Property Seller Gets ₹21 Lakh TDS Relief from ITAT Delhi After Buyer’s Mistake

• ITAT Delhi allowed ₹21 lakh TDS credit despite wrong deposit year
• Form 71 played a crucial role in resolving the tax mismatch
• Ruling reinforces capital gains taxation based on year of transfer

Income Tax Appellate Tribunal (ITAT Delhi) has ruled in favour of a taxpayer who was denied ₹21 lakh in TDS credit due to an error made by the property buyer. The decision not only resolved the individual case but also clarified an important principle that can benefit many taxpayers facing similar issues.

What Happened in the Case?

The case involved a non-resident Indian (NRI) who sold a property for ₹94 lakh during the financial year 2021–22. As per tax rules, the buyer deducted around ₹20.99 lakh as Tax Deducted at Source (TDS) under Section 194-IA.

However, the problem arose when the buyer deposited this TDS in the wrong financial year. Instead of depositing it in FY 2021–22, the buyer filed it in FY 2022–23. Because of this mismatch, the TDS appeared in the seller’s Form 26AS in a later assessment year (AY 2023–24), even though the property sale and capital gains belonged to AY 2022–23.

When the seller filed his income tax return for AY 2022–23, he declared the capital gains correctly and claimed the TDS credit. But the Income Tax Department’s processing system allowed only ₹60,872 and rejected the remaining ₹20.99 lakh.

Unhappy with the partial credit, the seller first approached the Commissioner of Income Tax (Appeals), but the claim was rejected again. The reasoning was simple: since the TDS appeared in a later year, the credit could not be given earlier.

The matter then reached ITAT Delhi, where the taxpayer challenged the decision.

The tribunal ruled in favour of the taxpayer, emphasizing a key legal principle under Section 45(1) of the Income Tax Act – capital gains must be taxed in the year the property is transferred, not when TDS is deposited.

The tribunal clarified that:

• The timing of TDS reflection in Form 26AS cannot override the law
• Tax credit should match the year in which the income is taxable
• A taxpayer should not suffer due to errors made by another party

Importantly, the tribunal also referred to Section 199 and Rule 37BA, which state that TDS credit must be given in the same year as the related income.

Role of Form 71 Explained

One of the most crucial aspects of this case was the use of Form 71.

Form 71 is a provision that allows taxpayers to claim TDS credit in the correct assessment year when there is a mismatch between:

• The year in which income is reported
• The year in which TDS is deposited

In this case, the taxpayer had already filed Form 71 within the prescribed time. This allowed the tribunal to direct the Assessing Officer to align the TDS credit with the correct year (AY 2022–23).

ITAT’s Final Direction

The tribunal concluded that denying the TDS credit simply because the buyer deposited it late was unjust. It directed the Assessing Officer to:

• Accept the capital gains in AY 2022–23
• Grant full TDS credit of ₹20.99 lakh in the same year

This ruling reinforces the “matching principle” in taxation income and related tax credit must align in the same year.

Why This Case Matters for Property Sellers?

This judgment is highly relevant for property buyers and sellers, especially NRIs, where TDS compliance plays a major role.

Key takeaways:

• Always verify if the buyer has deposited TDS in the correct year
• Check your Form 26AS and AIS carefully
• Use Form 71 if there is a mismatch in TDS credit
• Don’t hesitate to appeal if credit is wrongly denied

The decision sends a clear message: taxpayers should not be penalized for errors beyond their control. It also highlights the importance of understanding procedural tools like Form 71, which can help recover large amounts stuck due to technical issues.