Delhi High Court says maximum penalty for furnishing incorrect PAN is Rs 10000

The High Court of Delhi on the 18th of February 2014 determined that penalty under section 272B for non-compliance with section 139A of the Income Tax Act cannot exceed Rs. 10,000.

According to section 139A(5a) every person who is receiving income from which tax needs to be deducted (i.e TDS) is required to intimate his PAN number to his deductor.  

Further section 139(5b) suggests, every such deductor is required to mention PAN of the deductee in various returns and payments to the department.

What if the deductee refuses to to furnish their PAN details or provides incorrect PAN details to the deductor!  For that matter is the deductor held responsible for not providing PAN or for providing Incorrect PAN to the department?

A straight forward answer to this question would be YES. The deductor is responsible to verify the PAN details of its employees. On providing incorrect details the deductor is held responsible, and liable to pay a penalty of Rs. 10,000 to the IT department.

However the penalty clause – clearly states that the penalty will be charged with regard to the deductor and not the number  of employees. Hence, even on furnishing numerous incorrect PAN, the maximum penalty would be Rs. 10,000 on the deductor. 

Following is the case law:

For failure to comply with section 139A [Missing or incorrect PAN in TDS return] – Assessing Officer found that in 30706 cases PAN was missing or incorrectly stated by deductor – He imposed penalty of Rs. 10,000 for each default and, thus, penalty of Rs. 30,70,60,000 was imposed – It was found that CBDT had clarified that penalty under section 272B is linked to person, i.e., deductor, and not to number of defaults regarding PAN quoted in return – Whether therefore, maximum penalty of Rs. 10,000 could be imposed on deductor – Held, yes [In favour of assessee]

Reasons for stated ruling:

Firstly, the assessing officer in the penalty order under Section 272B has not specifically referred to any default or failure by the respondent-assessee mentioning PAN Number even when the said particulars and details were available. The stand taken by the respondent was that the PAN Numbers were not furnished by the Truck owners and, therefore, they were not quoted by them or PAN Numbers as informed were quoted. In case, the PAN Numbers are not furnished by the deductees, the respondent- assessee cannot be penalized under Section 272B. Section 139A also imposes the obligation on the deductees to furnish PAN Number to the deductor.

Secondly, the stand taken by the revenue is contrary to the stand taken by Central Board of Direct Taxes. The assessing officer had imposed penalty of Rs.10,000/- in each case where PAN Number was not provided by the deductee. There were in all 30706 cases in which the PAN Number was missing or was incorrectly stated. The assessing officer, accordingly, imposed penalty of Rs.10,000/- in each case. Thus, penalty of Rs.30,70,60,000/- was imposed. Board in the letter dated 5.8.2008 vide No.275/24/2007-IT(B) has clarified that penalty of Rs.10,000/- under Section 272B is linked to the person, i.e., the deductor who is responsible to deduct TDS, and not to the number of defaults regarding the PAN quoted in the TDS return. Therefore, regardless of the number of defaults in each return, maximum penalty of Rs.10,000/- can be imposed on the deductor. Penalty cannot be imposed by calculating the number of defective entries in each return and by multiplying them with Rs.10,000/-. This also appears to be a legislative intent, as in many cases, the TDS amount may be small or insignificant fraction of Rs.10,000/-.

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