A Non-Resident Indian (NRI) won a petition in the Delhi High Court against the non-assessment of income by failing to file an Income Tax Return. The case involved two aspects: failure to deposit TDS on a real estate property transaction and failure to file an ITR.

It refers to an ‘Income from House Property’ case in which the right TDS amount was deducted and filed with the government, and advance tax was paid as required, yet a notice from the IT department was received.

Here’s what happened and why the Delhi High Court decided in favor of the NRI.

The petitioner, a non-resident Indian and US tax resident, sold a residential property in Maharashtra in 2015 which he had purchased in 1998. He opened a new bank account in India to repatriate the sale proceeds.

The buyers demanded a 20% Tax Deducted at Source (TDS) deduction for the sale of the property, which the petitioner agreed to. The two parties executed a sale deed for Rs 2 crore, with the buyers crediting Rs 1,81,31,823 to the petitioner’s bank account and withholding the remaining amount of Rs 18,68,177. The buyers deposited the remaining amount with the government for the petitioner’s credit.

The petitioner claimed to have computed his income tax liability at Rs 1,91,780 and deposited it as advance tax. He then repatriated the remaining sale proceeds to the USA, claiming he was unaware of filing the Income Tax Return.

The Assessing Officer issued a notice under Section 148A(b) of the Income Tax Act, 1961, suggesting that the petitioner’s income has escaped assessment due to the sale of the property. The petitioner responded by providing all necessary details to prove that he has discharged his tax liability on the sale consideration.

However, the AO did not accept the same and proceeded to pass an order under Section 148A(d) holding that it is a fit case for the issuance of notice under Section 148 of the Act, which is ‘Issue of notice where income has escaped assessment.’

The petitioner claims that the buyers deposited Rs 18,68,177 with the government, but the TDS return was filed under Form 26QB, which applies to resident Indians, not NRIs.

The AO also initiated penalty proceedings under Section 270A of the Act. The petitioner once again filed a detailed reply pointing out that the entire tax liability had been discharged, but the credit of the same was not effected on account of returns filed under Form 26QB instead of Form 27Q.

Section 270A of the Income Tax Act, introduced in 2017, empowers the AO to impose penalties on individuals who either under-reported or mis-reported income in the ITR form.

The confusion happened on account of non-deposit of Tax Deducted at Source. The buyer correctly deducted and deposited TDS, but credit for the petitioner was denied due to the incorrect form used. The buyer filed incorrect Form No.26QB instead of Form 27Q and did not provide proof of TDS payment in Form 16A.

The court ruled in favour of dropping the penalty proceedings under Section 270A. ” Since, the provisions of levy penalty in case the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148 u/s 270A is effective from 01.04.2017, and the instant case related to FY 2015-16 (AY 2016-17), the penalty proceedings u/s 270A is hereby dropped vide Order
dated 12.03.2025 to the benefit of the Petitioner,” is what the court’s statement noted.

The Court also directed the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit under the return filed in Form 26QB with effect from the date, the amount was deposited. The Revenue shall further compute the amount of the refund, if any, that may be due to the petitioner under law.