TDS demand rectification allowed under section 154 after assessee proves deductees paid income tax on entire income

ITAT Delhi allowed the appeal regarding TDS demand rectification under section 154. The assessee challenged CPC's demand for short TDS deduction and interest, arguing deductees had already paid income tax on entire income, making the demand unjustified per SC precedent in Hindustan Coco Beverages case. ITAT held that verification was required to confirm whether deductees included relevant income in their returns, as revenue cannot collect from both deductor and recipient. Matter remanded to DCIT(TDS) for complete examination and rectification within 180 days, noting the decade-long pendency.

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Issues involved:
The appeal against the order of Ld.CIT(A)-1, Gurgoan dated 20.09.2018 regarding the demand raised on the assessee u/s 200A and the application u/s 154 of the Act for rectification of the order.

Grounds of Appeal:
1. The order passed by the Ld. Commissioner of Income Tax (Appeals-I), Gurgaon, is challenged as bad in law and on facts.
2. The appellant argues that they were eligible to apply u/s 154 of the Act to claim benefits based on the Supreme Court decision in Hindustan Coco Beverages Pvt. Ltd.
3. The appellant contests the rejection of their application u/s 154, stating it was necessary to rectify the demand notice.
4. Lack of opportunity given to the appellant and the order not being passed in writing but as a computerized order u/s 154 is highlighted.
5. The appellant asserts that proof of deductees having paid taxes can only be provided if the application u/s 154 is admitted.
6. Reference to the Supreme Court ruling in Hindustan Coco Cola Beverages (P) Ltd. v. CIT is made to support the argument that the payer is not liable for short/non-deduction of tax if the payee has included the income in their total income.
7. Lack of opportunity to produce documents supporting the claim that deductees included the revenue in their total income is emphasized.
8. The interest is considered consequential and dependent on the grounds of appeal.
9. The grounds of appeal are stated to be mutually exclusive and without prejudice to each other.

Detailed Judgment:
The appellant, a Foreign International Airline, filed a TDS return for the 2nd quarter of FY 2012-13, leading to a demand raised on account of short deduction of TDS and interest. The application u/s 154 contended that the deductees had paid tax on their entire income, citing the Supreme Court ruling in Hindustan Coca Cola Beverages Pvt. Ltd. The CPC rejected the appellant's contention and recomputed the demand. The appellant reiterated their argument in written submissions dated 17/09/2018.

The Ld. CIT(A) rejected the appellant's contention, stating that there were no documents available to support the claim that deductees had paid tax on their entire income. Citing the judgment in Commissioner Of Income-Tax vs. Keshri Metal Pvt. Ltd., it was emphasized that for rectification u/s 154, there must be a mistake apparent from the record. The Ld. CIT(A) found no such error justifying rectification.

The appellant's reliance on the Supreme Court decision in Hindustan Coco Beverages Pvt. Ltd. was acknowledged. It was noted that the matter required verification regarding whether deductees had indeed paid tax on their entire income. In the interest of justice, the matter was remanded to the DCIT(TDS) for further examination and rectification within 180 days.

The appeal of the assessee was allowed for statistical purposes, with the order pronounced on 17/01/2024.

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