CAMP TONAKELA ASSOCIATION,CHENNAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, TDS, CHENNAI

The Assessee raised these following grounds of appeal : “1. The Appellant humbly submits that the learned CIT(A) erred in law and on facts in confirming the order of the Assessing Officer treating the Appellant as an "assessee in default" under Section 201(1) of the Income- tax Act, 1961 (hereinafter referred to as "the Act"), merely on the ground that the PAN of the deductee(s) had become inoperative due to non-linking with Aadhaar, without appreciating that the default, if any, was wholly attributable to the deductee(s) and entirely beyond the control of the Appellant.

The Appellant humbly submits that the learned CIT(A) erred in holding that the obligation to deduct tax at the rate prescribed under Section 206AA is "absolute and strict" without appreciating that:

The Appellant humbly submits that the learned CIT(A) erred in invoking Section 206AA of the Act and upholding the demand for differential TDS at the rate of 20% without appreciating that the provision was designed to address situations where the deductee fails to furnish PAN altogether, and not situations where the deductee has furnished a valid PAN which subsequently and temporarily became inoperative due to the deductee's own failure to link Aadhaar-a compliance obligation cast exclusively upon the deductee under Section 139AA of the Act.

The Appellant humbly submits that the learned CIT(A) erred in not appreciating that the PAN-Aadhaar linking facility was available on the Income Tax e-filing portal since July 2017 with multiple extensions of the deadline (the last being 30.06.2023), and the deductee(s) had nearly six years to complete the linking, and the failure of the deductee(s) to link despite this prolonged availability cannot be visited upon the Appellant who is an innocent third-party deductor.

The Appellant humbly submits that the learned CIT(A) erred in not considering that the deductee(s) have subsequently linked their PAN with Aadhaar and have also filed their return(s) of income and discharged the due tax liability on the income received from the Appellant, thereby resulting in no loss whatsoever to the Revenue, and in such circumstances, the demand raised against the Appellant is unjust, arbitrary, and contrary.

The Appellant is further advised to state case which was pronounced by the Hon'ble Supreme Court in "Hindustan Coca-Cola Beverages Pvt. Ltd. v. CIT [2007] 293 ITR 226 (SC)" wherein it was held that where the deductee has paid the due tax, the deductor cannot be treated as an assessee in default.

The Appellant humbly submits that the learned CIT(A) erred in holding that subsequent rectification of PAN status does not retrospectively validate the position during the period when PAN remained inoperative, without considering:

The Appellant humbly submits that the learned CIT(A) erred in upholding the levy of interest under Section 201(1A) of the Act without appreciating that the levy of interest is compensatory in nature and presupposes an actual loss to the Revenue, and since the deductee(s) have paid the due tax, there is no loss to compensate, and therefore the levy of interest is unsustainable in law.

The Appellant humbly submits that the learned CIT(A) erred in not appreciating that the Appellant had reasonable cause within the meaning of Section 273B of the Act for the alleged default, inasmuch as:

Briefly the facts of the case are that the appellant is an Association of Persons. During the Financial Year 2024-25, the appellant had deducted tax at source on the certain payments and remitted the TDS amount to the Government Account. The appellant also submitted the prescribed quarterly TDS Returns to the Department. The appellant had obtained PAN Numbers from two deductees. However, the PAN Numbers of those deductees were not linked with their Aadhar numbers as on the specified date, as a result, the PAN Numbers of those deductees had become inoperative. The CPC/AO had demanded additional TDS amount vide order dated 04.12.2025 passed u/s.154 r.w.s 200/206A for the reason that the PAN Numbers of the deductees had become inoperative.

Being aggrieved by the above order, an appeal was filed before the Learned CIT(A), who vide impugned order confirmed the action of the Assessing Officer by holding that the appellant was an assessee in default for not deducting TDS at higher rates in respect of deductees whose PAN Numbers had become inoperative due to non-linking of PAN with Aadhar. The Learned CIT(A) further held that the fact that the deductees subsequently linked the PAN with Aadhar did not validate the PAN Numbers which remained inoperative during the relevant period.

Being aggrieved by the order of the Learned CIT(A), appellant preferred an appeal before this Tribunal. The Learned Counsel submits that when the appellant obtained PAN numbers of the deductees and deducted TDS accordingly, the CPC/AO cannot amend the intimation merely on the ground that the PAN of the deductee(s) had become inoperative due to non-linking PAN with Aadhar, without appreciating that the default, if any was wholly attributable to the deductee(s) and entirely beyond the control of the Appellant. He further submits that the appellant had acted in bonafide manner by obtaining the PAN Numbers of the deductees. He further submits that the Learned CIT(A) had failed to take cognizance of CBDT Circular No.06/2024 dated 23.04.2024 which provided that for transaction entered into up to 31.03.2024, if PAN become operative by 31.05.2024, the deductor would not be required to apply higher TDS/TCS under Section 260AA/206CC. And CBDT Circular No.09/2025 dated 21.07.2025, which extended relief for amounts paid or credited from 01.04.2024 to 31.07.2025 where PAN become operative on or before 30.09.2025.

On the other hand, the Learned Sr.DR opposed the above submissions and submits that when the appellant had deducted tax at source, the deductees had no valid PAN Numbers and therefore, the CPC/AO had rightly demanded the higher rate of TDS from the appellant.

We heard rival submissions and perused the material on record. The issue that arises for our consideration is whether the Learned CIT(A) was correct in upholding the order passed by CPC u/s.154 of the Act, rectifying intimation u/s.200 r.w.s 206AA of the Act. Admittedly, the appellant had deducted tax at source on the payments made and the appellant had obtained PAN numbers from the deductees and deducted TDS at the applicable rates. However, the PAN numbers of the deductees had become inoperative for the reason that they failed to link the PAN with Aadhar numbers.

Without entering into the merits of the contentions raised by the appellant, suffice to hold that the CBDT vide Circular No.09/2025 dated 21.07.2025 extended the relief in respect of the amounts paid and credited to from 01.04.2024 to 31.07.2025 where the PAN became operative on or before 30.09.2025. Since the appellant had no mechanism of verifying whether the PAN of the deductees had been linked with Aadhar, we are of the considered opinion that in the interest of justice, the matter requires remand to the file of CPC/AO to examine the eligibility of the assessee in terms of the above said Circular No.09/2025 dated 21.07.2025, accordingly, grounds of appeal raised by the assessee are partly allowed for statistical purposes.

In the result, appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open Court on 2nd November, 2026.