TDS Credit of earlier years allowed by ITAT when Income was booked on receipt basis

The assessee is an individual and Chartered Accountant by profession, who filed Income Tax Return on 28.11.2014 declared total income of Rs. 14,31,540/- wherein tax payable worked is Rs. 2,67,246/- which is inclusive of education cess. The assessee claimed credit for TDS of Rs. 2,96,734/- and thereby claiming a refund of Rs. 29,488/-. The Deputy Commissioner of Income Tax, CPC Centre, Bangalore on 10.06.2015 by intimation under Section 143(1) of the Income Tax Act, 1961 gave and processed a TDS credit of Rs. 62,721/- and raised a tax demand of Rs. 2,46,857/-. The grievance of the assessee is that the entire TDS amount of Rs. 2,96,734/- was not duly given credit by the CPC Centre.

Rectification Application: Aggrieved by this intimation order the assessee filed a rectification application under Section 154 saying he was wrongly charged interest under Section 234A, 234B, and 234C as the assessee has filed the Return of Income well in time. The petition was rejected.

Appeal before Ld. CIT(A): Aggrieved against this rectification order, the assessee filed an appeal before the Ld. CIT(A)-4, Ahmedabad. The assessee is following cash basis of system of accounting and the assessee has offered the tax of the professional fees income on receipt basis i.e. on cash basis. However, the assessee is client/deductor has made TDS in the earlier years. As the assessee is following the cash basis system of accounting though the TDS is being made in the earlier years the assessee claimed TDS credit in the current year where the ITA No.825/Ahd/2019 3 professional fees paid to receive.

The appeal was partially allowed.

As per the system employed by the appellant, the expenditure has been booked by their principals in A.Y. 2014-15 but the related payment has not been shown as receipt/turnover in their return of income for A.Y. 2014-15 as the amount has not been received till 31.03.2014. As a unique TDS Certificate number was not yet issued to the principals and therefore not quoted by the appellant in its return of income, hence CPC was left with no other option.

The TDS and the income have to go hand to hand. Therefore, AO was directed to give TDS credit in A.Y.2014-15 for the deductions made in F.Y. 2013-14 by ensuring that the total commensurate amount is brought to tax in A.Y. 2014- 15 itself. It was decided that TDS credit pertaining to A Y.2012-13 & A.Y.2013-14 won’t be allowed. The AO was directed to issue a revised demand notice. The appeal was partly allowed.

Aggrieved against the same the assessee filed appeal to issue necessary directions to grant credit of TDS of Rs. 78,653/- pertaining to A.Y. 2012-13 & 2013-14 for which Appellant has offered Income on a cash basis in A.Y. 2014-15.

But the Ld. DR appearing for the Revenue argued that the assessee is asking for the TDS credit whereas the corresponding income is not offered for the A.Y. 2014-15.

This issue of the TDS credit was discussed by Jurisdictional High Court in the case of Naresh Bhavani Shah (HUF) vs. CIT, reported in (2017) 396 ITR 589 (Guj.). the reasoning given by the court was that, “As per sub-section (1) of Section 199 any deduction of tax at source would be treated as payment of tax on behalf of the person from whose income the deduction was made or the owner of the security or of the depositor or of the owner of the property or unit holder or the shareholder as the case may be. Sub-section (3) of Section 199 however permits a deviation authorizing the power to make rules in respect of giving credit of tax deducted at source or the year during which the credit of such tax deducted at source should be granted. Under sub-rule 2 of Rule 37BA where whole or part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit could be given to such other person and not to the deductee provided the three conditions are satisfied which are that the deductee files a declaration with the deductor in this respect, such declaration would contain the details of the person entitled to the credit and the reasons for giving such credit and lastly the deductor issues certificate for deducting tax at source in the name of such a person. It is in this context, the provision of Section 199 would come into play.

The aforementioned decision establishes that there exist provisions in the IT Act, specifically section 199 of the IT Act, 1961, and Rule 37BA of the IT Rules, 1962, as well as a proper process under the Act and Rules. As a result, the assessee is entitled to credit on TDS of Rs.2,96,734/-, based on the ratio of the Jurisdictional High Court judgement. As a result, the assessee’s ground of appeal was permitted, and the DCIT and CPC were ordered to issue new orders within 12 weeks of receiving the ruling, affording the assessee proper chances and in compliance with the law. The other grounds of appeal are charging of interest u/s.234B & 234C of the Act, which is consequential in nature and, hence, no separate adjudication is required. Thus, these grounds of appeal raised by the assessee are allowed for statistical purposes.

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