TDS on Immovable Property: Liability Arises on Total Consideration

I. TDS on Immovable Property: Liability Arises on Total Consideration, Regardless of Payment Status

Facts

The Transaction: During AY 2018-19, the assessee purchased land for a total consideration of ₹4.81 crores.
The Default: The assessee deducted TDS at 1% (under Section 194-IA) only on an amount of ₹1.43 crores. No TDS was deducted on the remaining balance of approximately ₹3.38 crores.
Departmental Action: The Assessing Officer (AO) issued a show-cause notice regarding the short-deduction. The assessee failed to provide a valid explanation, merely seeking multiple adjournments.
Assessee’s Defense: The assessee contended that TDS was not required on the balance amount because that portion was charged to the Profit and Loss (P&L) statement as a liability and had not been physically paid to the seller.

Decision

Final Verdict: The Tribunal ruled in favour of the Revenue, upholding the order treating the assessee as an “assessee-in-default” under Section 201.
Ratio Decidendi: The Tribunal held that under Section 194-IA, the liability to deduct tax arises at the time of credit of the amount to the account of the transferor or at the time of payment, whichever is earlier. Even if the sale consideration remains unpaid or is reflected as a book entry, the transfer of property based on the total agreed value triggers the TDS obligation on the entire amount. Lack of immediate payment does not defer the statutory TDS requirement.

Key Takeaways

Total Value Governance: TDS under Section 194-IA must be calculated on the total sale consideration specified in the sale deed. One cannot limit the TDS to the amount “actually paid” if the property has been transferred or credited in the books.
Avoid Interest Penalties: Failure to deduct TDS on the full value leads to interest and potential penalties under Section 201. Professionals must ensure Form 26QB covers the total contract value at the time of execution.
Book Entry vs. Payment: Charging an amount to the P&L as an expense or liability is equivalent to “crediting the account of the payee,” which immediately triggers the TDS liability.

Case Law Text

Section 194-IA, read with section 201, of the Income-tax Act, 1961 / Section 393, read with section 398 of the Income-tax Act, 2025 – Deduction of tax at source – Payment on transfer of certain immovable property other than agricultural land (Immovable property).

II. TDS on Provisions: Remand for Verification of Crystallization and Subsequent Payment

Facts

The Trigger: Relying on the Tax Audit Report (Form 3CD), the AO noted that the assessee (a real estate concern) had not deducted tax on several expenses listed as eligible for TDS.
The Dispute: The AO summarily treated the assessee as an “assessee-in-default” under Section 201 based on the auditor’s disclosures.
Assessee’s Defense: The assessee argued that the items in the audit report were merely provisions for which the liability had not “crystallized” (become fixed).
Claims of Compliance: The assessee stated that TDS was deducted in subsequent years once the liability was finalized, or in certain cases, the tax was already deducted and remitted but not properly recognized by the AO.

Decision

Final Verdict: The matter was remanded (sent back) to the Assessing Officer for fresh adjudication.
Ratio Decidendi: The Tribunal held that the assessee must be allowed to adduce further evidence to prove that a definitive liability to pay had not arisen in the year under audit. If the assessee can demonstrate that these were tentative provisions or that the TDS was subsequently remitted, the AO must reconsider the “assessee-in-default” status.

Key Takeaways

Audit Report Scrutiny: Form 3CD is a high-risk document. Any non-deduction mentioned by the auditor will be flagged. Professionals must be prepared to prove “non-crystallization” with commercial evidence (e.g., pending invoices or disputed contracts).
Documentation for Remand: To succeed in remand, the taxpayer must provide a clear money trail showing when the liability became certain and the corresponding TDS payment challans from subsequent years.
Proviso to Section 201: If the payee has already paid tax on this income, the assessee can avoid the “default” status by furnishing a CA certificate (Form 26A) from the recipient side, even if TDS was missed.

Case Law Text

Section 201 of the Income-tax Act, 1961 / Section 398 of the Income-tax Act, 2025 – Deduction of tax at source – Consequence of failure to deduct or pay (Illustrations).

IN THE ITAT BANGALORE BENCH ‘A’

Artha Real Estate Corporation Ltd.

Deputy Commissioner of Income-tax, TDS^*

Prashant Maharishi, Vice President
and SOUNDARARAJAN K., Judicial Member

IT Appeal No. 1850 (Bang) of 2025
[Assessment year 2017-18]

APRIL 10, 2026

Shreeshkumar Hegde, CA for the Appellant. Balusamy N., JCIT-DR for the Respondent.

ORDER

Soundararajan K., Judicial Member.- This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 26/06/2025 in respect of the A.Y. 2018-19.

“1. The order passed under the provisions of section 250 of the Act by the learned CIT(A) confirming the order passed by the learned Assessing Officer in so far as it is against the Appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the case.

2. The learned CIT(A) has erred by confirming the order passed by the learned Assessing Officer learned Assessing Officer treating the Appellant as Assessee in default for not deducting the taxes at source on certain provisions for expenses made in the books of accounts on the facts and circumstances of the case. The learned Assessing Officer erred in assessing the tax liability of the Appellant at Rs.21,58,524 on the facts and circumstances of the case.

3. The learned CIT(A) has erred by holding that the Appellant has not deducted the tax at source on the real estate land cost charged to statement of profit and loss on the facts and circumstances of the case. Further, the learned CIT(A) has erred by holding that the provisions of section 194IA are applicable in the instant case on the facts and circumstances of the case.

WITHOUT PREJUDICE TO ABOVE

4. The learned CIT(A) has erred by holding that the Appellant is required to deduct the taxes at source on provisions which has not crystallized under the provisions of Chapter XVII – B of the Act on the facts and circumstances of the case. The learned CIT(A) failed to appreciate the requirement to deduct the tax arises only when the Appellant is required to pay the income on the facts and circumstances of the case.

5. The learned CIT(A) has erred by holding that the Appellant should have deducted the taxes at source on provisions which have been reversed subsequently in the books of account on the facts and circumstances of the case.

FURTHER WITHOUT PREJUDICE TO ABOVE

6. The learned CIT(A) has failed to call for remand report and has erred by not considering the additional evidence filed by the Appellant during the appeal proceedings which had material bearing on the outcome of the appeal proceedings on the facts and circumstances of the case.

7. The learned CIT(A) ought to have appreciated that the provisions reported in form 3CD have crystallised in subsequent years and the taxes have been deducted at source and paid in respective years by the Appellant on the facts and circumstances of the case.

8. The learned CIT(A) Assessing Officer ought to have appreciated that the Appellant has deducted and deposited the taxes at source on interest expense on due basis on the facts and circumstances of the case.

9. Without prejudice, the learned CIT(A) has erred in law in confirming the levy of interest under the provisions of section 201(1A) of the Act on the facts and circumstances of the case.

10. Without prejudice, the learned CIT(A) has erred in law in confirming the initiation of the penalty proceedings under the provisions of the Act on the facts and circumstances of the case.

11. The Appellant craves to add, alter, delete or substitute any of the grounds urged above.

12. In view of the above and other grounds as may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”

2. The brief facts of the case are that the assessee is in the business of real estate and they have filed their tax audit report in form 3CA. The AO based on the tax audit report had found that the assessee had not deducted the tax on certain expenses which were eligible for TDS. Therefore, the AO had initiated the proceedings u/s. 201 of the Act. The assessee had not filed any satisfactory explanations with regard to the non-compliance of TDS provisions. Subsequently, the AO based on the entries in the balance sheet and the P&L account found that the assessee had purchased land for a value of Rs. 4.81 crores but deducted the TDS only on a sum of Rs. 1.43 crores at 1% u/s. 194IA of the Act. The AO had issued a show cause notice why the TDS has not been deducted on the balance amount of Rs. 3.38 crores. The assessee had not submitted any valid explanations but only sought for an adjournment. Therefore, the AO had made the proceedings u/s. 201 of the Act and treated the assessee as assessee in default. As against the said proceedings, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) after considering the facts and the submissions made by the assessee had confirmed the proceedings made u/s. 201 of the Act.

3. As against the said order, the present appeal has been filed before this Tribunal.

4. At the time of hearing, the Ld.AR submitted that the assessee had not deducted the tax at source on the purchase of the land since the said amount was charged to the statement of profit and loss account and therefore the non-deduction of TDS on the purchase of the land is in order and therefore on that score, the assessee could not be treated as assessee in default. In respect of the other expenses on which the TDS was not deducted, the assessee submitted that the occasion has not arisen on the provisions which has not been crystallized and therefore the responsibility to deduct tax arise only when the appellant is required to pay the income and not on the provisions. The Ld.AR further submitted that the Ld.CIT(A) had not considered the additional evidences filed by the assessee and therefore the order of the Ld.CIT(A) is against the principles of natural justice. The Ld.AR further submitted that the provisions reported in form 3CD have crystallized in the subsequent years and the necessary TDS has also been deducted at source and therefore treating the assessee as assessee in default u/s. 201 of the Act is not correct. Similarly, the TDS was deducted on source at the interest expenses on due basis and therefore the said nondeduction of TDS during the year would not be treated as a valid reason for treating the assessee as assessee in default. The Ld.AR also filed a paper book enclosing the written submissions and the statement showing taxes deducted and form 16 in respect of provisions outstanding as on 31/03/2017 and the financial statements including the form 3CD.

5. The Ld.DR submitted that there are no valid reasons for not deducting the TDS on the purchases of lands and also on the expenses incurred by the assessee and therefore the invoking of section 201 on the assessee by the authorities below is in order and requires no interference.

6. We have heard the arguments of both sides and perused the materials available on record.

7. In the present appeal, the AO had treated the assessee as assessee in default u/s. 201 of the Act on the non-deduction of TDS while purchasing an immovable property and also on the payments made during the year.

8. Insofar as the non-deduction of TDS on the purchase of immovable property, the assessee himself had accepted that the property has been purchased for a total value of Rs. 4.81 crores whereas deducted the TDS of Rs. 1.43 crores and the reason for non-deduction for the balance payments is that the said amount was debited in the P&L account of the assessee. We do not find that the said explanation is in order. When the property has been purchased by the assessee without payment of the sale consideration, the property would not be transferred to the assessee and in that circumstances, as per section 194IA of the Act, necessarily, the assessee has to deduct the TDS on the entire amount of Rs. 4.81 crores. Instead of doing that, the assessee had deducted 1% on Rs. 1.43 crores. In our opinion, the said non-deduction of TDS on the balance amount of Rs. 3.38 crores, is against the provision 194IA and therefore the AO had rightly considered the assessee as assessee in default u/s. 201 of the Act.

9. Insofar as the other expenses incurred by the assessee, the assessee had filed a statement of the details of payment for which the tax is not deducted as on 31/03/2017 as per form 3CD and the details of remittance and in the said statement, the assessee had given notes 1 to 4 and explained that why the TDS was not deducted on the four items. The assessee also filed the copies of form no. 16A which was not produced before the AO. Before the AO, the assessee had furnished the financial statements and the audit report in form 3CD of the Act. It is the case of the assessee that the assessee had submitted the details also before the Ld.CIT(A) whereas the Ld.CIT(A) had not considered the said details and therefore it requires verification at the end of the AO. Further, the assessee also submitted that in some cases, TDS was also deducted and remitted to the department. To verify the said facts, we remit these payments as narrated in Table 1 by the AO to the assessing officer for denovo consideration based on the documents now filed before us. It is also open to the assessee to adduce further evidences to show that the deduction of TDS is not required or deduction was made and tax was remitted to the department. In such event, we direct the AO to consider the documents and arrive a conclusion that whether the assessee is to be treated as assessee in default or not. With the above direction, we remit the expenses mentioned in Table 1 of the assessment order to the AO. The non-deduction of TDS insofar as the purchase of land is concerned, we are not inclined to interfere in the orders passed by the lower authorities.

10. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.