TDS credit is available based on income reporting, not deductor reporting
Fact and issue of the case
By the present appeal, the assessee challenges the order of National Faceless Appeal Centre, Delhi [for short “NFAC”] dt. 31/05/2022 passed u/s 250 of the Income Tax Act, 1961 [for short “the Act”] denying to interfere with the order of intimation dt. 17/03/2021 processed u/s 143(1) of the Act by the Asstt. DIT, CPC Bengaluru [for short “AO”] for assessment year [for short “AY”] 2020-21.
Without duplicating grounds from appeal memo, it shall suffice to articulate that, the sole and substantive ground of appeal is directed against denial of TDS credit [tax deducted at source] by CPC.
We have heard rival contentions of both the parties; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short “ITAT, Rules”] perused the material placed on records till the date of conclusive hearing and duly considered the facts of the case in the light of settled legal position forewarned to either parties.
Observation of the court
The appellant is a resident individual, has for AY 2020-21 derived income from all sources of income except capital gains, and has filed his return of income [for short “ITR”] on 18/12/2020, which was processed by CPC u/s 143(1) of the Act denying the TDS credit of :
The denial of TDS credit was first addressed through rectification u/s 154 of the Act, wherein the appellant was successful in getting partial relief for₹11,000/- and against balance denial of TDS credit the matter travelled before the Ld. NFAC, however of no success, the appellant is before the Tribunal alleging the action of both the tax authorities below [for short “TAB”] as contra legem and seeking our indulgence for rightful claim of TDS Credit against corresponding income offered to tax in the impugned AY.
Undoubtedly the appellant is in receipt of income from rent & maintenance from his tenant M/s Bosch Limited (TAN PNEB10384D), and such rental income is offered to tax with corresponding claim of TDS made the reagainst by the deductor tenant. However, the tenant after deducting the TDS on 31/03/2020 from the amount of rent & maintenance payable to the appellant has inadvertently reported the same as pertaining to subsequent year AY 2021-22 by filing quarterly TDS return in Form 26Q, which resulted into short credit for the impugned AY under adjudication.
When the issue of availability of TDS credit in the hand of appellant for impugned AY is examined in the light of Section 199(3) r.w. Rule 37BA(3) of the Income Tax Rules [for short “IT-Rules”], it transpired clear that, the credit for tax deducted and paid to the Central Government shall be allowed to the deductee‑ assessee for the assessment year for which such income is assessable or assessed. Therefore, we find force in the contention of the appellant that, the TDS credit is available in the assessment year where the corresponding income has been offered to tax by the assessee, and as such the TDS credit cannot be postponed to a different assessment year on the basis of reporting by the deductor, when the accrued income from such transaction has been reported in the present impugned AY.
To rest the adjudication, it suffice to voice that, the combined reading of Section 199(3) r.w. Rule 37BA(3) makes the position of law clear that, credit for TDS is available in the year in which the income is reported and as a corollary, credit of TDS (deducted therefrom) cannot be deferred to some other assessment year. In the instant case, the Revenue proposed to allow the credit in the subsequent AY 2021-22 i.e. when the TDS is shown to have been credited in the form 26AS. However, as stated by the Ld. AR, the corresponding income will not be found to be recorded in the subsequent AY and therefore such action would belie the letter and spirit of Section 199(3) and Rule 37BA(3) thereto. Thus, on first principles, we are inclined to agree with the stand taken on behalf of the assessee for eligibility TDS credit in the Assessment Year 2020-21 itself when income has been claimed to have accrued/arisen, included for determination to taxable income and offered to tax undisputedly. And we find that, a similar view has been taken by the co-ordinate bench in “Mahesh Software System Pvt. Ltd. Vs ACIT” reported in 181 ITD 524.
Thus, the position of law being clear as discussed herein before, for the reason we have no hesitation to accept the plea of the appellant against the denial of TDS credit in contradiction of provisions of Section 199 r.w.r 37BA is clearly in the league of apparent error deserves to be reversed, ergo we set aside the orders of Ld. NFAC and direct the Ld. CPC to allow the TDS credit pertaining corresponding income of rent & maintenance accrued / received / received from M/s Bosch Limited and offered to Tax in the impugned AY.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
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