TDS of Firm credited in Partner’s PAN; ITAT instructs Assessee to apply under Section 199 read with Rule 37BA

Fact and issue of the case

Brief facts of the case are that assessee is an individual and partner in one of the partnership firm namely M/s Shri Hari Agri. The assessee filed his return of income for assessment year (AY) 2018-19 on 21.01.2019 declaring income of Rs.2,52,720/- and claimed credit of Tax Deducted at Sources (TDS) under section 194IA of Rs.2,21,000/-. The return was processed by Centralized Processing Centre, Bengaluru (CPC) vide intimation dated 23.10.2020. The CPC not allowed such credit of TDS of Rs.2,21,000/-. The assessee filed application under section 154 for seeking rectification in the intimation of CPC, vide application dated 08.10.2020. The rectification application was rejected by CPC vide its order dated 23.10.2020.

Aggrieved by order of rejection application under section 154, the assessee filed appeal before Ld. CIT(A). The appeal of assessee was migrated to NFAC, Delhi. Before NFAC/Ld. CIT(A) the assessee stated that during the period under consideration, the assessee was a partner in the firm of M/s Shri Hari Agri. During the financial year, immovable property was sold by said partnership firm (M/s Shri Hari Agri.) which was acquired by the partnership firm from its own source. The sale deed was executed by the assessee in the capacity of partner. The property was reflected in the balance-sheet of partnership firm. The TDS was made by purchaser and credited to the account of assessee (PAN). As the property was owned by the partnership firm, the capital gain was offered in the return of income of partnership firm, though document was executed by partner in its fiduciary capacity. No sale consideration was shown in case of assessee, however, such TDS was shown in Form-26AS. The assessee further stated that there is no provision to transfer the credit of TDS to the partnership firm. No credit of TDS was claimed by partnership firm and assessee claimed such TDS credit in his case to avoid double taxation. The assessee claimed credit of such TDS reflected in Form-26AS. The capital gains of sale of immovable property was offered by partnership firm and there is no loss to revenue if credit / refund of TDS is given to assessee. The claim of refund was not granted at the time of passing order under section 143(1), which was a mistake apparent from the record. The assessee filed rectification application under section 154 on 08.10.2020, which was rejected by CPC. The assessee reiterated that capital gains ws accepted in the hand of partnership firm because which was correctly shown. The rejection of claim of TDS of Rs.2,21,000/- in the hand of assessee was not justified.

The NFAC/Ld. CIT(A) after considering the submission of the assessee rejected / dismissed the appeal of assessee by holding that provisions of section 199 and Rule 37BA, the credit can be claimed only in the year in which such income is assessable in the hand of the person other than deductee. It was also held that claim of credit can only be considered in the hand of firm as the income is assessable in the hand of partnership firm. The assessee executed the sale deed on behalf of the firm in the representative capacity as a partner. The assessee ought to have file declaration that as per Rule 37BA the credit be given to the partnership firm. The CPC has done the processing of return on the basis of information available in 26AS in the system, on the date of processing and any mismatch will lead to appropriate adjustment under such automated processing of return under section 143(1). It was also held that rectification can be resorted if there is any clear mistake apparent from the record, which does not require long drown process or verification of facts. The assessee made inadmissible claim in the return of income about the TDS, which was pertaining to the another entity and was rightly denied by CPC. Further aggrieved, the assessee has filed present appeal before Tribunal.

Observation of the court

None, appeared on behalf of assessee despite service of notice of hearing through Registered Postal Acknowledgement Due (RPAD) on more than two occasion. Therefore, I left no option, but to decide the appeal on the basis of material available on record and after hearing Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue. The ld SR DR for the revenue supported the order of ld CIT(A)/ NFAC and would submits that the assessee is claiming benefit of TDS made on the transaction pertaining to another entity, the income of which is not includable in the hand of assessee.

I have considered the submission of Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue and perused the materials available on record and the orders of lower authorities carefully. I find that in the return of income the assessee claimed refund of TDS reflected in his Form-26AS. the CPC denied such refund in its intimation dated 08.10.2018. The assessee filed application for rectification under section 154. In the application under section 154, the assessee claimed such refund on the ground that during the financial year, immovable property was sold by said partnership firm (M/s Shri Hari Agri.) which was acquired by the partnership firm from its own source. The sale deed was executed by the assessee in the capacity of partner. The property was reflected in the balance-sheet of partnership firm. The TDS was made by purchaser and credited to the account of assessee (PAN). As the property was owned by the partnership firm, the capital gain was offered in the return of income of partnership firm, though document was executed by partner in its fiduciary capacity. No sale consideration was shown in case of assessee, however, such TDS was shown in Form-26AS. The assessee stated that there is no provision to transfer the credit of TDS to the partnership firm. No credit of TDS was claimed by partnership firm and assessee claimed such TDS credit in his case to avoid double taxation. The assessee claimed credit of such TDS reflected in Form-26AS. The capital gains of sale of immovable property was offered by partnership firm and there is no loss to revenue if credit / refund of TDS is given to assessee. The NFAC/Ld. CIT(A) dismissed the application under section 154 vide intimation dated 23.10.2020 by taking view that provisions of section 199 and Rule 37BA, the credit can be claimed only in the year in which such income is assessable in the hand of the person other than deductee. It was also held that claim of credit can only be considered in the hand of firm as the income is assessable in the hand of partnership firm. The assessee executed the sale deed on behalf of the firm in the representative capacity as a partner. The assessee has not filed any declaration that as per Rule 37BA the credit be given to the partnership firm. I find that there is no dispute that the TDS was deducted on the sale consideration of the asset, which was owned by partnership firm. Further, there is no dispute that the assessee is partner in the said firm and signed the sale deed on behalf of partner in fiduciary relationship. It is also admitted fact that the TDS was credited in the account of (PAN) of assessee. However, from the fact of the present case, it is not clear that any tax liability was created against the firm on transfer of such asset, which was owned by firm. Thus, keeping in view all the facts and circumstances of the case, I deem it appropriate to restore the case to the file of assessing officer, with the direction to adjudicate the issue afresh. The assessee is also directed to move appropriate application under section 199 read with Rule 37BA for claiming the credit of such TDS with required declaration, undertaking of other condition prescribed therein. On filing such application with required declaration, the assessing officer shall decide the same in accordance with law. Needless to direct that before passing the order afresh the assessing officer shall grant proper and fair opportunity to the assessee. The assessee is also directed to make proper compliance on the notice of assessing officer in time. With these directions, all the grounds of appeal raised by the assessee are allowed for statistical purpose.

In the result, appeal of the assessee is allowed for statistical purpose.

Read the full order from here

Nirav-Bipinbhai-Vaghasiya-Vs-ITO-ITAT-Surat-1