Assessee misread lower rate of TDS in certificate u/s 197 allowed to submit Form 26A

ITAT allowed assessee to submit Form 26A before AO as he misunderstood lower rate of TDS in certificate u/s 197 and deducted short TDS

In a recent judgment, ITAT Mumbai has allowed assessee to submit Form 26A before AO as the assessee misunderstood the lower rate of TDS mentioned in certificate u/s 197 issued and deducted TDS inclusive of surcharge and cess.

ABCAUS Case Law Citation:
4839 (2025) (11) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) /National Faceless Appeal Centre (NFAC) confirming order passed by the Assessing Officer (AO) for short deduction of tax at source (TDS) on payment made for purchase of property from non-resident Indian.

The appellant assessee purchased an immovable property situated in India from two non-resident Indians. Under the statutory mandate of Section 195 of the Income-tax Act, 1961 (“the Act”), the assessee was obliged to deduct tax at source from the payment made to the non-resident sellers.

In pursuance of the said obligation, the assessee approached the Assessing Officer for issuance of a certificate under Section 197 of the Act, seeking permission for deduction of tax at a lower rate. Though the assessee had requested for deduction of tax at the rate of 12.61% inclusive of surcharge and cess, the certificate so issued prescribed the rate of 12.61% excluding surcharge and cess.

However, owing to a bona fide misunderstanding, the assessee deducted tax at 12.61% inclusive of surcharge and cess, thereby resulting in a short deduction corresponding to the omitted component of surcharge and cess.

Consequent to such short deduction, the Assessing Officer, upon processing the TDS statement under Section 200A of the Act, issued an intimation holding that the tax deducted was deficient and directed the assessee to remit the balance amount together with interest on the shortfall.

Before CIT(A), the assessee inter alia raised an alternative plea that since the sellers had already discharged their capital gains tax liability in full, the assessee ought not to be treated as an assessee-in-default, placing reliance upon the judgment of the Hon’ble Supreme Court.

However, CIT(A), observed that as per the proviso to Section 201(1) of the Act, read with Rule 31ACB of the Income-tax Rules, 1962, an assessee seeking relief not to be treated as an assesee in default, is required to furnish a certificate in Form No. 26A duly verified by a chartered accountant. Since the assessee had not furnished such a certificate, the CIT(A) dismissed the appeal.

Before the Tribunal, the assessee appeared in person and submitted that he was now in possession of the requisite certificate in Form No. 26A duly certified by a chartered accountant in accordance with Rule 31ACB of the Income-tax Rules, 1962. It was pleaded that the matter may be restored to the file of the Assessing Officer for a fresh adjudication in light of the said certificate.

In view of the facts of the case and decision of the Hon’ble Supreme Court, the Tribunal opined that in order to advance the cause of substantial justice rather than defeat it on technicalities, it was just and proper to remit the matter to the file of the Assessing Officer and accordingly remitted the issue.

It was directed that the assessee shall furnish the original certificate in Form No. 26A before the Assessing Officer, who shall thereupon verify its authenticity and reconsider the issue afresh in accordance with law and upon granting due opportunity of being heard to the assessee.

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