ITD directed to correct record and grant credit of TDS u/s 194IA filed in wrong return form

Income Tax Department was directed to correct their record and grant credit of TDS under section 194IA to assessee which was wrongly filed in Form 26QB instead of Form 27Q.

In a recent judgment, Hon’ble Delhi High Court directed Income Tax Department to itself correct their record and grant credit of TDS under section 194IA to assessee which was wrongly filed in Form 26QB instead of Form 27Q.

ABCAUS Case Law Citation:
4593 (2025) (06) abcaus.in HC

In the instant case, the Petitioner assessee had approached High Court to quash the orders passed under section 148 and direct Income Tax Department to grant complete credit of TDS u/s 194-IA of the Income Tax Act, 1961 (the Act) which was deducted and deposited by the Buyers and to grant consequential refund in terms of ITR filed.

The petitioner was a Non-Resident Indian (NRI) and a tax resident of the United States of America (USA). In the relevant Assessment Year, the petitioner had purchased a residential property (subject property) in India.

The petitioner was desirous of selling the subject property and accepted an offer and conveyed his consent to sell the same to the buyers. The petitioner and the buyers later executed the sale deed at the agreed consideration. Out of the agreed sum, the buyers withheld the amount of TDS u/s 194-IA which was deposited by the buyers with the Government to the credit of the petitioner.

The petitioner paid the balance income tax liability and deposited the same as advance tax. Thereafter, the petitioner repatriated the balance amount of sale proceeds to USA.

The petitioner was not aware at the material time that he was also required to file the Income Tax Return (ITR) for the relevant period and therefore, had failed to do so.

Subsequently, the Assessing Officer issued a notice under Section 148A(b) on the basis of the information available that the petitioner had sold the subject property, which according to the AO, suggested that the petitioner’s income has escaped assessment.

The petitioner responded to the said notice and furnished all details to establish that he had discharged his tax liability on the sale consideration received for the subject property and, therefore, no part of the income, which was chargeable to tax, had escaped assessment.

However, the AO did not accept the same and proceeded to pass an order under Section 148A(d) holding that it is a fit case for issuance of notice under Section 148 of the Act.

The petitioner immediately on receipt of the notice, contacted the buyers and pointed out to them that Form 26AS, full amount of TDS was not reflecting. The petitioner was informed by the buyers that in fact the full amount of TDS was deposited by them to the credit of the petitioner, however, by mistake the TDS return had been filed under Form 26QB, which is related to a resident-Indian instead of Form 27Q, which would be applicable in case of NRIs. The buyers also proceeded to approach the Bank for correcting the TDS challan.

However, the AO passed the assessment order accepting the ITR filed by the petitioner. However, the AO also raised a demand for the TDS not reflecting to the credit of the Petitioner.

The petitioner once again filed a detailed reply pointing out that the entire tax liability had been discharged, but the credit of the same was not effected on account of returns filed under Form 26QB instead of Form 27Q, but to no avail.

The Hon’ble High Court observed that there is no provisions under the law that could have permitted the AO to suo moto withdraw an assessment order. Although a demand had been raised, it was ex facie erroneous, as it was on account of non-deposit of Tax Deducted at Source. However, the TDS was deducted and deposited by the deductor. The only ground on which credit for the TDS had been denied to the petitioner is that the deductor has erroneously used an incorrect form which is applicable to a resident Indian instead of the one for an NRI.

The Hon’ble High Court noted that the AO had not only proceeded to raise a demand but has also thought it to be a fit case for issuance of penalty proceedings. This indicated a complete non-application of mind to the facts of the present case.

The Revenue submitted that that the Department has been unable to correct the error, as under the Standard Operating Procedure (SOP), the consent of the buyers is required, along with an indemnity bond and other documents.

However, on a pointed query, as to why the buyers’ consent would be required, the Revenue submitted that the same would be necessary in order to obviate any action on the part of the buyers to recover the amount of the TDS that had been deposited. It was accepted that although, there was no dispute as to the deposit of the TDS, but the petitioner’s case had been withheld only on account of the documents required from the buyers.

The Hon’ble High Court directed the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit under the return filed in the Form 26QB with effect from the date, the amount was deposited. The Revenue was also directed to compute the amount of the refund, if any, that may be due to the petitioner in accordance with law.

Download Full Judgment Click Here >>

• Penalty u/s 271B for unfilled column 40 in Tax Audit Report Form 3CD deleted by ITAT
• Merely ex-parte rectifying computation without amending assessment order not make it nullity- ITAT
• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT
• Cost Inflation Index for FY/Tax Year 2026-27 notified by CBDT. See Up-to-date Table of CII
• Power of CIT(A) u/s 251(1)(a) to remand case can be exercised only in best judgment assessment