Mumbai Tribunal Deletes Rs 5.8 Lakh Tax Demand On Haji Ali Flat Buyer

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has deleted an additional tax demand of over Rs 5.8 lakh raised against a homebuyer who purchased a flat in Haji Ali. The tax department had raised the demand after claiming the seller's PAN was inoperative due to a failure to link it with Aadhaar. However, the tribunal ruled in favor of the buyer after the seller subsequently linked the two documents and paid the required taxes.

The case involved a Mumbai resident who jointly purchased the Haji Ali property, valued at Rs 1.9 crore, with her husband. The woman held a 15% share in the flat, amounting to Rs 28.5 lakh. Upon transaction, she deducted a Tax Deducted at Source (TDS) of Rs 28,500, representing the standard 1% rate under Section 194-IA of the Income Tax Act.

Following the transaction, the Income Tax Department issued a demand of more than Rs 5.8 lakh for short deduction of tax. The department argued that because the seller's PAN was inoperative at the time, higher TDS provisions under Section 206AA should have been applied by the buyer.

In its ruling, the ITAT deleted the Rs 5.8 lakh demand. The tribunal noted that the seller had subsequently linked their Aadhaar with PAN, regularising the document within the timeline prescribed by a Central Board of Direct Taxes (CBDT) circular issued in July 2025. Additionally, the tribunal observed that the seller had already disclosed the capital gains from the sale in his tax return and paid the applicable taxes, meaning the buyer should not be treated as an "assessee in default."

Tax experts noted that the case highlights the complex compliance burdens placed on homebuyers. Chartered accountant Ketan Vajani explained that for resident sellers, TDS under Section 194-IA is typically 1% and must be computed on the higher of the transaction value or stamp duty value, including additional charges like parking fees and club membership.

Chartered accountant Ameet Patel added that joint ownership can further complicate these transactions. He noted that even if one partner funds the purchase entirely but adds a spouse's name for security, determining the correct allocation of the sale price and TDS components can be challenging for buyers.