ITAT Delhi order on whether mere deduction of TDS by the payer in an earlier year determines the year of taxability in the year of accrual
Summary: The ITAT Delhi in Amann Sadiq Vs ITO examined whether income could be taxed in a particular year merely because TDS was deducted earlier by the payer. The assessee, providing KYC services, declared receipts based on Form 26AS for AY 2018-19. Later, the payer revised its TDS return, showing higher receipts, part of which related to services rendered in April–May 2018 (AY 2019-20). The Assessing Officer treated the difference as undisclosed income for AY 2018-19. The Tribunal held that under Sections 4 and 145, income is taxable only when it accrues or is earned, not when TDS is deducted. Deduction of tax at source does not determine the year of taxability; credit for TDS is to be allowed in the year in which related income is assessable. Since the services were rendered and invoiced in FY 2018-19 and TDS credit was claimed in AY 2019-20, the addition made was unsustainable.
Amann Sadiq Vs ITO (ITAT Delhi); ITA No. 5553/Del/2025; 07/11/2025; 2018-19
Key issue:
The central dispute concerned an addition of Rs. 16,18,485/- made by the Assessing Officer on the ground that receipts reflected in Form 26AS exceeded the receipts declared in the assessee’s books for AY 2018-19. The difference arose due to income relating to services rendered in the subsequent financial year (FY 2018-19 / AY 2019-20) having been subjected to TDS in FY 2017-18 by the payer.
The key question before the Tribunal was whether receipts pertaining to the subsequent year (AY 2019-20) could be taxed in AY 2018-19 merely because of their reflection in Form 26AS.
Relevant Statutory Provisions
Section 4 of the Income Tax Act, 1961
- Governs the chargeability of income to tax. Income is taxable only in the previous year in which it is earned or accrued, as per the method of accounting regularly employed by the assessee.
Section 145 – Method of Accounting
- Income under the head “Profits and gains of business or profession” is computed in accordance with either cash or mercantile system, whichever is regularly followed.
- Under the mercantile system, income accrues when the right to receive arises, not when TDS is deducted.
Section 198 and Section 199 – TDS Credit
- TDS deducted is deemed to be income received at the time of deduction; however, credit of TDS is to be allowed in the year in which such income is assessable, not merely on deduction.
Section 198 and Section 199 – TDS Credit
- TDS deducted is deemed to be income received at the time of deduction; however, credit of TDS is to be allowed in the year in which such income is assessable, not merely on deduction.
Brief facts:
The assessee, engaged in KYC services through a proprietary concern, declared receipts of Rs. 96,82,565/- in AY 2018-19 based on Form 26AS available at the time of return filing.
Later, One97 Communications Ltd. updated its TDS records in February 2019, increasing the total receipts to Rs. 1,13,01,050/- as per 26AS.
The difference of Rs. 16,18,485/- corresponded to invoices dated April and May 2018, which related to the subsequent financial year and were included in the GST returns (GSTR-1) for June 2018.
The Assessing Officer added the differential amount in AY 2018-19, assuming the revised Form 26AS was conclusive evidence of income accrued in FY 2017-18.
ITAT Observations:
- The right to receive income accrued to the assessee only when services were rendered and invoiced in April–May 2018, i.e., FY 2018-19 (AY 2019-20).
- The mere deduction of TDS by the payer in an earlier year does not determine the year of taxability.
- The corresponding TDS credit was already claimed in AY 2019-20, assuring revenue neutrality.
- Hence, the addition made was unsustainable.
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