Case Law Details
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
This Appeal filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals)-5, Chennai [Ld. CIT(A)”, for short] dated 29/12/2023 for Assessment Year 2022-23.
2. The assessee raised the following grounds of appeal:-
“1) That the Learned Commissioner of Income Tax (Appeals) has grossly erred in misinterpreting provisions of Rule 37BA of Income Tax Rules and dismissing Grounds of Appeals raised before CIT (Appeals) and the same is bad in law.
2) That the Appellant had claimed Tax Deducted at Source of Rs. 86,694/- in Income Tax Return filed as reflecting in Form 26AS of the Appellant and duly complying with Income Tax Act provisions relating to claim of TDS. Learned Commissioner of Income Tax (Appeals) has grossly erred in sustaining the Assessing Officer’s Order of granting TDS credit of Rs. 38,178/-only while processing of return U/s 143(1) by applying provisions of Rule 37BA of Income Tax Rules as against TDS claim of Rs. 86,694/-
3) That the grant of credit of Tax Deducted at source of Rs. 38,178/- as against claim of Rs. 86,694/-while processing of return U/s 143(1) of Income Tax Act by applying provisions of section Rule 37BA of Income Tax Rules, is unjustified, bad in law and deserves to be quashed
4) That the Appellant craves leave to add, alter or amend any of the grounds of appeal on or before the date of hearing of appeal.
5) That the Appellant prays that the appeal may kindly be allowed.”
3. The brief facts of the case are that the assessee filed return declaring income of Rs.4,58,780/-, the assessment has been completed u/s 143(1) of the Income Tax Act, 1961 (‘the Act’ for short) vide order dated 17/02/2023, assessing the total income of 4,58,780/-. The assessee claimed TDS of Rs.86,694/- in the income tax return which was duly reflected in Form No.26AS of the assessee. The CPC allowed the TDS credit of only Rs.38, 178/- instead of Rs.86,694/- by applying the provisions of Rule 37BA of Income Tax Rules while processing return u/s 143(1) of the Act.
4. Aggrieved by non credit of the TDS, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 29/12/2023, dismissed the appeal filed by the assessee in following manners:
“4. Decision
4.1 The solitary ground in the case under consideration is that the claim of credit of TDS as appearing in Form no.26AS was not fully granted while processing the ITR u/s.143(1) by the CPC, by invoking Rule 37BA of Income tax Rules, 1962.
4.2 According to the version of the Appellant, the Appellant is a Kachha Arahatia and earns income by way of commission/brokerage which is offered to tax. Therefore, the TDS deducted u/s. 1940 has to be granted and there is no reason for denial of the same.
4.3 According to the Appellant, the turnover is restricted to the extent of Commission/brokerage earned and not the turnover of goods, as per Circular no.452 [F.No.201/3/85-IT (A:II) dated 17/09/1986]. In order to obtain better clarification and proof that the Appellant had offered the income in its true and correct manner, a notice u/s.250 was issued on 23/10/2023 requiring the Appellant to respond on or before 07/11/2023. For easier comprehension, the contents of the said notice is captured and provided below:
Counter Arguments and grant of opportunity to submit objections
On perusal of Return of Income filed by you, it’s seen that you have sundry debtors and sundry creditors. As evident from your ITR and computation of income, you are not only having business as Commission agent and commodity broker under code 09005 but you are also carrying out wholesale and retail trade of agricultural raw material under code 09006. Hence, your claim that you are acting only as Commission agent is hereby rejected and addition made by CPC will be confirmed treating your entire TDS deduction on sales as the one pertaining to your wholesale trade unless you submit how much turnover undertaken by you was pertaining to your business of commission agent with documentary evidences like byelaws of APMC in which you work as Kachcha Arhatia.
1. Provide Certificate of APMC given to you to work as Kachcha Arhatia.
2. Provide party-wise sales booked as commission agent and percentage of Commission received by you and match it with the commission income shown in ITR,
3. CBDT in Circular no 452 dated 17.3.1986 distinguishes between Kachcha Arhatia and Pucca Arhatia. You are hereby required to prove that you are a Kachcha Arhatia as defined in the circular citing all 7 points of differentiation. Careful study of your ITR doesn’t confirm that you are Kachcha Arhatia for the reasons stated above. Hence you are requested to submit your contention with documentary evidences. Please give segregation of (a) sales turnover determined by CPC in your case in intimation of 143(1) of IT act as sales turnover pertaining to business as commission agent and prove that corresponding Commission income is reflected in ITR and (b) sales turnover pertaining to business as wholesale trader and prove that this turnover is reflected in your P and L submitted.
4.4 In response to the above notice, the Appellant provided his elaborate submission on 07/11/2023. The appeal is adjudicated on the merits of the case based on the submission provided by the Appellant and the contents of the grounds of appeal and the statement of facts submitted alongwith form no.35.
4.5 The contention that the Appellant is only a commission agent is accepted. The ITR should exhibit a feature that the balance due from Sundry Debtors at the close of the FY should be restricted to the extent of commission/brokerage that is pending settlement and remains unpaid as on that date. However, in the case of the Appellant, the ITR illustrates that the quantum of Trade debtors balances at the close of the FY corresponds to the sales turnover that remains unpaid and due in respect of the sales made to such debtors at the close of the FY. Secondly, the TDS ought to have been deducted u/s. 1 94J and not u/s. 194Q if the contention that the Appellant is only a commission agent/broker were to be accepted.
4.6 In the case under consideration, as illustrated in the preceding paragraph, the trade debtors is not confined to the unrealised commission and therefore, it is established that the Appellant is a trader and not a broker/commission agent as claimed. Further, it is also observed that if the Appellant were truly a commission agent, the buyer of goods would have deducted TDS invoking the provisions of S. 1 94J and not 194Q, which again strengthens that the goods have been purchased by such persons from the Appellant. Therefore, when it is established beyond doubt that the transactions undertaken by the Appellant during the year is in the nature of trade and not in the nature of a commission agent/broker, the adjustment made by the CPC invoking the provisions of rule 37BA is found to be in order and hence upheld.
5. Conclusion: In the result, the appeal of the Appellant is DISMISSED.”
5. The Ld. Counsel for the assessee apart from submitting on the merit, also contended that the CPC has no power to deny the TDS Credit as per section 143(1) of the Act, therefore, sought for allowing the appeal.
6. The Ld. DR relying on the orders of the lower authorities, sought for dismissal of the appeal.
7. We have heard the parties and perused the material available on record. The assessee is engaged to the business of ‘Kachha Arhatiya’ (commission agent) wherein assessee purchases goods from various vendors/parties and sells the same in the market to interested purchases for an agreed commission which is the business of the assessee. The said business of the assessee is nature to agent not as principal purchases for the seller. The CPC granted TDS Credit of Rs.38, 178/- only while processing of return u/s 143(1) by applying the provisions of Rule 37BA of Rules as against the TDS claim of the assessee of Rs.86,694/-. 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. Thus, in our considered opinion, the CPC as well as the Ld. CIT(A) have committed error in not allowing the TDS credit to the assessee. Considering the above facts and circumstances, we direct the CPC to give due credit of TDS as reflected in Form No.26AS of the assessee.
8. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 18th September, 2024.
Author Bio
