Vendor's PAN accepted after Aadhaar linkage and Form 26QB proof; Section 206AA non-applicable, tax demand quashed

HC set aside the impugned orders and quashed the tax demand. The court found the vendor had linked PAN with Aadhaar (with late fee) and produced challan evidence before the payors; the payors remitted the amount and filed Form 26QB showing the vendor's PAN, which the Department's portal accepted. Consequently Section 206AA did not apply, and treating the PAN as invalid was incorrect. The orders were held contrary to facts and violative of natural justice and therefore unsustainable.

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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.

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