Lakshmi Sirisha Garlapati Vs ADIT (ITAT Hyderabad)
Property Payments Made Before Section 194-IA Cannot Trigger TDS Default: ITAT Sets Aside Demand
The Income Tax Appellate Tribunal, Hyderabad “B” Bench, in Lakshmi Sirisha Garlapati v. ADIT (International Taxation)-1, ITA No. 2388/Hyd/2025, allowed the assessee’s appeal against a property-related TDS demand. The Tribunal held that instalments paid during Financial Year 2007–08 could not attract a deduction obligation under Section 194-IA, which was introduced subsequently through the Finance Act, 2013.
The order, pronounced on 23 October 2026, concerned Assessment Year 2016–17. The Bench comprised Shri Sanjay Garg, Judicial Member, and Shri Madhusudan Sawdia, Accountant Member. It set aside the Assessing Officer’s order treating the taxpayer as an “assessee in default” under Sections 201(1) and 201(1A).
Background of the Property TDS Dispute
The Assessing Officer raised a demand against the assessee for allegedly failing to deduct tax on payments made towards the purchase of property.
The default was attributed to non-compliance with Section 194-IA of the Income-tax Act, 1961.
The assessee challenged the demand before the Commissioner of Income Tax (Appeals)-10, Hyderabad. However, the first appellate authority confirmed the Assessing Officer’s action through an order dated 22 October 2025.
The taxpayer consequently approached the Tribunal, disputing the legal basis for imposing the demand.
The controversy ultimately turned on the dates of the payments, rather than a detailed examination of the calculation adopted by the Department.
Four Instalments Formed the Basis of Demand
At the hearing, the assessee’s representative drew the Tribunal’s attention to the Assessing Officer’s order.
He submitted that the disputed demand concerned only four instalments paid towards the property transaction.
All four payments, according to the submission accepted in the Tribunal’s reasoning, had been made during FY 2007–08.
The representative argued that no deduction obligation under Section 194-IA existed when these instalments were paid.
This was the central factual foundation of the appeal. The Tribunal did not reproduce the amount of each instalment or identify a separate default concerning any later payment.
Statutory Requirement Introduced After the Payments
The Tribunal noted that Section 194-IA was inserted by the Finance Act, 2013.
The identified property payments belonged to a financial year preceding that legislative change.
The assessee therefore contended that she could not be required to deduct tax under a provision that was not applicable when the payments were made.
The Tribunal accepted this distinction between the payment period and the subsequent introduction of the statutory requirement.
Its decision was based on the absence of the relevant obligation at the time of payment, rather than on a general exemption from property-related tax compliance.
Assessee-in-Default Finding Rejected
The demand under Sections 201(1) and 201(1A) rested on the premise that the assessee had failed to deduct tax required by law.
However, the Tribunal found that the four instalments preceded the deduction requirement relied upon by the Assessing Officer.
Accordingly, the assessee could not be held to be an assessee in default for those payments.
The reasoning addressed the foundation of the proceedings. Once the statutory obligation invoked by the Department did not govern the identified instalments, the resulting default finding could not survive.
The Tribunal therefore rejected the basis on which the demand had been sustained.
Actual Payment Dates Were Decisive
Although the appeal related to AY 2016–17, the Tribunal examined the financial year in which the disputed instalments were actually paid.
That chronology explained the outcome.
The existence of proceedings for a later assessment year did not establish that the earlier payments were subject to a deduction requirement introduced afterwards.
The decision thus highlights the importance of identifying the specific payments underlying a TDS demand.
Here, the representative relied on the Assessing Officer’s own order to establish that the demand related to four instalments from FY 2007–08, and the Tribunal decided the appeal on that basis.
Demand Set Aside Without Remand
The Tribunal set aside the impugned Assessing Officer’s order and allowed the appeal.
It did not merely reduce the tax demand, modify the interest calculation or direct another examination of the same payment chronology.
Nor was the relief expressed as an allowance for statistical purposes.
The operative conclusion was that the assessee could not be treated as being in default for non-deduction from the identified earlier payments.
Consequently, the order sustaining the demand under Sections 201(1) and 201(1A) was displaced.
The Tribunal’s relief was therefore substantive in relation to the demand challenged before it.
Scope of the Ruling
The decision concerns the application of Section 194-IA to four instalments paid in FY 2007–08.
It does not determine the treatment of payments made after that provision became applicable or adjudicate every possible tax issue arising from the property purchase.
The conclusion should therefore remain tied to the payment dates and statutory obligation examined in this appeal.
The Tribunal did not grant an unrestricted exemption for the transaction; it rejected the particular TDS default demand founded on those earlier payments.
Final Decision
The assessee’s appeal was allowed.
The Tribunal held that the disputed instalments, having been paid before the relevant Section 194-IA requirement existed, could not justify treating the purchaser as an assessee in default.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-10, Hyderabad (hereinafter referred to as “Ld. CIT(A)”), dated 22/10/2025 for the Assessment Year (AY) 2016-17.
2. The assessee in this appeal has been aggrieved by the action of the Ld. CIT(A) in confirming the demand made by the Assessing Officer under section 201(1) and 201(1A) of the Act by holding the assessee as ‘assessee in default’ on account of non-deduction of TDS on purchase of property by violating the provisions of section 194-IA of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
3. At the outset, the Ld. Counsel for the assessee has drawn our attention to the impugned order of the AO to show that the AO has raised the impugned demand in respect of only four instalments of payment. The Ld. Counsel for the assessee has submitted that the aforesaid four instalments of payment were made in Financial Year (FY) 2007-08, and at that time there was no provision for deduction of TDS on purchase of property. As the provisions of section 194-IA had been inserted vide Finance Act, 2013, w.e.f. 01/04/2013. Since, the payments were made in the year 2007-08, and there was no provisions of deduction of TDS on such payments, therefore, the assessee cannot be held to be ‘an assessee in default’. The impugned order of the AO is set aside.
4. In the result, appeal of the assessee stands allowed.
Order pronounced in the open court on 23rd October, 2026.
