DEPUTY COMMISSIONER OF INCOME TAX, VISAKHAPATNAM vs. SRI NARASIMHARAJU KANUMURI, VISAKHAPATNAM

आदेश / ORDER PER. RAVISH SOOD, JM: The captioned appeal filed by the Revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals)-10, Hyderabad, dated 20/02/2025, which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) under Sections 201(1)/201(1A) of the Income Tax Act, 1961 (for short “the Act”) dated 28/07/2021 for A.Y. 2017-18. The Revenue has assailed the impugned order on the following grounds of appeal before us:

“1. The CIT(Appeals) erred both in law and on facts of the case in granting relief to the assessee. 2. On the facts and circumstances of the case and in law, whether the CIT(Appeals) is justified in holding that the assessee cannot be deemed to be an assessee in default for failure to deduct TDS u/s.195 for the payment made to non-residents of Rs.56,26,500/- as the non- residents have declared the said income in their returns of income, without appreciating the fact that the payments first proviso to Section 201(1) being immunity clause is applicable to the of made to 'resident' only for the year concerned, whereas in the case the assessee the payments are made to 'non-resident' seller. 3. On the facts and in the circumstances of the case, and in law, whether the CIT(Appeals) is justified in holding that the assessee cannot be deemed to be an assessee in default for violation of TDS provisions in respect of the cash made of Rs,4,16,36,100/- to Sri Sanapala Polinaidu as payment made to 'resident' having the right to get the land registered in his name or his nominees based on the strength of unregistered agreements dated 02.01.2016 and 18.05.2016

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later relied upon, without appreciating the fact that in the registered sale deed dated 17.06.2016 through which the assessee Sri Kanumuri Narasimha Raju had acquired absolute rights over the property from nonresidents Sri Nallu Madhusudhan Reddy and Smt. Nallu Sirisha Reddy, there was no mention of any such unregistered agreements between non-residents Sri Nallu Madhusudhan Reddy & Smt. Nallu Sirisha Reddy and Sri Sanapala Polinaidu or his father-in-law Sri T Taviti Naidu? 4. On the facts and circumstances of the case and in law, whether the CIT(Appeals) is justified in holding that the assessee cannot be deemed to be an assessee in default for violation of TDS provisions in respect of the cash payment made of Rs.4,16,36,100/- to Sri Sanapala Polinaidu as payment made to 'resident' having the right to get the land registered in his name or his nominees without appreciating the fact that Sri Sanapala Polinaidu or his father-in-law Sri T Taviti Naidu are not the legal owners of the property and never enjoyed the ownership rights? 5. On the facts and circumstances of the case and in law, whether the CIT(Appeals) is justified in holding that the assessee cannot be deemed to be an assessee in default for violation of TDS provisions in respect of the cash payment made of Rs.4,16,36,100/- to Sri Sanapala Polinaidu as payment made to 'resident' without appreciating the fact that Sri Sanapala Polinaidu or his father-inlaw Sri T Taviti Naidu are only facilitators of the transaction between the non-residents Sri Nallu Madhusudhan Reddy & Smt. Nallu Sirisha Reddy and the assessee Sri Kanumuri Narasimha Raju and at no point of time they are the legal owners of the property? 6. Any other ground of appeal that may be raised with the prior approval the Hon'ble ITAT during the appellate proceedings.” Also, the assessee is before us as a cross-objector on the following grounds:

“1. The learned Commissioner of Income tax (Appeals) ids justified in cancelling the demand of Rs. 1,46,03,495/- raised by the assessing officer u/s 201(1) of the Act and the demand of Rs. 90,54,167/- raised u/s 201(1A) of the Act.

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Madhusudhan Reddy (NRI vendors): Rs. 56,26,500/-; and (ii). the balance amount of sale consideration paid in cash to Dr. Sanapala Polinaidu, i.e., an agent, who had facilitated the sale transaction: Rs. 4,16,36,100/-.

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dated 18.05.2016 with the resident sellers, i.e., Shri T. Thaviti Naidu and Dr. Sanapala Polinaidu for purchase of 0.925 acres for Rs.4,72,50,000/-; (ii) the resident sellers had earlier entered into an unregistered sale agreement dated 02.01.2016 with the NRIs; (iii) payments made by the assessee (except for Rs.56,26,500/-) were to resident sellers or to the intermediary who had the right to get the land registered in his name or in the name of his nominee, and, thus, such payments were not payments to a non-resident within the meaning of Section 195 of the Act; (iv) the payment of Rs. 56,26,500/- that was made to the NRIs was disclosed by the them in their returns of income wherein they had offered the capital gains as their income and paid the subject taxes on the same, and hence, immunity under the “proviso” to Section 201 was available; and (v) that in any event the TDS provisions under Section 194H, if any, would be relevant for the payments to the resident intermediaries and no obligation was cast under Section 195 of the Act.

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during the course of the survey proceedings and the sworn statements recorded by the Investigation Wing. The AO submitted that as the land originally belonged to the NRIs and that the assessee had admitted the payment of Rs. 4,72,62,600/- to the said NRIs; thus, his predecessor, by rightly observing that section 195 of the Act was attracted on the entire amount, had treated the assessee as being an assessee-in-default under Section 201(1) of the Act.

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property and is not a mere agent nominally receiving amounts on behalf of the non-resident, then no obligation is cast upon the assessee to deduct tax at source under Section 195 of the Act. The CIT(A) further observed that the amount of Rs. 56,26,500/- that was paid by the assessee through cheque in the name of the NRIs was disclosed by the NRIs in their returns of income and brought to tax in their hands. Accordingly, the CIT(A), based on his aforesaid deliberations, quashed the order passed by the A.O U/ss. 201(1)/(1A) and directed the AO to delete the demand so raised in the hands of the assessee by treating him as an assessee-in- default. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under:

“I have gone through the facts of the case, after perusal of the 201 order, written submission, information available in the record, grounds of appeal, the submission of the appellant in the course of appeal proceeding, Remand Report and the appellant's objection to the remand report. The case is being decided ground wise herewith: 6.1 Ground No. 1 and 4 being general in nature are not being adjudicated. 6.2 Ground No. 2 and 3 The grounds raised by the appellant are interlinked and revolve around the action of AO treating the appellant as 'assessee in default' for non-deduction of TDS with respect to payments made for purchase of immovable property, the vendor being NRIs.

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As per the information received from Deputy Director of Income Tax (Inv.) Unit-III(1), Visakhapatnam, the appellant Shri Kanumuri Narasimha Raju purchased land admeasuring 4502.2 Sq. yards (0.925 acres) situated at Vellanki Village, Anandapuram, Visakhapatnam District from Shri Nallu Madhusudhan Reddy & Smt Nallu Sirisha Reedy both non-resident Indians for a consideration of Rs.4,72,62,6000/-. The above information was gathered based on the copies of sale agreements & sale deed gathered and also was based on the admission by the appellant in the sworn statement recorded in the course of Survey proceedings by DDIT on 28.12.2017. The land originally belonged to Shri Nallu Madhusudhan Reddy & Smt Nallu Sirisha Reedy who are NRI's and the total extent of the land in their possession was about 1.44 Acre. The appellant admitted in the statement that the land admeasuring 0.925 acres was purchased for Rs.4,72,62,600/- by him and out of which an amount of Rs.56,26,500/- was paid through Bank of Baroda cheques issued in the name of Shri Nallu Madhusudhan Reddy and the balance amount of Rs.4,16,36,100/- was paid in cash to Shri Sanapala Polinaidu, the one who facilitated the transaction. During the course of survey, in the deposition of Shri Sanapala Polinaidu in his sworn statement recorded on 17.09.2017 before DDIT Visakhapatnam, stated that Shri Nallu Madhusudhan Reddy and Smt Nallu Sirisha Reddy entered into an unregistered sale agreement dated 02.01.2016 with Shri T Taviti Naidu (father-in-law of Shri Polinaidu) for sale of 1.32 Acres of land for a sale consideration of Rs.4,73,00,000/-. Subsequently, based on the strength of that agreement, Shri T Taviti Naidu entered into another agreement with the appellant for sale of 0.925 acres or 4500 Sq yards for Rs.4,72,50,000/-(4500 Sq yds @ Rs.10,500/-). It was this 0.925 acres of land which was registered in the name of appellant vide Doc No. 2955/2016 for a registered value of Rs.56,26,500/-. The registration deed was signed by Shri Nallu Madhusudhan Reddy and Smt Nallu Sirisha Reddy and the consideration of Rs.56,26,500/- was paid through cheque drawn on Bank of Baroda. Further, another transaction with Document No. 2954/2016 was registered in the name of Shri Sanapala Polinaidu for the remaining land admeasuring 39 Cents with the registered value of Rs.23,60,000/-. When asked about the source, Shri Sanapala Polinaidu submitted that it was from the commission earned out of the land transaction he facilitated towards the purchase of land by the appellant

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and as stated by him the profit over the transactions had been admitted as income in his return of income. In the course of appeal proceedings, the appellant produced the unregistered agreement of sale entered into on 02.01.2016. On a careful perusal of the same, it is understood that the vendors, Shri Nallu Madhusudhan Reddy and Nallu Sirisha Reddy had agreed to sell immovable property being land situated in Vellanki village admeasuring Acres 1.44 Cents for an agreed consideration of Rs.4,70,00,000/-. In the Agreement of sale, the vendor acknowledges the receipt of advance amount of Rs.10,00,000/- in cash at the time of signing the Agreement in which it is also noticed that as per clause 3, it is specifically mentioned that the vendor shall register the land in favour of the vendee or his nominee. On strength of the un-registered agreement of sale dated 04.01.2016, Shri T Taviti Naidu entered into an another agreement of sale with the appellant on 18.05.2016 for sale of land admeasuring 0.925 Acres. On perusal, in the agreement of sale a receipt of Rs.40,00,000/- as advance is also acknowledged by Shri T Taviti Naidu. The total sale consideration agreed was @ 10,500/- per Sq yards for 0.925 Acres or 4500 Sq. yards as per the agreement. Furtherance to this advance, based on the agreement, the appellant has paid cash on various occasions to Shri Sanapala Polinaidu so that to get the land to the extent of 0.925 Acres registered in his name totaling an amount of Rs.4.16 Crores. It is to be mentioned for the sake of clarity that the amount of Rs.4.16 Crore was paid by the appellant to Shri Sanapala Polinaidu based on the sale agreement dated 18.5.2016. However, it is Shri Sanapala Polinaidu who have made the payments to Shri Nallu Madhusudhan Reddy and Smt Nallu Sirisha Reddy as per the agreement dated 4.1.2016, so that to fulfill the terms of agreement and to get the land registered in his name and his nominee, viz., the appellant in this case, and these facts are emanating from the sworn statement of Shri Sanapala Polinaidu dated 3.1.2018 under section 131 with the DDIT(Vizag). Hence as per the terms of the sale agreement dated 4.1.2016, in this case his nominee, the appellant got 0.925 acres and Shri Sanapala Polinaidu, himself got registered in his name to an extent of 0.39 Acres for a registration value of Rs.23,60,000/-, however with the total cash payment of Rs. 4.16 Crores to Shri Nallu Madhusudhan Reddy and Smt Nallu Sirisha Reddy, though sourced from the receipt of the appellant. Hence the appellant's claim that only Rs.56,26,500/- was paid to the NRI and the balance of Rs.4,16,36,500 was paid to Shri Sanapala

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Polinaidu, a resident in cash for facilitating the property transaction who was in possession of right to get the land registered on his name or his nominees and hence section 195 is not applicable in his case is valid and accordingly to be allowed. In this regard the decision of the Honourble Chandigarh ITAT in the case of Rakesh Chauhan v. Deputy Director of Income-tax (International Taxation) [2010] 128 TTJ 116 (Chandigarh) can be of much relevance as it is more akin to the facts of the case on hand. The relevant portion of the decision is as under: “5. We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. We find in the case before us that the payment has been made to an individual resident in India i.e., Shri Paramjit Singh. This payment has been made in respect of purchase of land which belongs to the non-residents but the rights therein were assigned unequivocally to the power of attorney holder. The agreement has been entered into with the power of attorney holder and it is not a case that the payment has been made to Shri Paramjit Singh as a representative nominated by the nonresident. No doubt, when non resident himself nominates a particular agent to whom payment should be made and pursuant to that direction, the assessee pays the sum to the agent so nominated, the provisions of s. 195 of the Act will apply, in view of this legal position set out by the Hon'ble Bombay High Court's judgment in Narsee Nagsee & Co.v. CIT [1959] 35 ITR 134 (Bom.) but the facts before us are materially different in as much as by way of power of attorneys executed by the co-owners of the land, the rights in the land were admittedly assigned to the power of attorney holder. In these circumstances, the power of attorney holder was not merely acting as an agent of the non-residents to receive money but as a person who had the right to alienate the land by the virtue of rights vested in him by the power of attorneys signed by the coowners. There is no dispute that Shri Paramjit Singh had the right to sell the, land in question. The question of TDS under s. 195 will only arise when payment is made by the said Shri Paramjit Singh to the actual owners of land sold. There is no ambiguity about the legal position insofar as in the question as to whether the payments to the resident can be covered by s. 195 of the Act. This section only applies to payments which are made to non-residents. Under these circumstances, unless the Revenue can demonstrate that the resident has only acted as an agent to receive the money at the instruction of non-residents as was the case before the Hon'ble Bombay High Court in Narsee Nagsee & Co. (supra), the provisions of s. 195 cannot be

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invoked. A Co-ordinate Bench of this Tribunal in Tecumesh Products (I.) Ltd. v. Dy. CIT [2007] 13 SOT 489 (Hyd.), has even held that when a payment is made to resident even on behalf of the non-resident, the provisions of s. 195 of the Act do not apply. If such be the esteemed views of a Co-ordinate Bench, it is futile to suggest that merely because payment is made to a resident, in respect of a property which has legal ownership by non- residents, the provisions of s. 195 of the Act will apply. In view of this discussion and bearing in mind entirety of the case, we are of the considered view that the payment of Rs. 13.12 lakhs made by the assessee to Shri Paramjit Singh, on the facts of this case cannot be considered as payment made to non-resident and, accordingly, s. 195 of the Act does not come into play. We, therefore, quash the impugned tax withholding demand and hold that the assessee cannot be treated as an assessee in default under ss. 201 and 201(1A) of the Act. The assessee gets relief accordingly. “ In the present case also, looking at the totality of facts, the payment of Rs. 4.16 Crores was made by the appellant to Shri Sanapala Polinaidu based on the terms of agreement dated 18.5.2016, who was having the right to get the land registered in his name or his nominees on that date based on the strength of the agreement dated 4.1.2016 and he being a resident the transaction is not attracted with the provisions of section 195. It is the fact that Shri Sanapala Polinaidu who actually paid that cash to the NRI vendors. Hence the appellant cannot be treated as assessee in default for that payment, when there is no contradictory fact or evidence brought by the AO on record to disprove the submissions of the appellant in consideration of the statements u/s 131 given and the agreements, sale deeds gathered by the department. Now coming to the sale transaction of the appellant, the appellant vide Doc No. 2955/2016 on 17.06.2016 purchased 4500 Sq. yards of land from Shri Nallu Madhusudhan Reddy and Nallu Sirisha Reddy directly as the registered deed is silent about the unregistered agreement of sale dated entered by Shri T Taviti Naidu on 02.01.2016 with the vendors Shri Nallu Madhusudhan Reddy and Nallu Sirisha Reddy. The sale consideration amounting to Rs.56,26,500/- was paid through cheques to the vendors. The sellers being NRI the appellant was under obligation to deduct TDS @ 30% on the sale consideration paid. However, the appellant did not deduct the TDS on the payment made to the NRI for the purchase of property. In view of the facts of the case even if the appellant is to be held as 'assessee in default' the

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quantum should have been restricted to Rs.56,26,500/- i.e., the payment made to the NRI by the appellant. However, in the course of survey proceedings and in the course of 201 proceedings, the appellant furnished the copies of returns of Shri Nallu Madhusudhan Reddy and Smt Nallu Sirisha Reddy for AY 2017- 18 along with the statement of Income evidencing the admission of capital gains on the immovable property transaction entered into with the appellant. It is pertinent to mention here that the appellant filed his return of income declaring total income of Rs.4,31,46,200/- on 29.03.2018 offering income from Other Sources and House Property in addition to agricultural income of Rs.7,94,923/-. Subsequently the return was selected for Complete Scrutiny under CASS and the AO completed the assessment u/s 143(3) and determining total assessed income of Rs.4,31,46,200/- by taking Rs.4,17,00,000/- towards income u/s 69A of the Act, 1961. The appellant preferred an appeal against the 143(3) order before CIT Appeal and the CIT Appeal allowed the appeal vide order dated 18.09.2020. Further the department filed an appeal before ITAT against the relief granted by CIT (Appeal). The Honble ITAT vide order in ITA No. 63/Viz/2021 dated 08.09.2021 dismissed the department's appeal. In view of the facts of the case and the sequence of events as narrated above the appellant had paid an amount of Rs.56,26,500/- as sale consideration for purchase of property vide Doc No 2955/2016 dated 17.06.2016 for purchase of land admeasuring 0.925 cents to Shri Nallu Madhusudhan Reddy and Smt Srisha Reddy. The seller being NRI, the appellant was under obligation to deduct TDS on payments made to the NRI's @ 30% of the sale consideration paid. As the appellant did furnish the ROI and Statement of Income of Shri Nallu Madhusudhan Reddy evidencing the admission of the capital gains arising out of property transaction before the AO. Further with regard to the payment of Rs. 4.16 Crores, it was not part of the sale deed and as per the agreements in connection to that sale deed, since it was paid to the resident, respectfully following the decision of Chandigarh ITAT which relied on the decision of Hon'ble Jurisdictional ITAT in the case of Tecumesh Products (I.) Ltd. v. Dy. CIT[2007] 13 SOT 489 (Hyd.), the appellant cannot be held as 'assessee in default' for violation of TDS provisions. Accordingly the proceedings u/s 201(1) and the order 201(1A) has no merit and the order dated 28.7.2021 is quashed. Accordingly the AO is directed to delete the demands raised. Hence, the ground No 2 and 3 are allowed. 7. To sum up the appeal is allowed.”

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intermediary; and (e) the NRIs had filed their returns of income in which the capital gains arising on the registered sale consideration was offered for tax.

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disclosed the “capital gains” arising on the said transaction in their returns of income and paid the corresponding tax liability tax. As the “1st proviso” to section 201(1) of the Act provides relief where the payee had filed the return of income and paid the corresponding tax liability, therefore, under these circumstances, no further liability can reasonably be fastened on the assessee by treating him as an assessee-in-default in respect of the payment of Rs. 56,26,500/-. We, thus, in terms of our aforesaid deliberations, are of the view that no liability could have been saddled upon the assessee for the entire amount of sale considerations of Rs. 4.72 crores (approx.).

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Accordingly, finding no infirmity in the order passed by the CIT(A), we uphold the same.

Order pronounced in the open court on 13th October, 2025.

Sd/- Sd/- (BALAKRISHNAN S.) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 13th October, 2025 *OKK / SPS

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Copy to:

S.No Addresses 1 Sri Narasimharaju Kanumuri, D.No. 50-1-23/46, F.No. 202, KSR Complex, Seethammadhara, Visakhapatnam, Andhra Pradesh – 530013. 2 Deputy Commissioner of Income Tax, International Taxation Circle, Ground Floor, Infinity Tower, Sankaramattam Road, Visakhapatnam, Andhra Pradesh – 530016. 3 The Pr.CIT, Visakhapatnam 4 The DR, ITAT Visakhapatnam Bench 5 Guard File