2018 (11) TMI 480 - AT - Income Tax

Short deduction of TDS on account of mentioning of the wrong PAN number - DTAA provision applicability - Held that - Demand of short deduction of tds is not sustainable as it is not the case of short deduction but it is the case of wrongly applying the TDS rate by losing sight of DTAA between India and Netherland. Insofar as demand for fourth quarter (FY 2012-13) deduction for ₹ 2,10,200/- is concerned, the Revenue has treated this transaction with incorrect PAN numbers and has applied TDS @ 20%. It is also not in dispute that when the correct PAN numbers of the concerned employees is mentioned in the revised TDS return, the demand would come to nil. The assessee has agreed to deposit interest demand as well as late filing fee on account of late deposit of tax. When we examine all final assessment is still pending with the Department, the appeal filed by the assessee before ld. CIT (A) was not maintainable as the assessee has categorically made submission that interest demand on account of late deposit of tax and late filing of return, demand is being deposited by the assessee, there was no question of deleting the demand raised as all these facts were to be examined by the AO during assessment on the basis of submissions made by the assessee. Section 200A of the Act is a self-contained procedure to process the statement of tax deduction at source after making adjustment of any arithmetic error or incorrect claim. The assessee has made an undertaking before the Commissioner that it is revising the return for incorporating the PAN numbers of those employees which will otherwise lead to the demand nil and in case of demand for second quarter for FY 2013-14, no interest shall be charged as the demand itself would not be sustainable. CIT (A) has erred in deleting the demand particularly when assessment proceedings qua the year under assessment are already pending with the Department, hence present appeals filed by the Revenue are allowed.

Summary

Issues:
1. Whether CIT(A) erred in directing AO to verify demand/payment without considering provisions of section 251(1)?
2. Whether CIT(A) erred in directing AO to delete demand created on account of wrong/invalid PAN without considering section 206AA?

Analysis:
1. The appellant, ACIT, sought to set aside orders passed by CIT (Appeals) regarding demands raised for TDS short deduction. The appellant argued that CIT (A) erred in directing the AO to verify demand/payment without considering section 251(1). The appellant contended that CIT (A) should not have interfered before final assessment by the AO. The Tribunal noted that the demand was due to wrong PAN numbers and incorrect TDS rates applied. The Tribunal found that the demand was not sustainable due to misapplication of TDS rates under the DTAA between India and Netherland. The appellant had paid interest and late filing fees. The Tribunal held that CIT (A) erred in deleting the demand as final assessment was pending, and the appeal was premature.

2. The second issue involved the direction by CIT (A) to delete demands created due to wrong/invalid PAN without considering section 206AA. The Tribunal observed that the demand was raised for short deduction of TDS due to incorrect PAN numbers. The appellant had agreed to deposit interest and late filing fees. The Tribunal found that once correct PAN numbers were provided, the demand would be nil. The Tribunal noted that the appellant had undertaken to revise the return to correct PAN numbers. The Tribunal held that CIT (A) erred in deleting the demand prematurely as the assessment proceedings were pending, and the demands were subject to further examination by the AO.

In conclusion, the Tribunal allowed the appeals filed by the Revenue, finding that CIT (A) had erred in deleting the demands prematurely. The Tribunal emphasized that the final assessment was pending, and the demands were to be examined during the assessment proceedings. The Tribunal highlighted the importance of following the correct TDS rates under the DTAA and the need for proper verification before deleting demands.