Facts of the Case

The petitioner, Parag Keshav Bopardikar, a Non-Resident Indian and tax resident of the United States of America, filed a writ petition challenging various communications and actions of the Income Tax Department denying him credit of Tax Deducted at Source for Assessment Year 2016–17.

The petitioner had purchased a residential property in Pune in 1998 and sold the same on 08.09.2015 for a consideration of ₹2 crores. The buyers deducted TDS at the applicable rate of 20% on account of the petitioner being an NRI and withheld an amount of ₹18,68,177/-, which was deposited with the Government. The petitioner discharged his balance tax liability by paying advance tax and repatriated the sale proceeds. However, due to lack of awareness, he initially failed to file his return of income.

Subsequently, reassessment proceedings were initiated under Section 148A. The petitioner demonstrated that the entire tax liability had been discharged, but credit of TDS was not granted since the buyers had erroneously deposited TDS using Form 26QB (applicable to residents) instead of Form 27Q (applicable to NRIs).

Issues Involved

Whether credit of TDS deducted and deposited can be denied to an assessee on the ground that the deductor used an incorrect TDS return form, whether the Assessing Officer could raise a tax demand and initiate penalty proceedings despite undisputed deposit of TDS, and whether the Revenue was justified in withholding correction of records pending consent of the buyers.

Petitioner’s Arguments

The petitioner contended that there was no dispute regarding deduction and deposit of TDS by the buyers to the credit of the Government. It was argued that denial of credit solely due to use of an incorrect TDS form was arbitrary and illegal. The petitioner further submitted that the Assessing Officer acted without jurisdiction in withdrawing a clean assessment order and substituting it with a demand and penalty proceedings, reflecting complete non-application of mind.

Respondent’s Arguments

The Revenue acknowledged that the TDS amount of ₹18,68,177/- had been deposited but submitted that the amount was lying under the PAN of the buyers due to erroneous filing of Form 26QB instead of Form 27Q. It was argued that correction of records required consent of the buyers along with indemnity and other documents under the applicable Standard Operating Procedure.

Court Order / Findings

The Delhi High Court held that denial of TDS credit to the petitioner was ex facie erroneous, particularly when there was no dispute that the tax had been deducted and deposited. The Court observed that there was no statutory provision permitting the Assessing Officer to suo motu withdraw an assessment order and replace it with a demand order.

The Court rejected the Revenue’s stand that buyers’ consent was necessary and held that administrative procedures could not override substantive rights of the assessee. It directed the Revenue to correct its records and reflect the TDS deposited by the buyers to the credit of the petitioner with effect from the date of deposit and to compute and grant refund, if any, in accordance with law.

Important Clarification

The Court clarified that once TDS has been deducted and deposited with the Government, credit thereof must be given to the deductee, and such credit cannot be denied on account of procedural lapses or errors committed by the deductor. Internal SOPs cannot override statutory rights under the Income-tax Act.

Final Outcome

The writ petition was allowed. The Delhi High Court directed the Revenue to correct its records and grant credit of the TDS amount deposited by the buyers to the petitioner’s account from the date of deposit, compute consequential refund in accordance with law, and treat all contrary orders and communications as set aside. All pending applications were disposed of accordingly.

Link to download the order – https://www.mytaxexpert.co.in/uploads/1769676897_PARAGKESHAVBOPARDIKARVsINCOMETAXOFFICERORS..pdf

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