Inoperative PAN Higher TDS Demand Remanded for Fresh Verification: ITAT Delhi

By CA Sandeep Kanoi Income Tax Judiciary September 28, 2026

TaxGuru Citation: 2026 taxguru.in 14055
Case Name: Manoj Kumar Vs ITO (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2024-25
Courts: All ITAT, ITAT Delhi

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Manoj Kumar Vs ITO (ITAT Delhi)

Summary: The Delhi Bench of the Income Tax Appellate Tribunal dealt with three appeals filed by the assessee, Manoj Kumar, Proprietor of M/s Manoj Metals, for Assessment Year 2024-25 against the order of the CIT(A)-7, Mumbai dated 14.08.2025. The proceedings arose from an order dated 06.02.2025 passed under section 154 read with sections 200A/206CB of the Income Tax Act, 1961 by CPC-TDS. The dispute concerned deduction of tax at the normal rate on transactions where the PANs of the deductees had not been linked with Aadhaar and were consequently inoperative. The Department applied the higher TDS rate, besides charging fee for late filing under section 234E and interest under sections 201(1A) and 220(2). The Assessing Officer computed a total demand of Rs.48,07,910/-.

The assessee contended that the failure to link PAN with Aadhaar was attributable to the deductees and that the assessee had deducted TDS at the otherwise applicable rate. In the grounds of appeal, the assessee asserted that delay in filing TDS returns occurred because suppliers had not timely linked and activated their PANs, that the delay was bona fide and beyond the assessee’s control, and that the assessee had acted on suppliers’ assurances. In relation to purchases, the assessee stated that tax had been deducted at 0.1% under Section 194Q. The assessee also challenged the application of the higher rate under Section 206AA and relied upon CBDT relaxations concerning PAN-Aadhaar linkage.

Before the Tribunal, reliance was placed on the Coordinate Bench decision in Sanchit Gupta Vs. DCIT, CPC, TDS, ITA No. 8431/Del/2025 dated 21.05.2026, stated to involve identical circumstances for AY 2024-25. The Tribunal considered that decision together with CBDT Circular No. 6/2024 dated 23.04.2024 and Circular No. 9/2025 dated 21.07.2025. Circular No. 9/2025 provided, inter alia, that for amounts paid or credited from 01.04.2024 to 31.07.2025, there would be no liability under sections 206AA/206CC where the PAN became operative through Aadhaar linkage on or before 30.09.2025.

The Coordinate Bench decision reproduced by the Tribunal examined the statutory consequences of an inoperative PAN under Rule 114AAA read with section 139AA and section 206AA. In that case, although the assessee was not within the extended date prescribed by the relevant CBDT circular, the Coordinate Bench observed that the Department’s system could have technically red-flagged an inoperative PAN so that a deductor would be alerted to the requirement of higher TDS. It therefore considered it appropriate that higher TDS liability should not be cast upon the deductor provided evidence established that the deductee had declared the transaction in the return of income and paid due taxes.

The Coordinate Bench drew an analogy with section 40(a)(ia) read with section 201(1), under which consequences for failure to deduct tax may be avoided where the payee has included the receipt in its return and paid tax. It also referred to CIT v. Ansal Landmark Township Private Limited, ITA No. 160/2015 dated 26.08.2015. The matter in that precedent was consequently restored to the Assessing Officer for de novo determination after verification of the deductee’s disclosure of the transaction and payment of taxes.

Finding the facts of the present three appeals identical, the Tribunal respectfully followed the Coordinate Bench decision and restored all three appeals to the Assessing Officer for fresh consideration in light of the reproduced reasoning. Accordingly, all three appeals of the assessee were allowed for statistical purposes. The Tribunal did not finally delete the higher TDS demand; the issue was remanded for fresh consideration.

Cases Discussed

Sanchit Gupta Vs. DCIT, CPC, TDS, ITA No. 8431/Del/2025 dated 21.05.2026 — Relied upon as a Coordinate Bench decision involving identical circumstances for AY 2024-25; the Tribunal followed it and restored the present appeals to the Assessing Officer for fresh consideration.
CIT v. Ansal Landmark Township Private Limited, ITA No. 160/2015 dated 26.08.2015 (Delhi High Court) — Referred to in the reproduced Coordinate Bench ruling while drawing an analogy with section 40(a)(ia) read with section 201(1), where the payee has disclosed the receipt and paid due taxes.

FULL TEXT OF THE ORDER OF ITAT DELHI

The above captioned three appeals are filed by the assessee directed against the order dated 14.08.2025 of the Id. Commissioner of Income Tax (Appeal),-7, Mumbai, [hereinafter referred to as the ‘Ld. CIT(A)], )] arising out of the Order dated 06.02.2025 passed under section 154 r.w.s. 200A/206CB of the Income Tax Act, 1961 (hereinafter referred to as the Act) Assessing Officer, Centralized Processing Cell-TDS (hereinafter referred to as the ‘AO, CPC’) pertaining to Assessment Year (A.Y.) 2024-25.

2. The assessee has raised the following grounds of appeal (ITA No.-1499/Del/2026):

“I. GROUND 1: Delay in Compliance Was Bonafide, Technical and Beyond the Appellant’s Control The Learned CIT(A) erred in confirming the demand without appreciating that the delay in filing the TDS return arose solely due to the failure of the suppliers to timely link and activate their PANs, which was a circumstance entirely beyond the control of the Appellant. The Appellant was dependent upon the suppliers for confirmation regarding their PAN activation status and had no statutory authority to compel compliance within a fixed timeframe. The Appellant had no reason, incentive, or intention to delay filing the TDS returns, as delay automatically results in statutory levy of fees and interest. The delay was therefore neither deliberate nor intentional but occurred due to external factors, and thus constitutes “reasonable cause” within the meaning of Section 273B of the Act. Accordingly, penal consequences ought not to have been imposed.

GROUND 2: Levy of Late Fee u/s 234E is Unwarranted The Learned CIT(A) erred in upholding the levy of late filing fee under Section 234E without appreciating that the delay was occasioned by unavoidable and external circumstances relating to PAN inoperability of the deductees. Although Section 234E is compensatory in nature, it cannot be applied in a rigid and mechanical manner where the default is not deliberate or contumacious. In the present case, tax was duly deducted and deposited, and the Government has suffered no loss of revenue. The delay occurred due to noncompliance by the deductees and not due to any wilful act of the Appellant. In these circumstances, levy of late fee is unjustified and deserves to be deleted.

GROUND 3: Application of Section 20644(5% TDS Rate) is Unjustified The Learned CIT(A) erred in confirming application of Section 20644 at the higher rate of 5% without appreciating that the alleged default arose due to deductees PAN inoperability and not due to any wilful act or omission on the part of the Appellant.

The law does not contemplate penalizing a deductor for a default attributable solely to the deductee, particularly where corrective action has subsequently been taken and the PANs have been activated. The demand arising from mechanical application of 5% is disproportionate and contrary to principles of equity and fair taxation.

GROUND 4: CBDT Circulars Recognize Nationwide Practical Difficulties in PAN Linking The Learned CIT(A) failed to consider that CBDT itself acknowledged widespread practical difficulties arising from non-linking of PAN with Aadhaar and accordingly issued Circular No. 7/2022, Circular No. 3/2023, and Circular No. 6/2024 extending the time limit for PAN-Aadhaar linking up to 31.05.2024. These circulars clearly demonstrate that PAN inoperability was a systemic issue affecting a large number of taxpayers and was not an isolated or intentional default. In such circumstances, rigid and mechanical application of Section 206AA defeats the legislative intent behind the relaxations granted by the CBDT and results in unintended hardship to genuine taxpayers.

GROUND 5: Reliance on Suppliers’ Undertaking is Normal Business Conduct The Learned CIT(A) failed to appreciate that in normal trade practice, businesses routinely rely upon suppliers representations and compliance assurances in matters relating to statutory details. The Appellant had no practical means to enforce immediate PAN activation by the suppliers and was commercially dependent on uninterrupted supply of raw materials. Insisting upon deduction at the higher rate of 5% or suspending transactions would have jeopardized business operations and strained established trade relationships. The Appellant’s reliance on the suppliers’ assurances was therefore commercially reasonable, bona fide, and consistent with accepted business conduct.

GROUND 6: No Mens Rea, No Attempt to Evade Tax The Learned CIT(A) failed to appreciate that all purchases were duly recorded in the books of account and routed through regular banking channels. Tax was deducted at the rate of 0.1% and not omitted entirely, which clearly evidences bona fide conduct and absence of any intention to evade tax. Upon receipt of confirmation regarding PAN activation, the Appellant promptly filed a rectification return updating all necessary details. These facts conclusively establish absence of mens rea or fraudulent intention. In such circumstances, imposition of excessive financial consequences is unwarranted.

GROUND 7: The Demand of 393 Lakhs is Harsh, Excessive, Disproportionate The impugned demand of 793,71,540 is largely inflated due to mechanical application of Section 206AA at the higher rate of 5%, treating the differential amount as short deduction. The actual tax deducted at 0.1% was in consonance with Section 1940 and was based on suppliers’ representations and prevailing circumstances. Such an excessive demand, arising from technical and temporary PAN inoperability subsequently rectified, is harsh and disproportionate, and violates the doctrine of proportionality and principles of natural justice.

GROUND 8: Appellant Craves Leave to Add, Alter or Amend Grounds The Appellant respectfully craves leave of this Hon’ble Tribunal to add, alter, amend, modify, or withdraw any of the above grounds of appeal at or before the time of hearing, if so required in the interest of justice.

GROUND 9: Subsequent Legislative & Policy Developments Recognize Excessive TDS/TS as a Systemic Issue The appellant submits that the issue involved in the present appeal is not an isolated or personal grievance, but a systemic and industry-wide problem, acknowledged at the highest policy-making level. In the Union Budget 2026, the Hon’ble Finance Ministry, taking cognizance of widespread representations from trade bodies and industry associations, has itself:

rationalized and reduced TDS rates under various provisions, and
acknowledged that high TDS/TS rates were causing cash-flow blockages, compliance burden, and unintended hardship to genuine taxpayers. Further, several industry associations across sectors have formally requested:
removal of TCS on GST-covered goods, and
simplification of overlapping withholding provisions, on the ground that such provisions result in excessive compliance burden without commensurate revenue gain.

These policy developments clearly establish that:

harsh mechanical application of TDS/TS provisions was never the legislative intent,
genuine taxpayers were being unintentionally penalized, and
the Government itself has accepted the need for rational, proportionate, and practical enforcement. Therefore, continuation of the impugned demand – particularly one inflated to 293 lakhs due to rigid application of Section 206AA – runs contrary to:
evolving legislative policy,
principles of equitable taxation, and
acknowledged systemic realities. This Hon’ble Tribunal, being a final fact-finding authority, is empowered to take note of such subsequent developments to render substantive justice, rather than uphold a purely technical demand.

2.1 The assessee has raised the following grounds of appeal (ITA No.-1500/Del/2026):

“GROUND 1: Delay in Compliance Was Bonafide, Technical and Beyond the Appellant’s Control.

The Learned CIT(A) erred in confirming the demand without appreciating that the delay in filing the TDS return arose solely due to the failure of the suppliers to timely link and activate their PANs, which was a circumstance entirely beyond the control of the Appellant. The Appellant was dependent upon the suppliers for confirmation regarding their PAN activation status and had no statutory authority to compel compliance within a fixed timeframe. The Appellant had no reason, incentive, or intention to delay filing the TDS returns, as delay automatically results in statutory levy of fees and interest. The delay was therefore neither deliberate nor intentional but occurred due to external factors, and thus constitutes “reasonable cause” within the meaning of Section 273B of the Act. Accordingly, penal consequences ought not to have been imposed.

GROUND 2: Levy of Late Fee u/s 234E is Unwarranted

The Learned CIT(A) erred in upholding the levy of late filing fee under Section 234E without appreciating that the delay was occasioned by unavoidable and external circumstances relating to PAN inoperability of the deductees. Although Section 234E is compensatory in nature, it cannot be applied in a rigid and mechanical manner where the default is not deliberate or contumacious. In the present case, tax was duly deducted and deposited, and the Government has suffered no loss of revenue. The delay occurred due to non-compliance by the deductees and not due to any wilful act of the Appellant. In these circumstances, levy of late fee is unjustified and deserves to be deleted. In Kanta Govind Singh vs ACIT (CPC-TDS), courts held that fees under 234E should not be imposed when delay is not deliberate. Therefore, the late fee deserves deletion.

GROUND 3: Application of Section 206AA (5% TDS Rate) is Unjustified

The Learned CIT(A) erred in confirming application of Section 206AA at the higher rate of 5% without appreciating that the alleged default arose due to deductees’ PAN inoperability and not due to any wilful act or omission on the part of the Appellant.

The Appellant had repeatedly followed up with the suppliers, who assured that the PAN linking process had already been initiated and would be completed shortly. Acting on such assurances, which were commercially reasonable in the course of ongoing business relationships, the Appellant deducted tax at the rate of 0.1% under Section 194Q in good faith. The law does not contemplate penalizing a deductor for a default attributable solely to the deductee, particularly where corrective action has subsequently been taken and the PANs have been activated. The demand arising from mechanical application of 5% is disproportionate and contrary to principles of equity and fair taxation. Thus the demand of over 778 lakhs is disproportionate, excessive, and contrary to equitable taxation.

GROUND 4: CBDT Circulars Recognize Nationwide Practical Difficulties in PAN Linking

The Learned CIT(A) failed to consider that CBDT itself acknowledged widespread practical difficulties arising from non-linking of PAN with Aadhaar and accordingly issued Circular No. 7/2022, Circular No. 3/2023, and Circular No. 6/2024 extending the time limit for PAN-Aadhaar linking up to 31.05.2024. These circulars clearly demonstrate that PAN inoperability was a systemic issue affecting a large number of taxpayers and was not an isolated or intentional default. In such circumstances, rigid and mechanical application of Section 206AA defeats the legislative intent behind the relaxations granted by the CBDT and results in unintended hardship to genuine taxpayers. Thus, penal action against the appellant contradicts the legislative intent and CBDT’s declared position.

GROUND 5: Reliance on Suppliers’ Undertaking is Normal Business Conduct

The Learned CIT(A) failed to appreciate that in normal trade practice, businesses routinely rely upon suppliers’ representations and compliance assurances in matters relating to statutory details. The Appellant had no practical means to enforce immediate PAN activation by the suppliers and was commercially dependent on uninterrupted supply of raw materials. Insisting upon deduction at the higher rate of 5% or suspending transactions would have jeopardized business operations and strained established trade relationships. The Appellant’s reliance on the suppliers’ assurances was therefore commercially reasonable, bona fide, and consistent with accepted business conduct.

GROUND 6: No Mens Rea, No Attempt to Evade Tax

The Learned CIT(A) failed to appreciate that all purchases were duly recorded in the books of account and routed through regular banking channels. Tax was deducted at the rate of 0.1% and not omitted entirely, which clearly evidences bona fide conduct and absence of any intention to evade tax. Upon receipt of confirmation regarding PAN activation, the Appellant promptly filed a rectification return updating all necessary details. These facts conclusively establish absence of mens rea or fraudulent intention. In such circumstances, imposition of excessive financial consequences is unwarranted. Penalties cannot be imposed where the default is technical, unintentional, and subsequently rectified.

GROUND 7: The Demand of & 1 Crore (approx.) is Harsh, Excessive, Disproportionate The impugned demand of 71,03,16,930 is largely inflated due to mechanical application of Section 206AA at the higher rate of 5%, treating the differential amount as short deduction. The actual tax deducted at 0.1% was in consonance with Section 194Q and was based on suppliers’ representations and prevailing circumstances.

Such an excessive demand, arising from technical and temporary PAN inoperability subsequently rectified, is harsh and disproportionate, and violates the doctrine of proportionality and principles of natural justice

GROUND 8: Appellant Craves Leave to Add, Alter or Amend Grounds.

The appellant respectfully craves leave of this Hon’ble Tribunal to add, alter, amend, modify or withdraw any of the above grounds of appeal at or before the time of hearing, if so required, in the interest of justice.

GROUND 9: Subsequent Legislative & Policy Developments Recognize Excessive TDS/TCS as a Systemic Issue

The appellant submits that the issue involved in the present appeal is not an isolated or personal grievance, but a systemic and industry-wide problem, acknowledged at the highest policy-making level.

In the Union Budget 2026, the Hon’ble Finance Ministry, taking cognizance of widespread representations from trade bodies and industry associations, has itself:

rationalized and reduced TDS rates under various provisions, and
acknowledged that high TDS/TCS rates were causing cash-flow blockages, compliance burden, and unintended hardship to genuine taxpayers. Further, several industry associations across sectors have formally requested:
removal of TCS on GST-covered goods, and
simplification of overlapping withholding provisions, on the ground that such provisions result in excessive compliance burden without commensurate revenue gain.

These policy developments clearly establish that:

harsh mechanical application of TDS/TS provisions was never the legislative intent,
genuine taxpayers were being unintentionally penalized, and
the Government itself has accepted the need for rational, proportionate, and practical enforcement. Therefore, continuation of the impugned demand — particularly one inflated to 793 lakhs due to rigid application of Section 206AA — runs contrary to:
evolving legislative policy,
principles of equitable taxation, and
acknowledged systemic realities. This Hon’ble Tribunal, being a final fact-finding authority, is empowered to take note of such subsequent developments to render substantive justice, rather than uphold a purely technical demand.”

2.2. The assessee has raised the following grounds of appeal (ITA No.-1501/Del/2026):

“GROUND 1: Delay in Compliance Was Bonafide, Technical and Beyond the Appellant’s Control

GROUND 2: Levy of Late Fee u/s 234E is Unwarranted

The Learned CTT(A) erred in upholding the levy of late filing fee under Section 234E without appreciating that the delay was occasioned by unavoidable and external circumstances relating to PAN inoperability of the deductees. Although Section 234E is compensatory in nature, it cannot be applied in a rigid and mechanical manner where the default is not deliberate or contumacious. In the present case, tax was duly deducted and deposited, and the Government has suffered no loss of revenue. The delay occurred due to non-compliance by the deductees and not due to any wilful act of the Appellant. In these circumstances, levy of late fee is unjustified and deserves to be deleted. In Kanta Govind Singh vs ACIT (CPC-TDS), courts held that fees under 234E should not be imposed when delay is not deliberate. Therefore, the late fee deserves deletion.

GROUND 3: Application of Section 206AA (5% TDS Rate) is Unjustified

The Learned CIT(A) erred in confirming application of Section 206AA at the higher rate of 5% without appreciating that the alleged default arose due to deductees” PAN inoperability and not due to any wilful act or omission on the part of the Appellant.

The Appellant had repeatedly followed up with the suppliers, who assured that the PAN linking process had already been initiated and would be completed shortly. Acting on such assurances, which were commercially reasonable in the course of ongoing business relationships, the Appellant deducted tax at the rate of 0.1% under Section 194Q in good faith. The law does not contemplate penalizing a deductor for a default attributable solely to the deductee, particularly where corrective action has subsequently been taken and the PANs have been activated. The demand arising from mechanical application of 5% is disproportionate and contrary to principles of equity and fair taxation. Thus the demand of over 245 lakhs is disproportionate, excessive, and contrary to equitable taxation.

GROUND 4: CBDT Circulars Recognize Nationwide Practical Difficulties in PAN Linking

GROUND 5: Reliance on Suppliers’ Undertaking is Normal Business Conduct

The Learned CIT(A) failed to appreciate that in normal trade practice, businesses routinely rely upon suppliers’ representations and compliance assurances in matters relating to statutory details. The Appellant had no practical means to enforce immediate PAN activation by the suppliers and was commercially dependent on uninterrupted supply of raw materials. Insisting upon deduction at the higher rate of 5% or suspending transactions would have jeopardized business operations and strained established trade relationships. The Appellant’s reliance on the suppliers assurances was therefore commercially reasonable, bona fide, and consistent with accepted business conduct.

GROUND 6: No Mens Rea, No Attempt to Evade Tax

The Learned CIT(A) failed to appreciate that all purchases were duly recorded in the books of account and routed through regular banking channels. Tax was deducted at the rate of 0.1% and not omitted entirely, which clearly evidences bona fide conduct and absence of any intention to evade tax. Upon receipt of confirmation regarding PAN activation, the Appellant promptly filed a rectification return updating all necessary details. These facts conclusively establish absence of mens rea of fraudulent intention. In such circumstances, imposition of excessive financial consequences is unwarranted. Penalties cannot be imposed where the default is technical, unintentional, and subsequently rectified.

GROUND 7: The Demand of 71 Crore (approx.) is Harsh, Excessive, Disproportionate

The impugned demand of 248,07,910 is largely inflated due to mechanical application of Section 206AA at the higher rate of 5%, treating the differential amount as short deduction. The actual tax deducted at 0.1% was in consonance with Section 194Q and was based on suppliers’ representations and prevailing circumstances. Such an excessive demand, arising from technical and temporary PAN inoperability subsequently rectified, is harsh and disproportionate, and violates the doctrine of proportionality and principles of natural justice

GROUND 8: Appellant Craves Leave to Add, Alter or Amend Grounds

GROUND 9: Subsequent Legislative & Policy Developments Recognize Excessive TDS/TCS as a Systemic Issue

In the Union Budget 2026, the Hon’ble Finance Ministry, taking cognizance of widespread representations from trade bodies and industry associations, has itself: rationalized and reduced TDS rates under various provisions, and acknowledged that high TDS/TCS rates were causing cash-flow blockages, compliance burden, and unintended hardship to genuine taxpayers.

Further, several industry associations across sectors have formally requested: removal of TCS on GST-covered goods, and simplification of overlapping withholding provisions, on the ground that such provisions result in excessive compliance burden without commensurate revenue gain.

These policy developments clearly establish that:

harsh mechanical application of TDS/TS provisions was never the legislative intent, genuine taxpayers were being unintentionally penalized, and the Government itself has accepted the need for rational, proportionate, and practical enforcement

Therefore, continuation of the impugned demand particularly one inflated to 248 lakhs due to rigid application of Section 206AA-runs contrary to: evolving legislative policy, principles of equitable taxation, and acknowledged systemic realities.

This Hon’ble Tribunal, being a final fact-finding authority, is empowered to take note of such subsequent developments to render substantive justice, rather than uphold a purely technical demand.

3. Brief facts are that the assesse had deducted TDS on the impugned transactions at the normal rate whereas the view of the department was that since the PAN of the deductee was not linked with the Aadhaar, therefore, higher rate of TDS was applicable. Further, fee for late filing of return u/s 234E and interest u/s 201(1A) as well as u/s 220(2) was also charged. Total demand was computed at Rs.48,07,910/- by the AO. Aggrieved, the assesse preferred appeal before the ld. CIT(A) which was also dismissed.

4. Before us, ld. AR has argued that the delay in filing of return was on account of the deductee and the assesse had duly deducted applicable TDS on the impugned transaction. Since, the assesse was in noway responsible for non-linking of the deductee’s PAN with Aadhaar, he should not be penalized for the same. In this regard, reliance has been placed by the ld. Counsel on the decision of the Coordinate Bench in the case of Sanchit Gupta Vs. DCIT, CPC, TDS in ITA No. 8431/Del/2025 dated 21.05.2026 where under exactly identical circumstances for the same AY: 2024-25, the matter has been restored to the AO for fresh consideration.

5. Ld. DR on the other hand has relied the orders of lower authorities.

6. We have heard the rival contention and perused the material placed on record as well as the decision of the Coordinate Bench and the CBDT Circulars No. 6/2024 dated 23.04.2024 and No. 9/2025 dated 21.07.2025 on the issue at hand. We note that in the light of CBDT Circular No. 6/2024 & 9/2025 the Coordinate Bench has rightly decided the issue and held as under:

“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.”

8. Since, the facts in the present case are identical, respectfully following the decision of Coordinate Bench, we hereby restore the appeals to the Ld. AO for fresh consideration of the issue in the light of above.

9. All the three appeals of the assesse are accordingly allowed for statistical purposes.

Order pronounced in the open court on 31.08.2026