PRAVIN PRAKASH MAGAR,MAHARASHTRA vs. COMMISSIONER OF INCOME TAX APPEALS- WARD 4, PANVEL, PANVEL, MAHARASHTRA

5. BECAUSE the “appellant” was not provided a specific opportunity to furnish Form 26A as required under Rule 31ACB of the Income Tax Rules and proviso to Section 201(1) of the Income Tax Act, the adverse inference drawn and dismissal of the appeal are unjustified. The appellant was willing to furnish the said certificate, and hence, prays for the matter to be restored for fresh consideration after allowing due opportunity.

6. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice to the extent mentioned in the foregoing grounds.”

2.1 In pursuance of the said obligation, the assessee approached the Assessing Officer for issuance of a certificate under Section 197 of the Act, seeking permission for deduction of tax at a lower rate. Though the assessee had requested for deduction of tax at the rate of 12.61% inclusive of surcharge and cess, the certificate so issued prescribed the rate of 12.61% excluding surcharge and cess. It, however, appears that owing to a bona fide misunderstanding, the assessee deducted tax at 12.61% inclusive of surcharge and cess, thereby resulting in a short deduction corresponding to the omitted component of surcharge and cess.

2.2 Consequent to such short deduction, the Learned Assessing Officer, upon processing the TDS statement under Section 200A of the Act, issued an intimation holding that the tax deducted was deficient and directed the assessee to remit the balance amount together with interest on the shortfall.

3. The assessee preferred an appeal before the Learned Commissioner of Income Tax (Appeals) [hereinafter “Ld. CIT(A)”] and, inter alia, raised an alternative plea that since the non- resident sellers had already discharged their capital gains tax liability in full, the assessee ought not to be treated as an assessee-in-default, placing reliance upon the judgment of the Hon’ble Supreme Court in Hindustan Coca Cola Beverage Pvt. Pravin Prakash Magar Ltd. v. CIT [2007] 293 ITR 226 (SC). The Ld. CIT(A), however, observed that as per the proviso to Section 201(1) of the Act, read with Rule 31ACB of the Income-tax Rules, 1962, an assessee seeking relief on this ground is required to furnish a certificate in Form No. 26A duly verified by an accountant. Since the assessee had not furnished such a certificate, the Ld. CIT(A) dismissed the appeal. The relevant facts and findings of the Ld. CIT(A) is reproduced as under:

“4. Statement of Facts:

1.

2. The assessee, in compliance with the provisions of the Act, deducted TDS at the rate of 12.61 percent on the total sales consideration, based on the certificate issued u/s 197 of the Act. This certificate authorized the deduction of TDS at a lower rate owing to the non-residential status of the sellers. The TDS was remitted in compliance with the Section 197 certificate, which was prescribed under the relevant provisions of the Act and the said tax rate was computed after considering the tax liability of the sellers including surcharge and cess as applicable.

3. The sellers i.e., Swati Durgesh Saxena and Prabhat Saxena, have duly filed their returns of income for the AY 2024-25, declaring the income from the sale of immovable property and the tax deducted by the buyer on the income declared in their returns, in accordance with the provisions of the Act. Therefore, the sellers have fully complied with their tax obligations, and there is no loss of revenue to the government.

4. Subsequently, the impugned intimation u/s 200A was issued to the assessee, claiming that the TDS deducted was insufficient because it did not include the surcharge and cess and directs him to remit the remaining balance amount, along with interest for the shortfall in TDS. The assesse asserts that the surcharge and cess was inapplicable and seeks to humbly appeal against the order imposing additional liability, Pravin Prakash Magar asserting that the tax obligations were fulfilled to the best of the assessee understanding and that no wilful default occurred.

5. The appellant has filed TDS statement in Form 27Q for Q3 of FY 2023-24 which has been processed by the TDS CPC and vide order u/s 200A dated 30.01.2025 a demand of Rs 2,44,480/- ( short deduction Rs 239690/- and interest Rs 4792/- ) has been raised.

6. The grounds of appeal, statement of facts and submission of the appellant have been considered. The appellant submits that Assessing Officer has erred in law and on facts in holding that the Appellant is liable for shortfall in TDS u/s 201(1) of the Income Tax Act, 1961, on the ground that surcharge and cess were not deducted, when the TDS certificate issued u/s 197 of the Act explicitly authorized the deduction of tax at the rate of 12.61% after considering complete computation of income of the sellers for the financial year under consideration. 6.1 The certificate issued by the AO u/s 197 to the appellant is scanned below It can be seen that the certificate clearly mentions that Certificate rate is 12.61% excluding education cess and surcharge as applicable. Therefore, the contention of the appellant that he has effected TDS as per Certificate issued u/s 197 is not correct.

7. As an alternative ground, the appellant has contended that the Ld. Assessing Officer ignored the fact that the Sellers, being non-resident Indians, have duly disclosed the sale consideration in their returns and paid due taxes, and discharged their full tax liability, thereby ensuring that there was no loss of revenue to the Government and as per first proviso to Section 201(1), the assessee is not liable to be treated as assessee in default. The Ld. Assessing Officer failed to consider the fact that the intended tax revenue has been fully accounted for by the Sellers, and the imposition of additional tax, surcharge, and interest would be unjust and contrary to the principles of natural justice and equity. 7.1 The submission of the appellant has been considered. It is observed that a proviso has been inserted in Section 201(1) of the Act, vide the Finance Act, 2012 which provides that an assessee shall not be deemed to be an assessee in default even if he has not complied with the TDS provisions provided that the recipient of the income has paid the taxes due on such income. In the context of Section 201, the SC in case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT [2007] 293 ITR 226 (SC) has held that where the recipient of income has paid taxes on Pravin Prakash Magar amount received from deductor, the Revenue cannot recover such tax once again from the deductor on same income by treating deductor to be assessee in default. Even prior to this SC judgment, Instruction No. 27517 issued by the Board stated that demand under Section 201(1) should not be enforced after the tax deductor has satisfied the officer in charge of TDS that taxes have been paid by the deductee -assessee. 7.2 However, the requirement is that the assessee furnishes a certificate in form 26A as per Rule 31ACB of IT Rules so as not to be held as an assessee in default as per proviso to section 201 of the Act. Further, Rule 31ACB of IT Rules provide that the certificate from an accountant in Form 26A shall be furnished to the DGIT (Systems) or the person authorized by the DGIT(Systems) in accordance with procedure, format and standards specified under Sub Rule 2. Form no 26A is required to be furnished by the person responsible for making payment without TDS. The person is also required to furnish the details of interest payment for non-deduction/ short deduction of tax under sub section (1A) of section 201 of the Act. The certificate from the accountant is to be furnished as Annexure A to form No 26A . But in the case at hand, though it is argued that the Sellers have duly disclosed the sale consideration in their returns and paid due taxes, no evidence in the form of certificate in form 26A as per Rule 31ACB of IT Rules has been furnished. Hence the mere claim of the appellant cannot be taken as fulfilment of the requirement of Rule 31ACB of IT Rules. Therefore, the contentions of the appellant cannot be accepted.”

4. The reasoning and findings of the Ld. CIT(A) are on record and have been duly considered. Before us, the assessee appeared in person and submitted that he is now in possession of the requisite certificate in Form No. 26A duly certified by a chartered accountant in accordance with Rule 31ACB of the Income-tax Rules, 1962. It was thus pleaded that the matter may be restored to the file of the Assessing Officer for a fresh adjudication in light of the said certificate.

4.1 The Learned Departmental Representative, in fairness, did not raise any serious objection to this plea and left the matter to the discretion of the Bench.

Pravin Prakash Magar 5. We have given our anxious consideration to the submissions of the assessee and the Department, and have perused the record carefully. The factual position, as it emerges, is that the sellers have duly disclosed the capital gains arising from the impugned sale transaction in their returns of income and have paid due taxes thereon. The Hon’ble Supreme Court in Hindustan Coca Cola Beverage Pvt. Ltd. (supra) has authoritatively held that once the deductee has paid taxes on the income received, recovery of the same amount from the deductor would amount to double taxation and is impermissible in law.

5.1 Nevertheless, the statutory framework postulates compliance with the procedural requirement of furnishing Form No. 26A under Rule 31ACB of the Income-tax Rules, 1962, duly certified by an accountant, as a precondition for availing such relief. The assessee has now expressed readiness to submit the said certificate before the Assessing Officer and has also placed a copy thereof on record.

5.2 In these circumstances, and in order to advance the cause of substantial justice rather than defeat it on technicalities, we deem it just and proper to remit the matter to the file of the Learned Assessing Officer. The assessee shall furnish the original certificate in Form No. 26A before the Assessing Officer, who shall thereupon verify its authenticity and reconsider the issue afresh in accordance with law and upon granting due opportunity of being heard to the assessee.

Pravin Prakash Magar 5.3 In view of the foregoing discussion, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the Assessing Officer for de novo consideration in terms indicated above.

5.4 The grounds raised by the assessee are thus allowed for statistical purposes. Ground No. 1 of the appeal stands allowed, and the remaining grounds are rendered academic in view of the remand directed hereinabove.