In our view, 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 may 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. It is not necessary nor possible for us to envisage different situations under which such errors could crop up and it need not necessarily be confined to limited figures on the letters of the PAN being incorrect.
We can well imagine the predicament of the department if individual cases were allowed to be brought before the authority requiring examination of genuineness of the errors and justification for allowing corrections. We are therefore, not suggesting that such cases may be dealt with individually on case to case basis. Nevertheless, we cannot uphold the stand of the department that PAN in- correction can be corrected as long as mismatch is upto two alphabets and two numeric characters. This distinction or drawing of a cutoff line cannot be supported by any logic. We do not even find any conscious decision placed before us which can be stated to be the basis of this policy. Affidavit in reply merely refers to the requirement of limiting the correction of such errors, according to which the online system has been programmed. Programming of the online system is merely a mechanical part of the decision. The decision to limit the correction to limited characters is a policy decision which should be based on logical parameters. Had the department in mind the possible interest claims of the deductors in case of delay in processing the refunds, provisions could easily have been made in law either through statute or through delegated legislation, imposing restriction on time upto which corrections can be made or even allowing conditional corrections. Nevertheless, putting the limitation of permitting corrections of only four characters has no rationale relation to the department’s anxiety of possible interest liability in case of the deductees.
In the result, we hold 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. In the present case, department shall verify the petitioner’s claim of actual deduction of tax at the prescribed rate in case of M/s. Star (India) Pvt. Ltd., verify that the PAN sought to be corrected by the petitioner belongs to the said agency and that the tax was actually deposited in case of such deductor. If these questions are answered in favour of the assessee, the department shall not insist on raising higher demand from the petitioner of failing to deduct tax at source in terms of subsection(1) of section 206AA of the Act.
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged the action of the respondent in not permitting the petitioner to correct the error in mentioning the Permanent Account Number (“PAN” for short) of one of the agencies to whom the petitioner had made multiple payments during the relevant financial period for which deduction of tax at source was necessary. The petitioner has also challenged in this background an order dated 29.11.2014 which was in the nature of an intimation and demand for unpaid dues of the tax required to be deducted at source.
2. Brief facts are as under :
3. The petitioner is a company registered under the Companies Act and is engaged in the business of advertisement. In the course of business, the petitioner would make payments to various recipients, on which the petitioner as per the law, would deduct tax at source at 2%. One of the recipients of such payments happened to be one M/s. Star (India) Pvt. Ltd. During the second and third quarters of the financial year 20102011, the assessee had made deductions at the rate of 2% made to M/s. Star (India) Pvt. Ltd. in terms of section 194C of the Income Tax Act (“the Act” for short). According to the petitioner, however, on account of an inadvertent error while filing TDS returns for the said second and third quarters, the PAN of the deductee M/s. Star (India) Pvt. Ltd. was wrongly mentioned in the prescribed format provided in Form No. 26Q. The petitioner had not immediately noticed such error. During the course of processing this declaration, the respondent authority however, found that the PAN indicated by the petitioner of the deductee in the declaration did not match with the actual PAN of M/s. Star (India) Pvt. Ltd.. The authority therefore, proceeded on the basis that the PAN provided to the deductor did not belong to the deductee and, therefore, in terms of subsection(6) of section 206AA of the Act, it would have the effect as if the deductee has not furnished the PAN to the deductor and the effect of provisions of sub- section(1) of section 206AA would follow. We may notice that in terms of subsection(1) of section 206AA, 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, in the present case at the rate of 20%. The authority proceeded on the footing that the petitioner who was required to deduct tax at the rate of 20% had deducted the same at the rate of 2% and after adjusting such tax deducted, raised demand of remaining tax. A copy of such adjustment dated 27.11.2007 is produced at Annexure-A by the petitioner. Before this, an intimation dated 24.11.2014 was issued by the department to the petitioner calling upon the petitioner to explain the short deduction of tax at source of a sum of Rs.2.04 crores (rounded off) for the financial year 2010-2011. We may record that this communication includes short-payments for other financial years also. However, these are not in dispute and therefore, we are not concerned in this litigation with the same. Along with the said communication, the authority also provided the full working of the mismatch of the PAN indicated by the petitioner in the declaration made before the authority and the correct PAN of the recipient M/s. Star (India) Pvt. Ltd.. This annexure contained following preamblery note :
“Short Deduction occurs due to following reasons:
A. Pan ERRORS
B. Certificate u/s197
C. Other Reasons (egThrreshold, Tax Rate,etc.)
A. PAN Errors
Notes :
1. Invalid PAN or PAN Applied or PAN Not Available is considered as PAN Error
2. In case of PAN Error, TDS to be Deducted (Column 14) is calculated at 20% or at the rate specified in the relevant provision of Income Tax Act, 1961 or at the rate or rates in force, whichever is higher.
3. Short Deduction (Column 15) is equal to TDS to be Deducted (Column 14) less TDS Deducted (Column 11)
4. CD Serial No. and DD Serial No. refers to Challan Sequence Number and Deductee Sequence Number respectively as per Statement.
5. The Short Deduction u/s206AA would be calculated in all the cases of invalid PAN. 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.”
4. It appears that upon being served with communication dated 24.11.2014 raising substantial demand of Rs.2.04 crores for default in deducting tax at source correctly, the petitioner realised the error leading to such high demand. As stated in the petition, the petitioner therefore, tried to correct its PAN declaration. However, the online system of the department would not permit the correction. According to the petitioner, this was so because the system is programmed to permit correction only in case four digits/characters are to be changed and no more. In case of the petitioner, entire PAN number of the recipient of the payment was wrongly fed. This required substitution of the entire number which the online system of the department would not permit the petitioner to carry out. In this background, the petitioner has filed the present petition.
5. The respondent has appeared and filed the reply. Heavy reliance was placed on subsection(6) of section 206AA of the Act to contend that since there was a mismatch in the correct PAN of the deductee and that provided by the deductor, deductor would be deemed to be in default since under subsection(1) of section 206AA, he would have to deduct tax at source at 20%, instead of 2% deducted by it. With respect to the possibility of making correction in the declaration once made, in the said affidavit, it is stated as under :
“However, there may be a case that a deductor has correct and valid PAN of the deductee in his possession whereas he may have quoted invalid PAN in TDS statement due to typographical errors. Accordingly, CPCTDS has provided for a relaxation on account of typographical (data entry) errors for invoking provisions of charging higher rate of deduction of tax at source. The relaxation logic built into the application code is to accept typographical errors upto ‘2 alpha’ & ‘2 numeric’ fields out of total 10 alphanumeric fields. Effectively out of 10 characters PAN, 40% of mistakes are taken as data entry mistakes. This relaxation is not provided in the act or rule. However, the same is part of the application code to avoid any undue charging of higher rate of tax deduction on account of bonafide data entry errors of deductors. The difference in the PANs quoted in the original statement and correction statement by the petitioner is as follows:
