Lakhmanbhai Maru Vs ITO (ITAT Ahmedabad)
TDS Refund: Wrong Year Closed, Right Year Still Open
The dispute: Tax deducted on agricultural land compensation
The assessee received ₹21,70,630 on 23 March 2023 as compensation for compulsory acquisition of rural agricultural land, pursuant to an order of the Principal Senior Civil Judge, Junagarh. Tax of ₹1,83,045 was deducted at source, and the corresponding credit appeared against his PAN for AY 2023-24.
The assessee’s case was that the acquired land was rural agricultural land outside the definition of “capital asset” under section 2(14). Consequently, the compensation was not chargeable to tax, and the tax deducted should be refunded. However, the immediate dispute before the Tribunal concerned the assessment year in which the TDS credit could be claimed, rather than a final determination of the compensation’s taxability.
An omitted receipt and a claim in the following year
The assessee filed his return for AY 2023-24 on 8 September 2023, but the compensation receipt was not reflected in that return. The refund of ₹1,83,045 was consequently not considered.
Thereafter, while filing his return for AY 2024-25 on 30 July 2024, the assessee claimed the same TDS credit. That claim was also denied.
The assessee sought rectification under section 154 for AY 2024-25. The application was rejected on 8 January 2025, on the ground that Form 26AS did not contain the corresponding TDS/TCS against the relevant TAN for that assessment year. He appealed against the rejection, seeking credit and refund of the tax deducted.
CIT(A): Form 71 had not been filed
The CIT(A) dismissed the appeal primarily because the assessee had not filed Form 71 under section 155(20), read with Rule 134. According to the appellate authority, the absence of that form prevented allowance of the TDS credit for AY 2024-25.
Before the Tribunal, the assessee challenged this reasoning. He contended that Form 71 was not applicable where the underlying receipt itself was not assessable to tax. He also objected to applying the mechanism to tax deducted during FY 2022-23, pointing out that the relevant provisions had been introduced with effect from 1 October 2023.
Alternatively, the assessee submitted that, if the credit could not be allowed in AY 2024-25, it should be considered in AY 2023-24, the year to which the deduction actually related.
ITAT: The credit belonged to AY 2023-24
The Tribunal noted that two material facts were admitted: the tax had been deducted on 23 March 2023, and the corresponding credit appeared in Form 26AS for AY 2023-24.
On those facts, the assessee’s claim for the same credit in AY 2024-25 could not be accepted. The failure to obtain a refund in the earlier year did not justify allowing that deduction in the following assessment year in the present circumstances.
At the same time, the Tribunal observed that the CIT(A)’s reliance on section 155(20), Rule 134 and Form 71 did not appropriately address the factual situation, because the TDS itself had been deducted during FY 2022-23, relevant to AY 2023-24.
Thus, although the appeal failed, the Tribunal did not endorse the CIT(A)’s Form 71 reasoning as the appropriate basis for deciding the matter.
The earlier year’s refund claim remained open
The Tribunal was informed that the assessee had separately filed a section 154 application for AY 2023-24, claiming the same TDS credit. CPC had rejected that application, and an appeal against the rejection was pending before the CIT(A).
Since AY 2023-24 was not before the Tribunal, it expressly refrained from deciding either the maintainability of that rectification claim or the assessee’s ultimate entitlement to credit and refund.
Those questions were left open for independent consideration in the pending appeal. The CIT(A) could examine Form 26AS, deduction and deposit of tax, the nature and taxability or exemption of the compensation, and applicable judicial precedents.
Crucially, that appeal was to be decided uninfluenced by the rejection of the claim for AY 2024-25.
Author’s comments: Read the dismissal with its qualification
The practical significance of this order lies in the distinction between rejection of credit in the wrong assessment year and rejection of the substantive refund claim.
The Tribunal dismissed the appeal for AY 2024-25 solely because the TDS did not pertain to that year. It did not hold that the compensation was taxable, that the refund was unavailable in AY 2023-24, or that the earlier year’s section 154 application was necessarily maintainable.
Equally, the observation on Form 71 should not be expanded into a general ruling that the form is unnecessary whenever the underlying receipt is exempt.
The assessee lost the appeal for AY 2024-25, but his entitlement to the ₹1,83,045 refund for AY 2023-24 remained expressly undecided. The pending appeal for that year therefore carries the substantive dispute.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The assessee has filed the appeal against the order dated 19-01-2026 passed by Commissioner of Income Tax (Appeals)/Addl/JCIT(A)-3 Chennai (in short, referred to as the CIT(A)) u/s. 250 of the Income Tax Act, 1961 (herein referred to as “the Act”) relating to Assessment Year 2024-25.
2. The assessee raised the following grounds of appeal:-
“1. Section 2(14), 143, 154, 1944, 194LA:
That at the time of processing of return under section 143(1) and while passing the rectification order under section 154, the learned Assessing Officer has erred both in law and on facts in not allowing the claim of TDS credit of ₹1,83,045/-, deducted on compensation received on compulsory acquisition of rural agricultural land, which is not a capital asset under section 2(14) and the income wherefrom is not chargeable to tax.
2. Section 2(14), 143, 154, 194A, 194LA, 155(20) read with Rule 134:
That the learned CIT(A) erred in holding that filing of Form 71 was mandatory in the present case, without appreciating that Form 71 is not applicable where the income itself is not assessable to tax, and denial of refund on such procedural ground results in unjust enrichment of the Revenue.
3. Section 2(14), 143, 154, 1944, 194LA, 155(20) read with Rule 134:
That the learned CIT(A) further erred in applying Rule 134 and Form 71 retrospectively, ignoring the fact that the said provisions were introduced only with effect from 01.10.2023 vide CBDT Notification No. 73/2023 dated 30.08.2023, whereas the TDS in the present case was deducted during Financial Year 2022-23.
4. Section 143, 154:
That the authorities below erred in law in rejecting the appellant’s claim even during rectification proceedings, despite the error being apparent on record, thereby defeating the object and purpose of section 154 of the Act.
5. Section 155 read with Rule 134:
Without prejudice to other grounds the appellant submits that the assesse submits that if TDS credit is not carry forward by the virtue of non-filing of form 71, the assesse should be allowed claim of TDS in F.Y. 2022-23 itself. For that assesse filed rectification request but TDS claim was not allowed in that year also. That the appellant submits that it should be determined whether TDS credit was carry forward or not and accordingly its TDS credit should be allowed in respective year.
6. Section 2(14), 143, 154, 1944, 194LA, 250:
That the appellant therefore prays that the learned Assessing Officer / CPC be directed to allow the TDS credit of ₹1,83,045/-, along with consequential refund and statutory interest, and that the order passed by the learned CIT(A) be set aside.
7. Section 2(14), 143, 154, 1944, 194LA,250:
That the appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the time of hearing of the appeal.”
3. Brief facts of the case are that assessee received compensation of Rs. 21,70,630/- on 23-03-2023 on account of compulsory acquisition of rural agricultural land consequent to order of Pr. Senior Civil Judge Junagarh dated 17-01-2014. TDS of Rs. 1,83,045/- was made and same amount got reflected in the Traces portal against assessee’s PAN for AY 2023-24. Assessee filed his return of income on 08-09-2023 for A.Y. 2023-24. However, receipt of compensation was not reflected in the return. Consequently, refund of Rs. 1,83,045/- was not considered.
4. Assessee filed his return for A.Y. 2024-25 on 30th July, 2024 where same TDS credit was claimed. The same was not granted. Assessee’s request for rectification u/s. 154 of the Act for assessment year 2024-25 was rejected vide order dated 08-01-2025 for the reason that Form 26AS did not contain amount of TDS/TCS with respect to the TAN for the relevant assessment year. Consequently, assessee filed the appeal against this order on 06-02-2025 seeking TDS refund of Rs. 1,83,045/-.
4.1 CIT(A) vide order dated 19-01-2026 dismissed the appeal of assessee for A.Y. 2024-25 primarily on the ground that the assessee had not filed Form 71 u/s. 155(20) r.w.r. 134 and therefore TDS credit could not be allowed for A.Y. 2024-25.
4.2 Aggrieved by the order of CIT(A), assessee is in appeal before ITAT for A.Y. 2024-25.
5. We have heard both the parties and perused the relevant materials available on record. The following facts emerge from records.
1. It is an admitted fact tax in question was deducted at source on 23-03-2023 and the corresponding credit is reflected in Form 26AS pertaining to AY 2023-24. Therefore, the assessee’s claim for credit of the said TDS in AY 2024-25 cannot be accepted.
2. Since the appeal arising from rejection of assessee’s application for AY 2023-24 is stated to be pending before ld. CIT(A), the issue of assessee’s entitlement to TDS credit for A.Y. 2023-24 is left open for adjudication by the ld. CIT(A) in the said appeal, independently and in accordance with law.
3. We, however find that ld. CIT(A)’s reliance upon section 155(20) r.w.r. 134/Form 71 does not appropriately address the factual situation before us, since TDS itself was deducted during F.Y. 2022-23 relevant to A.Y. 2023-24.
4. It has been brought to our notice that the assessee had filed an application u/s. 154 seeking credit of the aforesaid TDS for A.Y. 2023-24, that the said application was rejected by the CPC, and an appeal against such rejection is presently pending before the ld. CIT(A).
5.1 Since AY 2023-24 is not before us in the present proceedings, we refrain from expressing any concluded opinion on the maintainability of assessee’s claim u/s. 154 or on its ultimate entitlement of TDS credit for that assessment year.
5.2 The said issues are expressly left open for consideration by the ld. CIT(A) in the pending appeal for A.Y. 2023-24, on their own merits and in accordance with law, uninfluenced by the rejection of assessee’s claim for A.Y. 2024-25.
5.3 The ld. CIT(A), while deciding the appeal for A.Y. 2023-24 shall be at liberty to examine the assessee’s Form 26AS, the fact of deduction and deposit of tax, the nature and taxability/exemption of the underlying compulsory acquisition compensation and the applicable judicial precedence.
5.4 We clarify that rejection of the assessee’s claim in A.Y. 2024-25 is only on the ground that the TDS does not pertain to that assessment year, and shall not be construed as the adjudication of the assessee’s entitlement to such credit/refund in A.Y. 2023-24.
6. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 30-09-2026
