S R Pusalkar & Co. Vs Faceless Commissioner of Income tax (Appeals) (ITAT Mumbai)
Reimbursement Receipts Cannot Justify Proportionate Denial of TDS Credit Without Proper Reconciliation: Mumbai ITAT Remands Matter
The Mumbai ITAT restored the assessee’s claim for full TDS credit to the AO for verification, observing that the mere difference between the gross receipts appearing in Form 26AS and the income credited to the profit and loss account may not justify proportionate restriction of TDS credit under Rule 37BA.
The assessee, a clearing and forwarding agency, declared total income of ₹42.94 lakh and claimed TDS credit of ₹6.73 lakh as reflected in Form 26AS. However, while processing the return under Section 143(1), the CPC restricted the credit to ₹4.11 lakh by applying Rule 37BA. The rectification application under Section 154 was rejected, and the CIT(A) subsequently dismissed the appeal for non-prosecution.
The assessee explained that the receipts appearing in Form 26AS comprised agency income, brokerage, interest on fixed deposits and reimbursement of expenses. While the income components were credited to the profit and loss account, reimbursements received from clients were adjusted against the corresponding expenses on the debit side because they did not constitute income. Thus, the apparent mismatch did not mean that the receipts were unaccounted for or had escaped taxation.
The Tribunal found prima facie merit in the assessee’s contention that the reimbursement receipts had been accounted for by reducing the related expenditure and, therefore, had no impact on the net profit. It observed that the limited issue was whether the receipts appearing in Form 26AS were reconcilable with the books of account.
Accordingly, the matter was remanded to the AO to verify the reconciliation and determine the admissible TDS credit in accordance with law after providing the assessee a reasonable opportunity of being heard.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’], dated 16.03.2026, pertaining to Assessment Year (AY) 2021-22.
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