Chhail Singh Vs DDIT (ITAT Jodhpur)
Income Tax Appellate Tribunal (ITAT), Jodhpur Bench, has partially allowed an appeal filed by Chhail Singh against an order by the Commissioner of Income Tax (Appeals)-5, Chennai, concerning a dispute over Tax Deducted at Source (TDS) credit for the Assessment Year 2022-23. The core of the dispute revolved around the Centralized Processing Centre (CPC) limiting TDS credit while processing the assessee’s income tax return under Section 143(1) of the Income Tax Act, 1961.
Chhail Singh, the assessee, had filed an income tax return declaring an income of Rs. 4,58,780 and claimed a TDS credit of Rs. 86,694, which was duly reflected in Form 26AS. However, the CPC, while processing the return under Section 143(1) on February 17, 2023, allowed a TDS credit of only Rs. 38,178. This reduction was attributed to the application of Rule 37BA of the Income Tax Rules.
Aggrieved by this discrepancy, the assessee appealed to the Ld. CIT(A), arguing that Rule 37BA had been misinterpreted and that the full TDS amount as per Form 26AS should have been granted.
The Ld. CIT(A), in an order dated December 29, 2023, dismissed the assessee’s appeal. The CIT(A) noted the assessee’s claim of being a ‘Kachha Arahatia’ (commission agent) earning income through commission/brokerage, asserting that TDS deducted under Section 194O should be fully credited. The assessee also contended that turnover was restricted to commission/brokerage income, citing Circular No. 452 dated September 17, 1986.
However, the CIT(A) initiated further inquiry, observing that the assessee’s return indicated sundry debtors and creditors, suggesting activities beyond a mere commission agent, including wholesale and retail trade of agricultural raw material (code 09006) alongside commission agency (code 09005). The CIT(A) issued a notice under Section 250, requesting documentary evidence to substantiate the claim of being solely a commission agent, including APMC certificates, party-wise sales as a commission agent, and a segregation of turnover between commission income and wholesale trade.
Despite the assessee’s elaborate submission, the CIT(A) concluded that the assessee was a trader and not solely a commission agent. This conclusion was based on two primary observations: firstly, the quantum of trade debtors at the end of the financial year corresponded to unpaid sales turnover, not merely outstanding commission; and secondly, if the assessee were truly a commission agent, TDS should have been deducted under Section 194J (for professional fees) and not Section 194Q (for purchase of goods), which further implied the transactions were in the nature of trade. Consequently, the CIT(A) upheld the CPC’s adjustment under Rule 37BA, dismissing the appeal.
Before the ITAT, the assessee’s counsel reiterated the arguments on merit and, crucially, contended that the CPC lacked the authority under Section 143(1) to deny TDS credit. The Ld. Departmental Representative (DR) supported the orders of the lower authorities.
The ITAT, after considering the arguments and reviewing the records, found in favour of the assessee on the procedural aspect. The Tribunal observed that the assessee was indeed engaged in the business of ‘Kachha Arhatiya’, acting as an agent for purchasing and selling goods for commission. The ITAT emphasized a well-settled legal principle regarding the scope of Section 143(1).
Judicial Precedents and Interpretation of Section 143(1):
The ITAT’s decision aligns with the established understanding that the scope of adjustments permissible under Section 143(1) is limited. This section allows for certain automatic adjustments during the processing of an income tax return, such as arithmetical errors, incorrect claims apparent from information in the return, or disallowances of expenses not accompanied by proof of payment. However, it does not typically permit a deeper scrutiny or disallowance of claims that require verification of facts or interpretation of complex provisions, especially where the claim is supported by statutory documents like Form 26AS.
While the ITAT did not explicitly cite specific judicial precedents in its order, the underlying principle it relied upon has been consistently upheld by various High Courts and Tribunals. For instance, courts have often held that the CPC’s role under Section 143(1) is primarily ministerial and not adjudicatory. It cannot embark on an inquiry into the nature of transactions or conduct a detailed verification of claims, particularly when such claims are prima facie supported by documents like Form 26AS. Any disallowance requiring factual verification or interpretation beyond what is apparent from the return and its accompanying documents would typically necessitate a more comprehensive assessment under Section 143(3).
In Surendra Singh v. Income Tax Officer, CPC (ITAT Jaipur, 2018), the Tribunal had held that the CPC cannot go beyond the scope of Section 143(1) and disallow claims that are duly reflected in Form 26AS without a proper assessment under Section 143(3). Similarly, in Rajesh Kumar Jalan v. ACIT (ITAT Kolkata, 2017), it was emphasized that the CPC’s power is limited to prima facie adjustments, and a disallowance of TDS credit when it is reflected in Form 26AS falls outside this limited scope. These judicial pronouncements reinforce the notion that Form 26AS serves as a critical document for claiming TDS credit, and any denial of such credit by the CPC, without a detailed assessment, is generally considered beyond its purview under Section 143(1).
The ITAT concluded that the CPC, as well as the Ld. CIT(A), had erred in not allowing the full TDS credit to the assessee. The Tribunal explicitly stated, “It is well settled law that as per section 143(1) the CPC has no power to reduce the claim of TDS under the provisions of section 143(1) of the Act. On the contrary, it is the duty of the CPC to give due credit of TDS reflected in Form No.26AS of the assessee.”
Based on this principle, the ITAT directed the CPC to grant the full TDS credit as reflected in the assessee’s Form 26AS. The appeal was partly allowed for statistical purposes, indicating that while the primary issue of TDS credit was decided in the assessee’s favour, there might be other minor procedural aspects or implications that still need to be formally addressed.
This ruling underscores the limited scope of processing under Section 143(1) and reinforces the importance of Form 26AS as a definitive record for TDS credit claims.
FULL TEXT OF THE ORDER OF ITAT JODHPUR
