Case Commentary: Sanchit Gupta v. DCIT – ITAT Delhi on TDS Short Deduction Due to Inoperative PAN
Introduction
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in the case of Sanchit Gupta v. DCIT (ITA No. 8431/Del/2025) for Assessment Year 2024-25, delivered a pragmatic ruling on the interplay between Section 206AA (higher TDS for non-furnishing of PAN) and Rule 114AAA(3) (PAN becoming inoperative due to non-linking with Aadhaar). The Tribunal allowed the appeal for statistical purposes, remanding the matter to the Assessing Officer (AO) for verification of whether the deductee (seller) had declared the sale income and paid taxes. This commentary analyzes the legal reasoning, statutory provisions, and implications of the decision, emphasizing the principle of proportionality and departmental responsibility.
Facts of the Case
The assessee, Sanchit Gupta, purchased an immovable property along with two co-owners for a consideration of Rs. 30,60,000/-. He deducted and deposited Tax Deducted at Source (TDS) under Section 194IA at 1% (Rs. 30,600/-) via Form 26QB on 28.08.2023. However, the seller’s PAN (BXQPA0811B) was not linked with Aadhaar, rendering it inoperative under Rule 114AAA(3) effective from 01.07.2023. Consequently, the CPC, TDS processed the return under Section 200A on 29.08.2023, applying TDS at 20% under Section 206AA, raising a demand of Rs. 5,87,210/- (including interest).
The assessee appealed to the CIT(A), who dismissed the appeal, holding that the statutory mandate of Section 206AA read with Rule 114AAA(3) was clear, and subsequent linking of PAN with Aadhaar would not retrospectively validate the transaction. Aggrieved, the assessee approached the ITAT.
Reasoning of the ITAT
The ITAT, comprising Shri Ramit Kochar (Accountant Member) and Shri Yogesh Kumar U.S. (Judicial Member), allowed the appeal for statistical purposes. The reasoning is structured as follows:
1. Statutory Framework and Compliance Burden
The Tribunal acknowledged that under Section 206AA(1), the initial burden on the deductor is to obtain the PAN of the deductee. The assessee had discharged this burden by obtaining the seller’s PAN. However, Section 206AA(6) deems that a PAN is not furnished if it is found to be invalid. Rule 114AAA(3), effective from 01.07.2023, provides that an inoperative PAN (due to non-linking with Aadhaar) shall be treated as non-furnishing of PAN for all purposes of the Income-tax Act, 1961. The Tribunal noted that the assessee deducted TDS in August 2023, after the effective date of Rule 114AAA(3), and the PAN was inoperative at that time.
2. Departmental System Failure
The Tribunal observed that the department’s system (Form 26QB utility) did not flag any pop-up or message when the inoperative PAN was entered or when TDS was filled at 1%. This was a critical factor. The Tribunal held that the department was equally responsible for not alerting the assessee about the inoperative status of the PAN. The assessee had acted bonafide, and there was no deliberate defiance of law or conscious disregard of obligations.
3. Principle of Proportionality and Pragmatic Approach
Drawing analogy with Section 40(a)(ia) and the Delhi High Court decision in CIT v. Ansal Landmark Township Private Limited, the Tribunal held that if the deductee (seller) has declared the sale income in their return of income and paid taxes thereon, no higher TDS liability should be imposed on the deductor. The Tribunal emphasized that the purpose of TDS provisions is to ensure tax collection, not to penalize the deductor for a technical breach when the revenue is not lost.
4. Subsequent Linking of PAN
The seller linked her PAN with Aadhaar in August 2024 (after paying a late fee of Rs. 1,000/-). The Tribunal noted that the extended date for linking was 31.05.2024, but the seller linked only in August 2024. Despite this, the Tribunal held that the subsequent linking, coupled with the department’s system failure, warranted a pragmatic approach. The matter was remanded to the AO to verify whether the seller had declared the sale income and paid taxes.
5. Remand for Verification
The Tribunal directed the AO to verify:
– Whether the seller (deductee) has filed her return of income for AY 2024-25.
– Whether the sale consideration has been declared and taxes paid.
– If so, no higher TDS liability should be imposed on the assessee.
– If not, the AO may proceed in accordance with law.
Conclusion
The ITAT’s decision in Sanchit Gupta v. DCIT is a significant ruling that balances statutory compliance with practical realities. The Tribunal recognized that while Section 206AA read with Rule 114AAA(3) mandates higher TDS for inoperative PAN, the department’s system failure and the bonafide conduct of the assessee cannot be ignored. By remanding the matter for verification of the deductee’s tax compliance, the Tribunal ensured that the revenue is protected without unjust enrichment. This case underscores the need for departmental systems to support compliance and the principle that TDS provisions should not be applied mechanically when the ultimate tax liability is discharged.