ITAT Rules Genuine TDS Credit Cannot Be Denied Merely for Non-Claim in Original Return

The ITAT Bangalore held that genuine TDS credit cannot be denied merely because it was not claimed in the original return if the TDS is reflected in Form 26AS and claimed through rectification. The AO must verify the claim and grant credit if found genuine.

In the present case, the Centralised Processing Centre (CPC) had imposed a demand of Rs 3.31 lakh on the assessee on account of the assessee’s failure to claim credit for TDS deducted by the employers. The assessee’s tax credit was also denied. Thereafter, the assessee filed a rectification petition under section 154 of the Act requesting the correction of prepaid tax. Subsequently, the tax authorities issued a rectification order determining the total income as computed under section 143(1) of the Act.

The aggrieved assessee filed an appeal before the ITAT Bangalore, challenging the denial of Rs 2.77 lakh tax credit by the CPC. During the personal hearing, the assessee claimed that he had unintentionally forgotten to claim the credit for TDS deducted by the employers while filing his Income Tax Return for the year in consideration, i.e., Assessment Year 2020-21, under section 139(1) of the Act.

The assessee’s counsel claimed that “omission to claim the TDS in the original return cannot be fatal to the assessee, leading to denial of the credit. He relied on the decision of the Co-ordinate Bench of the Tribunal in the case of DCIT Vs Ravi Integrated Logistics (India) Pvt. Ltd., in ITA No. 4151/Del/2024.”

When the tribunal analysed the facts of the case, it accepted the assessee’s claim that the failure to claim the omission to claim the TDS was an inadvertent mistake. Additionally, it was observed that the TDS is also reflected in Form 26AS for the impugned Assessment Year, and it is also true that the assessee had indeed sought a rectification petition under section 154 of the Act, wherein the TDS credit was claimed. Considering the aforesaid findings, the tribunal held that denying the assessee’s tax credit while a section 154 rectification petition was already filed would be unfair as per the law.

The tribunal held that “the Revenue cannot be unjustly enriched by denying the tax credit to the assessee, which violates Article 256 of the Constitution, which prohibits levy of tax collected except by authority of law.” The case is remanded back to the lower appellate authority, i.e., CIT(A), for fresh consideration.

The tax authorities have been directed to freshly examine the claim of TDS made by the assessee, and also whether the corresponding income is accepted in the assessee’s ITR, and if found correct, TDS credit shall be allowed accordingly. The issue is remanded back to the file of AO.