Income Tax Appellate Tribunal (ITAT) Ahmedabad in a recent judgment has quashed TDS CPC order rejecting correction in TDS return/statement due to its internal policy of restricting the correction in PAN details change of two alfa and two numberical characters only.

Case Details:
ITA No.1984-1985-1986/Ahd/2015     AY: 2014-15
Oil & Natural Gas Corporation Ltd (ONGC) (Appellant) vs Dy. Commissioner of Incometax, Central Processing Cell (CPC) TDS, Ghaziabad. (Respondent)
Date of Order: 23-11-2015

Case Laws referred:
CIT (TDS), Chandigarh vs. Superintendent of Policy [(2013) 31 taxmann.com 32 (Punjab & Haryana)]

Brief Facts of the Case:
During quarters 1, 2& 3 of F.Y. 2013-14 the assessee company ONGC deducted tax at source from one of the contractors namely Gujarat Energy Transmission Corporation Ltd., a Government of Gujarat Undertaking (in short GETCO Ltd.) and the assessee was required to deduct 2% from the sum paid/credited to the deductee i.e. GETCO Ltd. The appellant duly deducted and deposited the tax and filed the quarterly TDS return in form 26Q as per Income-tax Rules. In form no.26Q deductor who deducts the TDS is required to furnish the details of deductee including his PAN as well as amount of sum credited/paid and TDS deducted. Inadvertently the assessee mentioned wrong PAN of the deductee due to which Centralized Processing Cell –TDS treated wrong PAN as no PAN and accordingly created demand for all the three quarters by imposing a burden of 18% as difference of low TDS deducted because as per the provisions of section 206AA of the Act in the cases when any sum is paid to deductee who does not furnish PAN, the deductor is liable to deduct TDS at rate specified in the relevant provisions of the Act or at the rates in force or @ 20%, whichever is higher calculated on the sum paid/credited to the deductee.

The appellant-assessee tried to rectify the mistake by filing correction statement but the same was rejected for the very reason that the system only allows the change of 4 characters subject to maximum of two numerical characters and two alfa characters. Whereas in the wrong PAN quoted by the deductor there were more than 4 changes and, therefore, correction statement was not accepted.

Aggrieved, assessee went in appeal before CIT(A) who did not give any relief to the assessee who has to put reliance on section 206AA of the Act which talks about deduction of TDS in cases when a deductee does not furnish PAN to deductor or furnishes incorrect PAN. CIT(A) also appreciated the instructions made by Centralized Processing Cell in regard to correction of two alfa & two numerical characters to permit the genuine typing mistake and thereafter confirmed the demand raised by DCIT(CPC) TDS, Ghaziabad.

Contentions of the assessee:
Before ITAT, the assessee contended that ONGC Ltd. Is regular in deducting and depositing the tax deducted at source and filing its TDS returns and looking to the size of appellant’s business there are thousands of deductees of whom the assessee is deducting tax and depositing the same to the Government. The TDS on payment to GETCO Ltd. was deducted at 2% at prescribed rate and was duly deposited but in the TDS return at the place of correct PAN of GETCO Ltd. it was AABCG 4029 R, inadvertently mentioned as AABCG 2412F and due to this small clerical mistake which was done on the part of assessee, differential TDS of 18% was imposed. The correction statement was filed to make the correction in the PAN detail but to its surprise, due to the internal policy of the Centralized Processing Cell which are not available in the Act and the Rules, the revised PAN details were not accepted as there was change in four numerical characters and one alfa character, whereas the system only allows changes of two alfa characters and two numerical characters. The assessee complained that this sort of processing by TDS CPC of allowing correction upto 4 characters is totally against the natural justice because this harsh processing is only affecting the deductor and not the deductee as a deductee is being allowed full credit on revision of return. It was also contended that  processing system of TDS returns keeps on changing, and new softwares do not accept wrong PAN in the details furnished while filing TDS returns.

The ONGC also referred to the proviso to sub-section (1) of section 201 and contended that had an opportunity been provided to the deductor the same would have been proved that there was no loss to the Revenue as the deductee had duly paid its tax liability for the relevant Asst. Year including the sum paid by the deductor in its total income and, therefore, the deductor would not have been required to deduct tax @ 20% in place of 2%.

Important Excerpts from ITAT Judgment
The basic reason due to which ld. CIT(A) could not bring any relief to the assessee was due to application of provisions of section 206AA which refers to furnish PAN and this section was introduced w.e.f 1st April, 2010 ………..

The main intent of the law for inserting this provision could have been the reasons that various types of deductees which are normally not filing return of income and not possessing PAN or intentionally provides wrong PAN so as to hide their income and to cope up with such deductees this provision was introduced so that deductor deducts 20% (at the rate applicable as per provisions of section 206AA) of the payment/credit to deductees before making the payment from such deductees who do not furnish PAN and deposit the same to the Government so that even if such type of deductees do not file its income-tax return still some portion of tax is received by the Government at least to the extent of payments made by the deductors. But certainly it cannot be the intent of the law to impose 20% of TDS rate on deductees who are regularly filing their incometax returns and paying their due taxes and for this purpose there were some changes made in the system of furnishing of quarterly TDS returns………… CBDT vide its Notification no.3/2013 (F.142/39/2012- SO (TPL) dated 15.1.2013 came up with Centralized Processing of statement of TDS Scheme 2013 which deals with various aspects of online filing and processing of TDS returns.

Further the power to specify procedure and processes for effective functioning of the Cell in an automatic and mechanized environment are given to the Director General as specified in point 11 to this Scheme. These procedure and processes as specified by Director General i.e. D.G. (I.T. System) who is appointed as such under sub-section (1) of section 117 of the Act are informed to an authorized agency which means the person authorized by the Director General to receive the statement of TDS or correction statement on TDS and this authorized agency runs portal of the Central Processing Cell. There is continuous communication between the Director General and authorised agencies for improving the TDS.

This scheme of Centralized Processing of statement of TDS clearly gives an option to the deductor to correct the quarterly return(s) filed by it and this correction has not been restricted to any particular correction. Therefore, correction can be made by way of deleting the entry, adding of a deductee, change in details mentioned about the deductee including his PAN, adding of TDS challans etc. meaning thereby that deductor can rectify any kind of mistake which has been inadvertently made by it at the time of filing original return and also this correction statement can also be filed for multiple times. Applying the facts of the case of assessee to the above discussion made by us we are of a clear view that refusal of the various agencies not to accept change in character in PAN details filed by deductee in its correction statement was not correct and justifiable.

So much so that the deductee should be given further opportunity of filing the correction statement to the correct PAN details which needs to be accepted. Even from the perusal of the intimation under section 200A issued by TDS Centralized Processing Cell and Traces (TDS reconciliation analysis and correction enabling system) ……….. it is cystal clear that the system itself is mentioning to correct the Invalid/No PAN entries through a correction statement and is not giving any reference of a particular type of restriction of correcting particular PAN with regard to number of characters.

Further in the judgment of Hon’ble Punjab & Haryana High Court in the case of CIT (TDS) vs. Superintendent of Police (supra) similar issue was dealt by the Hon’ble Court…

…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, in view of above discussion, 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.

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