443/2012 Page 3 of 45 Tax Department u/s 140-A, but he defaults in filing of return within the prescribed period of time, CPC is still charging interest u/s 234A from the date of payment till the filing of Income Tax Return. The Hon‟ble Supreme Court in the case of Pranob Roy as reported in 309 ITR 231 has held that interest is compensatory in nature and as such no interest should be charged when the taxes stands paid either as Advance Tax or as self assessment tax. 10. During the filing of TDS return by deductor there is possibility of mistake like PAN being incorrectly mentioned, challan No. being incorrect of Assessment Year being wrongly mentioned by the deductor and also that no TDS return has been filed. In this case TDS of deductee will not be shown in Form 26AS & credit will not be allowed by the Income Tax Department. Whereas there is no fault of deductee any where. 11. There is possibility that bank punches the wrong details like TDS No., Challan No. etc. In this case there will error in processing the TDS return filed by deductor. So, TDS amount will not reflect in Form 26AS (Pan Data) with NSDL and credit will not allow to deductee whereas TDS was deducted by the deductor. 12. In the facts and circumstances, it is prayed that suitable directions be issued to the Income Tax Department, to mitigate the hardship of lakhs of tax payers.” 2. By order dated 4[th] May, 2012, notice was issued to the Union of India, Ministry of Finance, Central Board of Direct Taxes, Chief Commissioner of Income Tax, Delhi-I and Director General of Income 11. There is possibility that bank punches the wrong details like TDS No., Challan No. etc. In this case there will error in processing the TDS return filed by deductor. So, TDS amount will not reflect in Form 26AS (Pan Data) with NSDL and credit will not allow to deductee whereas TDS was deducted by the deductor. 12. In the facts and circumstances, it is prayed that suitable directions be issued to the Income Tax Department, to mitigate the hardship of lakhs of tax payers.” 2. By order dated 4[th] May, 2012, notice was issued to the Union of India, Ministry of Finance, Central Board of Direct Taxes, Chief Commissioner of Income Tax, Delhi-I and Director General of Income Tax (Systems), who were impleaded as respondent Nos. 1 to 4. By the same order, the respondents were directed to revert the averments in the letter and specific response was sought on the following aspects: (1)Whether procedure under Section 245 of the Income Tax Act, 1961 is being followed before making adjustment of refunds and whether assessees are being given full W.P. (C) Nos. 2659/2012 & 5443/2012 Page 4 of 45 details with regard to demands, which are being adjusted. (2)Whether the Revenue is taking caution and care to communicate rejection of TDS certificates and intimation under Section 143(1) in case any adjustment or modification is made to taxes paid, either as advance tax, self assessment tax or TDS. (3)Whether and what steps are taken to verify and ascertain that the old demands against which adjustment is being made was communicated to the assessee? (4)What steps have been taken to ensure that the deductors correctly upload the TDS details/particulars on the Income Tax website? (5)What is the remedy available to the assessee and can he/she approach the Department in case the deductor fails to correctly upload the particulars in his/her cases? (6)Whether an assessee can get benefit of TDS deducted or/and paid but not uploaded by the deductor and procedure to claim the said benefit?” 3. The respondents were directed to file counter affidavit providing full particulars regarding : (i)Number of assessees where income tax refund in the last year has been adjusted against in the last year has been adjusted against demand for earlier years. (ii)The quantum adjusted. (iii)Cases/instances in which action has been taken against deductors, who in spite of request made by the assessee have not correctly uploaded the TDS details.(In respect of Delhi jurisdiction). taken against deductors, who in spite of request made by the assessee have not correctly uploaded the TDS details.(In respect of Delhi jurisdiction). The first two figures/particulars will be furnished on the basis of computerized records maintained by the Income Tax Department on their system. If no such record is maintained/available on the system, it shall be indicated and the respondents need not furnish the said details.” The order dated 4[th] May, 2012, also refers to difficulties with regard to PAN card numbers. This aspect has not dealt with and is left open, if required and necessary to be examined in another case. 4. On 30[th] May, 2012, another detailed order was passed as certain aspects/questions were highlighted. The point raised were crystallized for the purpose of counter affidavit to be filed by the respondents and read:- “ (i) Whether it is possible to have a centralized window for receipt of applications in case benefit of TDS certificate is refused or refund due has been adjusted against a demand for a previous year? The application once received should be processed within a specified time frame and the assessee should be informed by post. (ii) Whether single Window Counter can be set up for assessees to make complaints that the deductor has not correctly uploaded the details as a result of which the assessee is not getting the credit of the TDS? 4. On 30[th] May, 2012, another detailed order was passed as certain aspects/questions were highlighted. The point raised were crystallized for the purpose of counter affidavit to be filed by the respondents and read:- “ (i) Whether it is possible to have a centralized window for receipt of applications in case benefit of TDS certificate is refused or refund due has been adjusted against a demand for a previous year? The application once received should be processed within a specified time frame and the assessee should be informed by post. (ii) Whether single Window Counter can be set up for assessees to make complaints that the deductor has not correctly uploaded the details as a result of which the assessee is not getting the credit of the TDS? (iii)(a) Nagesh Kumar Behl, who has moved an application being C.M. No.7309/2012 has stated that the problem regarding adjustment of refunds where even no tax demand for earlier year was pending has arisen because the Assessing Officers have failed or neglected to upload correct data. The Assessing Officers have uploaded the data on the basis of Section 143(1) intimation without verifying/ referring to the rectification order/ benefit subsequently granted. The assessees are put to inconvenience and expenditure is incurred on visits as incorrect data has been loaded. Thus for the fault of the Assessing Officer in uploading correct and accurate data, the assessees are penalized and suffer harassment. W.P. (C) Nos. 2659/2012 & 5443/2012 Page 6 of 45 (b) This is a serious matter. It is alleged that the demands have been uploaded in the server for several assessment years, though no amount/demand is payable. It is stated that the uploading/ demand created, is contrary to the official records and wrong as the Assessing Officers have failed and neglected to correctly upload the data despite instructions of the Board. It will be stated whether this correct and what action has been taken or contemplated by the Board? (iv) Whether it is possible to upload and mention on the website details of intimation issued under Section 143(1) of the Income Tax Act, 1961 (“Act”, for short) with particulars like amount adjusted, TDS or taxes which have not been credited, when and how the intimation was communicated/ served? (v) The return itself is treated as an intimation under Section 143(1), unless the Assessing Officer makes adjustments. In case adjustment is made, the Assessing Officer is required to communicate his order under Section 143(1). The general complaint/ grievance is that intimation is not communicated to the assessee even in cases of adjustments. If this is correct, what steps have been taken to remedy the said grievance? (vi) Whether prior intimation/ information is being sent to the assessees before adjustment of refund as per Section 245? (vii) Under the Act benefit of TDS can be taken in the year in which the income on which TDS deducted is assessed and shown as assessable. There can be mismatch between the year in which the deductor has deducted the tax and the assessment year in which the assessee had declared the said income. The online form/ details do not take care of such cases. (viii) There are several cases where the deductors do not fill up the correct details of the deductee. In such cases the option is given to the deductor to rectify but the said process is very cumbersome. The respondents will examine whether their software can be programmed to refuse/ reject uploading of incorrect data, thus compelling the deductor to feed correct information and the deductor can come to know that the particulars filled up are incorrect and require rectification. (ix) Whether department has informed the deductors about incorrect details and has asked them to rectify the errors W.P. (C) Nos. 2659/2012 & 5443/2012 Page 7 of 45 (viii) There are several cases where the deductors do not fill up the correct details of the deductee. In such cases the option is given to the deductor to rectify but the said process is very cumbersome. The respondents will examine whether their software can be programmed to refuse/ reject uploading of incorrect data, thus compelling the deductor to feed correct information and the deductor can come to know that the particulars filled up are incorrect and require rectification. (ix) Whether department has informed the deductors about incorrect details and has asked them to rectify the errors W.P. (C) Nos. 2659/2012 & 5443/2012 Page 7 of 45 within a time period? In case of failure, what action is taken? What happens when a complaint is made by the deductee? (x) Whether the payment of interest on refund under Section 244A is incorporated in the software itself so that when the refund due is calculated it is inclusive of interest, if payable. It is also pointed out that in many cases there is delay between date of determination of refund and issue of the refund cheque/ transfer but interest for said period is not paid. (xi) Even otherwise refund due are not paid with interest. Whether, the application/request for interest can be entertained by post or by email and answered within a specified time frame? (xii) It is pointed out that without password and user name, online returns cannot be filed. It is stated that in many cases password or user name get misplaced or are forgotten. It is very difficult to get a response and reply from the authorities regarding the user name and password. What is the procedure in such cases and whether any time frame is fixed for response to such requests? What is the remedy for the assessee in case there is delay and lapse on the part of the authorities in furnishing password/ user name? (xiii) The respondents shall examine and state whether on line viewing of Form 26 AS can be made easier and without use of password and the details available made more elaborate and complete. (xiv) The information and advantage of Rule 37BA of the Income Tax Rules, 1962 must be disseminate and published for the benefit of assessee public and deductors so that assessee can claim benefit of tax deducted at source in respect of income which is assessable in his hand.” 5. Thereafter the respondents filed their counter affidavit dated 27[th] July, 2011 on 28[th] July, 2011. The respondents have also filed additional affidavits thereafter in response to queries, and questions which are dated 30[th] November, 2012, 29[th] January, 2013 and 5[th]March, 2013. W.P. (C) Nos. 2659/2012 & 5443/2012 Page 8 of 45 6. In our order dated 31[st] August, 2012, we emphasized that two specific problems being faced by the taxpayers were being examined and considered. The first was the difficulties faced by the taxpayers relating to credit of Tax Deducted at Source i.e. TDS which stands paid by the deductors. This amount is deducted from the income earned by the assessee but as noticed for several reasons which may not be attributable to the taxpayers/assesses, they denied credit and, therefore, may have to pay double tax. This is not warranted and acceptable. Further the assessees suffer harassment and inconvenience both from the Department and the deductor. The second category consists of wrong or unpayable “past demands or arrears” which have been uploaded in the Central Processing Unit (CPU) at Bengaluru, resulting in adjustment of said arrears from the refund paid/payable in the subsequent years. 7. However, two issues were specifically directed to be left out and it was stated in our order dated 31[st] August, 2012 that these would not be addressed in these PIL/writ petitions. The first issue relates to non-implementation of the decision of the Supreme Court in Dr. Prannoy Roy & Anr. Vs. Commissioner of Income Tax and Another (2009) 309 ITR 231 (SC), which as per the Revenue cannot be applied. The second issue is more contentious and relates to whether an assessee is W.P. (C) Nos. 2659/2012 & 5443/2012 Page 9 of 45 entitled to credit of TDS which has been deducted by a deductor but not paid or credited to the Government. These two issues, it was observed can be taken up by individual assesses and it would not be proper to entertain a Public Interest Litigation on these aspects. In our order dated 31[st] August, 2012, we clarified that the PILs have not been entertained to decide individual claims but in view of the general problems being faced by most taxpayers specifically by small taxpayers regarding issue of refunds, which are denied for bogus or wrong demands/arrears or incorrect record maintenance and the problem in getting full credit of the tax which has been deducted from the income and paid/deposited with the Revenue. The problem was apparent, real and enormous and had escalated because of centralised computerisation and problems associated with the incorrect and wrong data which was uploaded by the tax deductors or payers and the Assessing Officers. The issue was of general governance, failure of administration, fairness and arbitrariness. The magnitude of the problem and the number of taxpayers adversely affected thereby is apparent from the counter affidavit itself. Respondents have stated that 43% and 39% of the returns filed by the deductors in Delhi zone for the financial year 2010-11 and 2011-12 respectively were defective. This effectively means that the assessee would not get credit W.P. (C) Nos. 2659/2012 & 5443/2012 Page 10 of 45 of the tax deducted from their incomes by the deductors. Rejection of TDS or failure to get credit of TDS which has been deducted and paid, huts the assessee and puts him to needless harassment, inconvenience and costs. It also gives bad name to the Revenue. The problem being systematic and institutional has to be addressed on a general scale. On the issue of refunds, the respondent do not dispute and admit the position that the data uploaded in the Centrally Processing Unit, Bengaluru has errors and faults. In the counter affidavit, it is stated that Rs.2.33 lac crores is due and payable, as per the data uploaded by the Assessing Officers towards past arrears i.e. arrears payable on or before 31[st] March, 2010. This is a substantial amount. Arrears, if payable, must be paid. However, the position is that the taxpayers are claiming and stating that arrears have been wrongly shown and the Assessing Officers have not correctly uploaded the data. As noted below, this is partly correct. The respondents also accept that the “past ”arrears as uploaded may not be correct. They have not quantified the amount. The magnitude and the number of assessees adversely affected, can be appreciated from the figure of Rs.2.33 lac crores. Further, as per the counter affidavit on the basis of this data for one assessment year alone Centrally Processing Unit, Bengaluru has made about 23 lacs adjustments and the taxpayers have been denied the W.P. (C) Nos. 2659/2012 & 5443/2012 Page 11 of 45 refund claim i.e. the refund amount has been reduced or set off against W.P. (C) Nos. 2659/2012 & 5443/2012 Page 11 of 45 refund claim i.e. the refund amount has been reduced or set off against the arrears. This effectively means that 23 lac assessees have been denied refund or have been refused full refund on account of past arrears etc. The facts noticed above justify issue of notice and the orders which have been passed and we are now passing to activate and impress upon the Revenue to take remedial and effective action. 8. At the outset, we agree and accept that the respondents have taken a right decision to computerise the income tax records, have Central Processing Unit for processing of returns and issue of refunds. Besides, these steps relate to policy and fall within the exclusive domain of the respondents. These steps have to be appreciated as they ensure transparency, openness, eliminate high handedness and curtail corruption/red tapism. UPLOADING OF WRONG OR FICTITIOUS DEMAND 9. Prior to 31[st] March, 2010, Income Tax Returns were examined manually and the respondents did not have centralised computerised data or record of the demands outstanding against a particular assessee. Each Assessing Officer manually maintained a Demand and Collection Register (D&CR, for short). In the counter affidavit, it is stated that the Standing Committee on Finance and Demands for Grants (2009-10) of the Ministry of Finance (Department of Revenue) had W.P. (C) Nos. 2659/2012 & 5443/2012 Page 12 of 45 recommended uploading of arrears of demand in the CPU. On 18[th]March, 2010, the committee was constituted to put in place Management Information System (MIS) for collating and retrieving of data concerning appeal, disposal and recovery etc. In order to carry out the mandate, Chief Commissioners were asked to devote one entire month for house-keeping work with special emphasis on physical verification of demands and thereafter create a manual D&CR for the financial year 2010-11. CBDT instructions dated 28[th] October, 2010, were issued for steps to be taken by the field formation and for verification of arrears. The aforesaid exercise had to be completed by the Assessing Officer before 30[th] May, 2010 and a certificate was to be issued by them that they had verified the entries furnished. Range Heads were directed to form Inspection Team of officers and staff to verify and to give a certificate that verification of demand was complete and demand had been correctly carried forwarded. This inspection team had to complete this exercise by 15[th] June, 2010 and compliance report by the Chief Commissioner (CCS) was to be sent to be sent to the CBDT by 30[th] June, 2010. 10. Inspite of the said effort and direction, the CBDT/Board accepts and admits the position that incorrect and wrong demands have been uploaded. This is clear from the further directions which have been issued by the Board to the Assessing Officers on 30[th] September, 2010, 9[th] November, 2010 and 15[th] February, 2012. The aforesaid demands relate to the period on or before 31[st] March, 2010. In the counter affidavit, it is indicated that 46.34 lac entries of demand aggregating to Rs.2.32 lac crores have been uploaded on the CPC arrear demand portal by the Assessing Officers. 11. Office of the Commissioner of Income Tax, Bengaluru, realising that huge amount has been claimed as tax arrears, had written a letter dated 21[st] August, 2012, to all Chief Commissioners. The relevant portion of the said letter reads as under: issued by the Board to the Assessing Officers on 30[th] September, 2010, 9[th] November, 2010 and 15[th] February, 2012. The aforesaid demands relate to the period on or before 31[st] March, 2010. In the counter affidavit, it is indicated that 46.34 lac entries of demand aggregating to Rs.2.32 lac crores have been uploaded on the CPC arrear demand portal by the Assessing Officers. 11. Office of the Commissioner of Income Tax, Bengaluru, realising that huge amount has been claimed as tax arrears, had written a letter dated 21[st] August, 2012, to all Chief Commissioners. The relevant portion of the said letter reads as under: “Kind reference is invited to the above, wherein the assessing officers have been instructed to verify and reconcile the demands where such demand or adjustment thereof by CPC is disputed by the taxpayer. They have also been advised to upload amended figure of arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru wherever there is balance outstanding arrear demand still remaining after aforesaid correction/reconciliation. Against the arrear demands uploaded by the assessing officers CPC has collected demands to the tune of Rs.4800 crores by way of adjustment of refunds. The particulars of adjustment already done by CPC in specific cases need to be taken into account by the assessing officers in the course of verification/reconciliation of demands at their end. Besides, the assessing officers have also to taken into consideration the regular tax payments (minor head 400) made by the assessee to arrive at the correct outstanding demand. As the reconciliation has to be done by a large number of assessing officers of respective CCIT(CCA) region there is a need of supervisor and monitoring of this activity by the CIT(CO).” W.P. (C) Nos. 2659/2012 & 5443/2012 Page 14 of 45 12. The letter points out two problems. Firstly, there is problem about the verification and reconciliation of demand which had been uploaded by the Assessing Officer in the CPU. It has been pointed out that these demands were being disputed by the taxpayers. The Assessing Officers were advised to upload amended figures after correction and reconciliation. Secondly tax demand to the tune of Rs.4800 crores had been adjusted by the CPU by way of adjustment of refunds. This adjustment accordingly should be duly reflected and shown in the record maintained by the individual Assessing Officers. On a reading of the said letter, one can see and understand the concern and anguish expressed on account of uploading of incorrect and wrong data in the CPU and the problem faced by them and in turn problems faced by the assesses. The letter specifically indicates that demands recovered were not being recorded in the records maintained by the Assessing Officer and credit was not duly reflected in the record of the Assessing Officer. 13. The CBDT, after issue of notice in the writ petition, has issued Circular No. 4 of 2012, which read as under: “The Board has been apprised that in certain cases the assessees have disputed the figures of arrear demands shown as outstanding against them in the records of the Assessing Officer. The Assessing Officers have expressed their inability to correct/reconcile such disputed arrear demand on the ground that the period W.P. (C) Nos. 2659/2012 & 5443/2012 Page 15 of 45 of limitation of four years as provided under sub section (7) of section 154 of the Act has expired. 13. The CBDT, after issue of notice in the writ petition, has issued Circular No. 4 of 2012, which read as under: “The Board has been apprised that in certain cases the assessees have disputed the figures of arrear demands shown as outstanding against them in the records of the Assessing Officer. The Assessing Officers have expressed their inability to correct/reconcile such disputed arrear demand on the ground that the period W.P. (C) Nos. 2659/2012 & 5443/2012 Page 15 of 45 of limitation of four years as provided under sub section (7) of section 154 of the Act has expired. Further, in some cases, the Assessing Officers have uploaded such disputed arrear demand on the Financial Accounting system (FAS) portal of Centralized Processing Centre (CPC), Bengaluru which has resulted in adjustment of refund arising out of processing of Returns against such arrear demand which has been disputed by such assessees on the grounds that either such demand has already been paid or has been reduced/eliminated in the appeals, etc. The arrear demands, in these cases also were not corrected/reconciled for the reason that the period of limitation of our years has elapsed. 2. The Board, in consideration of genuine hardship faced by the abovementioned class of cases, in exercise of powers vested under Section 119(2)(b) of the Act, hereby authorise the Assessing Officers to make appropriate corrects in the figures of such disputed arrear demands after due verification/reconciliation and after examining the same on merits, whether by way of rectification or otherwise, irrespective of the fact that the period of limitation of four year as provided under Section 154(7) of the Act has elapsed. 3. In view of the above the following has been decided:- In the category of cases where based on the figure of arrear demand uploaded by the Assessing Officer but disputed by the assessee, the Centralised Processing Centre (CPC), Bengaluru has already adjusted any refund arising out of processing of return, the jurisdictional assessing officer shall verify the claim of the assessee on merits. After due verification of any such claim on merits, the Assessing Officer shall issue refund of the excess amount, if any, so adjusted by CPC due to inaccurate figures of arrear demand uploaded by the Assessing Officer. The Assessing Officer, in appropriate cases, will also upload amended figure of arrear demand on the Financial Accounting System (FAS) portal of Centralised Processing Center (CPC), Bengaluru wherever there is balance outstanding arrear demand still remaining after aforesaid correct/reconciliation. In other cases, where the assesse disputes and W.P. (C) Nos. 2659/2012 & 5443/2012 Page 16 of 45 requests for correction of the figures of arrear demand, whether uploaded on CPC or not uploaded and still lying in the records of the Assessing Officer, the jurisdictional assessing officer shall verify the claim of the assessee on merits and after due verification of such claim, will make suitable correction in the figure of arrear demand in his records and upload the correct figure of arrear demand on CPC portal. 5. It is specifically clarified that these instructions would apply only to the cases where the figures of arrear demand is to be reconciled/corrected- whether such arrear demand has been uploaded by the Assessing Officer on to Financial Accounting System (FAS) of CPC or it is still in the records of the Assessing Officer.” requests for correction of the figures of arrear demand, whether uploaded on CPC or not uploaded and still lying in the records of the Assessing Officer, the jurisdictional assessing officer shall verify the claim of the assessee on merits and after due verification of such claim, will make suitable correction in the figure of arrear demand in his records and upload the correct figure of arrear demand on CPC portal. 5. It is specifically clarified that these instructions would apply only to the cases where the figures of arrear demand is to be reconciled/corrected- whether such arrear demand has been uploaded by the Assessing Officer on to Financial Accounting System (FAS) of CPC or it is still in the records of the Assessing Officer.” 14. A reading of the circular shows that the burden is put on the assessee to approach the Assessing Officers to get their records updated and corrected. In the given situation perhaps this may be the easiest and most convenient option available, but this should not be a ground for the Assessing Officer not to suo motu correct their records and upload correct data. Each assessee has a right and can demand from the respondents that correct and true data relating to the past demands should be uploaded. CBDT should and must endeavour and direct the Assessing Officers to upload the correct data. The CBDT has already issued Management of Arrear Demand manual for the Assessing Officer. The real issue is that the Assessing Officers must comply and follow the said manual and upload the correct and true data. Filing of applications under Section 154 i.e. application for W.P. (C) Nos. 2659/2012 & 5443/2012 Page 17 of 45 rectification and correction by the assessee would entail substantial expenses on the part of the assessee who would be required to engage a counsel or advocate or make repeated visits to the Income Tax office for the said purpose. This would defeat the main purpose behind computerisation i.e. to reduce involvement of human element. 15. As per Citizen Charter on the website of Income Tax Department, refund along with interest in case of electronically filed returns should be made within six months. In case of manually filed returns, refund should be made within nine months. The time commences from the end of month in which the return/application is received. Similarly, the Citizen Charter states that a decision on the rectification application under Section 154 will be made within a period of two months. The Board has, however, issued instructions that rectification application under Section 154 should be disposed of within 4/6 months. There is a general grievance that the Assessing Officers do not adhere to the said time limits and the assessees are invariably called upon to file duplicate applications or new applications in case they want disposal. It is stated that there are no dak or receipt counters or register for receipt of applications under Section 154. Thus there is no record/register with the Assessing Officer with details and particulars of application made under Section 154, the date on which it W.P. (C) Nos. 2659/2012 & 5443/2012 Page 18 of 45 W.P. (C) Nos. 2659/2012 & 5443/2012 Page 18 of 45 was made, date of disposal and its fate. Noticing this fact in the order dated 5[th] February, 2013, it was directed that the respondents must examine the necessity for proper dak/receipt counters for receipt of applications under Section 154 by hand or by post. It was observed that it will be desirable that each application received should be entered in a diary/register and given a serial number with acknowledgement to the applicant indicating the diary number. It was also suggested that details of applications under Section 154 should be uploaded on the website as this would entail transparency. The website should indicate the date on which the application was received and date of disposal of the application by the Assessing Officer concerned. 16. In the affidavit filed on 5[th] March, 2013, the respondents have stated that they have “recently” prescribed a register for receipt of rectification applications. The said register has various columns namely, date of disposal, date of service of rectification application, demand/refund etc. This is the right step but it must be ensured by the Board that the registers are made available to all Assessing Officers or at the dak counters. The said registers will be made available to the dak counters and the Assessing officers within two months, if not already provided. The Board will also issue instructions that all Assessing Officers and dak counters shall henceforth in the said W.P. (C) Nos. 2659/2012 & 5443/2012 Page 19 of 45 register, enter and allocate a serial number on the rectification applications and the date of receipt and the serial number will be mentioned on the acknowledgement, which is issued to the assessee. Uploading of the details of the said registers as stated in the affidavit should be made online preferably within a period of six months. This, we reiterate would be in accordance with the mandate of the Citizen Charter of the Department which states that the respondents believe in equity and transparency. 17. In the counter affidavit filed on 5[th] March, 2013, it is stated that Aayakar Seva Kendras provide for single window service to tax payers for receipt of Dak/grievance and paper returns and applications under Section 154 are also within the scope of Aayakar Seva Kendras. Information in this regard will be disseminated and informed to the assessees, who can take advantage and benefit of the same. It is stated that there are already 75 Aayakar Seva Kendras and 57 more such Kendras are being set up in the current year. Similarly, it is stated that Sevottam Aayakar Seva Kendras are being set up in 112 income tax offices. 18. Each application under Section 154 has to be disposed of and decided by a speaking order. This is the mandate of the Act. The order has to be communicated to the assessee and there is a relevant W.P. (C) Nos. 2659/2012 & 5443/2012 Page 20 of 45 column to be filled in the register, which is now required to be maintained. The Board should issue specific directions to ensure that there is full compliance of the said requirements and directions by the Assessing Officers, Dak counters and Aayakar Sewa Kendras. This is the first mandamus or direction we have issued in the present judgment. ADJUSTMENT OF REFUND CONTRARY TO THE MANDATE OF SECTION 245 OF THE INCOME TAX ACT 19. Section 245 of the Act empowers and authorises an Assessing Officer to adjust refunds against pending demands and arrears, and reads as : W.P. (C) Nos. 2659/2012 & 5443/2012 Page 20 of 45 column to be filled in the register, which is now required to be maintained. The Board should issue specific directions to ensure that there is full compliance of the said requirements and directions by the Assessing Officers, Dak counters and Aayakar Sewa Kendras. This is the first mandamus or direction we have issued in the present judgment. ADJUSTMENT OF REFUND CONTRARY TO THE MANDATE OF SECTION 245 OF THE INCOME TAX ACT 19. Section 245 of the Act empowers and authorises an Assessing Officer to adjust refunds against pending demands and arrears, and reads as : “245. Set off of refunds against tax remaining payable.—Where under any of the provisions of this Act a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.” 20. The respondents in their counter affidavit have accepted that the Board from time to time has issued directions that the said Section and the procedure prescribed should be strictly adhered to. Reference is made to instruction Nos. 1952, 1969 and 1989 dated 14[th] August, 1998, 20[th] August, 1999 and 20[th] October, 2010 respectively. Another W.P. (C) Nos. 2659/2012 & 5443/2012 Page 21 of 45 instruction CPC No. 1 dated 27[th] November, 2012 has been issued recently. However, in the counter affidavit filed on 28[th] July, 2012 two conflicting or contradictory stands were taken. In one of the paragraphs of the counter affidavit, the respondents have stated as under: “Accordingly, it was again reiterated that the provisions of section 245 of the I.T. Act, 1961 must be followed and written intimation must be sent to the assessees before adjusting refund of the outstanding demand and any lapse in this regard shall be viewed seriously. The CCsIT/DGsIT/CsIT were direct to ensure compliance of the aforesaid direction. Thus, enough safeguards have been provided not only in the I.T. Act, 1961 but also in the Instructions issued by the CBDT.” (emphasis supplied) 21. The aforesaid statement reflects the correct position in law as Section 245 mandates and envisages prior intimation to the assessee so that he/she can respond before any adjustment of refund is made towards the demand relating to any other assessment year. Thus, an opportunity of response/reply should be given and after considering the stand and plea of the assessee, justified and valid order or direction for adjustment of refund can be made. The Section postulates two stage action; prior intimation and then subsequent action when warranted and necessary for adjustments of the refund towards arrears. 22. In the next paragraph of the counter affidavit, the respondents, however, have taken a different stand on adjustment of refunds by W.P. (C) Nos. 2659/2012 & 5443/2012 Page 22 of 45 CPU, Bengaluru and have stated as under: 22. In the next paragraph of the counter affidavit, the respondents, however, have taken a different stand on adjustment of refunds by W.P. (C) Nos. 2659/2012 & 5443/2012 Page 22 of 45 CPU, Bengaluru and have stated as under: “After handing over of old demands to the CPC and commencement of processing of returns by CPC, the procedure u/s 245 of the Income Tax Act, 1961 is being followed by CPC before making adjustment of the refunds and assesses are being given full details with regard to the demands which are being adjusted. The intimation u/s 143(1) issued from CPC incorporates the full details of the existing demands that the adjusted against the refunds. Further, when the processing of a return at CPC results in demand,