TDS Can't Be Isolatedly Taken In Any Assessment Year Without Offering Corresponding Income For Taxation: ITAT

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that the TDS cannot be isolatedly taken in any assessment year without offering the corresponding income for taxation.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the assessee shall be entitled to TDS credit corresponding to the income reported in the AY 2017-18 itself, provided credit for TDS is reflected in Form No. 26AS in the relevant AY and is not claimed in any other AY, and the assessee places an undertaking or affidavit before the department, ensuring that credit claimed in the AY 2017-18 shall not be doubly claimed in any other AY in the future.

The assessee/respondent is in the business of civil construction of commercial complexes, industrial, institutional, and residential projects. As per A.O., there is a mismatch in turnover reported as per financials and turnover as appearing in Form No. 26AS. The mismatch in turnover was on account of sales of FY 2015-16 considered by the assessee in FY 2016-17 and mobilization advance received from customs, on which TDS has been considered but not taken for turnover in financials of FY 2017-18.

According to the A.O., the income pertaining to these receipts has accrued as well as been offered to tax in the previous assessment years. However, TDS has been claimed in the current A.Y., i.e., A.Y. 2017-18, which is not allowable as per Sec. 199 r.w.r. 37BA. The AO has restricted TDS credit of Rs 49,71,083 in FY 2017-18.

The assessee has submitted that the tax is deducted by the deductor in the year in which the income has actually been paid to the assessee.

However, the assessee has already disclosed the income in an earlier year in their return of income, which resulted in a TDS mismatch since the corresponding income has already been offered to tax in earlier years; however, the TDS is deducted much later when only payment is made by the deductor to the assessee.

Therefore, the assessee is barred from claiming the credit of TDS in the year in which tax was deducted as the corresponding income has already been offered in the earlier years.

The Finance Act, 2023, has inserted sub-section 20 to Sec. 155 to facilitate allowing credit if TDS is made in the year of TDS to avoid re-opening of an earlier assessment or a lapse of time to file the revised return. Before CIT (A), the assessee had submitted an extract of the memorandum. The assessee has offered the income to tax in earlier years, and TDS was not claimed due to late payment by the deductor, which shall not punish the assessee by not allowing credit for TDS in the year when TDS was actually made. It will result in the taxation of income without allowing the corresponding TDS credit, which will be against the provisions of the Act. Accordingly, the ld. CIT(A) observed that the contention of the assessee is found to be correct and the A.O. is directed to allow TDS credit in FY 2017-18 after verifying whether the corresponding income has been offered for taxes in earlier years by the assessee.

The department contended that the income and TDS have to go together in an assessment year where the income has been offered for taxation. If the income is offered in an earlier assessment year, the TDS has to be given credit in that assessment year only, and in the assessment year, an amount of Rs. 49,71,083/- is the TDS relating to the earlier assessment year, and the NFAC/CIT(A) is not justified in observing that if the income has been offered for taxation in an earlier assessment year, the TDS credit is to be given in this assessment year, which is incorrect.

The ITAT noted that no positive finding of the Revenue Authorities below is available to show as to whether tax credit for TDS reflected in Form No. 26AS in Assessment Year 2017-18 has been claimed or otherwise in another assessment year. A verification of the factual position is required to shun the possibility of a double claim. The assessee shall be entitled to a credit of TDS corresponding to the income reported in the assessment year 2017–18 itself.

The tribunal set aside the order of the CIT (A) and restored it to the file of the Assessing Officer for grant of credit in AY 2017-18.

Counsel For Appellant: A.C. Raju

Counsel For Respondent: Parithivel

Case Title: DCIT Versus Cicon Engineers Private Limited

Case No.: ITA No.973/Bang/2023

Click Here To Read The Order