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Facts
The assessee purchased an immovable property for Rs. 2.30 crores from Mrs. Sabera Attari, deducting TDS at 1% based on documents suggesting the seller was a resident Indian. However, the seller was a Non-Resident Indian (NRI), liable for 20% TDS, leading the AO and CIT(A) to declare the assessee as an "assessee in default" for short deduction.
Held
The Tribunal ruled that the assessee, a bona fide purchaser, was misled by the seller's documentation and genuinely believed the seller was a resident. Consequently, the assessee acted in good faith and cannot be treated as an "assessee in default" under Sections 201(1) and 201(1A) for the lower TDS deduction.
Key Issues
Can an assessee be held liable as an "assessee in default" for short deduction of TDS on property purchase from a non-resident, if they were misled by the seller's furnished documents into believing the seller was a resident Indian?
Sections Cited
201(1), 201(1A), 195, 191
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
करदाताका��त�न�ध�व/ : Ms. B. Suchiri, Advocate Assessee Represented by राज�वका��त�न�ध�व/ : Shri Waseem UR Rehman, Sr. AR Department Represented by सुनवाईसमा�तहोनेक��त�थ/ : 04/12/2025 Date of Conclusion of Hearing घोषणा क� तार�ख/ : 17/12/2025 Date of Pronouncement ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the assessee is directed against the order passed by the Additional/Joint Commissioner of Income Tax (Appeals)-2, Mumbai, dated 15/07/2024, which in turn arises from the order passed by the ADIT (International Taxation)-1, Hyderabad under Section(s) 201(1) & 201(1A) of the Income Tax Act, 1961 (for short, “the Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. Act”), dated 04/03/2023 for the Assessment Year (AY) 2022-23. The assessee has assailed the impugned order of the CIT(A) on the following grounds of appeal:
1. The Respondent/Appellate authority ought to have considered that the seller is a resident of India which is evident from the contents of the sale deed as well as the identity proofs filed by the seller before the Sub-Registrar, Medchal. That the seller, for the first time has shown the property details in Long Term Capital gain while filing her returns. The seller never disclosed that she is a non-resident of India during the entire transaction. The Respondent/Appellate authority erred in appreciating the documents filed by the seller before the sub- registrar at the time of registration, as she has never furnished her residence details/passport/visa outside India. Based on the documents provided by the seller, the appellant has rightly deducted the TDS 1 percent towards the sale consideration. That, the Respondent ought to have appreciated that only on the pretext of the seller declaring as non-resident of India, the same has come to the notice of the A.O., but not earlier. So, the seller has failed to disclose this information to the seller at any point of time during the sale transaction. Hence, the levy of 20% towards the difference of TDS is untenable 2. The Respondent/appellate authority, in the assessment order, erred in misinterpreting the residence status of the seller by observing as under Further her Indian Passport copy altached with the sale deed, indicates that her passport was issued from "Washington DC", and this document is available with the purchaser. Hence, the appellant was aware the seller is non-resident and has failed to deduct as per the provisions of 195(1). In fact, the said documents that are referred to by the Respondent are filed by the appellant herein and the Indian passport bearing No. UO255997 got issued to me an 15.10.2020, Le., during COVID-19 Pandemic at Washington DC, and also the VISA bearing No. 20212991300005 was issued to me and hence both the documents that are referred in the impugned order as been filed by the seller is denied and false. The contention of the Respondent that the appellant was aware of the residence status is false and baseless, and in fact is proven false based on the documents furnished by the seller.
3. The AD in the assessment order dated 04.03.2023 has stated in para no. 2 of the said order that the seller is a non-resident of India (resident of Oman) and the said fact is only based on the returns filed by the seller and thus are not supported by any other evidence of documentary proof submitted by the seller. The Assessing Authority has erred in taking a different view regarding the residential status of the seller in the assessment order passed by at different stages of the Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. proceedings. Hence, the fact that the seller is non-resident of India is neither proved nor correct 4. Appellant prays to amend or alter the grounds of appeal
before it is disposed of 5. Any other ground or grounds may be urged at the time of hearing of the appeal. Hence, the appeal may be allowed.”
Succinctly stated, the ADIT (Internation Taxation)-1, Hyderabad (for short, “AO”) observed that as per the information available on record, the assessee in the month of March, 2022 had paid an amount of Rs.2.30 crores towards purchase consideration for an immovable property, i.e., a Flat/Villa in 232, Village Gundlapochampally, Medchal Mandal, Medchal-Malkajgiri Distgrict, T.S to one Mrs. Sabera Attari (PAN: BMYPA0985P), i.e., the seller, as per the terms of a sale deed registered with the SRO, Medchal (RO), vide Document No.3919/2022, dated 15/03/2022.
The AO observed on a perusal of the registered sale deed, it stood revealed that the seller, viz. Mrs. Sabera Attari (supra) was a Non-Resident Indian (Resident of OMAN). The AO observed that though the assessee had made the subject payment of Rs. 2.30 crores towards purchase consideration to a non-resident Indian (NRI), but, as against its liability to deduct tax at source (TDS) @ 20% on the subject purchase consideration, had withheld the tax at source only @ 1% on the said amount. Also, the AO observed that the assessee had not Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. applied for a certificate for a lower deduction of tax at source. Accordingly, the AO holding a conviction that as per section 201(1)/201(1A) of the Act, the assessee having short deducted the tax at source on the subject purchase consideration paid to the seller, i.e., a non-resident, was to be held as an “assessee in default”, thus, called upon her to put forth her explanation on the said issue. In reply, it was submitted by the assessee that as per the details furnished by the seller, viz., Mrs. Sabera Attari (supra), she had remained under the bona fide belief that the said seller was a resident and, thus, tax at source on the purchase consideration was to be deducted @ 1%. However, the AO did not find favour with the explanation of the assessee. It was observed by him that the income tax return of Mrs. Sabera Attari (supra), i.e., the seller, for AY 2022-23, revealed that she was a non-resident, which fact was thereafter confirmed by her vide her reply, dated 22/02/2023. Apart from that, the AO observed that Mrs. Sabera Attari (supra) had filed her return of income for AY 2022-23, wherein she had disclosed the long-term capital gains (LTCG) on the sale of the property under consideration.
The AO based on the aforesaid facts held a firm conviction that as the assessee had failed to deduct tax at source on the payment made to Mrs. Sabera Attari (supra), i.e., a non-resident seller of the property as was required per the mandate of section 195 of the Act, i.e., Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. @ 20% of the purchase consideration, therefore, she was to be considered as an “assessee in default” within the meaning of sections 201(1)/201(1A) of the Act. Accordingly, the AO held the assessee as an assessee-in-default and raised a demand against her towards tax and interest, viz., (i) under section 201(1) of the Act: Rs. 45,54,000/-; and (ii) towards interest payable under section 201(1A) of the Act: Rs. 4,55,400/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success. For the sake of clarity, the observations of the CIT(A) are culled out as under:
“6. DECISION The main ground of appeal is the demand raised u/s 201(1)/201(1A) on account of deducting tax at the rate of 1% instead of 20.8% as per Sec 195 as the seller is a non-resident. The AO observed that the appellant had paid Rs.2,30,00,000/- in the month of March 2022, towards purchase consideration for immovable property i.e. flat, to the owner Mrs. Sabera Attari (PAN: BMYPA0985P). The said sale deed was registered with the Sub-Registrar Medchal (R.O), vide Document No. 3919/2022, dt 15-03-2022. The appellant paid consideration of Rs.2,30,00,000/- to a non-resident (towards purchase immovable property, mentioned in para 1 above); and, such sum is chargeable to tax under the provisions of the Income Tax Act, 1961. As such, the assessee was under obligation to deduct tax u/s.195 while paying the said sum to the non-resident. The assessee has deducted TDS @ 1% on above consideration to the tune of Rs.2,30,000/- whereas as per the provisions of Sec. 195 assessee is liable to deduct the TDS@20%. Assessee neither deducted TDS@20% nor applied for Lower deduction certificate as per the office records. Hence the AO proceeded to work out interest u/s 201(1A) of Rs 4,55,400 for default u/s 201(1). During appellate proceedings the appellant stated that at the time of sale, the appellant had the Aadhaar and PAN card of the seller which had the Indian address of the seller. Further the sale deed signed by both the appellant and the seller in front of the Sub Registrar indicates that the seller is resident in India as it shows her Indian address (Tirumalgiri, Manovikas Nagar, Hyderabad, Telangana).
Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. The submissions of the appellant were perused. It is seen that the seller had furnished her return for AY 2021-22 disclosing here status as non-resident. Further her Indian Passport copy attached with the sale deed, indicates that her passport was issued from "Washington, DC", and this document is available with the purchaser. Hence the appellant was aware the seller is non-resident and has failed to deduct tax as per the provisions of 195(1). 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head salaries, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever, is earlier, deduct income tax there on at the rates in force". The Appellant paid Rs.2,30,00,000/- to a non-resident towards purchase consideration of immovable property, and, such sum is chargeable to tax under the provisions of the Income Tax Act, 1961. As such, the Appellant was under the obligation to deduct tax u/s.195 while paying the said sum to the non-resident. The Appellant has deducted TDS @ 1% on above consideration to the tune of Rs.2,30,000/- whereas as per the provisions of Sec. 195 Appellant is liable to deduct the TDS@20%. The appellant having defaulted in deducting tax at the rates. prescribed, no interference is called for to the order of the AO. The ground of appeal is dismissed.”
6. The assessee aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
Ms. B. Suchiri, Advocate, the Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the lower authorities without properly Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. appreciating the facts of the case had grossly erred in treating the assessee as an “assessee in default” under section(s) 201(1)/201(1A) of the Act. Elaborating on her contention, the Ld. AR submitted that as Mrs. Sabera Attari (supra), i.e., the seller of the property had at the time of executing the registered sale deed, dated 15/03/2022 by drawing support from her Aadhar Card, PAN Card and the Indian address that was provided by her, projected herself as a resident Indian, therefore, the assessee had no reason to doubt the correctness of her claim and infer that she was a resident Indian. The Ld. AR to buttress her aforesaid contention had drawn our attention to the registered sale deed, dated 15/03/2022, which revealed, viz., (i) that the seller, i.e., Mrs. Sabera Attari (supra), had given her residential address as “R/o. Flar No.204, SMR Majestic Jupiter Colony, Sikh Road, Secunderabad, Tirumalagiri, Hyderabad, Manovikasnagar, T.S”. Apart from that, the seller had provided her Aadhar No: 6265 3625 2273 and PAN: BMYPA0985P. Elaborating further on her contention, the Ld. AR submitted that in the course of the proceedings before the CIT(A), it was the copy of the assessee’s passport that was issued from “Washington DC” attached with the registered sale deed that was filed with the AO. The Ld. AR submitted that the CIT(A) had grossly erred in misconceiving the correct factual position and losing sight of the fact that the copy of the passport enclosed along with the sale deed was that of Ms. Neelam Maheswari, i.e., the assessee, wrongly observed Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. that the same was that of the seller, i.e., Mrs. Sabera Attari. The Ld. AR to dispel all doubts regarding her aforesaid contention had drawn our attention to the copy of the registered sale deed, which revealed that the assport that was issued by the “Washington DC” was that of the assessee and not of the seller, i.e., Mrs. Sabera Attari. The Ld. AR submitted that though Mrs. Sabera Attari (supra) in her return of income had disclosed her residential status as that of a non-resident Indian (NRI) but the said fact till the said date was neither disclosed by her nor was in the knowledge of the assessee.
Carrying her contention further, the Ld. AR submitted that as the assessee by acting upon the details/documents filed by Mrs. Sabera Attari, i.e., the seller at the time executing the registered sale deed, that she was a Non-Resident Indian, had remained under a bona fide belief that she was a resident Indian, therefore, for the said reason deducted tax at source on the subject payment @ 1% i.e., the rate applicable for payment to resident Indians. The Ld. AR submitted that based on the aforesaid facts, the assessee cannot be held to be an “assessee in default” under section(s) 201(1)/201(1A) of the Act. The Ld. AR to buttress her contention had relied upon the order of the ITAT, Delhi “D” Bench in the case of Shri Ajay Dudeja vs. ITO, International Taxation, Gurgaon in to 1139/Del/2020, dated 06/10/2023. The Ld. AR submitted that the Tribunal in its aforesaid order, wherein identical Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. facts were involved, had held that the assessee before them who had remained under a bona fide belief that the seller was a resident Indian, could not be treated as an “assessee in default” under the provisions of section(s) 201(1)/201(1A) of the Act.
Per contra, Shri Waseem UR Rehman, the Learned Senior Departmental Representative (for short, “Ld. Sr. DR”), relied upon the orders of the authorities below.
The Ld. Sr. DR on a specific query by the Bench that now when it is a matter of fact discernible from the record that Mrs. Sabera Attari (supra), i.e., the seller had filed the return of income for the subject year, i.e., AY 2022-23, then as per the “Explanation” to section 191 of the Act, how the assessee could be treated as an “assessee in default” under section(s) 201(1)/201(1A) of the Act, the Ld. Sr. DR submitted that as the AO (TDS) is only required to see as to whether or not there is any infraction of the provisions of deduction of tax at source (TDS) by the assessee, therefore, as she had failed to deduct tax at source on the payment made to the non-resident for purchase of property as per section 195 of the Act, therefore, no infirmity emerges from treating her as an assessee-in-default under section(s) 201(1)/201(1A) of the Act.
We have thoughtfully considered the contentions advanced by the Learned Authorised Representatives of both parties in the backdrop of the orders of the authorities below.
Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad.
Admittedly, it is a matter of fact discernible from the registered sale deed, dated 15/03/2022, that the seller of the property, viz., Mrs. Sabera Attari, had provided her Indian address along with her Aadhar Card and PAN Card, i.e., Aadhar No: 6265 3625 2273 and PAN: BMYPA0985P. We concur with the Ld. AR that, now when, the seller at the time of executing the registered sale deed had provided her Indian credentials, i.e., residential address, Aadhar Card and PAN Card, therefore, the assessee could have no reason to doubt the same and infer that the said seller was a non-resident Indian. We, thus, are of the considered view that as the assessee had not only remained unaware, but in fact was misled by the seller, viz., Mrs. Sabera Attari (supra), an NRI, about her residential status, and had in good faith acted upon the details/documents provided by the said seller and deducted tax at source @ 1%, i.e., the rate applicable for payments made for purchase of property from a resident Indian, therefore, she cannot be held to have willfully deducted tax at source at a lower rate.
Considering the aforesaid facts, we are of a firm conviction that the assessee, i.e., a bona fide purchaser, cannot be treated as an “assessee in default” and thereafter saddled with the tax/interest liability under section(s) 201(1)/201(1A) of the Act. Our aforesaid view is fortified by the order passed by the coordinate Bench of the Tribunal in the case of Shri Ajay Dudeja and others vs. Income Tax Officer, Neelam Maheswari vs. ADIT(Int Taxn)-1, Hyderabad. International Taxation, Gurgaon in to 1139/Del/2020, dated 06/10/2023. Accordingly, we herein set aside the CIT(A) order and direct the ADIT (International Taxation)-1, Hyderabad, to vacate the demand raised against the assesse under Section(s) 201(1) & 201(1A) of the Income Tax Act, 1961 by treating her as an assessee-in-default.
Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 17th December, 2025. S SdSd/-- Sd/- Sd/- (मधुसूदन साव�डया) (रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखासद�य/ACCOUNTANT MEMBER �या�यकसद�य/JUDICIAL MEMBER d/- Sd Hyderabad, dated 17.12.2025. OKK/sps आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to:- 1. �नधा�रती/The : Neelam Maheswari, 1-1-58-59/1, Srinath Compl, Kalasiguda, Hyderabad, Telangana- Assessee 500003. 2. राज�व/ : ADIT (Int – Taxn)-1, Hyderabad. The Revenue 3. The Principal Commissioner of Income Tax, Hyderabad. 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण /DR,ITAT, Hyderabad.