TDS Demand due to Wrong Challan Number: ITAT Escalates issue to carry out necessary rectification

The only grievance of the assessee is against demand raised on account of short payment of TDS under section 195 of the Act due to error in depositing TDS under the wrong challan.

The brief facts of the case as emanating from the record are: During the year under consideration, the assessee has declared dividends to its shareholder who is a non-resident as per the provisions of the Act. Since vide Finance Act 2020, provisions in connection to Dividend Distribution Tax under section 115-O of the Act are not applicable on dividends declared, distributed or paid after 01/04/2020, the assessee deducted taxes in accordance with section 195 while paying the dividend to the non-resident shareholder. However, at the time of depositing taxes, the assessee deposited taxes vide challan No. 280 which is applicable for payment in nature of advance tax, self assessment tax, tax on regular assessment, tax on distributed income to unit holders, etc. instead of depositing the taxes vide challan No. 281 which is applicable for taxes deducted at source. The assessee also filed relevant TDS return on 31/03/2021. Once the inadvertent error due to change in law was noticed, the assessee filed a letter to DCIT–15(3)(1) as well as DCIT (TDS) (OSD), requesting to consider the deposit of taxes on dividend under challan No. 281 though erroneously deposited vide challan No. 280. Vide intimation dated 05/04/2021, issued under section 200A/206CB of the Act for Q2 demand of Rs. 2,95,78,630, was levied on account of short payment of taxes.

The learned CIT(A) vide impugned order after taking note of the letters filed by the assessee held that the assessee has simply requested both the AO (including TDS) to treat the tax paid through challan No. 280 as tax paid as TDS, however, has not made any formal request for correction of challan from 280 to 281 with the AO (TDS). The learned CIT(A) further held that the AO (TDS) only after receipt of a formal request for change/correction in challan No. from 280 to 281, can act within the time limit prescribed as per the notification. Accordingly, vide impugned order, the learned CIT(A) upheld the demand raised vide intimation issued under section 200A/206CB of the Act. The learned CIT(A) further noted that the assessee is required to file a challan correction application with the jurisdictional TDS AO as per the prescribed challan correction mechanism, who is required to do the needful as per the provisions. Being aggrieved, the assessee is in appeal before the Income Tax Appellant Tribunal (ITAT).

ITAT Observation

8. We have considered the submissions of both sides and perused the material available on record. It is the plea of the assessee that the demand raised vide intimation issued under section 200A/206CB is only due to the wrong challan filed by the assessee while depositing the tax deducted at source under section 195 of the Act in respect of payment of dividend to the non-resident shareholder. From the applications filed by the assessee, a copy of which has been brought on record, we find that the assessee has pursued this matter with the concerned authorities and not only requested to consider the deposit of taxes on dividends by the company but has also prayed for correction of the challan from challan No. 280 to challan No. 281. From the copy of the email dated 06/12/2022, filed by the learned DR, we find that the office of DCIT (OSD) TDS has escalated the issue to CPC – TDS for either necessitating the required changes in the challan from the backend or enabling the system to allow the TDS–AO to do the same from his login at TRACES AO – Portal. Therefore, in view of the above, we deem it appropriate to direct the concerned authority to make every possible endeavour of carrying out the necessary correction in the challan within a period of 2 months from the date of receipt of this order and grant the relief to the assessee as per law. As a result, grounds raised by the assessee are allowed for statistical purposes.

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