Form 26A Verification Ordered for TDS Default on HUDCO Interest: ITAT Jaipur

Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation Ltd. Vs DCIT (ITAT Jaipur)

Summary: ITAT Jaipur allowed for statistical purposes five appeals of Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation Ltd. arising from orders under Section 201(1)/201(1A) of the Income Tax Act, 1961. The appeals concerned different quarters of financial years 2017-18 and 2018-19 relating to assessment years 2018-19 and 2019-20. The disputed payments were interest paid to Housing and Urban Development Corporation Ltd. (HUDCO) on loan facilities availed by the assessee. The Assessing Officer treated the assessee as an “assessee in default” for non-deduction of tax at source and raised demands for TDS and consequential interest. The CIT(A), by separate orders dated 08.10.2025, dismissed the appeals ex-parte since nobody appeared for the assessee.

The assessee pointed out before the Tribunal that during proceedings before the AO it had sought time to obtain and furnish Form No. 26A demonstrating that HUDCO had taken the interest income into account in its returns and paid taxes thereon. Its earlier written reply also stated that for FY 2016-17 no TDS was required because HUDCO was a 100% Government company, while for FY 2017-18 Form 26A had been requested and for FY 2018-19 advance-tax receipts were being furnished pending finalisation of HUDCO’s annual accounts. For FY 2019-20, the assessee referred to Notification No.26/2019, S.O.1399(E), dated 20.03.2019, notifying HUDCO for purposes of Section 194A(3)(iii)(f). Before the Tribunal, learned counsel stated that the assessee was now in possession of Form 26A for all the interest payments to HUDCO involved in the appeals and placed copies before the Bench.

The Tribunal held that, in the interest of justice, the assessee should be granted an opportunity to furnish Form No. 26A before the AO for verification. It observed that the law was clear that the rigours of Section 201/201(1A), insofar as treatment as an assessee in default for non/short deduction of TDS is concerned, are avoided where the prescribed certificate from the payee establishes that the relevant amount was included in the payee’s returned income and tax was paid thereon. The Tribunal reproduced the relevant proviso to Section 201(1), including the conditions that the payee has furnished its return under section 139, taken the sum into account in computing income, paid tax due on the declared income and that the payer furnishes the prescribed accountant’s certificate. Since the assessee was now in a position to claim the benefit of the proviso, the Tribunal restored the issue in all five appeals to the AO for verification of the Form 26A certificates and fresh adjudication in accordance with law. It also directed the AO to consider the assessee’s oral admission that it was willing to pay interest demanded under Section 201(1A). Accordingly, all appeals in ITA Nos.1891 to 1895/JPR/2025 were allowed for statistical purposes.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT JAIPUR 

All the appeals relate to the same assessee and are filed against the separate orders passed by the Office of the Commissioner of Income Tax, Appeal Addl./JCIT(A), Panaji (hereinafter referred to as “Ld. CIT(A)”), all dated 08.10.2025, confirming the order passed by the Assessing Officer (in short “AO”) under Section 201(1)/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), holding the assessee to be “assessee in default” for non deduction of tax at source on payments made which allegedly qualified for TDS and accordingly raising demand on the assessee to pay TDS so found to have not been deducted and also interest thereon for the period of in default.

2. At the outset itself Ld. Counsel for the assessee pointed out that the appeals related to TDS not found to have been deducted by the assessee in the various quarters pertaining to financial year 2017-18 and 2018-19 relating to the assessment years 2018-19 and 2019-20 respectively.

3. It was common ground that all the payments so found to have been made without TDS related to that made to HUDCO-a government corporation, of interest paid to it on account of loan facility availed by the assessee from HUDCO. In the different appeals filed before us, the assessee was found to be in default for non deduction of tax at source with respect to the different quarters as under:-

ITA No. 1891/JPR/2025

A.Y. 2018-19 ( Quarter-2)

In view of the above facts the assessee is considered to be an assessee in default for non deduction of TDS on payment of interest to HUDCO u/s 201(1) of IT Act, 1961 and also considered to be an assessee in default for interest u/s 201(1)(1A) for the period 01.07.2017 to 30.09.2017 and demand is raised is as under :-

F.Y. 2017-18 Q-2 (from 01.07.2017 to 30.09.2017)

Hence based on the above discussion, the total demand raised in the case of the deductor assessee u/s 201(1)/201(1A) of the IT Act for the period 01.06.2017 to 30.09.2017 is as follows:-

ITA No. 1893/JPR/2025

A.Y. 2018-19 (Quarter-1)

In view of the above facts the assessee is considered to be an assessee in default for non deduction of TDS on payment of interest to HUDCO u/s 201(1) of IT Act, 1961 and also considered to be an assessee in default for interest u/s 201(1)(1A) for the period 01.04.2017 to 30.06.2017 and demand is raised is as under :-

F.Y. 2017-18 Q-1 (from 01.04.2017 to 30.06.2017)

Hence based on the above discussion, the total demand raised in the case of the deductor assessee u/s 201(1)/201(1A) of the IT Act for the period 01.04.2017 to 30.06.2017 is as follows:-

In view of the above facts the assessee is considered to be an assessee in default for non deduction of TDS on payment of interest to HUDCO u/s 201(1) of IT Act, 1961and also considered to be an assessee in default for interest u/s 201(1)(1A) for the period 01.04.2018 to 30.06.2018 and demand is raised is as under :-

F.Y. 2018-19 Q-1 (from 01.04.2018 to 30.06.2018)

Hence based on the above discussion, the total demand raised in the case of the deductor assessee u/s 201(1)/201(1A) of the IT Act for the period 01.04.2018 to 30.06.2018 is as follows:-

In view of the above facts the assessee is considered to be an assessee in default for non deduction of TDS on payment of interest to HUDCO u/s 201(1) of IT Act, 1961and also considered to be an assessee in default for interest u/s 201(1)(1A) for the period 01.01.2019 to 31.03.2019 and demand is raised is as under :-

F.Y. 2018-19 Q-4 (from 01.01.2019 to 31.03.2019)

Hence based on the above discussion, the total demand raised in the case of the deductor assessee u/s 201(1)/201(1A) of the IT Act for the period 01.01.2019 to 31.03.2019 is as follows:-

4. It was pointed out that to us that the Ld. CIT(A) had passed order dismissing the assessee’s appeal ex-parte as non appeared on behalf of the assessee before the Ld. CIT(A). However, it was pointed that during proceedings before the AO it was pleaded by the assessee that further time was required by the assessee to place on record a certificate in Form No. 26AS certifying the fact that the said income of interest earned by HUDCO from the assessee had been duly disclosed in the return filed by HUDCO for the impugned year and taxes paid thereon, so as to absolve the assessee from being held as the assessee in default for non deduction of TDS thereon. He pointed out that pleading made by the assessee in this regard is reproduced at page 3 of the order for the quarter 4 as under:-

“F-2(AT)/RUDSICO/Incometax/TDS assessment /13450

Date: 25 SEP 2019

Mr. Ravinder Singh Yadav

Dy. Commissioner of Income tax (TDS),

Room no.312, N.C.R.B Statue Circle,

Jaipur

Sub: Submission of Reply and document.

Ref. No. DCIT(TDS)/JPR/2019-20/1427 dated 12.09.2019.

Sir,

With reference to above it is to submit that we have made interest payment to HUDCO without deduction of TDS.

Kindly refer your letter no. DCIT(TDS)/JPR/2019-20/1427 dated 12.09.2019 where you have mentioned “RAVIL Cbi Malviya Nagar Police housing 1127” in the column of “Name of Party”. Kindly note that all payments as mentioned in your letter have been made to HUDCO for FY 2018-19, 2017-18 and 2016-17. Kindly rectify this.

Further it is to submit that RUDSICO has not deducted TDS on interest payment being HUDCO has exemption, detail as further:

For FY 2016-17: U/s 194A(3)(iii)(f) of the Income tax act, 1961 has provided exemption in case of deduction of TDS for the companies in which all the shares are held by the Government or the Reserve Bank of India or a corporation owned by that Bank (Copy enclosed). Being HUDCO was 100% Government company during FY 2016-17. Accordingly there was no requirement to deduct TDS while making interest payment to HUDCO.

For FY 2017-18: For FY 2017-18 we have made request for Form 26A, through which it is evident that HUDCO has taken into account the sum referred for computing his taxable income in return of income filed by him. HUDCO will submit it to us soon. As soon as receipt of Form 26A we will submit it to you. Kindly allow us time for collection.

For FY 2018-19; Annual accounts have not been finalized yet in case of HUDCO, due to this we are attaching Advance tax receipts for FY 2018-19. After receipt of Annual financial statements we will submit to your good office as an evidence of tax paid in complete. Kindly allow us time for collection.

  HUDCO has avalled exemption u/s 1944 of Income tax act Act, 1961-Deduction of tax source-Interest other than interest on securities. Vide notification number.

SO 1399(E)(No.26/2019(F.no.275/15/2018-IT(D)), dated 20.3.2019, HUDCO has been notified for exemption. Hence there is no need to deduct the TDS.

Kindly acknowledge the documents attached herewith and allow some time for submission of remaining documents.

Enclosed: As mentioned above

General Manager

(Finance)

RUDSICO”

5. He further pointed out that before the Ld. CIT(A), the assessee had raised ground that adequate opportunity had not been granted to the assessee to furnish Form No. 26A, which was however dismissed by the Ld. CIT(A) stating that sufficient opportunity had been granted by the AO and the assessee did not furnish necessary Form before him also during the appellate proceedings.

6. Learned Counsel for the assessee contended before us that he was now in a possession of Form 26A in relation to all the interest paid to HUDCO taken up in the appeal before us and he pleaded therefore, an opportunity be granted to furnish the same to the AO for verification and thereafter adjudicate of the issue before him. Copies of Form 26A for different quarters were placed before us as evidence.

7. In the light of the averments made by the Ld. Counsel for the assessee before us that he had sought time to file Copy of Form 26A to the Ld. CIT(A), which was not granted to him and that he is now in possession of the same, copies of which were furnished before us also, we hold that in the interest of justice the assessee’s plea of being granted an opportunity to furnish Form No. 26A before the AO for verification be granted.

8. The law in this regard is very clear. The assessee is saved from the rigors of the section 201/201(1A) of the Act, of being treated as an assessee in default for not/ short deduction of TDS, in the circumstance where the assessee furnishes necessary certificate in Form 26A from the payee, of the amount paid to it having been included in their total income returned to tax and taxes paid thereon. The relevant proviso to Section 201(1)/201(1A) of the Act is reproduced hereunder”-

………………..

“ 201(1) where any person, including the principal Officer of a company,-

(a) Who is required to deduct any sum in accordance with the provisions of this Act; or

(b) Referred to in sub-section (1A) of Section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:

14[Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a [payee] or on the sum credited to the account of a [payee] shall not be deemed to be an assessee in default in respect of such tax if such [payee]-

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income,

and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed¹:]

…………………

9. In view of the above, since the assessee is now in a position to claim the benefit of the proviso of Section 201(1)/201(1A) of the Act we consider it fit to restore the issue back to the file of the AO in all the appeals before us for verification of the certificates in Form No. 26A in relation to all the cases in which the assessee has been held to be assessee in default. The AO is directed thereafter to adjudicate the issue in accordance with law.

10. Ld. Counsel for the assessee has stated orally before us that the assessee is willing to pay interest demanded under Section 201(1A) of the Act. The AO is directed to consider this admission of the assessee while passing order as directed by us above. In view of the same all the appeals of the assessee are allowed for statistical purposes.

11. In the combined result, the appeals of the assessee in ITA Nos. 1891 to 1895/JPR/2025 are allowed for statistical purposes.

Order pronounced in the open court on 24.08.2026.