2024 (11) TMI 248 - HC - Income Tax

Short deduction of TDS by petitioners - TDS rate applicable was 20% as the vendor's PAN was deemed invalid due to the non-linkage with Aadhaar - Section 206AA overrides the said rate when the vendor's PAN is invalid or not linked to Aadhaar HELD THAT - As seen from records that the vendor had linked his PAN with his Aadhaar on 02.08.2024 by paying a late fee of Rs. 1,000/- and he has also provided the challan receipt with the petitioners for the late payment made by him for delay in linking PAN with Aadhaar. Therefore, the question of vendor's PAN number being invalid does not arise. Since Section 206AA(1) stipulates that if any person who is entitled to receive any sum on which tax is deductible at source under the Act, fails to furnish his PAN number to the deductor, then the deductor shall deduct tax at source (TDS) at the rate of 20% and as per Section 206AA(6), if the PAN number provided by the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his PAN to the deductor and the provisions of sub-section (1) of Section 206AA will apply, the question of Section 206AA being applicable to the petitioners does not arise in as much as the petitioners remitted the sum of Rs. 56,000/- against their vendor's PAN number on 09.08.2024 and the petitioners filed the Form 26QB on 09.08.2024 mentioning their vendor's PAN number and that the Department's website has also accepted the same and did not give any indication that the PAN number of the petitioner's vendor was invalid. For the foregoing reasons, this Court is of the view that the impugned orders passed by the respondent are contrary to the facts and circumstances of the cases and violative of the principles of natural justice and the same are liable to be quashed.

Summary

Issues:
Challenge to impugned orders alleging short deduction of TDS by petitioners based on vendor's PAN-Aadhaar linkage and TDS rate applicability.

Analysis:
The writ petitions were filed to challenge the impugned orders by the respondent regarding alleged short deduction of TDS by the petitioners. The petitioners had purchased a residential flat in Chennai, and tax was deducted at source at a rate of 1% as required under Section 194IA of the Income Tax Act, 1961. The respondent contended that there was a short deduction of TDS by the petitioners due to the vendor's PAN being deemed invalid for non-linkage with Aadhaar, resulting in a 20% TDS rate as per Section 206AA. The petitioners argued that the vendor had linked his PAN with Aadhaar and provided necessary documents, making the PAN valid. The petitioners maintained that they had remitted the required sum against the vendor's PAN and filed Form 26QB correctly, which was accepted by the Department's website without indicating any issues with the PAN.

The petitioners' counsel highlighted Rule 30(2A) of the Income Tax Rules 1961, emphasizing the requirement to pay TDS to the Central Government within a specified period and submit Form No.26QB. The counsel argued that the justification report did not provide a valid reason for the higher TDS demand and insisted that the TDS rate should be 1% as per Section 194-IA. Conversely, the respondent's Senior Standing Counsel defended the 20% TDS demand based on Section 206AA, stating that the vendor's PAN was invalid due to Aadhaar non-linkage. The respondent contended that the petitioners should have sought clarification if there was any confusion regarding the TDS rate. The respondent maintained that Section 206AA overrides the 1% TDS rate when the vendor's PAN is invalid, making the 20% deduction legally enforceable.

After hearing both parties and examining the records, the Court found that the impugned orders were erroneous and contrary to the facts. The Court noted that the vendor had rectified the PAN-Aadhaar linkage issue by paying a late fee and providing necessary documentation to the petitioners. Additionally, the Court observed that the petitioners had correctly remitted the TDS sum against the vendor's PAN and filed the required forms without any indication of invalidity. Therefore, the Court concluded that the impugned orders were violative of natural justice principles and quashed them, allowing the writ petitions without costs. Consequently, the connected miscellaneous petitions were closed.