When a deductor fails to withhold tax at the higher rate specified for inoperative PANs due to a systemic lack of notification, no penalty/liability should be imposed, provided the recipient of the income has duly disclosed the transaction and paid the applicable taxes.

ORDER

PER RAMIT KOCHAR, AM:

This appeal in ITA No. 8431/Del/2025 for Assessment Year: 2024-25 has arisen from the learned CIT(A)’s appellate order passed u/s 250 of the Income-tax Act, 1961(hereinafter called “the Act”) dated 09.10.2025 in DIN & Order No: ITBA/NFAC/S/250/2025-26/1081600669(1), which in turn has arisen from order dated 29.08.2023 passed by learned DCIT, CPC, TDS u/s. 200A of the Act(Communication Reference No. TDS/2023/AK07943224/D/100001396470) .

2. The assessee has raised following grounds of appeal in the memo of appeal filed with the Tribunal:

1. That as per sec 206AA (1), the initial burden of the assessee is to obtain the PAN of the deductee. This onus had been duly discharged by the assessee. It is only in sec 206AA (6) that it is stated that it will be deemed that the deductee has not furnished his PAN if the PAN is found to be invalid.

2. That as per sec 139AA (2) the deductee was under an obligation to link his PAN with Aadhar Proviso to this section stated that the consequence of non-linking of PAN with Aadhar would result in:

a. Before 01.09.2019, PAN will become invalid.

b. With effect from 01.09.2019 the PAN will become inoperative.

c. The change so made reflects that the legislature in its wisdom had made a distinction between the words invalid and inoperative.

d. The word invalid had not been defined in the section.

e. The deductor had obtained PAN of deductee and filled up TDS challan cum-return in form number 26QB. The utility does not give any pop-up nor any message was flashed when the PAN was filled in the form.

f. Furthermore, the utility did not give any pop-up nor any message was flashed when the rate of TDS was filled as 1%.

g. In this background, the deductor assessee had no reason to disbelieve the validity of PAN and had gone ahead to deposit the TDS @ 1% and to upload form number 26QB.

3. That the assessee had acted bonafide in deducting and depositing the TDS. No action on the part of the assessee had been deliberate and the assessee is totally Innocent. Collection of such demand is likely to be unjust enrichment of the exchequer.

4. That the intention of the legislature in linking of PAN with Aadhar is to bring the assessee to the tax net on the basis of information received as SFT. The basic intention of the legislature is not to levy the tax at accelerated rate of tax in the nature of penalty. The PAN of the deductee had now become operative and that the department had enough time to bring the seller of the property to his tax net on the basis of such SFT.

5. That it is not disputed that the assessee had not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.

6. That the Hon'ble CIT(A) had erred in law and on facts of the case for confirming the tax liability merely because it was provided in the Act and had disregarded the bonafide conduct of the assessee. More so, when the assessee had acted promptly and persuaded the deductee to get his PAN linked with his Aadhar soon after became to know that the liability of tax was created against him at accelerated rate of tax.

7. That the order of Hon'ble CIT(A) be quashed and demand of tax may please be deleted as after coming to know the actual facts, the assessee took immediate steps to resolve the issue in as much as the PAN of seller now stands linked with his Aadhar. The demand being illegal and void be cancelled.

8. That in

a. Hindustan Steel Ltd. v. State of Orissa , (1969) 2 SCC 627, Hon'ble Supreme Court had made following observations:

"An o