Assessee not liable for TDS on alleged cash payments absent corroborative evidence or reassessment proceedings

Assessee not liable for TDS on alleged cash payments absent corroborative evidence or reassessment proceedings

Issue

Whether the assessee can be treated as an “assessee in default” under Section 201(1)/201(1A) for failing to deduct tax at source (TDS) under Section 194-IA on an alleged cash consideration paid for the purchase of immovable property, where the Revenue failed to prove the cash payment or initiate reassessment proceedings regarding the same.

Facts

• Search Operation: A search and seizure operation under Section 132 was conducted on the “Homeland Group” (builders). Information received suggested the assessee purchased a flat jointly (50% share) for a total consideration of Rs. 1,29,55,083.

• Allegation of Cash Payment: The AO alleged that apart from cheque payments (Rs. 92,35,500 total), the assessee paid Rs. 19,75,000 in cash. For the assessment year in question (AY 2017-18), the AO noted cheque payments of Rs. 46,16,250 and alleged cash payments of Rs. 9,87,500.

• Source of Allegation: The allegation was based solely on statements recorded from employees of the builder (M/s Homeland Buildwell Pvt. Ltd.) who claimed cash was received.

• Assessee’s Defense: The assessee denied making any cash payments, stating that only banking channel payments were made. Consequently, no TDS was deducted on the non-existent cash component.

• AO’s Action: The AO rejected the explanation and treated the assessee as an “assessee in default” for not deducting TDS on the alleged cash component under Section 194-IA.

• CIT(A) Ruling: The CIT(A) upheld the AO’s order, leading to the appeal before the Tribunal.

Decision

• Lack of Corroborative Evidence: The Tribunal noted that the Revenue relied entirely on third-party statements (builder’s employees) without bringing any independent or cogent evidence to prove the assessee actually paid cash.

• No Reassessment Initiated: The Tribunal emphasized that the Revenue did not initiate proceedings under Section 148 (reassessment) or Section 153C to treat the alleged cash payment as undisclosed income in the hands of the assessee.

• Burden of Proof: Under Section 194-IA, the obligation to deduct tax arises only upon payment/credit. Since the Revenue failed to prove the pre-requisite condition (i.e., that a cash payment was actually made), the obligation to deduct TDS could not be fastened upon the assessee.

• Outcome: The Tribunal quashed the assessment order and allowed the appeal, ruling that TDS cannot be demanded on hypothetical payments that the Revenue failed to substantiate.

Key Takeaways

• Evidence is Paramount: Revenue cannot demand TDS on alleged payments based solely on third-party statements; concrete evidence of funds flow is required.

• Link to Assessment: If the Revenue believes cash was paid, it logically follows they should tax that cash as undisclosed income (u/s 148/153C). Failure to do so weakens the claim that the assessee is “in default” for TDS on that same amount.

• Section 194-IA Trigger: The liability to deduct 1% TDS on property over ₹50 Lakhs triggers strictly at the time of credit or payment. If the factum of payment is unproven, the liability does not crystallize.

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘B’ CHANDIGARH
Simmi Gupta, 1076, Sector 37-B, Chandigarh.
Vs
The DCIT/ACIT (TDS),
Chandigarh.
Date of Pronouncement : 22.12.2025
ITA No. 212/CHD/2025