In several cases, the interest on the unpaid tax, piling up over the years, is now as high, or even higher, than the basic amount.
This sudden uploading of ‘forgotten’ demands – probably a consequence of the ongoing digitisation and consolidation of legacy records on the I-T portal– has put the tax authorities and the taxpayers in a piquant situation. While the demands are likely to be genuine, it could be a challenge for the I-T department to salvage necessary documents to prove that demand orders, which follow tax notices, were indeed delivered to the assessees in time.
For instance, for financial year 2009-10, the last date for sending a notice on escaped income of over ₹1 lakh was March 31, 2017 (as per the regulations prevailing then), and the deadline for issuing the assessment order was December 31, 2017. Typically, demand notice closely follows the assessment order. And, within 30 days of the receipt of the order, a taxpayer has to move the Commissioner of I-T Appeals (CIT) -the first level of appellate process in the tax establishment — to challenge it.
Now, an assessee who had not received the order before – either because it was never delivered or sent to a wrong address — never had the opportunity to move CIT and save on interest charges which started accumulating.
Many such assessees would now demand a proof of delivery from the I-T department, unless the amount due is small enough for a taxpayer to pay it off to avoid a prolonged litigation. “The onus lies squarely on the tax authorities to demonstrate that statutory notices were duly served and that assessment or demand orders were effectively communicated at the relevant point in time”, said Ashish Karundia, founder of the CA firm Ashish Karundia & Co.
Compounded liabilities
“In instances of ineffective service, it becomes incumbent upon the department to establish that reasonable, verifiable measures, such as service through registered post, electronic modes, or personal delivery, were duly undertaken. Where taxpayers were never put on notice of the original demands, it becomes difficult to justify imposing the burden of such compounded liabilities, including accumulated interest, upon them. Moreover, given that appeals are required to be filed within a statutory period of 30 days, there is a real risk that such matters may be treated as time-barred, notwithstanding the absence of any reference to these demands in section 245 intimations or other communications issued in recent years. In such circumstances, delays clearly merit a liberal approach to condonation,” said Karundia.
Adjust against refund
Section 245 of the I-T Act, 1961 empowers the department to adjust a current year’s income tax refund against any outstanding tax demand from a previous year.
According to Isha Sekhri, partner at Isha Sekhri Advisory LLP, which specialises in cross-border tax, “These are not fresh demands but earlier manually maintained records which are now being centrally reflected. In many cases, the supporting trail relating to service of demand notices, payments, appeals or rectifications may not be readily available on the system and therefore requires verification at the Assessing Officer’s level. Until such reconciliation is completed, these demands may continue to stay on the portal and future refunds could be adjusted against them.”
Taxpayers seeking a stay on the demand would have to cough up a slice of the amount as deposit even though the demands have surfaced suddenly and without prior intimation. Understandably, many taxpayers are left uncertain about the appropriate course of action, said Karundia.
However, if the department has not preserved their old records of having sent the demand orders, there may be a question mark on the legal enforceability of the recently uploaded orders.
Nonetheless, taxpayers unfamiliar with the intricacies of regulations are scrambling to locate old payment records which may not have been captured in the department’s system, said Paras Savla, partner at KPB and Associates. While the digitisation by the tax department is aimed to improve efficiency, there are instances where both taxpayers and authorities face challenges in retrieving old documents. “So, taxpayers should also retain payment records and tax documents well beyond the cut-off year. The situation becomes particularly complex in instances of business succession, mergers, or demergers, where historical records may not have been adequately preserved during transitions,” said Savla.
A CBDT Spokesperson did not comment on the issue.