2015 (11) TMI 1376 - AT - Income Tax

Mistake in quoting correct PAN of the deductee in the TDS returns - Rectification of mistake - Held that - There has been no finding by ld. CIT(A) to show that there was any intention on the part of the deductor or deductee to furnish wrong PAN details. Therefore, we are of the view that the system is erroneous to the extent if it restricts the deductor to revise its TDS return/statement within some corners which in this case was correction of PAN details subject to change of two alfa and two numberical characters and, therefore, correction statement filed by the assessee needs to be accepted after ascertaining the correctness of the correct PAN furnished by the deductor. Accordingly, the order of CIT(A) is quashed and assessee s ground of appeal is allowed with reference to the first first fold of contention made by the assessee. Assessee is required to deduct tax and has deducted TDS @ 2% of sum paid/credited to GETCO Ltd. but due to filing of wrong PAN of deductee it has been deemed as assessee in default and accordingly 18% of remaining TDS (20% (-) 2%) has been demanded from the assessee. Had the assessee been provided an opportunity as per the proviso of subsection (1) of section 201 of the Act referred abve then it may have filed requisite details of the deductee in form of proof of furnishing of return under section 139 of the Act, proof of taking into account such sum for computing income in such return of income of the deductee, proof of tax paid by the deductee and certificate from the Chartered Accountant to this effect that the sum on which deductor was required to deduct TDS has duly been considered in the books of account for computing income of the deductee. Therefore, we accept the second fold of contention of the assessee and hold that the matter may be restored back to the file of CIT(A) with the direction to decide the matter after providing reasonable opportunity of hearing to the assessee so that it can furnish relevant details/information as required by the above said proviso to sec.201(1) of the Act, as discussed above. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Incorrect PAN Quoting in TDS Returns
2. Application of Section 206AA of the Income Tax Act
3. Correction Statement Rejection Due to System Limitations
4. Applicability of Proviso to Section 201(1) of the Income Tax Act

Detailed Analysis:

1. Incorrect PAN Quoting in TDS Returns:
The common issue in the three appeals relates to the incorrect PAN quoted by the assessee in TDS returns for quarters 1, 2, and 3 of FY 2013-14. The incorrect PAN led to demands and interest being raised by the DCIT, Centralized Processing Cell-TDS. The assessee, a Government of India Undertaking, deducted tax at source from payments made to Gujarat Energy Transmission Corporation Ltd. (GETCO Ltd.), a Government of Gujarat Undertaking, but quoted an incorrect PAN in the TDS returns.

2. Application of Section 206AA of the Income Tax Act:
Due to the incorrect PAN, the Centralized Processing Cell-TDS treated the incorrect PAN as no PAN and created a demand based on Section 206AA of the Act, which mandates a higher TDS rate of 20% when the deductee does not furnish a PAN. The assessee had deducted TDS at 2%, but due to the incorrect PAN, an additional demand of 18% was imposed.

3. Correction Statement Rejection Due to System Limitations:
The assessee attempted to rectify the mistake by filing a correction statement. However, the correction statement was rejected because the system only allowed changes of up to four characters (two numerical and two alpha characters), while the incorrect PAN had more than four changes. The CIT(A) upheld the DCIT's decision, citing the provisions of Section 206AA and the internal processing guidelines of the Centralized Processing Cell.

4. Applicability of Proviso to Section 201(1) of the Income Tax Act:
The assessee argued that the proviso to Section 201(1) of the Act, inserted by the Finance Act 2012, should apply. This proviso states that a deductor shall not be deemed an assessee in default if the deductee has furnished their return of income, included the sum paid by the deductor in their income, and paid the tax due. The assessee contended that GETCO Ltd. had filed its return of income and paid the due taxes, and therefore, the higher TDS rate should not apply.

Tribunal's Findings:

1. Correction Statement Acceptance:
The Tribunal held that the refusal to accept the correction statement due to the system's limitation was not justified. The Centralized Processing of Statement of TDS Scheme 2013 allows for correction statements to rectify any mistakes made in the original return, including incorrect PAN details. The Tribunal directed that the correction statement should be accepted, and the correct PAN details should be updated.

2. Proviso to Section 201(1) Application:
The Tribunal also considered the application of the proviso to Section 201(1). It held that if the assessee could provide proof that GETCO Ltd. had filed its return of income, included the sum paid by the deductor in its income, and paid the due taxes, the assessee should not be deemed in default. The Tribunal restored the matter to the CIT(A) to allow the assessee to furnish the necessary details and certificates from a Chartered Accountant to prove compliance with the proviso.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the CIT(A) to re-examine the case and provide the assessee an opportunity to furnish the required details to prove that the deductee had paid the due taxes. The Tribunal emphasized the need for a fair opportunity to correct clerical mistakes and the importance of considering the intent of the law to avoid penalizing genuine errors.