PAN correction limit of 2 alfa 2 numerical characters only for TDS statements held not permissible. Inocme Tax Department was directed to allow correction- Gujarat High Court
ABCAUS Case Law Citation:
ABCAUS 1298 (2017) (07) HC
The Grievance:
The petitioner had challenged the action of the Income Tax Department (ITD) in not permitting correction in TDS return for the error made in mentioning the Permanent Account Number (“PAN”) of one of the deductee. The petitioner also challenged the resultant intimation of demand for unpaid dues of the tax required to be deducted at source.
Contentions of the respondent Revenue:
The ITD justified the limited permission to correct on two grounds. One was that if the error is genuine and bona fide in feeding the PAN number, it is unlikely that a typographical error would travel beyond such characters and the second is that looking to the millions of statements and entries being filed by the assessees across the country, it would open flood gates, if corrections are permitted without any limit.
Brief Facts of the Case:
The petitioner was a company engaged in the business of advertisement. During the second and third quarters of the financial year 2010-11, the petitioner made a payment to a deductee company and made TDS deduction at the rate of 2% in terms of section 194C of the Income Tax Act (“the Act”). However, the PAN of the deductee was wrongly mentioned in the prescribed quarterly return/statement of TDS as per Form No. 26Q.
When the statement was processed, the Income Tax Authority proceeded on the assumption that since the PAN of the deductee is not available with the petitioner and it was liable to deduct tax @ 20% to in terms of sub section (6) of section 206AA which provides that when the person entitled to receive any sum on which the tax is deductible under Chapter XVIIB fails to furnish the PAN, the tax would be deducted at a higher rate i.e. 20%. Accordingly the demand was raised.
The ITD had communicated to the Petitioner that the Short Deduction would be waived off upon the correction of invalid PAN only in case the difference between the invalid and valid PAN is less than or equal to 2 alphabets and/or 2 numeric characters.”
The petitioner realised the error leading to such high demand and tried to correct the PAN of the deductee. However, the online system of the department did not permit the correction because the system is programmed to permit correction only in case four digits/characters are to be changed and no more. In the case of the petitioner, entire PAN number of the recipient of the payment was wrongly fed which required substitution of the entire PAN which the online system of the department did not permit the petitioner to carry out.
Observations made by the High Court:
The Hon’ble High Court observed that neither the statute nor the ITD could completely rule out the possibility of genuine and bona fide typographical or even mechanical errors. Though there is no specific mechanism for correction of TDS statement, subsection (1) of section 200A specifically refers to a statement of tax deduction at source or a correction statement thus, clearly leaving the possibility of correcting a declaration once made by the assessee.
According to the Hon’ble High Court the relevant question was whether it is open for the department to limit such corrections to two alphabets and two numeric characters when it came to indicating incorrect PAN number?
The Hon’ble High Court opined that once the department recognises the possibility of errors and also makes provisions for making corrections, it would be wholly illogical to limit such corrections on arithmatical working out of only two alphabets or two numerics being found incorrect requiring change. Error in feeding an entry or a number might have multiple origins from typographical error of Data Entry Operation to mechanical failures or through pure oversight referring to one column of PAN instead of another while filling up and uploading the statement.
The Hon’ble High Court observed that it is entirely one thing to suggest that the department would not accept any change once certain entries are uploaded or at any rate no change would be permissible beyond a certain date. However, it is entirely another thing to suggest that the corrections may be permitted but should be limited to a number of characters.
The Hon’ble High Court opined that some anomalous situations would arise if genuine and bona fide errors are not allowed to be corrected only on the basis that such correction travelled beyond two alphabets and two numeric characters which the system would not accept. The Court in the context of the case in hand illustrated that, the deductee had already discharged its full tax liability. If the full effect of the department’s decision is allowed, the deductee would not get the benefit of 2% of tax deducted by the petitioner and already deposited with the Government revenue. Since the PAN does not match, the deductor i.e. the petitioner would pay additional 18% which though is styled in the name of tax deducted at source, would be additional to what deductee would have paid. Thus such amount would remain in Government coffers not accounted for anyone’s tax liability.
However, the Hon’ble High Court observed that individual cases may not be dealt with individually on case to case basis. Nevertheless, it disagreed with the ITD to the stand of the department that PAN correction can be corrected as long as mismatch is upto two alphabets and two numeric characters as it could not be supported by any logic or conscious decision being the basis of a policy. Had the ITD in mind the possible interest claims of the deductors in case of delay in processing the refunds, provisions could easily have been made imposing restriction on time upto which corrections can be made or even allowing conditional corrections.
Held:
It was held that the decision of department in not permitting the petitioner to correct PAN of the deductee in the statement of tax deducted at source was impermissible. The ITD was directed to verify the claim of the petitioner and not insist on raising higher demand.
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