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Judgment
PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:
The above-captioned appeal is preferred by the assessee against the order dated 22.01.2026, passed by the Learned Commissioner of Income Tax (Appeals), Addl./JCIT(A), Panaji (hereinafter referred to as ‘ld. CIT(A)’) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), arising out of the rectification order dated 31.07.2025 passed by the DCIT, TDS, Ghaziabad for A.Y. 2024-25.
The ground of appeals raised by the assessee are as under:
“1.The assessee acted in full compliance with Section 194IA by deducting and depositing TDS at 1% of the sale consideration, using the sellers' valid PAN as declared by the seller at the time of transaction in good faith and belief. Further at the time of filing of the prescribed form 26QB the income tax portal has not been restricted the filing the form 26QB due to inoperative etc.
2.The seller paid the prescribed fee for PAN-Aadhaar linking on 27.10.2023, before the property transaction date i.e 28.12.2023, and made a diligent attempt to effect the linking; non-linkage only occurred due to a technical fault in the Income Tax portal, which is beyond the assessee's control.
3.Penalizing the assessee due to circumstances arising from technical errors at the end of department inflicts undue hardship, contravening the principle of natural justice. The assessee should not be penalized where he has acted bona fide and followed the law. The Assessee was not aware regarding the process of checking the status of PAN etc. and the implication, if the PAN is inoperative. The Assessee has paid the entire amount of transaction against the sale of the property after deduction of 1% TDS as per applicable law. The Demand so raised due to the non-compliance on the part of seller should not be penalized to the Assessee (purchaser)
4.The learned Commissioner of Income Tax (Appeals) have erred in law and on facts in sustaining the impugned demand without appreciating that there is no loss of revenue to the Government. inasmuch as the tax deducted at source has already been duly deposited and the corresponding income has been duly offered to tax by the deductee. The authorities below have further failed to consider that the alleged default has arisen merely on account of technical issues relating to PAN-Aadhaar linkage, despite the deductee having made bona fide efforts and having paid the prescribed statutory fee prior to the transaction, and therefore, the action of raising and sustaining the demand is arbitrary, unjustified, and contrary to the settled principles of fairness in tax administration. It is further submitted that as per CBDT Circular No. 14 of 1955 dated 11.04.1955, the officers of the Department are duty-bound to assist taxpayers in every reasonable manner and not to take advantage of their ignorance regarding legal provisions or procedural compliances, particularly in matters relating to legitimate reliefs, and hence, the impugned action being contrary to the spirit of the aforesaid circular as well as the principles of equity and natural justice is liable to be set aside.
5.The rectification order under Section 154 of the Income Tax Act, 1961 suffers from non-application of mind as it fails to take into account the actual compliance, documentary evidence of fee payment. and the technical reasons behind non-linkage, hence liable to be quashed.
6.Without prejudice to the other grounds, the learned CTT (Appeal) erred in not granting relief to the Assessee despite the fact that Form-26A, duly certified by a Chartered Accountant, had been furnished, confirming that the deductee has included the relevant income in her Return of Income and has paid the taxes due thereon, thereby satisfying the conditions prescribed under the first proviso to Section 201(1) of the Income-tax Act, 1961. Accordingly, the Assessee cannot be treated as an assessee in default and the demand raised is liable to be deleted."
7.The learned CIT (Appeal) erred in law and on facts in failing to consider the documentary evidences submitted by the Assessee, including Form-26A and supporting documents evidencing payment of taxes by the deductee, thereby rendering the impugned order bad in law due to non-consideration of relevant material.
8.The impugned order is liable to be set aside as the same has been passed without properly appreciating the evidences on record, including Form-26A, and without granting effective relief despite fulfillment of statutory conditions, thereby violating the principles of natural justice.
9.The Assessee craves leave to add, alter, amend, modify or withdraw any of the grounds of appeal at or before the time of hearing, and to submit such further evidence, documents, and legal submissions as may be necessary for the proper adjudication of the present appea
Prayer
In view of the facts and circumstances of the case, and the grounds of appeal urged herein, it is most respectfully prayed that the Hon'ble Tribunal may kindly be pleased to set aside the order passed by the learned Commissioner of Income Tax (Appeals) and delete the demand raised against the Assessee on account of alleged short deduction of tax under the provisions of the Income-tax Act, 1961.
It is further prayed that the Assessee may kindly be held not to be an 'assessee in default' in terms of Section 201(1) of the Act, in view of the compliance made and the Form-26A furnished.
Any other relief which this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the case may also kindly be granted."
Brief facts of the case are that the during the relevant previous year, the Assessee purchased a residential immovable property for a total consideration of Rs. 59,40,000/- from two joint owners, namely Smt. Shashi Rishi (PAN: AEMPR4295J) and Sh. Kewal Rishi (PAN: AAMPR2458M) in pursuant to an agreement dated 29.11.2023, and the entire sale consideration was paid on 28.12.2023 to the respective sellers. The AO found that there was short deposit of TDS so deducted, and therefore the AO vide a Rectification Order under Section 154 dated 31.07.2025, invoked the provisions of Section 206AA and raised a demand of Rs. 6,77,160/- by applying a higher rate of TDS. Upon appeal, the learned CIT(A) vide order dated 22.01.2026, dismissed the appeal.
Aggrieved, the assessee is before us. The ld counsel of the assessee submitted that at the time of making payment of the sale consideration, the Assessee duly deducted tax at source @1% on the amount payable to the sellers in compliance with the provisions of Section 194-IA of the Income-tax Act, 1961. The tax was deducted separately for each joint owner as per their respective share in the property. The tax so deducted was duly deposited with the Government treasury within the prescribed time through Form 26QB. However, in respect of the joint owner Smt. Shashi Rishi (PAN: AEMPR4295J), the PAN was found to inoperative which resulted in the system showing short deduction of TDS. The ld AR stated that the Assessee had correctly quoted the PAN of the deductee and deposited the tax accordingly which was accepted by the Department's system.
The ld AR submitted that the Assessee has subsequently obtained Form-26A, duly certified by a Chartered Accountant, namely CA Vinesh Kumar Maheshwari (Membership No. 098645), vide certificate dated 14.01.2026 which confirms that the deductee has duly included the income arising from the property transaction in her Return of Income. It further certifies that the entire tax liability on such income has been discharged. The deductee, Smt. Shashi Rishi, has filed her Return of Income, and has duly reported the income from the said transaction. The Assessee has also submitted all necessary supporting documents before the Department, including the return of income, computation, and Form-26A. Accordingly, the conditions prescribed under the first proviso to Section 201(1) stand fully satisfied and the Assessee cannot be treated as an assessee in default.
The ld AR relied on the following precedents:
Mrs. Bela Rohit Shah v. ACIT, CPC-TDS, ITA No. 409/Mum/2026, ITAT Mumbai, order dated 15.05.2026 Sanchit Gupta v. DCIT, CPC-TDS, Ghaziabad, ITA No. 8431/Del/2025, ITAT Delhi, Order dated 21.05.2026 CIT v. Rishikesh Apartments Co-operative Housing Society Ltd., (2002) 253 ITR 310 (Gujarat High Court), Judgment dated 14.06.2001 Duraiswamy Balu v. ITO, ITA No. 1335/Chny/2025, ITAT Chennai, Order dated 31.07.2025 Hindustan Coca Cola Beverage (P.) Ltd. v. CIT, (2007) 293 ITR 226 (SC)
Per contra, the ld DR relied on the order of AO/CIT(A).
We have heard the rival submissions and have perused the materials on record. We find that it is an undisputed fact that the assessee had duly deducted TDS from consideration paid to both the sellers. It is further unrebutted fact that the tax so deducted was duly deposited with the Government treasury within the prescribed time through Form 26QB. We also find that one of the seller, Smt. Shashi Rishi, had supplied her PAN which was later found to be inoperative. We further find that the Assessee’s has subsequently obtained Form-26A, from Smt. Shashi Rishi, duly certified by a Chartered Accountant, confirming that the deductee has duly included the income arising from the property transaction in her Return of Income and the entire tax liability on such income has been discharged, has not be rebutted. We therefore are of the opinion that the assessee fulfils the conditions prescribed under the first proviso to Section 201(1) and can’t be held as assessee in default. We also find that the seller subsequently regularized the PAN, has also discharged the tax liability, duly evidenced by Form 26A. Following the ratio laid down by the Hon'ble ITAT, Mumbai, in Mrs. Bela Rohit Shah v. ACIT, CPC-TDS, (supra), Sanchit Gupta v. DCIT, CPC-TDS, Ghaziabad, (supra), we hold that the demand raised by invoking Section 206AA is unsustainable in law and is deleted.
Though, we have deleted the demand on merits, we also would like to state that, in the instant case, levying a higher rate, u/s 154 of the Act itself is bad in law. The factual and legal aspect such as examination of the subsequent status of PAN, linkage of PAN-Aadhaar of deductee, the assessee furnishing Form No.26QB, and Form 26A by the deductee require detailed examination and adjudication. These issues cannot be considered as mistakes apparent from the record amenable to rectification under the provisions of Section 154. On this ground also the order u/s 154 of the Act fails the judicial scrutiny.
In the result, the appeal of the assessee in ITA 3005/Del/2026 is allowed.