There are situations where due to technical non compliance or due to procedural aspects credit TDS is denied to assesssee despite he is having Form 16A issued by deductor in support of his claim. However, CPC or even AO denies credit of such TDS and restricts claim to TDS as per Form 26AS only.
The question that arise for consideration is whether credit of TDS can be availed based on Form 16A where there is discrepancy in with respect to credit shown in the Form 26AS and TDS as claimed in the return of income?
3. Statutory provisions:
Section 199 of the Income Tax Act, 1961 deals with the credit of tax deducted. As per sub section (1), if any deduction is made as per the chapter XVII and paid to the central government, same shall be considered as payment of tax on behalf of the person from whose income the deduction was made. Sub section (3) further explains that CBDT may frame Rules in facilitating credit to be given in respect of Tax deducted. CBDT has framed Rule 37BA u/s 199(3). As per clause (4) of Rule 37BA, the credit of tax deducted and paid to the central government shall be allowed on the basis of the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority and 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.
As per section 203 of the Income Tax Act, every person deducting the tax shall issue a certificate to the effect that tax has been deducted specifying amount of tax so deducted, rate at which tax has been deducted. Rule 31 framed under section 203, said certificate should be issued in Form 16 in case deduction u/s 192 annually or in Form 16A in case deduction of tax under any other section quarterly.
As per section 203AA, prescribed Income Tax Authority shall deliver to every person from whose income tax has been deducted a statement in the prescribed form specifying amount of tax deducted or paid within prescribed time limit. As per Rule 31AB framed thereunder, the Director General of Income-Tax (Systems) shall deliver to every person whose tax has been deducted a statement referred to in section 203AA in the Form 26AS by the 31st July following the financial year during which taxes were deducted or paid.
Thus, from above it is evident that each deductor will issue Form 16/16A to every payee individually whereas the Income Tax Department will deliver the consolidated statement of tax deducted by various payees online in the Form 26AS. It is to be noted that the conclusive proof regarding deduction of tax available with the assessee is Form 16/16A, Form 26AS compiled by the Department is based on the data uploaded by the deductors and then reconciled with challans by the Department.
There were cases involving discrepancy in the online credit available as per Form 26AS and credit available as per Form 16A. This situation was prone to fraud and revenue leakage since there was no mechanism to verify online credit and TDS claim based on Form 16A. Therefore, to curb this, CBDT vide notification No. 858(E) dated 25th March, 2009 TDS and TCS payment and information reporting system has been redesigned and it was decided that TDS credit will be allowed of if –
(i) amount has been deposited by the deductor / collector;
(ii) information relating to the deductee has been furnished by the deductor / collector; and
(iii) claim matches the information furnished by the deductor / collector.
This has created undue hardships and trouble for the assesses. Since it was new system there were lot of problems like credit mis match, uploading of wrong or incorrect demand, denial of credit of TDS was denied to payees though they were having form 16A issued by deductors etc.
4. Judicial Pronouncements:
Taking note of these undue hardships such as uploading wrong demand, adjustment of refund contrary to section 245, non-communication of adjusted demand u/s 143(1), non-grant of TDS credit etc faced by the assesses, the Delhi High Court on its own motion instituted a PIL and required CBDT to file its affidavit. After hearing the department and intervener, Delhi High Court in the case of Court On Its Own Motion vs. CIT – 352 ITR 273 issued seven mandamuses/directions to the Income Tax Department inter alia on the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor in para 39 & 41 as under–
“The problem regarding rejection of TDS credit is in two categories. The first is those where the deductors fail to upload the correct particulars of the TDS which has been deducted and paid and the second is where there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the ROI. As regards the first, the CBDT had earlier directed that the AOs to accept the TDS claims without verification where the difference between the TDS claimed and the TDS as per AS26 did not exceed rupees one lakh. This figure has now been reduced to a mere Rs.5,000. Ex-facie, there is no justification for the reduction because credit is being given only if the three core fields match. The CBDT must re-examine this aspect and take suitable remedial steps if they feel that unnecessary burden or harassment will be caused to the assessees. As regards cases of mismatch because of different methods of accounting, or offering income in different years, the department must take remedial steps and ensure that in such cases TDS is not rejected on the ground that the amounts do not tally. The department should also fix a time limit within which they shall verify and correct all unmatched challans. An assessee as a deductee should not suffer because of fault made by deductor or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. The CBDT should issue suitable directions in this regard. The department’s response on the action taken against deductors for non-compliance is unfortunate and unsatisfactory and it purports to express complete helplessness on the part of the Revenue to take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a taxpayer because of the fault of the deductor causes unwarranted harassment and inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash their hands and pretend helplessness. S. 234E has now been inserted by the Finance Act, 2012 to levy a fee of Rs.200 per day for default of the deductor to file TDS statement within due date. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till FA 2012. The stand of the Revenue that they can only write a letter to the deductor to persuade him to correct the uploaded entries or to upload the details is not acceptable. The AO must use his power and authority to ensure that the deductor complies with the law.”
5. CBDT Instruction:
Pursuant to the landmark judgement of Hon’ble Delhi High Court, the Central Board of Direct Taxes (“CBDT”) issued Instruction No. 5 dated July 8,2013 wherein in para 3 it has directed the Assessing Officers that whenever an assessee approaches AOs with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched TDS amount, the said officer shall, after due verification, allow the credit of the same to the assessee. The relevant para is reproduced for ready reference –
“3. In view of the order of the Hon’ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down.”
6. Latest judicial decisions:
Hon’ble Gujarat High Court in para 10 & 11 held that –
“10. We are in complete agreement with the view taken by the Bombay High Court and Gauhati High Court. Applying the aforesaid two decisions of the Bombay High Court as well as Gauhati High Court, the facts of the case on hand and even considering Section 205 of the Act action of the respondent in not giving the credit of the tax deducted at source for which form no.16 A have been produced by the assessee – deductee and consequently impugned demand notice issued under Section 221(1) of the Act cannot be sustained. Concerned respondent therefore, is required to be directed to give credit of tax deducted at source to the assessee- deductee of the amount for which form no.16 A have been produced.
11. In view of the above and for the reasons stated petition succeeds. It is held that the petitioner-assessee -deductee is entitled to credit of the tax deducted at source with respect to amount of TDS for which Form No.16A issued by the employer -deductor – M/s. Amar Remedies Limited has been produced and consequently department is directed to give credit of tax deducted at source to the petitioner-assessee – deductee to the extent form no.16 A issued by the deductor have been issued. Consequently, the impugned demand notice dated 6.1.2012 (Annexure D) is quashed and set aside. However, it is clarified and observed that if the department is of the opinion deductor has not deposited the said amount of tax deducted at source, it will always been open for the department to recover the same from the deductor. Rule is made absolutely to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs.”[emphasis by us]
Hon’ble Allahabad High Court in para 11 & 12 held that –
11. In the instant case, it is apparent that there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax returns. The Court finds that when the assessment was processed and a refund of Rs.43,740/-was issued, no intimation was given by the department as to why the balance TDS amount could not be credited in favour of the petitioner. The Court further finds that the assessing officer was under a duty to verify whether or not the deductor had made the payment of the T.D.S. in the government account.
12. The petitioner has suffered a tax deduction at source, but has not been given due credit inspite of the fact that he has been issued a TDS certificate by a government department. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the petitioner. The fault, if any, lay with the deductor. In the instant case, nothing had been indicated that the fault lay with the petitioner in furnishing false details.
Thus, once assessee claims TDS supported by Form 16A, the credit should be allowed to the assessee. AO should also consider the fact that there are technical or procedural issues due to which credit might not be appearing in Form 26AS but if deductor has issued Form 16A to the assessee, the claim should be allowed.