The Directorate of Income Tax (Systems) issued Instruction No. 06 on 28.11.2022 in which the time limit for submitting response by the Assessing Officers (AOs) to intimation under section 245 of the Income-tax Act, 1961 (‘Act’) issued by the CPC, Bengaluru in respect of adjustment of outstanding demand with the refund to the assessee is reduced to 21 days from existing 30 days.
This Instruction was issued to modify the earlier Instruction No. 1 issued on 27.11.2012 in which AO was allowed to either rectify or confirm the demand within 30 days of receipt of grievance in response to the notice issued u/s 245.
Instruction No. 1 of 2012 was issued following the directions of Hon’ble Delhi High Court. Hon’ble Delhi High Court in its judgment in the case of Court on its Own Motion vs. Union of India in W.P.(C) 2659/2012, dated 14.3.2013 has issued seven Mandamus for action by the Income Tax Department, out of which one is on compliance of section 245 of the Act.
The Hon’ble High Court issued interim directions vide its order dated 31-8-2012 as under:
“13. We issue interim direction to the respondents that they shall in future follow the procedure prescribed under section 245 before making any adjustment of refund payable by the CPC at Bengaluru. The assessees must be given an opportunity to file response or reply and the reply will be considered and examined by the Assessing Officer before any direction for adjustment is made. The process of issue of prior intimation and service thereof on the assessee will be as per the law. The assessees will be entitled to file their response before the Assessing Officer mentioned in the prior intimation. The Assessing Officer will thereafter examine the reply and communicate his finding, to the CPC, Bengaluru, who will then process the refund and adjust the demand, if any payable. CBDT can fix a time limit for communication of findings by the Assessing Officer. The final adjustment will also be communicated to the assessees.”
In compliance with the above directions, AO was granted 30 days time limit to communicate his findings to the CPC. It was also provided that CPC will hold the refund in the interim period.
However, in this context, it is observed that in certain cases, consequent to the issue of intimation u/s 245, the assessee had responded on the demand portal that the demands are incorrect and/or that the demand is stayed by AO/ITAT/High Court.
However, the AO categorizes such demand as ‘correct and collectible’ or does not provide feedback on the assessee’s response which results in incorrect adjustment of refunds by CPC which leads to unwarranted grievances and litigations.
Further, delay in providing responses results in avoidable delay in the issue of refunds which causes an additional burden of interest under section 244A of the Act apart from the grievances and litigations.
Hence, it is decided that where the assessee in his response does not agree to demand, either fully or partly, the CPC shall immediately refer the matter to the AO who within 21 days from the date of such reference shall provide his feedback to the CPC.
In case no reference is received from the AO within the stipulated 21 days, then CPC shall not hold the refunds and after adjusting agreed demand amount, if any, shall release the refund to the assessee without any delay.
In para 7(iv) of the Instruction of 2022, in clear terms, it is stated that the Assessing Officers shall be held to be solely responsible for the effect of no response/ delays in response.
This measure will certainly expedite the process of refund to the assessees where the assessee has outstanding demand and received notice of adjustment u/s 245 and also submits his response as disagreed with the demand.
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