Rectification of arrear tax demand: What is it
By Subhash Lakhotia, Tax Guru : CNBC Awaaz, Tax & Investment Consultant
Under the provisions as contained in section 154 of the Income-tax Act, 1961 the tax officials possess powers to rectify any mistake which is apparent from record. Such rectification can be made by the Income-tax Authorities on their own motion or the same can be rectified based on the application filed by the assessee. However, the important point is that such rectification of mistake cannot be made after the expiry of four years from the end of the financial year in which the order is sought to be amended. Thus, it is very clear from the provisions as contained in section 154 of the Income-tax Act that the orders pertaining to rectification of mistake in any case cannot be made after the expiry of four years. Sometime due to lapse of time limit as mentioned above great hardship is caused by the Tax Department to the assessees. One such instance where the tax payers were facing great difficulty was the matter relating to rectification of arrear demand disputed by the assessee.
The Central Board of Direct Taxes found that in certain cases the assessees have disputed the figures of arrear demands which was shown as outstanding against them in the records of the Assessing Officers. In such a situation generally speaking, the assessee should make an application to the Assessing Officer in terms of section 154 of the Income-tax Act and should request for rectification in respect of the arrear demand. It has also been noted that the Assessing Officers in many cases have expressed their inability to correct or reconcile such disputed arrear demand in respect of the application made by the assessee for rectification. The ground on which rectification with reference to arrear demand was not carried out by the Assessing Officer was because the period of limitation of four years had already expired. The tax payers in such a situation are facing great practical problem with no fault of theirs.
In many cases the Assessing Officers have uploaded such disputed arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (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 their 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 reasons that the period of limitation of four years has elapsed.
Generally speaking, the object of the provision contained in section 154 of the Income-tax Act, 1961 is to help the tax payers with regard to routine matters of rectification of certain mistakes which might have happened during the course of assessment proceedings etc. However, due to the time limit as mentioned in the said section the Assessing Officers were not ready in many cases to carry out the rectification orders specially because of the expiry of this time limit. This is a genuine grievance due to which the matter has recently been sorted out by the Central Board of Direct Taxes. The Central Board of Direct Taxes has also appreciated the genuine hardship which is faced by the tax payers due to non-rectification of the arrears demand consequent to the expiry of the time limit of such rectification as contained in the Income-tax Act, 1961. The Central Board of Direct Taxes realizing the practical difficulties of the tax payers have now come out with a Circular No. 4 of 2012 dated 20th June, 2012 wherein they have authorized the Assessing Officers to make appropriate corrections in the figures of such disputed arrear demands after due verification/reconciliation and after examining the same on the merits, whether by way of rectification or otherwise, irrespective of the fact that the period of limitation of four years as provided under section 154(7) of the Act has elapsed.
Finally the Central Board of Direct Taxes has decided that in the category of cases where based on the figure of arrear demand uploaded by the Assessing Officer but disputed by the assessee, the Centralized Process 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 the merits. After due verification of any such claim on the 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 amend figure of arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Centre (CPC), Bengaluru where there is balance outstanding arrear demand still remaining after aforesaid correction/reconciliation.
Finally the Central Board of Direct Taxes in the above mentioned Circular No. 4 has also opined that in other cases where the assessee disputes and requests for correction of the figure 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 the merits and after due verification of such claim, will make suitable correction to the figure of arrear demand in his records and upload the correct figure of arrear demand on CPC portal.
As a result of the above mentioned guidelines and clarification given by the Central Board of Direct Taxes, the life of the tax payers will become smooth and easy. Hence, in view of the above mentioned Circular of the Central Board of Direct Taxes the tax payers can approach their Assessing Officers if they find that their arrear tax demand has been wrongly mentioned and also in such situations where adjustments have not been carried out by the Assessing Officer with reference to the tax demand which might have been partially paid by the assessee in due course or the tax demand might actually being reduced consequent to the relief received by the assessee from various appellate authorities. The practical problem which the tax payers have been facing these days is that on the one hand the Central Processing Centre at Bengaluru while settling the tax refund dues to the assessee has made adjustment of the arrear demand as per the details received by him from the Assessing Officer whereas in fact the said arrear demand may be wrong and may be in many cases might be incorrect because while calculating the said arrear demand correct deduction has not been made in respect of the taxes already paid by the assessee and now the Central Processing Centre while granting the refund might have adjusted the arrear demand as per the details received by them from the Assessing Officer.
In view of the above mentioned clarification and the detailed circular issued by the Central Board of Direct Taxes the tax payers in situations where they find that the Central Processing Centre has deducted from the refund due the wrong portion of disputed tax demand, in such situation the assessees should now contact their Assessing Officer and request the Assessing Officer to carry out rectification even if the time limit has lapsed in view of these guidelines contained in the above mentioned circular of the Central Board of Direct Taxes.
It is hoped that in view of the clear cut guidelines and clarification provided by the Central Board of Direct Taxes, it would surely be beneficial to the assessee to get the arrear tax demand corrected from the hands of the Assessing Officer even if the time limit for carrying out such rectification has lapsed. It may also be noted here that the liberalization with reference to time limit for rectification of a mistake has been granted by the Central Board of Direct Taxes only with reference to matters relating to rectification/reconciliation of arrear disputed tax demand only and not with reference to other matters for which an assessee can apply for rectification of mistake.
The author is Tax and Investment Consultant at