Erroneous Outstanding Demand for AY2009-10 adjusted against refund for AY 2019-20

[Abhishek Baheti]

Dear Readers and Members

In one particular case, a demand was raised for AY 2009-10. The demand arose due to mismatch of Tax Credit i.e., there was a difference in Advance Tax Paid by the assessee and advance tax showed under intimation issued u/s 143(1) on 17.09.2010.

In response to the same, rectification request was filed on 26/03/2011. After that both the client and his consultant forgot about the matter.

After so many years for the first time there was a refund for the AY2019-20. But to the assessee's surprise the same was adjusted against the demand of AY 2009-10 and he did not receive any refund. Even after adjusting the refund against the demand, the same demand is being displayed under Details of Outstanding Demand..

In this case what is the remedy available to the assessee to rectify the mistake made by AO for AY 2009-10 and receive the refund of AY 2019-20? Can he go for revision of order under sec 264?

Thanks in advance.

[DR.MARIAPPAN GOVINDARAJAN]

In my view you may file a reminder to your original request for rectification. Reply may be given by the department. On the basis of the reply you may take action. Don't reveal in the reminder letter that the same was adjusted against the refund.

[Mahir S]

Adjusting demand amount against refund is a common phenomena.

The only consolation that you can draw is to request for removal of the demand, from the list being shown as outstanding dues.

[Rajagopalan Ranganathan]

Sir,

According to sub-section (10) of Section 54 of CGST Act, 2017, "where any refund is due under sub-section (3) to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may -

(a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;

(b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law.

Explanation. - For the purposes of this sub-section, the expression “specified date” shall mean the last date for filing an appeal under this Act.

Therefore the proper officer is specifically empowered to adjust the refund amount against any amount of tax, interest, penalty etc. remained unpaid on the date of the refund order. However you can object to such action provided you have filed appeal against the confirmation of tax, interest, penalty etc. and mater is sub-judice. You may ask the proper officer to modify the order since the appeal filed by you has not reached finality.

[Abhishek Baheti]

Dear Mr Govindrajan Sir

Thank you for your reply.

The rectification request made was rejected on 26/05/2011 without stating any reason. And this rejection did not come to the notice of the assessee. Afterwards the assessee also forgot about the matter.

There was an option to file rectification request so I did the same yesterday hoping that it would help.

[Abhishek Baheti]

Dear Mr Mahir Sir

Thanks for your reply

It is agreed that adjusting refund against demand is a common phenomena. But here the issue is that the demand raised by the Department is not correct in itself. There is a mismatch in the amounts paid by the assessee as tax and the amount showed by the Department as tax paid.

But as the matter relates to AY2009-10, I wanted to know whether there is any possibility of getting the mistake, which is quite apparent on record, rectified by the Department.

Can we go for revision of order u/s 264 of the Income Tax Act.

[Mahir S]

Dear Abhishesk ji,

1) Your Rectification mistake request was already rejected, which has not been mentioned in your original query, though it was already assumed by us that it must have been rejected earlier by the department.

2) The time limit for revision of order u/s 264 of the Income Tax Act is 1 year.

3) Condonation of delay is allowed if the assessee is prevented by ‘sufficient cause’ from making the application within the specified period.

4) However, since the demand is being displayed under Details of Outstanding Demand and also rectification request were made at relevant time, therefore your point that assessee was not aware of the demand notice/rejection thereof will not stand.

5) Also, it is on record that though request for rectification mistake was made earlier but the same was rejected; but no efforts were made on your part to track it at relevant time. Hence, the submission now that rejection dated 26/05/2011 was not noticed/received by you may not sustain.

However, you may go for revision of order u/s 264, keeping in mind the points discussed in point no. 4 and 5 above.

These are my personal views and final decision may be taken based on submissions by other experts and records available at your end.

AI Summary

Adjustment of refund against outstanding demand can be upheld unless the tax demand is under appeal or successfully rectified. An assessee's refund for a later year was adjusted against an outstanding demand arising from a tax-credit mismatch for AY2009-10. A rectification request against that demand was earlier rejected in 2011 and only recently refiled; administrative power exists to withhold or deduct refunds to satisfy unpaid liabilities unless the liability is under appeal. Remedies include reminding the department on the prior rectification, seeking revision of the order subject to time limits and condonation of delay, and objecting where the matter is sub judice.