Inoperative PAN, higher TDS and CPC‑TDS demand: ITAT Delhi orders fresh verification in Manoj Kumar Vs ITO

1. Background of the dispute

The Delhi Bench of the Income Tax Appellate Tribunal adjudicated three connected appeals in the case of Manoj Kumar Vs ITO (ITAT Delhi), arising out of TDS processing for A.Y. 2024‑25. Manoj Kumar, Proprietor of M/s Manoj Metals, had challenged a consolidated demand raised by CPC‑TDS under Section 154 read with Section 200A/Section 206CB of the Income Tax Act 1961.

The impugned order of CPC‑TDS dated 06.02.2025 triggered:

  • Application of higher TDS rate under Section 206AA on the footing that the deductees’ PANs were inoperative for not being linked with Aadhaar,
  • Levy of fees under Section 234E for delayed filing of TDS statements, and
  • Interest under Section 201(1A) and Section 220(2).

On this basis, the Assessing Officer, CPC‑TDS computed an aggregate demand of Rs.48,07,910/-.

The assessee carried the matter in appeal to the CIT(A)-7, Mumbai, whose order dated 14.08.2025 upheld the CPC‑TDS adjustments. The assessee then preferred three separate appeals before the ITAT: ITA Nos. 1499, 1500 and 1501/Del/2026, all concerning A.Y. 2024‑25 and identical issues.

2. Essence of the assessee’s grievance

Across all three appeals, the assessee’s case rested on a common factual matrix:

  • TDS was deducted at the normal rate of 0.1% under Section 194Q on purchase transactions.

  • Deductees’ PANs, though quoted, were later treated as inoperative because they had not been linked with Aadhaar within the prescribed timelines under Section 139AA read with Rule 114AAA.

  • CPC‑TDS processed the TDS statements treating such PANs as invalid/inoperative and mechanically:

    • Applied higher TDS at 5% under Section 206AA,
    • Computed short‑deduction,
    • Levied fees under Section 234E, and
    • Charged interest under Section 201(1A) and Section 220(2).

The assessee consistently argued that:

  • Linking PAN with Aadhaar is the deductee’s statutory responsibility, not that of the deductor.
  • The delay in filing TDS returns and the shortfall, if any, arose purely because certain suppliers did not complete Aadhaar–PAN linkage in time, despite repeated follow‑ups and assurances.
  • There was no intention to evade tax: TDS at the standard rate was duly deducted and deposited; all payments were through regular banking channels and purchases were fully recorded.

In substance, the assessee contended that imposing the consequences of Section 206AA and Section 234E on the deductor, when the fault lay in the deductees’ PAN compliance, was inequitable and contrary to the broader scheme of the Act and CBDT’s own relaxation measures.

3. Grounds of appeal – key themes

Although the three appeals contained extensive grounds, they can be grouped into the following principal contentions.

3.1 Delay in TDS return filing was bona fide and beyond control

The assessee submitted that:

  • The TDS statements could not be filed within time because suppliers had not regularised their PAN status by linking with Aadhaar.
  • The assessee had no statutory power to compel suppliers to complete linkage within any fixed date.
  • Since delays automatically invite statutory fee and interest, there was no incentive for the assessee to postpone filing.

On this footing, the assessee invoked Section 273B, arguing that the circumstances constituted “reasonable cause”, and hence no penal consequences should follow.

3.2 Challenge to fees under Section 234E

The levy of late filing fee under Section 234E was contested on the basis that:

  • The delay was attributable to circumstances outside the assessee’s control, namely, inoperability of deductees’ PANs.
  • TDS had in fact been deducted and paid; thus there was no loss to the exchequer.
  • A rigid and automatic application of Section 234E in such a fact pattern, without examining the reasons for delay, was argued to be unjustified.

In some grounds, reliance was placed on Kanta Govind Singh vs ACIT (CPC‑TDS), asserting that where delay is not deliberate, Section 234E fees should not be imposed.

3.3 Dispute on application of Section 206AA (5% rate)

The assessee specifically contested the application of higher TDS at 5% under Section 206AA, arguing: