I deducted one per cent on a land purchase where the sellers had no PAN, and the officer says I should have deducted twenty per cent under section 206AA. The land was agricultural. Can he charge me the difference because I deducted something?
No. The Tribunal held that section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability to deduct, so unless the transaction falls within section 194-IA the enhanced rate cannot be invoked at all. The land being agricultural, section 194-IA was not attracted, and the section 201(1) demand of Rs 44,95,590 and the section 201(1A) interest of Rs 42,25,854 were both deleted.
Decided by the ITAT (Shri T.R. Senthil Kumar, Judicial Member and Shri Ratnesh Nandan Sahay, Accountant Member (order per T.R. Senthil Kumar, Judicial Member), Income Tax Appellate Tribunal, Surat Bench) on 2026-07-30, reported as ITA No. 1297/SRT/2024; Assessment Year 2017-18; date of hearing 8 May 2026, order pronounced 30 July 2026 under Rule 34 of the ITAT Rules, 1963. It bears on section 194-IA, section 206AA, section 206AA(1)(iii), section 201(1), section 201(1A) of the Income Tax Act 1961, in TDS Defaults, How Tax Law Is Read and Evidence & Burden of Proof matters.
Two things make this decision unusually useful. The first is the machinery point stated in general terms: a machinery provision for deduction at source cannot operate unless the substantive provision creating the obligation is first attracted. That reasoning is not confined to section 206AA and section 194-IA, and it answers a whole family of demands in which an officer starts from the enhanced rate and never asks whether the charge applies. The second is that the assessee had actually deducted one per cent and had thereby, in the Commissioner (Appeals)'s view, 'admitted his liability'. The Tribunal did not accept that a mistaken deduction converts a non-taxable transaction into a taxable one; it went back to the sale deed, found the property described throughout as agricultural land, and held the foundation of the demand had failed. The interest figure is the warning — Rs 42.25 lakh of section 201(1A) interest on a 2016 transaction assessed in 2024, almost equal to the tax. Note also what the Tribunal did NOT decide: it expressly treated the timing question — whether the obligation crystallised on the issue of the cheques — as academic once the charge failed, so this is not authority on the timing point.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, an individual, filed his return for AY 2017-18 on 23 August 2018 declaring total income of Rs 42,00,380. The Assessing Officer learnt that he had, with two co-owners, purchased immovable property described as agricultural land situated at Vesu, Old R.S. No. 536, for a total consideration of Rs 4,73,22,000 by sale deed dated 7 April 2016, the assessee's share being 50 per cent, that is Rs 2,36,61,000. The sellers, Smt. Laxmiben Chhaganlal and Smt. Champaben Chhaganlal, held no Permanent Account Numbers, which in the Assessing Officer's view attracted a twenty per cent rate under section 206AA(1)(iii), whereas the assessee had deducted at one per cent. A show cause notice was issued on 11 March 2024. In reply the assessee said that Sale Deed No. 366 of 2016 dated 7 April 2016 had been cancelled by the Surat Civil Court by judgment dated 18 June 2019 because of a dispute over a double sale of the same property, that he had made no payment to the sellers, and that a Kotak Mahindra Bank statement showed the cheques given to the sellers had not been cleared. The Assessing Officer rejected this, invoked section 201(1) and demanded Rs 44,95,590 for short deduction, and charged interest of Rs 42,25,854 under section 201(1A). The Commissioner (Appeals) (Addl/JCIT(A)-5, Mumbai), by order dated 29 November 2024, confirmed, holding that the liability crystallised on the issue of the cheques (2, 4, 5 and 6 May 2016), that the subsequent cancellation of the deed was a contingent event that did not absolve the assessee, and that the assessee had himself admitted the liability by deducting one per cent.
The appeal of the assessee was allowed. The property transferred was throughout described in the registered sale deed as agricultural land and the Revenue brought no material to show otherwise, so section 194-IA was not attracted; section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability, so where section 194-IA has no application the enhanced rate cannot be invoked; jurisdiction under section 201 can be exercised only against a person statutorily liable to deduct, so in the absence of any obligation the assessee could not be treated as an assessee in default, and the consequential interest under section 201(1A) could not survive (paragraphs 5.2 to 5.7 and 6).
The Tribunal began by holding that before section 206AA can be examined it is necessary to determine whether the charging provision in section 194-IA is itself attracted, because section 194-IA casts its obligation only in respect of immovable property 'other than agricultural land', so the very applicability of the section depends on the nature of the property transferred (paragraph 5.1). Examining the registered sale deed in the paper book it found the property described throughout as agricultural land, reproducing Clause 8 in which the vendors described themselves as joint co-owners and possessors of the said agriculture land (paragraph 5.2), and it recorded that the Revenue had brought nothing on record to show the property was anything other than agricultural land or fell within the category excluded from that expression, the Assessing Officer's case proceeding merely on the value of the transaction without first establishing that the property was covered by the section (paragraph 5.3). It then stated the machinery principle: a machinery provision for deduction at source cannot operate unless the substantive provision creating the obligation is first attracted, and section 206AA, which merely prescribes a higher rate where tax is otherwise deductible and the deductee fails to furnish PAN, cannot be invoked independently (paragraph 5.4). The cancellation of the sale deed by the civil court and the bank's certificate that the cheques were never presented were treated as reinforcing but not as themselves determining the liability (paragraph 5.5). The Commissioner (Appeals)'s reasoning that the obligation arose on the issue of the cheques was rejected as answering a question that arises only after the transaction is shown to fall within section 194-IA, so that it had become wholly academic and the foundation of the demand failed (paragraph 5.6). Section 201 can be invoked only where a person statutorily liable to deduct has failed to deduct or, having deducted, failed to pay, so no liability arose and the interest fell with the principal (paragraph 5.7).
It is a settled principle that the machinery provisions relating to tax deduction at source cannot operate unless the substantive provision creating the obligation is first attracted.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal held that section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability to deduct, so unless the transaction falls within section 194-IA the enhanced rate cannot be invoked at all. The land being agricultural, section 194-IA was not attracted, and the section 201(1) demand of Rs 44,95,590 and the section 201(1A) interest of Rs 42,25,854 were both deleted. This was decided by the ITAT (Shri T.R. Senthil Kumar, Judicial Member and Shri Ratnesh Nandan Sahay, Accountant Member (order per T.R. Senthil Kumar, Judicial Member), Income Tax Appellate Tribunal, Surat Bench) and bears on section 194-IA, section 206AA, section 206AA(1)(iii), section 201(1), section 201(1A) of the Income Tax Act 1961. It is reported as ITA No. 1297/SRT/2024; Assessment Year 2017-18; date of hearing 8 May 2026, order pronounced 30 July 2026 under Rule 34 of the ITAT Rules, 1963. Two things make this decision unusually useful. The first is the machinery point stated in general terms: a machinery provision for deduction at source cannot operate unless the substantive provision creating the obligation is first attracted. That reasoning is not confined to section 206AA and section 194-IA, and it answers a whole family of demands in which an officer starts from the enhanced rate and never asks whether the charge applies. The second is that the assessee had actually deducted one per cent and had thereby, in the Commissioner (Appeals)'s view, 'admitted his liability'. The Tribunal did not accept that a mistaken deduction converts a non-taxable transaction into a taxable one; it went back to the sale deed, found the property described throughout as agricultural land, and held the foundation of the demand had failed. The interest figure is the warning — Rs 42.25 lakh of section 201(1A) interest on a 2016 transaction assessed in 2024, almost equal to the tax. Note also what the Tribunal did NOT decide: it expressly treated the timing question — whether the obligation crystallised on the issue of the cheques — as academic once the charge failed, so this is not authority on the timing point. If it applies to you, the first step is this: Take the charging section first and the rate section second. Do not argue about section 206AA until you have established that section 194-IA (or whichever charge is invoked) applies at all.
The assessee, an individual, filed his return for AY 2017-18 on 23 August 2018 declaring total income of Rs 42,00,380. The Assessing Officer learnt that he had, with two co-owners, purchased immovable property described as agricultural land situated at Vesu, Old R.S. No. 536, for a total consideration of Rs 4,73,22,000 by sale deed dated 7 April 2016, the assessee's share being 50 per cent, that is Rs 2,36,61,000. The sellers, Smt. Laxmiben Chhaganlal and Smt. Champaben Chhaganlal, held no Permanent Account Numbers, which in the Assessing Officer's view attracted a twenty per cent rate under section 206AA(1)(iii), whereas the assessee had deducted at one per cent. A show cause notice was issued on 11 March 2024. In reply the assessee said that Sale Deed No. 366 of 2016 dated 7 April 2016 had been cancelled by the Surat Civil Court by judgment dated 18 June 2019 because of a dispute over a double sale of the same property, that he had made no payment to the sellers, and that a Kotak Mahindra Bank statement showed the cheques given to the sellers had not been cleared. The Assessing Officer rejected this, invoked section 201(1) and demanded Rs 44,95,590 for short deduction, and charged interest of Rs 42,25,854 under section 201(1A). The Commissioner (Appeals) (Addl/JCIT(A)-5, Mumbai), by order dated 29 November 2024, confirmed, holding that the liability crystallised on the issue of the cheques (2, 4, 5 and 6 May 2016), that the subsequent cancellation of the deed was a contingent event that did not absolve the assessee, and that the assessee had himself admitted the liability by deducting one per cent. The matter was decided on 2026-07-30 by the ITAT (Shri T.R. Senthil Kumar, Judicial Member and Shri Ratnesh Nandan Sahay, Accountant Member (order per T.R. Senthil Kumar, Judicial Member), Income Tax Appellate Tribunal, Surat Bench). On those facts the ITAT held as follows. The appeal of the assessee was allowed. The property transferred was throughout described in the registered sale deed as agricultural land and the Revenue brought no material to show otherwise, so section 194-IA was not attracted; section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability, so where section 194-IA has no application the enhanced rate cannot be invoked; jurisdiction under section 201 can be exercised only against a person statutorily liable to deduct, so in the absence of any obligation the assessee could not be treated as an assessee in default, and the consequential interest under section 201(1A) could not survive (paragraphs 5.2 to 5.7 and 6).
The Tribunal began by holding that before section 206AA can be examined it is necessary to determine whether the charging provision in section 194-IA is itself attracted, because section 194-IA casts its obligation only in respect of immovable property 'other than agricultural land', so the very applicability of the section depends on the nature of the property transferred (paragraph 5.1). Examining the registered sale deed in the paper book it found the property described throughout as agricultural land, reproducing Clause 8 in which the vendors described themselves as joint co-owners and possessors of the said agriculture land (paragraph 5.2), and it recorded that the Revenue had brought nothing on record to show the property was anything other than agricultural land or fell within the category excluded from that expression, the Assessing Officer's case proceeding merely on the value of the transaction without first establishing that the property was covered by the section (paragraph 5.3). It then stated the machinery principle: a machinery provision for deduction at source cannot operate unless the substantive provision creating the obligation is first attracted, and section 206AA, which merely prescribes a higher rate where tax is otherwise deductible and the deductee fails to furnish PAN, cannot be invoked independently (paragraph 5.4). The cancellation of the sale deed by the civil court and the bank's certificate that the cheques were never presented were treated as reinforcing but not as themselves determining the liability (paragraph 5.5). The Commissioner (Appeals)'s reasoning that the obligation arose on the issue of the cheques was rejected as answering a question that arises only after the transaction is shown to fall within section 194-IA, so that it had become wholly academic and the foundation of the demand failed (paragraph 5.6). Section 201 can be invoked only where a person statutorily liable to deduct has failed to deduct or, having deducted, failed to pay, so no liability arose and the interest fell with the principal (paragraph 5.7). In the words reproduced by the source cited on this page: "It is a settled principle that the machinery provisions relating to tax deduction at source cannot operate unless the substantive provision creating the obligation is first attracted."
It was decided by the ITAT on 2026-07-30 and is reported as ITA No. 1297/SRT/2024; Assessment Year 2017-18; date of hearing 8 May 2026, order pronounced 30 July 2026 under Rule 34 of the ITAT Rules, 1963. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 194-IA, section 206AA, section 206AA(1)(iii), section 201(1), section 201(1A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal of the assessee was allowed. The property transferred was throughout described in the registered sale deed as agricultural land and the Revenue brought no material to show otherwise, so section 194-IA was not attracted; section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability, so where section 194-IA has no application the enhanced rate cannot be invoked; jurisdiction under section 201 can be exercised only against a person statutorily liable to deduct, so in the absence of any obligation the assessee could not be treated as an assessee in default, and the consequential interest under section 201(1A) could not survive (paragraphs 5.2 to 5.7 and 6). It arises in TDS Defaults, How Tax Law Is Read and Evidence & Burden of Proof matters, on section 194-IA, section 206AA, section 206AA(1)(iii), section 201(1), section 201(1A) of the Income Tax Act 1961, and was decided by Shri T.R. Senthil Kumar, Judicial Member and Shri Ratnesh Nandan Sahay, Accountant Member (order per T.R. Senthil Kumar, Judicial Member), Income Tax Appellate Tribunal, Surat Bench. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read the sale deed and quote its own description of the property. Here Clause 8 recorded the vendors as joint co-owners and possessors of 'the said agriculture land', and that recital carried the case. Do not concede that a deduction actually made is an admission. Point out that the obligation is statutory, not contractual, and that a deduction made under a misapprehension cannot create a charge the Act does not impose. Put the Revenue to proof: the Tribunal recorded that the Revenue had brought no material to show the property was anything other than agricultural land or fell within the excluded category. Where a sale deed has been cancelled by a civil court and the cheques were never presented, obtain the decree and a bank certificate. The Tribunal treated those facts as reinforcing, though not by themselves determinative. Attack section 201(1A) interest as consequential once the principal demand under section 201(1) falls.
Searched for later treatment; none was found. That is not the same as a source affirming it. A `citedby:` citator search on this order's Indian Kanoon id returns no later decision citing it. A second, differently worded probe - the assessee's name restricted to documents from 30 July 2026 onward, across all courts including the High Courts and the Supreme Court - turned up no judicial treatment either. In particular no appeal under section 260A, and so no High Court reversal, could be traced, and no later Bench was found taking the opposite view. This is a July 2026 order, so the silence reflects its age rather than any doubt about it: a practitioner may cite it as the only direct authority on the point but should not expect it to be treated as settled. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraph structure, established by transcribing the whole document rather than by asking about it: the Tribunal's own numbered paragraphs are 1, 2, 3, 4, 5, 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 6 and 7, ending with 'In the result, the appeal filed by the assessee is allowed.' and the signature block. Inside paragraph 3 the Tribunal reproduces the Commissioner (Appeals)'s order, and that reproduced passage carries its own paragraph number '4.2' — that number belongs to the Commissioner (Appeals), not to this order. Clause 8 of the sale deed is reproduced inside paragraph 5.2 and is the parties' document, not the Tribunal's words. Retrieval and corroboration: the full text was transcribed from https://indiankanoon.org/doc/140388802/?type=print and paragraph 5.4 was independently re-fetched through https://indiankanoon.org/docfragment/140388802/?formInput=... , which returned the same paragraph in the same words. The order is dated 30 July 2026 on AY 2017-18, so neither the 1 April 2022 stamp-duty-value amendment nor the 1 October 2024 aggregation proviso was in issue. The cause title as printed shows the appellant's address and a stray 'V s' between the parties; the assessee's share is given as 50 per cent of Rs 4,73,22,000, that is Rs 2,36,61,000, while the sale deed involved 'two co-owners' besides the assessee, which the order does not reconcile. Nothing in the reasoning turns on that. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal of the assessee was allowed. The property transferred was throughout described in the registered sale deed as agricultural land and the Revenue brought no material to show otherwise, so section 194-IA was not attracted; section 206AA merely prescribes a higher rate where tax is otherwise deductible and does not create an independent liability, so where section 194-IA has no application the enhanced rate cannot be invoked; jurisdiction under section 201 can be exercised only against a person statutorily liable to deduct, so in the absence of any obligation the assessee could not be treated as an assessee in default, and the consequential interest under section 201(1A) could not survive (paragraphs 5.2 to 5.7 and 6).
TaxSphere, “Shailesh Veljibhai Paladiya v. ITO, TDS Ward-2, Surat (ITAT Surat) — section 206AA cannot be invoked where section 194-IA itself is not attracted, and deducting one per cent by mistake is not an admission of liability”, https://taxnotice.vittsphere.com/caselaw/case/shailesh-veljibhai-paladiya-206aa-cannot-operate-where-194-ia-is-not-attracted/ (validity last checked 2026-09-08)
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The TDS officer says I should have deducted under section 194-IA on land I bought, and has applied twenty per cent under section 206AA because the farmer-sellers had no PAN. The land is agricultural. Does that answer the demand?
I bought a flat and deducted 1 per cent under s.194-IA. CPC has raised a 20 per cent short-deduction demand because the seller's PAN was inoperative for want of Aadhaar linking. The seller has since linked it. Is there any way out?
I bought a flat, deducted one per cent under s.194-IA, and CPC has hit me with a demand because the seller's PAN was not linked to Aadhaar. Is there a High Court decision I can put in front of the officer?
Four of us bought one flat and each of us paid under fifty lakh rupees. The TDS officer says we should have deducted under section 194-IA. Did we have to, and does the answer depend on when we bought?
