NRI Wins in Delhi High Court: Unjust IT Penalties Lifted After Tax Compliance Snafu
Foreign Citizen Victories in Dispute over Property Tax in Real Estate Sector
In a significant victory for NRIs, the Delhi High Court has overturned unjust penalty proceedings on an NRI minor who failed to file an Income Tax Return following the sale of a property in 2015. The case centered around two key issues: failure to deposit TDS on a real estate transaction and the subsequent failure to file an ITR.
Take an in-depth look into the petition and the court's ruling in favor of the free-spirited NRI!
The NRI in question, a US tax-resident, sold a residential property purchased in 1998 in Maharashtra in 2015. He opened a fresh Indian bank account to receive the sale proceeds.
Upon selling the property, the buyers demanded a 20% Tax Deducted at Source (TDS), which the NRI agreed to. The sale deed was finalized at Rs 2 crore, with the buyers crediting Rs 1,81,31,823 to the NRI's account and withholding the remainder Rs 18,68,177 for the government. The buyers handed over the withheld amount to the tax authorities for the NRI's credit.
Believing that he had correctly computed his income tax liability at Rs 1,91,780 and paid advance tax, our carefree NRI was unaware of the need to file an Income Tax Return. However, a notice from the IT department under Section 148A(b) of the Income Tax Act surfaced, suggesting that his income had escaped assessment due to the property sale.
In response, our NRI contended that the buyers had deposited the held Rs 18,68,177 with the government but filed an incorrect TDS return under Form 26QB instead of Form 27Q. Moreover, the TDS certificate – Form 16A – was not provided by the buyers.
The Assessing Officer persisted in penalty proceedings under Section 270A of the act, imposed for under-reporting or mis-reporting income in the ITR. But the tenacious NRI fought back with a detailed objection, citing that his entire tax liability had been discharged. However, the credit was not reflected due to the problematic return filed under Form 26QB.
The introduction of Section 270A in 2017 empowers the AO to impose penalties for non-compliance. This was the main bone of contention in the case, as the penalties were imposed retrospectively, even though the transaction happened in 2015.
In a triumphant turn of events, the Delhi High Court ruled in favor of dropping the penalty proceedings under Section 270A. The court's statement read, "Since Section 270A penalty proceedings, effective from 01.04.2017, and the instant case related to FY 2015-16 (AY 2016-17), the penalty proceedings u/s 270A are hereby dropped vide Order dated 12.03.2025 to the benefit of the Petitioner."
The Court also directed the Tax Department to rectify the records and show the TDS deposited by the buyers to the NRI's credit. They further ordered the Department to compute the amount of refund, if any, due to the NRI.
In a world where TDS compliance can make or break a real estate deal, this ruling serves as a lesson for buyers and sellers alike to be mindful when dealing with NRIs.
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- The court's ruling in favor of the NRI highlights the importance of accurate finance documentation, particularly in real-estate investing, to avoid penalties and ensure compliance with tax laws.
- In light of the case, investors, especially NRIs, should be careful while dealing with Tax Deducted at Source (TDS) in their real-estate business to avoid future financial issues and potential penalties.
- Moving forward, understanding the intricacies of finance in the real-estate market, including TDS filing and the subsequent Income Tax Return, will be crucial for NRIs to ensure smooth business and avoid unnecessary penalties.
