TDS Deductors beware - a mistake in deductee's PAN and you're doomed
IF you are a TDS deductor, what happens if you make a mistake in the PAN of the deductee? And you are not able to correct it as the Income Tax Department will allow correction of only four characters!
The Income Tax Department will treat it as if the deductee had no PAN and you will be asked to pay 20% as TDS instead of 2%. Interest and penalty added in good measure.
This is exactly what happened to a mega PSU - the ONGC. Read the details:
During quarters 1, 2 & 3 of F.Y. 2013-14 ONGC (assessee deductor) deducted tax at source from one of the contractors namely Gujarat Energy Transmission Corporation Ltd., a Government of Gujarat Undertaking (GETCO Ltd.) and the assessee was required to deduct 2% from the sum paid/credited to the deductee i.e. GETCO Ltd. ONGC 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 assessee ONGC 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 alpha characters. Whereas in the wrong PAN quoted by the deductor there were more than 4 changes and, therefore, correction statement was not accepted.
On appeal, the learned CIT(A) was pleased to confirm the demand. (what else do you think a Commissioner is for?)
ONGC approached the ITAT.
The ITAT held:
++ 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.
++ 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 alpha and two numerical 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.
Please see Oil & Natural Gas Corporation Ltd Vs Deputy Commissioner Of Income Tax -
It seems that even in cases where the PAN is corrected (four or less character cases), the corrections are not carried out for the deductor and he is still asked to pay 20% TDS!
Paying tax is not all that an easy proposition in India.
There is no such problem in Central Excise for they don't allow correction of returns!