Non-linkage of PAN with Aadhaar led to 20% TDS; petitioner failed to respond and must file reply within two weeks

HC noted that non-linkage of PAN with Aadhaar at the relevant time led to TDS being applied at 20% instead of 1%. The Court held the petitioner failed to reply to the notice and could not circumvent the statutory process by filing a writ. The petitioner was directed to file a reply to the impugned notice within two weeks with supporting documents; the respondent was directed to consider that reply and pass orders expeditiously.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the notice raising demand by treating a valid PAN as invalid for non-linkage with Aadhaar and consequently applying TDS at 20% instead of 1% was contestable on the ground that the deductor had deducted and remitted TDS at 1% in compliance with Section 194-IA, with the transaction recorded and accepted by the Income-Tax portal.

2. Whether the deductor's reliance on the Income-Tax portal's acceptance (no warning or restriction and issuance of acknowledgment on Form 26QB) precludes the revenue from treating the PAN as invalid later and issuing a demand.

3. Whether, having received the departmental notice, the correct course was to file a substantive reply before the assessing authority (and to substantiate entitlement to any departmental circular benefit) rather than seek immediate adjudication by writ petition.

4. Whether a subsequently issued departmental circular (F.No.275/04/2024-IT(B), dated 21.07.2025) relieving liability under Section 206AA (or affecting TDS applicability) can be invoked before the Court without first substantiating and pressing that claim before the tax authority that issued the notice.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of departmental demand treating PAN as invalid and applying 20% TDS despite earlier deduction at 1% under Section 194-IA

Legal framework: Section 194-IA mandates deduction of tax at 1% on consideration for transfer of immovable property; Section 206AA (as relevantly applied by the department) prescribes withholding at higher rates where payee's PAN is invalid/operative issues; the deductor is obliged to deduct and remit TDS at prescribed rates and to furnish challan/Form 26QB particulars including the payee's PAN.

Precedent treatment: No judicial precedents were discussed in the judgment; the Court proceeded on statutory provisions and administrative practice as reflected in the portal and circular.

Interpretation and reasoning: The Court noted factual matrix that the deductor deducted TDS at 1%, remitted it via challan, and furnished Form 26QB with the seller's PAN; the portal processed the form without warning and issued acknowledgment - facts indicating acceptance of deduction at the applicable rate at the time. Nevertheless, the department issued a demand later by treating the PAN as invalid for non-linkage with Aadhaar and applying 20% TDS. The Court did not adjudicate on technical correctness of recharacterising the PAN retrospectively but emphasised procedural regularity: the deductee/deductor had an opportunity to reply to the notice and to substantiate their position before the assessing authority.

Ratio vs. Obiter: The Court's observations that the portal acceptance and prior remittance are relevant factual indicators but do not displace the department's power to raise a demand are ratio in the context of directing a remand for adjudication; detailed adjudication on correctness of the demand was not undertaken and thus would be obiter were further remarks made on merits.

Conclusion: The Court declined to quash the demand at the admission stage on merits and instead directed the deductor to file a reply with supporting documents before the authority; substantive determination of whether the demand is invalidable on the ground of portal acceptance is left to the assessing authority to decide after considering the reply.

Issue 2 - Effect of Income-Tax portal acceptance (no warning/restriction) on later reassessment of PAN validity and demand

Legal framework: Administrative acceptance by electronic filing systems is evidentiary of compliance/procedure but does not, by itself, constitute a statutory bar on departmental reassessment; the statutory scheme reserves powers to the revenue to verify and raise demands where statutory conditions for concessional rate are found not to be met.

Precedent treatment: No precedents were cited or applied; the Court relied on administrative and procedural principles.

Interpretation and reasoning: The Court recognised that the portal's lack of error and issuance of acknowledgment indicates that the PAN was accepted by the system at the time of deduction. However, the Court emphasised that this administrative acceptance does not preclude the department from issuing a query/notice where it considers requisite statutory conditions (e.g., PAN-Aadhaar linkage) were not satisfied at the relevant time. The appropriate forum to resolve such factual and legal disputes is the administrative adjudication process, not immediate relief by writ without having first answered the notice.

Ratio vs. Obiter: The direction that administrative acceptance is a relevant but not decisive factor, and that the deductor must answer the notice, is ratio to the order. Broader propositions about finality of portal acknowledgments beyond the present facts would be obiter.

Conclusion: Portal acceptance is a factor in the deductor's favour but not a conclusive bar to departmental action; the deductor must present those facts in reply to the notice for the authority to adjudicate the claim.

Issue 3 - Requirement to file a substantive reply to the departmental notice before approaching the Court

Legal framework: Administrative law and practice require that a party aggrieved by a departmental notice ordinarily pursue statutory remedy/representation by filing a reply and seeking adjudication from the authority before invoking writ jurisdiction, unless exceptional circumstances or absence of alternative efficacious remedy exist.

Precedent treatment: The Court applied well-established procedural norms; no specific cases were cited in the judgment.

Interpretation and reasoning: The Court found force in the respondent's submission that the petitioner should have filed an appropriate reply to the notice dated 18.03.2025 and pressed the claim (including reliance on portal acceptance and subsequent developments) before the tax authority. The Court emphasised that, having not done so, it is inappropriate to raise all points first before the Court. The requirement to substantiate entitlement to benefits (for example, under a departmental circular) before the authority was underscored.

Ratio vs. Obiter: The direction to first file a reply and permit administrative adjudication before judicial intervention is ratio to the order and forms the operative mandate disposing of the writ petition.

Conclusion: The Court required the deductor to file a detailed reply to the impugned notice with supporting documents within two weeks, after which the authority must consider and pass orders expeditiously; the writ petition is disposed subject to this administrative process.

Issue 4 - Invoking a subsequently issued departmental circular relieving liability under Section 206AA without prior administrative substantiation

Legal framework: Departmental circulars may alter or clarify administrative position; however, invocation of such circulars for relief from a notice generally requires presentation of facts and documents to the issuing authority for consideration, rather than immediate adjudication by the Court in absence of administrative adjudication.

Precedent treatment: No authorities were cited; the Court applied administrative principle that benefits under circulars are to be sought before the authority concerned.

Interpretation and reasoning: The petitioner pointed to a departmental circular dated 21.07.2025 stating no liability arises under Section 206AA and claimed entitlement. The Court observed that even if the circular is favourable, the petitioner must substantiate its case before the department in the reply to the notice so that the authority can apply the circular on the facts. The Court therefore declined to apply the circular directly and instead required the deductor to present that claim administratively.

Ratio vs. Obiter: The instruction that invocation of the circular must be made before the authority and substantiated there is ratio to the order directing administrative consideration; broader commentary on the circular's legal effect absent departmental adjudication would be obiter.

Conclusion: The petitioner may rely on the circular before the authority by filing a substantiated reply; the authority is directed to consider and pass orders expeditiously on the basis of the reply and documents.

Relief and procedural direction (operative conclusion)

The Court declined to adjudicate the notice's merits at admission stage, directed the petitioner to file a detailed reply with supporting documents within two weeks, and directed the authority to consider the reply (including claim under the departmental circular) and pass orders as expeditiously as possible; writ petition disposed accordingly with no order as to costs.

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