In a significant ruling, the Madhya Pradesh High Court has clarified that the non-functionality of the Income Tax Department’s TRACES Portal cannot be used as a justification to deny an assessee the benefits provided under the Income Tax Act, 1961.
This decision emerged from a division bench comprising Justices Vivek Rusia and Anuradha Shukla, which held that a taxpayer’s TDS refund cannot be withheld merely due to the unavailability of the “adjustment of refund” functionality on the TRACES portal.
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The case involved a petitioner who had been served a demand for non-deduction of TDS on various payments. Although the Commissioner of Income Tax (CIT) upheld the demand, the Income Tax Appellate Tribunal (ITAT) quashed the assessment orders. The petitioner, having already deposited the outstanding TDS amount, sought a refund with interest.
However, the Income Tax Officer (ITO) rejected the petitioner’s refund request, citing the non-functional status of the demand adjustment feature on TRACES. The petitioner challenged this decision in court.
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The High Court referred to Section 240 of the Income Tax Act, which mandates that an Assessing Officer must refund the amount due to an assessee following an appellate order, without requiring the assessee to make a formal claim. The court also highlighted Section 243, which provides for interest on delayed refunds, starting three months from the order granting the refund.
In its ruling, the Madhya Pradesh High Court Bench of Justice Vivek Rusia and Justice Anuradha Shukla observed that the TRACES Portal is designed to facilitate the enforcement of rights and duties for stakeholders, not to create obstacles.
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It stated, “The rights which have been given to the assessee under the Income Tax Act cannot be withheld due to the non functionality of the TRACES.”
The court further directed that the refund, along with interest, must be issued or set off against any outstanding tax payable by the petitioner within 30 days.
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