TDS on immovable property purchase cannot be sustained where PAN was regularised and tax was already paid by the seller.

Where tax was deducted under section 194IA on purchase of immovable property and the seller's PAN was later regularised through Aadhaar linkage within the period covered by CBDT Circular No. 9/2025, higher deduction under section 206AA could not be enforced. Because the seller had filed the return of income and paid tax on the capital gains, the deductor could not be treated as an assessee-in-default under the proviso to section 201(1). The consequential demand raised under section 200A for alleged short deduction, interest and levy was therefore unsustainable and was deleted.

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Issues: Whether the demand raised under section 200A of the Income-tax Act, 1961 for alleged short deduction of tax on purchase of immovable property could be sustained when the seller's PAN had been regularised by Aadhaar linkage within the period covered by CBDT Circular No. 9/2025 and the seller had filed return of income and paid taxes, so that section 206AA and the deeming of default under section 201(1) would not apply.

Analysis: The assessee deducted tax at source under section 194IA on the consideration attributable to her 15% share in the property and deposited the tax through Form 26QB. The demand was founded only on the allegation that the seller's PAN was inoperative, attracting higher deduction under section 206AA. The material showed that the seller later linked Aadhaar with PAN and the PAN was regularised within the time contemplated by CBDT Circular No. 9/2025 dated 21.07.2025, which grants relief from higher-rate deduction for the relevant transactions. The seller had also filed the return of income for the relevant assessment year and paid tax on the capital gains, and thus the assessee could not be treated as an assessee-in-default under the proviso to section 201(1).

Conclusion: The demand under section 200A towards alleged short deduction, interest and levy was unsustainable and was directed to be deleted.

Final Conclusion: The appeal succeeded and the impugned demand was set aside in full.

Ratio Decidendi: Where the deductee's PAN is regularised within the period covered by the CBDT's operative clarification and the deductee has discharged tax liability, higher-rate deduction under section 206AA cannot be enforced and a consequential demand under section 200A cannot survive; the deductor is not to be treated as an assessee-in-default under section 201(1).

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