Buyer’s TDS Filing Error Won’t Deny NRI Seller's Full Credit: Delhi HC Orders Refund Processing [Read Order]

In a recent ruling, the Delhi High Court directed the Income Tax Department to grant full TDS credit to an NRI seller and process a refund, despite a mistake by the property buyer in filing the TDS under the wrong form.

Parag Keshav Bopardikar, a Non-Resident Indian and tax resident of the United States, sold a residential property in Pune in 2015. The buyers withheld Rs. 18.68 lakhs as TDS and deposited it with the government. Buyer mistakenly filed the TDS using Form 26QB, which is applicable to resident sellers, instead of Form 27Q, meant for NRIs. So, the TDS credit did not reflect in the petitioner’s Form 26AS, and his return was marked as deficient.

Years later, the Assessing Officer issued a notice under Section 148of the Income Tax Act, claiming that income had escaped assessment. The petitioner’s counsel explained that all taxes had been paid, partly through TDS and partly by depositing advance tax. They requested that the TDS credit be correctly reflected and the refund processed accordingly.

The department’s counsel argued that due to the buyer’s error, the system could not automatically match the TDS credit with the petitioner’s account. They stated that, as per the internal SOP, correction required the buyer’s consent and supporting documents like an indemnity bond. Although the department admitted that the tax had been deposited and there was no dispute over that fact, they claimed that procedural requirements were blocking the correction.

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The petitioner’s counsel argued that he should not be penalized for a procedural lapse committed by the buyer. They stated that the buyer’s mistake in filing the wrong TDS form should not deprive the petitioner of his rightful tax credit, especially when the government had already received the amount.

A division bench led by Justice Vibhu Bakhru and Justice Tejas Karia held that the denial of credit due to a mere form-related error was unjust. The court found that there was no legal provision allowing the Assessing Officer to withdraw a valid assessment order and issue a revised computation without due process. It further ruled that requiring the buyer’s consent was unnecessary, as the TDS was not in dispute.

The court directed the Income Tax Department to correct the records and give the petitioner TDS credit with effect from the date of the deposit. It also instructed the department to compute and process any refund due in accordance with the law. All previous orders and communications inconsistent with this direction were treated as set aside. The petition was allowed.

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