ITAT Mumbai: Genuine TDS Credit Cannot Be Denied for Mere Procedural Lapse in ITR

The assessee, Daiwa Capital Markets India Private Limited, filed its return of income for AY 2013–14 claiming TDS credit of Rs. 1,78,80,099 as reflected in Form 26AS at that time. Thereafter, Prime Focus Ltd deducted and deposited additional TDS of Rs. 73,24,074 but did not inform the assessee. As a result, the assessee remained unaware of this deduction and inadvertently failed to claim the additional TDS credit, both in the original return and the revised return filed thereafter. The corresponding income of Rs. 7,32,40,740 relating to Prime Focus Ltd. had already been offered to tax by the assessee in the same assessment year.

During scrutiny assessment under Section 143(3), no claim for this additional TDS credit was made, as the assessee was still unaware of it. After the CIT(A) deleted the transfer pricing adjustment, the assessee, while seeking an order giving effect, discovered the additional TDS reflected in the revised Form 26AS and requested a grant of credit. The Assessing Officer rejected the request solely on the ground that the TDS credit had not been claimed in the return of income. The CIT(A) affirmed this view; hence the appeal.

Main Issue: Whether credit for TDS duly deducted, deposited, and reflected in Form 26AS can be denied merely because the assessee failed to claim it in the return of income within the prescribed time.

ITAT’s Decision: The ITAT allowed the assessee’s appeal and set aside the orders of the Assessing Officer and the CIT(A). The Tribunal held that there was no dispute regarding the genuineness of the TDS deduction or its deposit with the Government, and the corresponding income had already been offered to tax.

The Tribunal emphasised that procedural rules are handmaids of justice and cannot override substantive rights. It held that TDS is like an advance tax, and once reflected in Form 26AS, the Assessing Officer is duty-bound to grant credit, even if the assessee failed to claim it in the return due to inadvertence. Denial of such credit would violate Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law.

Thus, the Assessing Officer was directed to grant TDS credit of Rs. 73,24,074 and allow consequential interest under Section 244A, subject to verification of the corresponding income.

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