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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 18631 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV ==========================================================
1
Whether Reporters of Local Papers may be allowed to see the judgment ?
2
To be referred to the Reporter or not ?
3
Whether their Lordships wish to see the fair copy of the judgment ?
4
Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?
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PURNIMA ADVERTISING AGENCY PVT LTD....Petitioner(s) Versus DEPUTY COMMISSIONER OF INCOME TAX - TDS CIRCLE & 1....Respondent(s) ==========================================================
Appearance: MR B S SOPARKAR, ADVOCATE for the Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 RULE SERVED BY DS for the Respondent(s) No. 2 ==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV
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Date : 10/07/2017 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
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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 AnnexureA 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 shortpayments for other financial years also. However,
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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.
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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
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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:
PAN in original
A
A
I
C
S
2
5
3
5
C
PAN correction
after A
A
A
C
N
1
3
3
5
Q
Difference
√
√
Х
√
Х
Х
Х
√
√
Х
In this instance, out of 10 characters PAN, mistakes are in 50% characters. As the relaxation to the extent of 40% of mistakes is built in the software to provide intelligence for auto correction for benefit of genuine mistakes, this particular instance was not considered as bonafide mistake in the automated environment. The CPC TDS is not in position to physically examine each and every case during bulk processing of more than 60 lac original TDS statements and 30 lac correction statements in the technology driven ecosystem from the perspective of Page 6 of 17 Page 6 of 17
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genuineness of mistake in quoting of PAN in TDS statement. Implication of further relaxation: It is to be reiterated that the Income Tax Act or Rules provide for reporting of correct PAN without exception. However, the Department has provided for relaxation in PAN discrepancy upto two alpha and two numeric characters to account for genuine typographical errors by the deductors for the benefit of deductors and taxpayers. In case of further relaxation, distinction between genuine mistakes and deliberate attempts to circumvent the provisions of 206AA shall not be feasible particularly in the case of an technology driven ecosystem with large volume of annual transactions (50 crore) reported through 60 lac TDS statements. The relaxation beyond a limit would defeat the whole purpose of the provision.” 6. From the said affidavit it could be gathered that the Revenue attached a considerable importance on compliance of tax deduction at source and its timely declaration. It was only when the deductor files periodic declarations within the prescribed time and deposits the tax deducted at source with the department, the deductee would get the benefit of such deductions in its tax assessments. As per the above quoted portion of the affidavit in reply, we also gather that the department does not rule out the possibility of genuine errors in feeding PAN numbers of the deductees. However, the online computerised system of the department permits corrections limited to extent of four characters, two numeric and two alphabets and no more. A presumption is Page 7 of 17 Page 7 of 17
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therefore, raised that a genuine typographical error would not lead to mistakes beyond two characters each. Large volume of transactions and TDS entries and the requirement of completion of timely processing of such entries are cited as reasons to limit the scope of corrections. 7. Short question is, in the present case, did the department commit an error in not allowing the petitioner to correct the declaration of tax deducted at source? In this context, we may refer to the relevant statutory provisions. Chapter XVII of the Act pertains to collection and recovery of tax. PartB thereof pertains to deduction at source. As is well known, various provisions contained in the said Chapter cast a duty on the payer to deduct the tax at source from the payee at the prescribed rates. Section 200 of the Act pertains to duty of person deducting tax. Under sub section(1) of section 200, any person deducting any sum in accordance with the earlier provisions of the Chapter, would pay within the prescribed time, the sum so deducted, to the credit of the Central Government or as the Board directs. Under subsection(3) of section 200, person deducting such sum would have to prepare such statements for a prescribed period and deliver to the prescribed incometax authority. Section 200A of the Act pertains to processing of statements of tax deducted at source. The said provision reads as under : “Processing of statements of tax deducted at source. 200A. (1) Where a statement of tax deduction at source or a correction statement has been made by a person
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deducting any sum (hereafter referred to in this section as deductor) under Section 200, such statement shall be processed in the following manner, namely:— (a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely: (i) any arithmetical error in the statement; or (ii) an incorrect claim, apparent from any information in the statement; (b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement; (c) the fee, if any, shall be computed in accordance with the provisions of section 234E; (d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee; (e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and (f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor:] Provided that no intimation under this subsection shall be sent after the expiry of one year from the end of the financial year in which the statement is filed. Explanation.—For the purposes of this subsection, "an incorrect claim apparent from any information in the statement" shall mean a claim, on the basis of an entry, in the statement— (i) of an item, which is inconsistent with another entry of
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the same or some other item in such statement; (ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act. (2) For the purposes of processing of statements under subsection (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said subsection.” 8. It can be noticed that under subsection(1) of section 200A, there is reference to the statement of tax deduction at source or a correction statement. Such a statement would be processed in the manner provided therein. Sub clause(ii) of clause(a) of subsection(1) of section 200A permits the authority to make adjustment of an incorrect claim, apparent from any information in the statement. Explanation to subsection (1) clarifies that the expression “an incorrect claim apparent from any information in the statement" would mean on the basis of an entry in the statement of an item, which is inconsistent with another entry or in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of the Act. 9. In terms of subsection(1) of section 201, if any person required to deduct tax at source, does not do so or does not pay the same in the Government revenue, he would be deemed to be an assessee in default in respect of such tax. 10.
Section 206AA pertains to requirement to furnish
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Permanent Account Number. As noted, under sub section(1) of section 206AA, if the person receiving sum of money where tax is required to be deducted at source, does not give his PAN, the deduction of tax would be at higher rate. Under subsection(6) of section 206AA, where such PAN number is either invalid or does not belong to the deductee, it would be deemed that he has not furnished his PAN to the deductor and accordingly, the provisions of subsection(1) of section 206AA would apply. 11.
Rule 31A of the Income Tax Rules, 1962 (“the Rules”
for short) pertains to statement of deduction of tax under subsection(3) of section 200 of the Act. Subrule(1) of Rule 31A provides for statement of deduction of tax to be filed in different formats depending on the situation. In the present case, such declaration would have to be made in Form No.26Q. 12.
From the materials on record, it can be easily
gathered that Chapter XVIIB of the Act contains important statutory provisions for deduction and collection of tax at source. Various provisions have been made enjoining duty on the payer to deduct tax at source, at the time of making certain payments to the payee. Such tax would have to be within the prescribed time deposited with the Government Revenue and a declaration of such tax deduction would have to be made in the prescribed format. The stand of the Revenue that it is only when such tax is not only deducted but properly declared before the authorities that the same can be processed and ultimate benefit can be given to the deductee, also can be easily appreciated. In this context,
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requirement of giving correct PAN number of the deductee is a statutory responsibility. 13.
However, neither the statute nor the department
completely rules out the possibility of genuine and bona fide typographical or even mechanical errors. It is in this context, section 200A refers to a statement of tax deducted at source or a correction statement. We may recall sub section (3) of section 200 refers to requirement of filing a statement of tax deducted at source. This provision though does not refer to any mechanism for correction of such a 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. Even the department does not dispute that there is absolutely no mechanism permitting such corrections. The department however, points out that all the forms are to be generated online and corrections can also be therefore, made only online. It is also pointed out and in our opinion with justification that looking to the large number of such statements and entries in such statements, it would be impossible to process individual claims of corrections, whether they are based on bona fide mistakes or otherwise. We have noticed that even as per the department, the on line system permits corrections limited to two alphabetical and two numerical errors in the PAN number. This has clearly been stated in the affidavit in reply filed by the department, portion of which, we have reproduced earlier. This is also conveyed to the petitioner in the detail working out of the outstanding tax not deducted at source in which
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it was stated as under : “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.” 14.
Counsel for the petitioner brought to our notice a
scheme formulated by the department under notification dated 15.1.2013 referred to as Centralised Processing of Statements of Tax Deducted at Source Scheme, 2013 (“the Scheme” for short). This notification contains detail provisions for the processing statements of tax deducted at source. Para. 4 of the Scheme also refers to a correction statement of tax deducted at source. Para. 11 of the scheme authorises the Director General to specify the procedures and processes for effective functioning of the Cell where such declarations would be processed which includes receipt of correction statement of tax deducted at source. 15.
Having thus recognised the need and possibility for
correction of statement of deduction of tax at source, the question is, was it open for the department to limit such corrections to two alphabets and two numeric characters when it came to indicating incorrect PAN number? 16.
Such limited permission to correct is sought to be
justified on two grounds. One is that if the error is genuine and bona fide in feeding the PAN number, it is unlikely
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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. 17.
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. 18.
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 where correction is needed. We are not unsympathetic to the department's view that late corrections can derail assessments of the deductees. If the legislature therefore, had laid down that no corrections would be permitted or
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the department had provided that no correction would be permitted beyond a particular period, we could have examined the issue in different light. However, that is not the present situation. In the present case, as noted, section 200A itself refers to correction statement of tax deducted at source. The intimation sent to the petitioner of shortfall in deduction of tax also referred to the possibility of correction but limited it to certain characters. In the affidavit in reply also same stand has been taken. 19.
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. As is contended in the present case, the deductee i.e. M/s. Star (India) Pvt. Ltd. has 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 M/s. Star (India) Pvt. Ltd. would have paid by way of tax to the department. Essentially, “the tax deducted at source” would have to be given credit to the payee on whose behalf such tax is being deducted. In the present case, payee having already discharged its tax liability independently, such amount would remain in Government coffers not accounted for anyone's tax liability.
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JUDGMENT
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. 21.
In the result, we hold that the decision of department
in not permitting the petitioner to correct PAN of the
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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. 22.
Petition is disposed of. (AKIL KURESHI, J.)
(BIREN VAISHNAV, J.) raghu
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