Case Law Details
Sanchit Gupta Vs DCIT (ITAT Delhi)
Summary: The ITAT Delhi restored to the Assessing Officer the issue relating to higher TDS demand raised under Section 206AA read with Rule 114AAA(3) due to non-linking of the seller’s PAN with Aadhaar. The assessee had purchased immovable property for Rs.30.60 lakh in August 2023 and deducted TDS at 1% under Section 194IA. However, since the seller’s PAN was inoperative owing to non-linking with Aadhaar, CPC-TDS applied TDS at 20% and raised a demand of Rs.5.87 lakh including interest under Section 200A. The Tribunal observed that statutory provisions required higher TDS where PAN remained inoperative and noted that the assessee was not eligible for relief under later CBDT extensions because the PAN was linked only in August 2024. At the same time, the Tribunal held that the department should have incorporated system-based alerts or red-flagging for inoperative PANs while filing Form 26QB. The Tribunal further observed that no higher TDS liability should be imposed if the seller had disclosed the property transaction in her income tax return and paid due taxes. The matter was remanded to the AO for fresh verification and adjudication.
Issue: Whether higher TDS under section 206AA read with Rule 114AAA(3) was applicable on purchase of immovable property where the seller’s PAN was inoperative due to non-linking with Aadhaar, and whether demand for short deduction could survive if the seller had already disclosed the transaction and paid taxes.
Facts: The assessee purchased immovable property for Rs. 30.60 lakh during August 2023 and deducted TDS @1% under section 194IA through Form 26QB. During processing under section 200A, CPC-TDS found that the seller’s PAN was inoperative on account of non-linking with Aadhaar in terms of Rule 114AAA(3). Consequently, section 206AA was invoked and TDS was held deductible at 20% instead of 1%, resulting in demand for short deduction and interest amounting to Rs. 5,87,210. The seller subsequently linked PAN with Aadhaar in August 2024 after payment of late fee.
AO and CIT(A) Findings: CPC-TDS held that an inoperative PAN is deemed to be a case of non-furnishing of PAN and therefore higher TDS provisions under section 206AA automatically applied. The CIT(A) confirmed the demand holding that Rule 114AAA(3), effective from 01.07.2023, specifically mandates that where PAN is inoperative due to non-linking with Aadhaar, tax must be deducted at higher rate. It was further held that the obligation to ensure compliance rests upon the deductor and subsequent linking of PAN cannot retrospectively cure the default or nullify liability already created under section 200A.
ITAT Findings: The Tribunal held that, technically and legally, section 206AA read with Rule 114AAA(3) was applicable because on the date of transaction the seller’s PAN was admittedly inoperative, thereby requiring deduction of TDS at 20%. However, the Tribunal observed that the Department’s technological systems ought to have auto-flagged such inoperative PANs and alerted deductors regarding applicability of higher TDS rates. The Tribunal further held that if the seller had already disclosed the property transaction in the return of income and paid due taxes, then no higher TDS liability should be fastened upon the assessee, applying principles analogous to sections 201(1) and 40(a)(ia). Accordingly, the matter was restored to the Assessing Officer for fresh verification of disclosure of income and payment of taxes by the seller and for de novo adjudication in accordance with law.
Cases Relied Upon: The Tribunal relied upon CIT vs. Ansal Landmark Township Pvt. Ltd. (2015) 377 ITR 635 (Delhi High Court) and also referred to Hindustan Steel Ltd. vs. State of Orissa, Employees State Insurance Corporation vs. HMT Ltd., and State of West Bengal vs. Kesoram Industries Ltd. in the context of bona fide and technical breaches.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal in ITA No. 843 1/Del/2025 for Assessment Year: 2024-25 has arisen from the learned CIT(A)’s appellate order passed u/s 250 of the Income-tax Act, 1961(hereinafter called “the Act”) dated 09.10.2025 in DIN & Order No: ITBA/NFAC/S/250/2025-26/1081600669(1), which in turn has arisen from order dated 29.08.2023 passed by learned DCIT, CPC, TDS u/s. 200A of the Act(Communication Reference No. TDS/2023/AK07943224/D/100001396470) .
2. The assessee has raised following grounds of appeal in the memo of appeal filed with the Tribunal:
“1. That as per sec 206AA (1), the initial burden of the assessee is to obtain the PAN of the deductee. This onus had been duly discharged by the assessee. It is only in sec 206AA (6) that it is stated that it will be deemed that the deductee has not furnished his PAN if the PAN is found to be invalid.
2. That as per sec 139AA (2) the deductee was under an obligation to link his PAN with Aadhar Proviso to this section stated that the consequence of non-linking of PAN with Aadhar would result in:
a. Before 01.09.2019, PAN will become invalid.
b. With effect from 01.09.2019 the PAN will become inoperative.
c. The change so made reflects that the legislature in its wisdom had made a distinction between the words invalid and inoperative.
d. The word invalid had not been defined in the section.
e. The deductor had obtained PAN of deductee and filled up TDS challan-cum-return in form number 26QB. The utility does not give any pop-up nor any message was flashed when the PAN was filled in the form.
f. Furthermore, the utility did not give any pop-up nor any message was flashed when the rate of TDS was filled as 1%.
g. In this background, the deductor assessee had no reason to disbelieve the validity of PAN and had gone ahead to deposit the TDS @ 1% and to upload form number 26QB.
3. That the assessee had acted bonafide in deducting and depositing the TDS. No action on the part of the assessee had been deliberate and the assessee is totally Innocent. Collection of such demand is likely to be unjust enrichment of the exchequer.
4. That the intention of the legislature in linking of PAN with Aadhar is to bring the assessee to the tax net on the basis of information received as SFT. The basic intention of the legislature is not to levy the tax at accelerated rate of tax in the nature of penalty. The PAN of the deductee had now become operative and that the department had enough time to bring the seller of the property to his tax net on the basis of such SFT.
5. That it is not disputed that the assessee had not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.
6. That the Hon’ble CIT(A) had erred in law and on facts of the case for confirming the tax liability merely because it was provided in the Act and had disregarded the bonafide conduct of the assessee. More so, when the assessee had acted promptly and persuaded the deductee to get his PAN linked with his Aadhar soon after became to know that the liability of tax was created against him at accelerated rate of tax.
7. That the order of Hon’ble CIT(A) be quashed and demand of tax may please be deleted as after coming to know the actual facts, the assessee took immediate steps to resolve the issue in as much as the PAN of seller now stands linked with his Aadhar. The demand being illegal and void be cancelled.
8. That in
a. Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, Hon’ble Supreme Court had made following observations:
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will riot also be imposed merely because it is lawful to do so.
b. Employees’ State Insurance Corporation v. HMT Ltd., (2008) 3 SCC 35, it was re-emphasized the need and objective of imposing a penal liability, in the words, “Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations.”
c. The above stated citations were accepted and followed by the Apex court in State of West Bengal v. Kesoram Industries Ltd., (2004) 10 SCC 201.
9. That the observations of Supreme Court that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty. In the instant case the assessee can at best be said to have failed to carry out a statutory obligation of checking the linking of PAN of the deductee with his Aadhar.”
3. Brief facts of the case are that the assessee has purchased property along with two other co-owners, during the year under consideration. The consideration paid/payable by the assessee was Rs. 30,60,000/-. The assessee deducted and deposited income-tax at source (TDS) u/s 194IA of Rs. 30,600/- @ 1% of the amount of consideration payable to the seller, vide Challan cum statement in Form No. 26QB dated 28.08.2023. . But, however, the PAN of the seller was not linked with Aadhar rendering the PAN inoperative as per Rule 114AAA(3) , which in such cases mandate deduction of income tax at source at higher rate . Thus, in such situation Section 206AA read with Rule 114AAA(3) got triggered , and the assessee liability to deduct income tax at source(TDS) was @20% of the amount of consideration payable to the seller or the stamp duty value of the property , which ever is higher, while the assessee had deducted TDS@1% of the amount of consideration payable to the seller , which led the CPC,TDS to raise demand of Rs. 5,81,400/- towards short deduction of income tax at source, and Rs. 5,814/-towards interest on short deduction , vide intimation u/s 200A dated 29.08.2023 , raising in aggregate demand of Rs. 5,87,210/- against the assessee.
4. The assessee being aggrieved filed first appeal with the Ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee by referring to Rule 114AAA(3) which was effective from 01.07.2023 , where PAN become inoperative owing to non linking of PAN with Aadhaar , wherein it shall be deemed that the deductee has not submitted PAN and consequently mandates deduction of income tax at source at higher rate of 20% u/s 206AA as against rate of deduction of income-tax at source @1% u/s 194IA. The ld. CIT(A) observed that the property transaction took place in August, 2023 after the effective date of Rule 114AAA(3) which is wef 01.07.2023. The ld. CIT(A) observed that it is an admitted position that PAN of the deductee was not linked with Aadhaar and thereof was inoperative within the meaning of Rule 114AAA(3). The ld. CIT(A) observed that CPC, TDS while processing return in Form No. 26QB rightly applied the higher rate of deduction of income-tax at Source @20%. The ld. CIT(A) observed that obligation to ensure compliance with Section 206AA rests with the assessee , and the assessee in the instant case fails to ensure compliance of Section 206AA. The ld. CIT(A) observed that vide authority under Section 139AA(2) of the 1961 Act, Rule 114AAA(3) was framed and specifically provides that an inoperative PAN shall be treated as non-furnishing of PAN for all purposes of the 1961 Act.The ld. CIT(A) also observed that subsequent linking of PAN with Aadhaar will not retrospectively validate transaction or reduce the liability already determined u/s 200A. Thus, ld. CIT(A) observed that in view of statutory provision of Section 206AA read with Rule 114AAA(3), the CPC, TDS rightly raised the demand on the assessee towards short deduction of TDS.
5. Still Aggrieved, the assessee filed an appeal with the Tribunal. At the outset, the Ld. Counsel for the assessee submitted that this is a technical/venial breach wherein the deductee has not linked PAN with the Aadhaar. The assessee submitted that there was direction to link PAN with the Aadhaar . The assessee drew our attention to the provisions of Section 206AA r.w. Rule 114AAA(3). The ld. Counsel for the assessee submitted that the assessee purchased immovable property and deducted TDS@1% u/s 1941A. It was submitted that when the PAN of the deductee is not linked with the Aadhaar, there is requirement to deduct TDS @20%. It was submitted that this time limit for linking PAN with Aadhaar was extended by CBDT till May 2024. The assessee deducted TDS in the month of August 2023 , but the PAN of the deductee i.e. seller of the property was not linked with Aadhaar . It was submitted that deductee i.e. the seller of the property could not get the said PAN linked with Aadhaar within extended time limit also.It was submitted that the deductee i.e. seller of the property got the PAN linked with Aadhar only in the month of August, 2024. The CPC has raised the demand in the month of August, 2023 at the differential of enhanced rate of TDS @ 20% and the normal rate of TDS@1% as was deducted by the assessee u/s 194IA. It was submitted that CPC intimation order of August, 2023 raising demand against the assessee vide order u/s 200A was not received by the assessee, and only when the letter asking assessee to deposit the amount of demand was received in August, 2024, the assessee became aware and came into action and approached the seller i.e. the deductee to get her PAN linked with Aadhaar. The seller i.e. deductee Mrs.Shamma Amir(PAN BXQPA0811B) got the PAN linked with the Aadhaar in August, 2024 after paying late fee of Rs. 1000/- (challan no.24081300090278SBIN dated 13.08.2024), but by the time extended time limit was over. The assessee has also filed screen shot which shows that PAN of the said deductee is linked with Aadhaar. The Ld. Counsel for the assessee submitted that it was an inadvertent delay and requested that the matter be restored to the file of the Ld. AO to verify whether the PAN of the deductee is linked with Aadhaar , and accordingly computing the liability of TDS for purchase of property.
5.2 The Ld. Sr. DR also submitted that the matter be restored to the file of Ld. AO to verify whether PAN is linked with Aadhaar. Accordingly, AO can take decision.
6. We have considered rival contentions and perused the materials available on record. We have observed that the assessee purchased property for Rs. 30,60,000/- in August, 2023 . The assessee deducted and deposited income-tax at source(TDS) u/s 194IA @1% , vide challan cum return in form no. 26QB, on 28.08.2023. The said return in Form No. 26QB was processed u/s 200A by CPC, TDS on 29.08.2023, raising a demand of Rs. 5,87,210/- inclusive of interest, towards short deposit of TDS and consequential interest thereon. The demand was raised by CPC, TDS by applying TDS @ 20% u/s 206AA read with Rule 114AAA(3) and granting credit for TDS already deposited .The reason for applying TDS@20% was due to the reasons that the seller i.e. deductee has not linked her PAN with her Aadhaar number . Section 206AA , inter-alia, stipulates that notwithstanding anything contained in any other provisions of the 1961 Act, any person entitled to receive any sum or income or amount , on which tax is deductible under Chapter XVIIB shall furnish his PAN to the persons responsible for deducting such tax , failing which tax shall be deducted at the higher of the (i) rates specified in the relevant provision of the 1961 Act (ii) at the rates in force ; or (iii) at the rate of twenty percent . Rule 114AAA(3) , inter-alia, stipulates where a person , who has been allotted the PAN as on the 1st day of July, 2017 , and is required to intimate his Aadhaar number u/s 139AA(2) , has failed to intimate the same on or before the 31st day of March , 2022 , the PAN of such person shall become inoperative. It also provide that such person shall be liable to consequences which, inter-alia, include that where tax is deductible under Chapter XVIIB in case of such persons, such tax shall be collected at higher rate, in accordance with provisions of Section 206AA. Further, Section 139AA(2) provides that every person who has been allotted PAN as on the 1st day of July, 2017 , and who is eligible to obtain Aadhaar number , shall intimate his Aadhaar number to such authority in such form and manner as may be prescribed on or before a date to be notified by the Central Government in the official gazette; Provided that in case of failure to intimate the Aadhaar number , the PAN allotted to the person shall be made inoperative after the date so notified in such manner as may be prescribed. The notified date was 31.03.2022.. It is observed that the CBDT vide circular no. 3/2023 dated 28.03.2023 stated that provision relating to consequence for failure to link PAN with Aadhaar specified under Rule 114AAA(3) shall take effect from 01.07.2023 and continued till PAN become operative . Further vide circular no. 6/2024 dated 23.04.2024, CBDT finally extended the date of compliance of linking PAN with AAdhaar for transactions entered into upto 31.03.2024 , to 31.05.2024. In the instant case, the PAN of the deductee was claimed to have been linked with Aadhaar in August, 2024, which also require verification. CBDT came up with further circular no. 9/2025 dated 21st July, 2025 wherein it specified that there shall be no liability on the deductor/collector to deduct/collect the tax u/s 206AA/206CC , wherein for the transactions entered into between 01.04.2024 to 31.07.2025 , and the PAN is made operative on or before 30.09.2025 . Similarly, where the amount is paid or credited on or after 01.08.2025, and the PAN is made operative (as a result of linkage with Aadhaar) within two months from the end of the month in which the amount is paid or credited, there shall be no liability on the deductor/collector to deduct/collect the tax u/s 206AA/206CC. The assesseee purchased the property in August, 2023 . On such date of purchase of property and payment of TDS, the PAN of the deductee was inoperative due to non linkage of PAN with Aadhaar , which was finally claimed to have been linked on August, 2024. Thus, the assessee is not entitled for benefit of extended period. The assessee did not approach CBDT or jurisdictional PCIT u/s 119(2)(b), for condonation. We are of considered view that these stringent provisions are placed on the statute to curb tax evasion and strengthening of tax administration , as Aadhar number is a unique biometric enable ID allotted to every citizen . The risk assessment of such inoperative PAN of non filing of return or evading taxes are on higher pedestal . Now, the onus is placed on the deductor to ensure that PAN of the deductee is not inoperative , otherwise higher TDS rates shall be applicable.In the instant case, the assessee is not covered by the extension as TDS was deducted in August, 2023 and the PAN was claimed to be linked with Aadhaar on August, 2024, while the extended date for linkage of PAN with Aadhaar was 31.05.2024. Thus, the assessee was required to deduct income tax at source @20% on the payments made for purchase of property or stamp duty value , which ever is higher, but the assessee deducted income tax at source @1% u/s 194IA. But , at the same time when department is bringing such a stringent measure , and that the department is upgrading its systems and operations by a higher technology on regular basis for last many years continuously , it was expected of department to have brought in the technical feature in its system that all the inoperative PAN should have been red-flagged by the system itself, so that once the deductor or any other person wish to transact with such person holding inoperative PAN due to non linkage of PAN with Aadhaar number , the system should auto alert by red-flagging that the PAN of the deductee is inoperative and in such cases TDS is required to be deducted as provided u/s 206AA read with Rule 114AAA(3). Thus, the consequences thereof should have been auto flagged by the department’s system reflecting that the income tax is required to be deducted @20% wrt purchase of property instead of rate of TDS@1% as stipulated u/s 194IA. Thus, department is equally responsible for such failure. Under these facts and circumstances, it will be appropriate that no liability to higher TDS u/s 206AA read with Rule 114AAA be cast on the assessee provided evidence is brought on record that the deductee i.e. seller of the property has declared and disclosed the said sale transaction of sale of property in her return of income filed with the department and due taxes paid. This is analogous to failure of the taxpayer to deduct tax at source as is provided u/s 40(a)(ia) read with Section 201(1) of the 1961 Act, wherein it is stipulated that when the assessee failed to deduct income tax at source but the payee has included the said receipt in his return of income and paid tax, such taxpayer shall not face disallowance u/s 40(a)(ia). Reference is also drawn to the judgment and order of Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Township Private Limited in ITA no. 160/2015 , dated 26.08.2015. The assessee is directed to produce the necessary evidences to that effect. It will also be fair and appropriate on our part to simultaneously issue directions to Revenue to verify from their data base as to whether the deductee i.e seller in the instant case has duly declared and disclosed the income arising from the sale of said property and due taxes paid to the Revenue, otherwise appropriate proceedings under the 1961 Act if permitted by law can be initiated against the said deductee i.e. seller. Thus, in the interest of justice and fairness to both parties, we are of the considered view based on the materials on record and facts and circumstances of the case that end of the justice will be met to send back the matter back to the file of the AO for denovo determination of the issue on merits in accordance with law as well in accordance with our observation in this order. We order accordingly.
7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order is pronounced in the Open Court on 21.05.2026
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