If corresponding income was not offered to tax TDS credit is not permitted

Fact and Issue of the case

Briefly stated facts are that the assessee in the present case is a partnership firm and engaged in the business of Civil Road construction. The assessee in the year under consideration has executed work contract of Rs.4,44,48,833/- which was offered to tax. However, the party has also given the advance of Rs.3.50 crores to the assessee which was shown as liability in the books of accounts. However, the party has deducted TDS on the entire amount i.e. works executed of Rs.4,44,48,833/- and advance of Rs.3.50 crores aggregating to Rs.7,94,48,833/- only. The amount of TDS of Rs. 7 lac was attributable on the advance received by the assessee for Rs.3.50 crores. The assessee while filing the return of income has taken the credit of TDS deducted on the advance amount of payment without offering corresponding income of Rs.3.50 crores in the return of income. Thus, the AO did not allow credit of TDS amount of Rs.7 lakhs.

Aggrieved assessee preferred an appeal before the learned CIT-A. The assessee before the Ld.CIT(A), submitted that the amount of Rs.3.50 crores has been taken into consideration as income in the Financial Year 2016-17. Therefore, the assessee prayed to allow the benefit of TDS credit in the Financial Year 2016-17. However, the Ld.CIT(A), rejected the claim of the assessee. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before ITAT.

Observation of the Court

The Tribunal has heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee has shown advance of Rs.3.50 crores in the year in respect of which TDS was deducted by the corresponding party. Admittedly, the assessee is not eligible of the amount of TDS deducted on the amount of advance received by the assessee as the corresponding income was not offered to tax. Up to this, there is no dispute raised by the assessee. The next controversy arises when the assessee can claim the benefit of TDS i.e. the year in which it offers corresponding income in the income tax return. As per the assessee, it has shown the advance money as income in the Financial Year 2016-17 corresponding to 2017-18. In this regard, I note that sub-rule (3) to the rule 37BA of Income Tax Rule r.w.s. 199 of the Act provides that Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. Accordingly, I am of the view that the assessee should be allowed the benefit of TDS credit in the AY 2017-18 subject to the verification. Hence, the ground of appeal of the assessee is allowed in the terms of the above direction.