Case Law Details
Theo Desh Consultants Vs ACIT (ITAT Ahmedabad)
The ITAT Ahmedabad addressed the appeal by Theo Desh Consultants regarding the disallowance of TDS credit in the assessment year 2011-12. The assessee, engaged in land survey contracting, filed its return, which was scrutinized, leading to an assessment that included additional income and disallowed TDS credit of ₹12,07,747. The TDS was disallowed because the corresponding income had not been offered for taxation in that year. Theo Desh Consultants argued that, following the cash system of accounting, the income and the corresponding TDS had been duly accounted for, but in a different year. The CIT(A) upheld the original disallowance, citing the need for the income to be assessable in the same year as the TDS claim, per Rule 37BA(3). However, the ITAT found that under the cash system of accounting, TDS credit should be allowed in the year the income is actually received and offered for taxation. The tribunal ruled that disallowing the TDS credit when the income was properly declared contradicts sections 198 and 199 of the Income Tax Act. This judgment emphasizes the importance of aligning TDS credit with the cash-based accounting method. Also read: Is addition made on the basis of Form 26AS, Justified?
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal of the assessee relating to assessment year 2011-12 is directed against the order of Learned Commissioner of Income Tax (Appeals)-II, Baroda dated 30.06.2014 which is arising out of order u/s.143(3) of the Income Tax Act, 1961 dated 23.01.2014 framed by Addl. Commissioner of Income Tax, Range – 2, Baroda, vide appeal no.CAB/II-350/13-14.
2. Assessee has taken following Grounds of appeal:
1) The assessee is engaged in the business as land survey Contractor. The assessee filed its return of income on 16.09.2011 and the return was processed u/s 143(1).
2) The case was selected for scrutiny and notices were issued u/s.143(2) and 142(1). Order was passes u/s.143(3) dated 18.12.2013 assessing the income as Rs.62,95,030/- after making certain additions of Rs 2,73,000/-.
3) The Assessing officer has not allowed TDS claim of Rs.12,07,747/- on account of the fact that corresponding income was not offered for taxation in the relevant assessment year of such claim. The Commissioner of Income Tax (Appeals) has upheld the order of the assessing officer. Against this we would like to submit that the assessee is following cash system of accounting and therefore the income is offered to tax on receipt basis. The income to the extent of TDS deducted and paid by the customers in respect of AY 2011-12 is already offered for taxation in the return of income of AY 2011-12. Thus the disallowance of tax credit by the assessing officer is not justified.
4) Your Appellant submits that the said disallowance is not justified and therefore your Honour is requested to grant us the TDS credit.
3. The relevant facts as culled out from the materials on record are as under:-
The assessee is engaged in the business as land survey contractor. The return of income was filed on 16.09.2011 declaring total income of Rs.60,22,030/. The assessment u/s.143(3) was finalized on 18.12.2013 determining total income of Rs.62,95,030/- after making disallowance of Rs.2,00,000/- on account of site expenses and Rs.73,000/- u/s.40(a)(ia).
3.1 The learned AO did not allow TDS claim of Rs.12,07,747/- on account of the fact that corresponding income was not offered for taxation in the relevant assessment year of such claim.
4. Against the said order assessee preferred first statutory appeal before the learned CIT(A) who dismissed the appeal of the assessee.
5. We have gone through the relevant record and impugned order. Assessee is engaged in the business as land survey contractor. The case was selected for scrutiny and notices were issued u/s.143(2) and 142(1). Order was passed u/s.143(3) dated 18.12.2013 assessing the income as Rs.62,95,030/- after making certain additions of Rs.2,73,000/-, against which the assessee is not in appeal.
6. The CIT(A) has not allowed TDS claim of Rs.12,07,747/- on account of the fact that corresponding income was not offered for taxation in the relevant assessment year of such claim. The assessee follows cash system on accounting. The provision of sections of Chapter-XVII Collection and recovery of Tax of the Income Tax Act, 1961 are not charging sections. The deduction of Tax at source is merely one of the mode of collection of tax. Therefore it may not always be possible all the time to co-relate a specific amount of TDS with a specific amount of income earned by the assessee in a particular assessment year.
6.1 In support of its contention, assessee cited an order of Delhi Bench in the matter of Chander Shekhar Aggarwal vs. Assistant Commissioner of Income-tax, Circle 37(1), New Delhi, [2016] 67 taxmann.com 62 (Delhi – Trib.). Operative para of the same is reproduced as under:
“8. We have carefully considered the original submission and perused the material on record. It is noticed that in the instant case assessee as adopted cash method of accounting. He furnished his return of income claiming credit of TDS of Rs.79,91,290/- which was further revised to Rs.80,16,290/-. The AO restricted the credit of Rs.71,20,267/- in the intimation u/s 143(1) of the Act. The CIT(A) has upheld the restriction inter-alia on the ground that credit of TDS is to be allowed in terms of Rule 37BA(2) of the Rules and as such the credit would be allowable on pro rata basis in the year in which the certificate is issued and also in future where balance of such income is found to be assessable as per the mandate of section 199 of the Act. She has held that any amount which has not been assessed in any year but referred in the TDS certificate cannot be claimed under section 199 of the Act.
9. Sub-section (1) of section 199 of the Act provides that “any deduction made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. In view thereof, since the tax was deducted at source by the deductor and the amount was deposited by the deductor on behalf of the assessee, the said sum is deemed to be the payment of tax made on behalf of the assessee. Also, section 198 of the Act provides that all sums deducted in accordance with Chapter XVII-B of the Act shall for the purposes of computing the income of an assessee be deemed to be income received. Thus, section 198 of the Act specifically provides that tax deducted at source shall for the purpose of computing income of an assessee will be deemed to be income received by the assessee. Thus, there is no justification not to grant credit of tax deducted and deposited to the account of Central Government by the deductor to the assessee from whose income, such tax has been deducted by the deductor, more particularly when such TDS stands duly declared as income by the assessee. The conclusion of the CIT(A) to grant proportionate credit is also not in accordance with the cash system of accounting followed by the assessee. The CIT(A) in her order has laid much emphasis on Rule 37BA of the Rules. Rule 37BA as inserted w.e.f. 1.4.2009 reads as under:-
“Credit for tax deducted at source for the purposes of section 199:
37BA.(1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority.
(2) [(i) Where under any provisions of the Act, the whole or any 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 for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee:
Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).]
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.
(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.
(3)(i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.
(ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of-
(i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority; and
(ii) the information in the return of income in respect of the claim for the credit, Subject to verification in accordance with the risk management strategy formulated by the Board from time to time.]”
10. A reading of the aforesaid will make it apparent that Rule 37BA(1) of the Act provides rules relating to have credit for the purpose of section 199 of the Act as is provided in section 199(3) of the Act. Rule 37BA(3)(i) of the Act provides that credit for tax deducted at source and credited to the account of Central Government shall be given for the assessment year for which, such income is assessable. Thus, if the said rule is read, it is clear that the assessee is entitled to get credit of the tax deducted at source once such income is included in his income. The admitted facts of the case of the appellant is that the tax deducted at source has been offered as income by the appellant in his return of income and therefore, having regard to even the rules, the assessee is entitled to credit of the tax deducted at source. The assessee before the CIT(A) had provided an illustration whereby it was submitted that assuming an assessee follows cash system of accounting and raises an invoice of Rs. 100/- for the services rendered in financial year 2010-11 on his client and the said client deposits TDS of Rs. 10/- to the credit of the account of the assessee and issued a certificate of TDS to the assessee and thus, it was submitted that an amount of Rs. 10/- was since deducted in respect of the assessee, the said sum is income of the assessee which is assessable to tax. It was submitted that once an income is assessable to tax, the assessee is eligible for credit despite the fact that remaining amount would be taxable in the succeeding years. We are in an agreement with the above submission that the TDS deducted by the deductor on behalf of the assessee and offered as income is to be allowed as credit in the year of deduction of tax deducted at source. Rule 37BA of the Act provides that credit for TDS should be allowed in the year in which income is assessable. Further clause (ii) of Rule 37BA(3) of the Act provides that where tax has been deducted at source paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. In our considered opinion, this rule is only applicable where entire compensation is received in advance but the same is not assessable to tax in that year but is assessable in a number of years. However, such rule has no applicability, where assessee follows cash system of accounting. This can be supported from the illustration that suppose as assessee who is following cash system of accounting raises an invoice of Rs. 100/- in respect of which deductor deducts TDS of Rs. 10/- and deposits to the account of the Central Government. Accordingly, the assessee would offer an income of Rs. 10/- and claim TDS of Rs. 10/-. However in the opinion of the revenue, the assessee would not be entitled to credit of the entire TDS of Rs. 10/-but would be entitled to proportionate credit only. Now let us assume that Rs. 90/- is never paid to the assessee by the deductor. In such circumstances, Rs. 9/- which was deducted as TDS by the deductor would never be available for credit to the assessee though the said sums stand duly deposited to the account of the Central Government. Rule. 37BA(3) of the Act cannot be interpreted so as to say that TDS deducted at source and deposited to the account of the Central Government is though income of the assessee but is not eligible for credit of tax in the year when such TDS was offered as income. This view is otherwise also not in accordance with the provisions contained in section 198 and 199 of the Act. The proposition as laid out by the CIT(A) and learned DR before us therefore cannot be countenanced. In arriving at the above conclusion, we also derive support from the decision of Visakhapatnam Bench in the case of Peddu Srinivasa Rao (supra) has held as under:
“8. We have carefully perused the provisions of section 199 of the Act and according to the pre-amended provisions of section 199, the credit of deduction made in accordance with the relevant provisions of this chapter and paid to the Central Government, shall be given for the amount so deducted on the production of the certificate furnished u/s 203 for the assessment made under this Act for the assessment year for which such income is assessable. But in the amended provisions the words “for the assessment year for which such income is assessable” has been omitted. Meaning thereby, that the legislature was quite conscious about the facts and hardships faced by some assessees, while making the amendments in section 199 and in amended provisions nothing has been stated about the year in which the credit of TDS is to be claimed. As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessees, irrespective of the year to which it relates. The pre-amended and the amended provisions of section 199 are extracted hereunder: “Section 199: Credit for tax deducted – (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unitholder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable: (3)
The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub- section (2) and also the assessment year for which such credit may be given. Section 199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be. (2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.”
11. Infact the above view has also been followed by Ahmedabad Bench in the case of Sadhbav Engineering Ltd. (supra) wherein it was held as under:
“26. We find that the Visakhapatnam Bench in the case of Peddu Srinivasa Rao (supra) has held as under:…..
The Ld. DR could not cite any contrary decision or any other good reason for which the aforesaid decision of the Co-ordinate Bench of the Tribunal should not be followed by us. Respectfully following the aforesaid order of the Tribunal, we set aside the orders of the lower authorities and direct the AO to allow credit for the TDS to the assessee. Thus, the ground of appeal of the assessee is allowed.”
12. For the reasons stated above, the claim of the assessee is allowed in as much as it is held that the assessee would be entitled to credit of the entire TDS offered as income by the assessee in his return of income. The grounds raised are therefore, allowed.”
7. Respectfully following the above said judgment, we allow the appeal of the assessee.
8. In the result, appeal filed by the assessee is allowed.
This Order pronounced in Open Court on 23/01/2018
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