Central Processing Centre (CPC) unit of Income tax Department processes the income tax return of asseseee and issues intimation u/s 143(1) of the Income tax Act, 1961. Such processing of return is carried out mechanically through software based on logic embedded in the system and reconciliation of data collected from other reports. Even though, 143(1)(a) is issued to check the box of giving opportunity of being heard to the assessee, hardly any explanation of the assesee are considered and such rejection are intimated with standard order/letter by CPC which does not provide detailed reasons for non-acceptance of the explanation offered. One of the common additions done through intimation u/s 143(1) is denial of brought forward TDS credit.
As per Rule 37BA of the Income-tax Rules,1962, credit of TDS would be allowed in the year in which income is assessable to tax and if such income is offered to tax across multiple tax year, credit of TDS to be claimed proportionate to income offered in the corresponding year. Therefore, when TDS is deducted on advance, assessee carry it forward to the next year and claim in the year in which the income is offered to tax. Certainly, this brough forward tax credit do not appear in the form 26AS for the year in which credit is claimed and through automatic processing of tax return, such mismatch in TDS credit claimed in the return vis-à-vis Form 26AS is denied to be allowed. Recently, Delhi ITAT in the case of AWP ASSISTANCE (INDIA) PVT. LTD [ITA No. 5128/Del/2018] has delivered a decision which is very useful to the assesee to seek relief against such action of the tax department.
AWP ASSISTANCE (INDIA) PVT. LTD, having faced the issue of denial of brought forward TDS Credit of Rs. 1.56 Crs, filed an appeal before CIT(A) against such intimation u/s 143(1). However, appeal was filed beyond the time period allowed and CIT (A) has not condoned the delay. Aggrieved by the CIT(A) order, Assessee had preferred an appeal before ITAT. Observation of ITAT have been summarized below.
ITAT’s observation with respect to denial of condonation to prefer an appeal
With respect to denial of condonation by CIT(A), it was pointed by ITAT that assessee would not have benefitted by delay in preferring an appeal and therefore, bonafide explanation of assesee should have been accepted by CIT (A). No rights would get vested with the revenue by efflux of time. When technicalities are pleaded against the justice, the former should make the way for justice. By condoning delay what most could have happened is appeal would have been heard on merits which is in the interest of justice. Therefore, ITAT has observed that CIT (A)’s action is difficult to sustain on this ground.
ITAT’s observation Merits of the case: Validity of Non Reasoned order
ITAT has noted that intimation u/s 143(1) does not contain reasons for denial of TDS credit and it is nothing, but information generated in pro forma by CPC. ITAT has made observation that Intimation not only does not provide reasons but also it does not appear to be result of due examination of the issue by AO.
For want of speaking order, higher authorities would not be able to appreciate the legibility or otherwise of the action by authority. It is the reasons which infuse life into the action of public authority without which not only assessee suffers but also higher appellate forum is handicapped to uphold the action or set it aside.
ITAT noted that the manner in which disallowance of TDS credit is made, it suffers irregularity which cannot be sustained. ITAT has set aside the matter to the file of AO to pass speaking order as per the law after allowing the opportunity of being heard to the assessee.
Additional Point :
Section 143(1)(c) provides that tax payable or refund should be calculated after giving credit of taxes paid. Section 199 (3) of the Act empowers the CBDT to formulate Rules to prescribe the year in which credit of Taxes may be given. CBDT has formulated rule 37BA of the income- tax Rule, 1962 whereby Rule 37BA (3) provides such carry forward of the tax credit to the year in which income is assessable. It also lays down that TDS credit shall be allowed on the basis of TDS return filed by the deductor and claim of TDS credit in the Income-tax return subject to verification as per risk mitigation strategy. Therefore, once credit is appearing in form 26AS and claimed by assessee in compliance with Rule 37BA (3), the same cannot be denied. Therefore, denial of such credit is not in accordance with the law, arbitrary and beyond the powers u/s 143(1). However, in the current decision on hand, ITAT has not opined on this issue as at the very step, the process followed u/s 143(1) lacks judicial discipline.
Though this particular case pertains to denial of TDS credit, it applies to other instances where debatable disallowance u/s 143(1) is made mechanically without passing a speaking order. This decision of Delhi ITAT is a relief to the taxpayer against arbitrary action by the tax authorities.
FULL TEXT OF THE ITAT JUDGEMENT
Aggrieved by the Order dated 28/5/2018 in Appeal No. 434/17-18 (AY 2016-17) passed by the Ld. Commissioner of Income Tax (Appeals)-1, Gurgaon [Ld. CIT(A)] for the assessment year 2016-17 in the case of M/s AWP Assistance (India) Pvt. Ltd. (the ‘Assessee’), this Appeal is preferred by the Assessee.
2. Briefly stated facts of the case are that in the business of the assessee certain payments for a service are received in advance for the total service period. Only such portion of income which pertains to a particular year is recognized along with corresponding TDS; and that the balance amount is shown as Deferred Revenue on the liability side of the balance sheet. For the assessment year 2015-16 the appellant had carried forward the amount of Rs. 1,56,74,596/- of TDS which pertained to subsequent years and the TDS for the assessment year 2015-16 was not allowed. Assessee therefore filed an appeal before the Ld. CIT(A), since the TDS was not allowed as brought forward in the Income Tax Return of AY 2016-17. On receipt of intimation under section 143(1) of the I.T. Act for the assessment year 2016-17, the assessee did not realize the fact that the corresponding TDS brought forward from assessment year 2015-16 to the income of assessment year 2016-17 was rejected by the Revenue authorities. But upon internal revenue by Management / Finance Team, it was realized that an appeal should also have been filed for the assessment year 2016-17 and therefore, such an appeal was filed before the Ld. CIT(A) with delay.
3. Ld. CIT(A), however, did not impress with the plea taken by the assessee that it is only on subsequent realization of the fact that the revenue rejected the corresponding TDS brought forward from the assessment year 2015-16 to the income of assessment year 2016-17, the appeal was filed with delay and according to the Ld. CIT(A) such cause does not constitute sufficient cause to condone the delay.
4. Submissions of Ld. AR before us are twofold. Firstly, he submitted that the learned CIT(A) failed to appreciate the reasons given by the assessee to file of the appeal with the delay in their proper perspective and it resulted in miscarriage of justice in the form of dismissal of the appeal by the learned CIT(A). Secondly, he submitted that when the assessee had already offered the corresponding income to tax, the disallowance of the credit of Tax Deducted Source (TDS) to the tune of ₹ 94, 64, 792/- is not in consonance with the law under section 199 of the Income Tax Act, 1961 (“the Act”) read with Rule 37BA of the Income Tax Rules, 1962 (the Rules). However, no reasons are incorporated in the intimation issued under section 143(1) of the Act and the assessee never knew the reasons why such a disallowance of the TDS had taken place. Ld. AR submitted that no opportunity was given to the assessee either before or after the process of the matter under section 143(1) of the Act and equally the assessee had no chance of agitating the merits of the case before the Ld. CIT(A) because of the refusal of the Ld. CIT(A) to condone the delay. In the circumstances, Ld. AR submitted that if the impugned orders are not quashed, the assessee would go without any remedy and a meritorious case be thrown out without affording an opportunity to the party who suffers.
5. Ld. DR supported the impugned order of the Ld. CIT(A) by adverting to the reasons recorded by him to refuse to condone the delay. He submitted that the process at the stage of intimation and section 143(1) of the Act is done by automatic process by the Centralized Processing Centre, Bangalore and is open for the assessee to ventilate the grievance by way of properly constituted proceedings either before the learned Assessing Officer or before the Ld. CIT(A) and by preferring the appeal with the delay, the assessee has to own up the responsibility and for that the assessee cannot blame the authorities who are bound to follow the law.
6. We have gone through the record, in the light of the submissions made on either side. Insofar as the aspect of delay in preferring the appeal before the Ld. CIT(A) is concerned, Ld. CIT(A) recorded a finding that the delay in realization of the need of appeal by the assessee, by itself, does not constitute sufficient cause and it clearly shows the want of due care and caution on the part of the assessee. He, therefore, declined to condone the delay. However, the same time, it is not a case of the Revenue that there are any mala fides on the part of the assessee in preferring the appeal with any delay. Obviously, assessee does not stand to gain by preferring the appeal with delay. When the technicalities are pitted against the substantial justice, the former must give way to the latter. There is no reason not to accept the explanation offered by the assessee that it is only due to bona fide mistaken impression the delay occurred in preferring the appeal. Revenue does not plead any rights to have been crystallized due to efflux of time. By condoning the delay, the highest that would happen is that a cause could be decided on merits, which would go in the interest of justice. With this view of the matter, we are of the considered opinion that the delay in preferring the appeal could have been condoned. We, therefore, find it difficult to sustain the impugned order of the Ld. CIT(A).
7. Insofar as the grievance of the assessee, basing on the fact that no reasons are assigned for a disallowance of the TDS is concerned, having gone through the intimation under section 143(1) of the Act, we find that such an intimation does not contain any reasons for disallowing the credit of TDS. As a matter of fact, such intimation is only a matter of information generated in a pro forma by the Centralized Processing Centre, Bangalore. This intimation, not only does not speak of the reasons for the impugned disallowance, it also does not appear to be the result of any due examination of the issue by the learned Assessing Officer. For want of reasons by way of speaking order, not only the assessee does not know the reason for disallowance, but at the same time we are also unable to appreciate the legality otherwise of such an act of disallowance. It is only reasons that infuse life into the action of any public authority, and such reasons allow the higher forums to appreciate the legal sustainability of such an action, without which not only the party affected by such an action suffers, but the higher forums would be handicapped either to confirm or to set it aside. It is, therefore, clear that the impugned action of disallowance of the credit of TDS is unsustainable, in the manner it is presently manifested in the impugned order.
8. In view of our finding that the impugned disallowance of credit of TDS under intimation under section 143(1) of the Act suffers legal irregularity and cannot be sustained as it is, it goes without saying that the matter requires reconsideration by the learned Assessing Officer to pass a speaking order with the reasons. Under the circumstances, we set aside the impugned orders and remand the issue to the file of the learned Assessing Officer for disposal, according to law by way of speaking order, after affording an opportunity of being heard to the assessee.
9. In the result, the appeal of the assessee is allowed for statistical purposes.
Above decision was pronounced on 7th day of August, 2020.