Representation on adjustments (over & above 20% of disputed demand) by CPC

The Karnataka State Chartered Accountants Association (KSCAA) has submitted a formal representation to the Commissioner of Income Tax in Bengaluru, challenging the Central Processing Centre’s (CPC) tax adjustments that have created financial distress for taxpayers. The association asserts that the CPC’s actions undermine both legal principles and the intentions behind CBDT guidelines.

Legal Provisions: According to Section 220(6) of the Income Tax Act of 1961, if a taxpayer has filed an appeal under Section 246 or 246A, the Assessing Officer (AO) may allow the disputed amount to remain unpaid until the appeal is settled. In 2016 and 2017, the Central Board of Direct Taxes (CBDT) even relaxed this rule, allowing a stay on demand subject to 15% and later 20% pre-payment of the disputed amount.

The Issue: Taxpayers who have abided by the rules, filed their appeals, and paid the 20% pre-payment are finding that CPC is still adjusting their other years’ refunds against the disputed amounts. This action contradicts the guidelines and judgments that are meant to offer a reprieve to taxpayers awaiting the outcome of their appeals. It also affects the taxpayers’ financial stability.

Natural Justice Violated: The KSCAA alleges that these actions violate the principles of natural justice. The notices proposing adjustments are not sufficiently justified, and as a result, taxpayers are left with reduced financial means to pursue their cases effectively.

Undermining the Appeals Process: According to the representation, the CPC’s current method of immediate adjustment negates the very purpose of filing an appeal and seeking a stay on the disputed amounts. It undermines the essence of CBDT’s Instruction No. 1914 dated 21.03.1996, designed to ensure fairness in the appeals process.

Representation: The KSCAA, in its letter, has appealed for a more balanced approach that respects the law and financial stability of taxpayers. It has earnestly requested the concerned authorities to review the practices of the CPC in this regard.

Conclusion: The KSCAA’s representation brings to light a significant issue affecting both chartered accountants and taxpayers in Karnataka. If the authorities heed their request, it could set a precedent for a more balanced approach to tax collection, respecting both the state’s needs for revenue and the taxpayers’ right to a fair process. It also highlights the essential role that associations like the KSCAA play in safeguarding the interests of professionals and the public.

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KARNATAKA STATE CHARTERED ACCOUNTANTS ASSOCIATION (R)

To,
The Commissioner of Income Tax,
CPC
Bengaluru.

Date: 2nd September 2023

Subject: Representation regarding adjustments (over and above 20% of the disputed demand) by CPC despite assessments pending before the first appellate authority

The Karnataka State Chartered Accountants Association (R) (In short ‘KSCAA’) Is an association of Chartered Accountants. registered under the Karnataka Societies Registration Act, in the year 1907. KSCAA is primarily formed for the welfare of Chartered Accountants and represents before various regulatory authorities to resolve the professional problems faced by chartered accountants and the business community.

In the past. we have written to your good selves many times populating various Issues. challenges and hardships being faced by taxpayers and Chartered Accountants and suggesting possible solutions on the same. Herein. we are presenting before your good selves for your kind consideration, an issue regarding the adjustment of demand with respect to proceeding pending before The First Appellate Authority against refund of other years.

Provisions Applicable:

Section 220(6) of the Income Tax Act.1961 (‘the Air) provides that. where an assessee has presented an appeal under Section 246 or Section 246A of the Act. the Assessing Officer may. in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case. treat the assessee as not being in default in respect of the amount in dispute In the appeal, even though the time for payment has expired.as long as such appeal remains indisposed off.

Further, keeping in view the hardship that may be caused to the assessees, the Central Board of Direct Taxes (-CBOT) through its office memorandum F.No. 404/72/93.17CC dated 29/02/2016 prescribed that a stay of demand can be granted subject to payment of 15% of the disputed demand. However, this limit has been enhanced from 15% to 20% through another office memorandum F.N0404/72/93.1TCC dated 31/07/2017.

Challenges faced:

In recent instances, taxpayers who have preferred an appeal before the CIT(A) have sought a stay of the disputed demand. as provided for under the Act. The stay applications have been disposed off with a direction to pay 2096 of the disputed demand by the jurisdictional Assessing Officers (AO) and the some has been compiled.

We wish to bring to your kind attention that despite having already paid 20%of the disputed demand and having moved an application for stay before the doming Officer, it is observed that CPC has been wrongly adjusting the refund of other years against the balance amount that needs to be stayed as per the stay order of the AO/PCIT or as per the Officer Memorandum issued by the CBDT. The immediate adjustment of refunds against the disputed demands for different assessment years has imposed considerable financial distress upon taxpayers.

The response of the assessees to the notice proposing the adjustment of refunds Is also disposed in violation of the principles of natural justice and not by way of speaking order.

The premature adjustment of demands also undermines the very purpose of filing appeals before the C17(A) and seeking a stay on the disputed demand and it also defeats the intent behind CBDTs Instruction No. 1914 dated 21.03.1996. Also, due to this, the taxpayers are left with fewer financial resources to contest their cases effectively, and the appeal process loses its effectiveness as a means of redress.

Representation: 

While we appreciate the need for efficient tax collection and administration, this approach seems to prioritize revenue collection over the rights and financial stability of taxpayers. A more balanced and fair approach that respects the due process of law is warranted.

In light of these concerns, we earnestly request your intervention and guidance to address this issue. We herewith earnestly request your goodselves to kindly direct the concerned authorities of the Central Processing  Centre so as to ensure that there is no automatic adjustment performed on the disputed demand against any legitimate refunds which may be due, in cases where appeals have been preferred by the assessing and 20% of the disputed demand has been paid as pre-deposit.

We wish to reiterate our previous representations with respect to outstanding demand and other connected matters that needs immediate action:

1. Representation and Suggestions on Income Tax outstanding demand collection drive.

2. Representation on the delay in the issue of refunds under the provisions of the Income-tax Act, 1961 (the Act).

We trust in your commitment to upholding the principles of fairness, justice, and efficient tax administration. Your intervention in this matter would not only alleviate the financial difficulties faced by taxpayers but also reinforce confidence in the tax system and the government’s commitment to protecting the rights of taxpayers.

Taking into consideration the hardships caused, we the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants community and also on behalf of the trade and industry in the state of Karnataka appeal to your good selves to kindly consider our above request.

Yours sincerely,

Cc to:

1. Smt. Nirmala Sitharaman, Hon. Union Minister of Finance and Corporate Affairs, Government of India

2. Pankaj Choudhary, Hon’ble Minister of State, Finance.

3. Sanjay Malhotra, Hon’ble Revenue Secretary

4. Shri Nitin Gupta, Chairperson, Central Board of Direct Taxes

5. Chaitali P, PCCIT, Karnataka and Goa