Incorrect PAN in TDS attracts higher deduction under section 206AA, and the short-deduction demand was upheld.

An incorrect Permanent Account Number furnished for the deductee triggers section 206AA as a deeming fiction that PAN has not been furnished, requiring deduction at the higher of the prescribed rate, the rate in force, or twenty per cent. The deductor must quote a valid PAN and verify its correctness; failure to do so can sustain a differential demand for short deduction where the defect is detected during processing of the TDS return. The ITAT Jaipur upheld the demand because the assessee had deducted tax on the basis of an invalid PAN and had not verified it at the relevant time.

---

---

Issues: Whether demand raised for short deduction of tax at source on account of an incorrect Permanent Account Number furnished for the deductee was sustainable, and whether section 206AA of the Income-tax Act, 1961 mandated deduction at the higher rate in such circumstances.

Analysis: The statutory scheme places the primary obligation on the deductee to furnish a valid Permanent Account Number and requires the deductor to quote the correct PAN in the TDS statement. Where the PAN furnished is invalid or does not belong to the deductee, section 206AA creates a deeming fiction that PAN has not been furnished, thereby attracting deduction at the higher of the prescribed rate, the rate in force, or twenty per cent. The assessee had deducted tax, but failed to verify the correctness of the PAN at the relevant time, and the defect came to light only at the stage of processing of the TDS return. In view of the overriding effect of section 206AA, the differential demand arising from deduction at the higher rate was held to be justified.

Conclusion: The demand was upheld and the assessee's challenge failed.

---