Assessee Required To Substantiate Claim Of TDS, In Absence Of TDS Certificate: ITAT

The Bench, consisting of Rahul Chaudhary (Judicial Member) and Om Prakash Kant (Accountant Member), reiterated that the assessee should be provided credit of TDS deducted by the payer of income, irrespective of whether the TDS was deposited by the deductor into the government account or not.

The assessee- DZ Bank, provided loans to Indian borrowers and received payments from its Indian borrowers towards interest on borrowed amounts, after deduction of TDS.

However, the Assessing Officer (AO) disallowed credit to the assessee for the TDS deducted by the borrowers/ deductors and raised a demand on the assessee in respect of the taxes already deducted. The order of the AO was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)), against which the assessee filed an appeal before the ITAT.

The assessee DZ Bank AG submitted before the ITAT that as per the loan agreement, the borrower was required to bear the cost of tax, i.e., the TDS, and the assessee/lender was to receive an amount net of any withholding tax or TDS.

The assessee contended that it only received the net amount, i.e., after deduction of TDS, and hence, credit must be allowed to the assessee with respect to the TDS, including for items where the assessee could not furnish the TDS certificates.

Thus, the assessee averred that in view of Section 205 of the Income Tax Act, 1961 it cannot be called upon to pay the tax, notwithstanding the fact that the payer of income or the deductor of tax has not paid the tax into the government account.

The ITAT observed that under the loan agreement, the borrower was required to make payment of TDS as required under law, and the lender/assessee was to be provided the evidence of such tax deduction at source and the payment to the relevant tax authority.

The ITAT noted that in view of Section 199(1) of the Income Tax Act, if any deduction of tax is made under Chapter-XVII and is paid to the Central Government, then the same is to be considered as payment of tax on behalf of the person from whose income the deduction was made.

Further, the Tribunal held that, "The CBDT in terms of section 199(3) of the Act has framed Rule 37BA. As per clause (4) of the Rule 37BA, the credit of the tax deducted and paid to the Central Government shall be allowed on the basis of the information relating to deduction of tax furnished by the deductor to the Income-tax Authority or the person authorized by such authority and the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the CBDT from time to time."

Noting that each deductor is required under Rule 31 of Income Tax Rules, 1962 to issue TDS certificates in Form 16/16A to every payee individually, the ITAT ruled that as per the law laid down by the Bombay High Court in Yashpal Sahni versus Rekha Hajarnavis (2007), the assessee should be provided credit of TDS deducted by the payer of income, irrespective of whether the TDS was deposited by the deductor into the government account or not.

The ITAT observed that in the case of Yashpal Sahni (2007), despite the fact that no TDS Certificate was issued to the assessee/employee, the asseessee was able to substantiate deduction of tax by his employer through his salary slips and bank account statements.

Holding that the onus is on the assessee to substantiate its claim of tax deducted at source by way of necessary documentary evidence, the ITAT ruled that the assessee Bank was unable to prove and furnish any evidence regarding deduction of TDS by the borrowers who made payments to the assessee.

The ITAT added that the assessee had no TDS certificate available with it and hence, it was required to discharge its responsibility of proving whether TDS was deducted by the payer of income or not in order to avail credit of TDS.

"In background of above facts and circumstances, statutory provisions and judicial precedents, we feel it appropriate to restore this issue of granting credit of tax deducted source to the file of the Assessing Officer for verification as to whether the assessee has shown interest income corresponding to the TDS in profit and loss account for the year under consideration and whether the tax has been deducted at source by the payer of the income. The Assessing Officer need not to insist for demand in respect of said TDS payment to Government account as explained by the CBDT in OM F/No 275/29/2014-IT(B) dated 11.03.2011. The onus is on the assessee to substantiate its claim of tax deducted at source by way of necessary documentary evidence", the ITAT ruled.

Case Title: DZ Bank versus DCIT (International Taxation)

Dated: 04.08.2022 (ITAT Mumbai)

Representative for the Appellant/Assessee: Mr. P.J. Pardiwala/Jeet Kamdar, AR

Representative for the Respondent/Revenue Department: Mr. Somendu Kumar Dash, Sr. DR

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