DURAISWAMY BALU,RED HILLS vs. THE INCOME TAX OFFICER, NON-CORP. WARD 22(1), TAMBARAM

The ADDL./JCIT (A)-2, Lucknow failed to appreciate that having not examined the change of law/amendment especially the impact of the recipients subjecting themselves to the charging provisions of the Act, the mechanical presumption of default and consequently imposing interest there on were wrong, erroneous, unjustified, incorrect, invalid and not sustainable both on facts and in law.

The ADDL./JCIT (A)-2, Lucknow failed to appreciate that in any event, the principle envisaged by the Supreme Court in the case of M/s Hindustan Coca Cola Beverage (P.) Ltd. reported in 293 ITR 226 enunciating the object of the TDS provisions, which received legislative sanction, where in the seller of the property has duly disclosed the capital gains in the return of income filed, there by achieving the purpose of the TDS provisions.

The ADDL./JCIT (A)-2, Lucknow ought to have appreciated that the order under Section 200A of the Act was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law.

The ADDL./JCIT (A)-2, Lucknow failed to appreciate that having not adhered to the prescription of faceless regime, the consequential assessment passed should be reckoned as bad in law.

The ADDL./JCIT (A)-2, Lucknow failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”

The assessee is an individual. The assessee purchased the residential property at Chennai on 05.07.2023 from the family consisting of four co-owners including one co-owner who is a non-resident. The assessee while making the payment to resident individuals deduced tax at 1% and filed Form-26QB on 04.07.2023. The assessee also filed Form 27Q with regard to the payment to the non-resident co- owner where tax was deducted at 22.88% by the assessee. Subsequently, the assessee received an intimation under section 200A of the Act raising a demand of Duraiswamy Balu Rs. 22,80,000/- for short deduction of tax at source. Aggrieved the assessee filed further appeal before the FAA. Before the FAA the assessee submitted that TDS has been deducted correctly as per the provisions of section 194IA of the Act on the payments made to Mrs. Marathasmariam Pillai Scholastica one of the co-owners of the property. The assessee further submitted that in the intimation there is no mention with regard to the details of short deduction of TDS and that based on the demand amount, the assessee has done a calculation to find out that there is an alleged short deduction of 19% from the payments made to Mrs. Marathasmariam Pillai Scholastica. The FAA rejected the submissions of the assessee and dismissed the appeal by holding that “6.4 Upon careful consideration of the facts, submissions, and applicable legal provisions, it is observed that: • The appellant has not provided any documentary proof of Form 27Q filing, which is a crucial requirement for compliance under Section 195 cf the Income Tax Act. Even Form 26QB is not filed for total TDS deductible for payments made to residents. There is a short deduction of Rs. 1,20,000/- in Form 26QB. • Since the appellant has failed to substantiate full compliance with TDS provisions for both resident and NRI transaction, the appeal lacks merit. • It is noticed that the short deduction is computed at Rs. 22,80,000/- as the CPC-TDS has taken rate of 20% applicable for non-PAN sellers instead of applicable rate of 1% in absence of TDS return filed for TDS deducted towards 3rd and 4th vendor with PAN. Obviously, the system cannot decipher PAN availability/non-availability unless the assessee feeds the relevant details. • Therefore, I do not find any deficiency in the order of ACIT, CPC-TDS unless the appellant provides Form 26QB for the remaining amount of Rs. 1,20,000/- for resident vendors with correct PAN. The rate of TDS and resultant demand can always be rectified on production of documents.

The ld. AR argued that though there are no details mentioned in the intimation under section 200A from the Acknowledgement Number mentioned in the intimation, the assessee has found out that the demand is raised with respect to the payment made to Mrs. Marathasmariam Pillai Scholastica (page 25 of PB). The ld. AR submitted that at the time of deducting the tax the assessee is not aware that the PAN of the payee is inactive due to non-linking of Aadhar with PAN and that tax should have been deducted at 20% and not at 1%. The ld. AR also submitted that the payment system did not throw any error with regard to the inactive status of the payee and therefore the assessee was not in a position to know that the payee has not linked the Aadhar and PAN and that her PAN is not inactive. The ld. AR drew our attention to the various Circulars issued by CBDT to submit that the date for compliance of linking PAN and Aadhar is extended in order to address the grievances raised by the tax payers with regard to receipt of notices intimating default of short deduction/collection of TDS / TCS while carrying out transactions where the PAN of the deductee were inoperative. The ld. AR argued that the intention is to ensure that the tax payer complies with the mandate of linking PAN and Aadhar and the intention is not to put undue hardship on the payer. The ld. AR further argued that the compliance as mandated by the various Circulars should be harmoniously interpreted keeping in mind the above intention of the legislature. The ld. AR further drew our attention to the fact that Mrs. Marathasmariam Pillai Scholastica has already filed the return of income including the gain on impugned transaction (page 28 to 67 of PB) and has claimed credit towards TDS as deducted by the assessee. The ld. AR therefore submitted that the demand against the assessee if paid cannot be claimed by the payee. Accordingly, the ld. AR prayed that the demand through intimation under section 200A be deleted.

We heard the parties and perused the material on record. The assessee has purchased property co-owned by 4 persons. The assessee at the time of making payment had deducted tax at source at 1% for 3 of the co-owners who are residents and at 22.88% on the payment made to non-resident co-owner. In the case of one of the co-owners viz., Mrs. Marathasmariam Pillai Scholastica the assessee had made a payment of Rs.1,20,00,000 after deducting the tax at 1% i.e.Rs.1,20,000. The assessee has received an intimation under section 200A of the Act raising a demand of Rs.22,80,000. The assessee in this regard noticed that the demand has been raised for the reason that the seller has not linked the PAN to Aadhar due to which the demand has been raised for 19% short deduction of TDS i.e. 20% less 1%. From the perusal of the tax paid challan (page 25 to 27of PB) we notice that the PAN of the seller is reflecting in the challan and the percentage of TDS is shown at 1%. Therefore there is merit in the contention of the ld AR that the PAN of the seller was not in inactive status and thus the assessee is not aware that the TDS has to be done at 20%. The ld AR during the course of hearing drew our attention to the fact that the seller has filed the return of income including the gain from sale of property and that the seller has linked the PAN to Aadhar on 31.07.2024 by paying a penalty of Rs.1000 (page 89 of PB).

The intention behind making linking of PAN – Aadhar mandatory is to curb tax payers from having multiple PAN for filing return of income and also to track the financial transactions entered into by the assessee vis-à-vis income returned. Multiple circulars have been issued by the CBDT to address the concerns raised with regard to demands raised intimating that the tax payers have committed default of 'short deduction / collection' of TDS/TCS while carrying out the transactions Duraiswamy Balu where the PANs of the deductees / collectees were inoperative. Circular 3 of 2023 dated 28.03.2023 was issued mentioning the consequences of not linking the PAN and Aadhar and one such consequence being deduction of tax at source at higher rate. Circular No.6 of 2024 dated 23.04.2024 stated that for transactions entered into up to 31.03.2024 if the PAN-Aadhar linking is completed by 31.05.2024 then the deductor will not face any consequences even if tax has not been deducted at a higher rate as prescribed for payees with inactive PAN. Circular No.9 of 2025 dated 21.07.2025 further relaxed the compliance for transaction entered into between 01.04.2024 to 31.07.2025 stating that there will not be any consequence in the hands of the payer if the payee updates the PAN-Aadhar linking by 30.09.2025. The circular also provides that for all transactions after 01.08.2025 there is a window of 2 months for the payer to update the PAN-Aadhar and in that case there will not be any consequence towards short deduction in the hands of the payer. The argument of the ld AR is that it is the spirit of the circular that needs to be looked into and it should be considered harmoniously while examining the compliance. In assessee's case the transaction happened before 31.03.2024 and according to Circular No.6, the assessee would get the relief from short deduction provided the seller has completed PAN-Aadhar linking before 31.05.2024. In assessee's case however the seller has complied with the linking only by 31.07.2024. Accordingly the limited question before us is whether the timeline of 31.05.2024 should be applied strictly to assessee's case. From the combined perusal of the CBDT circulars, we notice that the intention behind issuing these circulars is to address the grievance of payers being treated as assessee's in default for deducting tax at a lesser rate. Though specific timelines have been mentioned therein in our considered view, a strict interpretation/application of dates without considering the facts of the case would lead to undue hardship. In assessee's case, we notice that the seller has already filed the return of income offering the gain arising from the impugned transaction and has Duraiswamy Balu already claimed credit for the tax deducted by the assessee to the tune of Rs.1,20,000. It is also noticed that the seller has complied with PAN-Aadhar linking by paying the fees of Rs.1000 on 31.07.2024. Given this factual position, if the revenue's contention of additional TDS is to be accepted, then in our view it would result in unjust enrichment since the seller would not be able to claim credit for the same and the TDS being an additional consideration would once again be subject to tax in the hands of the seller which would become a circular transaction. Further, the introduction of Rule 114AAA of Income Tax Rules 1962 and consequence of failure are introduced, in order to ensure that the tax payer complies with the mandate of linking PAN-Aadhar. We are of the view that the intention of the legislature would not be to put undue hardship on the payer who may not know whether the payee has complied with PAN-Aadhar linking. Though we are mindful of the fact that the buyers are required to verify the status of the PAN of the seller to check if it is active or not, the act of not checking cannot result in a tax demand in the hands of the buyer who has already paid the full consideration towards purchase net of TDS. The ld AR submitted that when the assessee typed in the PAN details of the seller while filling up the challan, was not aware of seller's PAN being inactive since the TDS payment system does not through any error with regard to PAN being inactive. There is also merit in the submission that the lower deduction of tax on the part of the assessee is not an intentional non-compliance since as far as the assessee is concerned the funds outflow is the same amount. Accordingly we are of the view that the spirit of the provisions with regard to short deduction of TDS, in cases of inactive PAN should be considered copiously since the intention is to ensure compliance on the part of the payee to link PAN-Aadhar and not to punish the payer who unintentionally missed to check the status of payee's PAN while making the payment. It is also relevant to mention here that when the legislature through Circular 9 of 2025 intends to extend the time line for linking PAN-Aadhar for Duraiswamy Balu transactions between 01.04.2024 to 31.07.2025, up to 30.09.2025 then it will not be reasonable to hold that for the transactions prior to 01.04.2024 the strict time line of 31.05.2024 should be applied as per the earlier Circular 6 of 2024. In view of these discussions and considering the unique fact of the assessee's case i.e. the seller has already offered the income by paying tax on the impugned transaction and the seller has subsequently linked PAN-Aadhar, we hold that the demand raised against the assessee warrants deletion. We direct the AO accordingly.

In result, appeal of the assessee is allowed.