Dwijs Overseas LLP Vs ITO (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal restored the assessee’s claim relating to TDS credit to the Assessing Officer for necessary verification in respect of Assessment Year 2021-22. The assessee, engaged in the business of clearing and forwarding agency, had filed its return declaring total income of Rs. 42,93,670/- and claimed TDS credit of Rs. 6,73,371/- as reflected in Form No. 26AS. The return was processed by the CPC, Bangalore, under Section 143(1), pursuant to which the TDS credit was restricted to Rs. 4,10,618/- by applying Rule 37BA. The assessee’s rectification application under Section 154 was dismissed, and the CIT(A), NFAC, Delhi dismissed the appeal for non-prosecution. Before the Tribunal, the assessee submitted that the gross receipts appearing in Form 26AS comprised agency income, brokerage income, interest on fixed deposits and reimbursement of expenses, and that while the income components were credited to the profit and loss account, reimbursement receipts were reduced from the corresponding expenses as they did not constitute income. The assessee therefore contended that the apparent difference between Form 26AS receipts and the profit and loss account did not mean that the receipts were unaccounted for. The Tribunal noted that the limited dispute was whether the receipts offered as part of gross receipts and those reflected in Form 26AS were reconcilable. Prima facie, it found merit in the assessee’s contention that reimbursement receipts had been reflected through deduction of expenditure and had no impact on the declared net profit. However, since the reconciliation required factual verification, the Tribunal remanded the matter to the Assessing Officer to verify the claim in accordance with law after providing the assessee a reasonable opportunity of being heard. The appeal was accordingly allowed for statistical purposes.
Reimbursement Receipts Cannot Justify Proportionate Denial of TDS Credit Without Proper Reconciliation: Mumbai ITAT Remands Matter
The Mumbai ITAT restored the assessee’s claim for full TDS credit to the AO for verification, observing that the mere difference between the gross receipts appearing in Form 26AS and the income credited to the profit and loss account may not justify proportionate restriction of TDS credit under Rule 37BA.
The assessee, a clearing and forwarding agency, declared total income of ₹42.94 lakh and claimed TDS credit of ₹6.73 lakh as reflected in Form 26AS. However, while processing the return under Section 143(1), the CPC restricted the credit to ₹4.11 lakh by applying Rule 37BA. The rectification application under Section 154 was rejected, and the CIT(A) subsequently dismissed the appeal for non-prosecution.
The assessee explained that the receipts appearing in Form 26AS comprised agency income, brokerage, interest on fixed deposits and reimbursement of expenses. While the income components were credited to the profit and loss account, reimbursements received from clients were adjusted against the corresponding expenses on the debit side because they did not constitute income. Thus, the apparent mismatch did not mean that the receipts were unaccounted for or had escaped taxation.
The Tribunal found prima facie merit in the assessee’s contention that the reimbursement receipts had been accounted for by reducing the related expenditure and, therefore, had no impact on the net profit. It observed that the limited issue was whether the receipts appearing in Form 26AS were reconcilable with the books of account.
Accordingly, the matter was remanded to the AO to verify the reconciliation and determine the admissible TDS credit in accordance with law after providing the assessee a reasonable opportunity of being heard.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’], dated 16.03.2026, pertaining to Assessment Year (AY) 2021-22.
2. Briefly, the facts of the case are that the assessee is engaged in the business of clearing and forwarding agency, and filed its return of income declaring total income of Rs. 42,93,670/- and claimed credit for tax deducted at source amounting to Rs. 6,73,371/- as reflected in Form No. 26AS. The return was processed by CPC, Bangalore, and in terms of intimation issued under Section 143(1), the credit of TDS was restricted to Rs. 4,10,618/- by applying Rule 37BA. The assessee, thereafter, filed a rectification application under section 154, which was again dismissed. Thereafter, the assessee carried the matter in appeal before the ld. CIT(A), wherein, on account of non- prosecution, the appeal of the assessee was dismissed by the ld. CIT(A), NFAC Delhi. Against the said order, the assessee is in appeal before us.
3. During the course of hearing, the ld. AR submitted that non -compliance with the notices issued by the ld. CIT(A) was neither deliberate nor intentional. The assessee is a partnership firm established way back in the year 1981 and has since discontinued its business operations since 2024 due to incapacity of its partners to continue the business due to old age. It was submitted that as the business is closed and there is no staff to regularly access emails, the notices issued by NFAC remained unnoticed and the assessee was deprived of the opportunity of presenting its case. It was submitted that the assessee is not going to gain anything from the non-compliance, and therefore, in the interest of justice, the non-compliance before NFAC may be condoned.
4. It was further submitted that the gross receipts appearing in Form 26AS consist of agency income, brokerage income, interest on fixed deposits, and reimbursement of expenses received from clients. It was submitted that in the books of accounts, whole of the amount has been duly credited in the profit & loss account, except the reimbursement received from clients which do not constitute income, and the same has been reduced from the expenses rather than crediting to the profit & loss account, following consistent accounting principles. It was submitted that although the reimbursement receipts appear in Form 26AS and form part of the gross receipts on which TDS has been deducted, how ever, they are not in the nature of income. Therefore, apparently, there is a credited in the profit & loss account, which has resulted in denial of the TDS credit.
5. It was submitted that the said denial is however not justified, either on facts or in law. The assessee has correctly claimed TDS credit as reflected in Form 26AS with whole of the receipts been duly accounted for in the books of accounts and have been offered while filing t he return of income. It was submitted that the Assessing Officer has applied Rule 37BA by granting proportionate TDS credit after comparing the receipts reflected in Form 26AS with the income shown in profit & loss account, which is factually and legally i ncorrect. Rule 37BA merely provides the manner in which the TDS credit is to be granted, where income is assessable over different years or in the hands of different persons. The Rule does not authorize denial of TDS credit merely because certain receipts represent reimbursement of expenses. It was accordingly submitted that since the receipts have been duly accounted for and TDS is duly reflected in Form 26AS, proportionate denial of TDS credit is not justified.
6. It was further submitted that an identical issue came up for consideration in assessee’s own case for A.Y. 2023- 24, wherein also the Assessing Officer has allowed proportionate TDS credit by applying Rule 37BA, and the ld. CIT(A), NFAC Delhi, after considering the facts of the case, allowed the appeal for statistical purposes and restored the matter to the file of the Assessing Officer for necessary verification. It was submitted that there is no appeal which has been filed by the Revenue against the said order, and therefore, where the Revenue itself has accepted the fact that the issue requires factual verification, instead of outright denial of TDS credit, similar approach may be adopted for the instant year and matter may be restored to the file of the Assessing Officer for necessary verification.
7. The ld. DR has been heard, who has relied on the order passed by the Assessing Officer. At the same time, it was fairly submitted that the matter requires necessary verification, and therefore, it would be appropriate, where the Bench so decide, to remand the matter to the file of the Assessing Officer.
8. We have heard the rival contentions and perused the material available on record. Admittedly, the claim of the assessee regarding the tax deducted at source is based on the taxes deducted and as reflected in Form No. 26AS. The limited dispute relates to whether the receipts offered by the assessee as part of its gross receipts and the receipts which are reflected in Form No. 26AS are reconcilable or not. In this regard, the ld. AR has submitted that, except for the reimbursement of expenses, rest of the receipts are fully reconcilable, and as far as the reimbursement of expenses, the same has been reduced from the expenses on t he debit side of the profit & loss account instead of crediting in the profit & loss account, and therefore, even those receipts have been duly reflected by way of deduction of expenditure, and that same will have no impact on the net profit so declared by the assessee. We prima facie find merit in the contention advanced by the ld. AR. At the same time, we find that the matter requires necessary verification, and we, therefore, deem it appropriate to remand the matter to the file of the Assessing Officer f or necessary verification in accordance with law, after providing reasonable opportunity to the assessee.
9. In the result, appeal of the Assessee is allowed for statistical purposes.
Order pronounced on 25.08.2026
