Tax credit to be granted in the year in which income is assessed

By Rahul Gogate Income Tax Judiciary September 20, 2019

TaxGuru Citation: 2019 taxguru.in 2495
Case Name: M/s. Mahesh Software Systems Vs ACIT Pune (ITAT Pune)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2011-12
Courts: All ITAT, ITAT Pune

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Background :

Many a times, we come across cases where the invoice has been raised close to the cut-off date, i.e. closer to the end of a financial year and the customer has accounted for and paid the invoice amount, as well as deducted and deposited the tax at applicable rates in the subsequent financial year. More often than not, a conservative stand is adopted, to get the benefit of tax credit in the subsequent year, though the invoice forms part of the turnover for the preceding year, so as to avoid disallowance during regular assessment/scrutiny by the Assessing Officer. However, this causes undue hardship to the taxpayer, by blocking of working capital due to the disallowance of credit in the preceding year, resulting in higher payment of tax in cash.

This order of Pune Tribunal, in the case of Mahesh Software Systems Pvt. Ltd., gives clear interpretation to the statutory provisions and sets a judicial precedent for such cases in future.

Facts of the case :

The assessee, Mahesh Software Systems Pvt. Ltd., engaged in providing software services, raised an invoice on a customer, Ashok Leyland, on 28^th March, 2011.
However, Ashok Leyland accounted for and made payment for the invoice in April, 2011.
Consequently, the tax deducted on the invoice amount by the customer was deposited in April 2011, i.e. for previous year 2011-12 (assessment year 2012-13)
However, the invoice being raised by the assesse-company in March, 2011, the Company considered the invoice in its sales turnover for previous year 2010-11 (assessment year 2011-12) and claimed the credit of tax in AY 2011-12.
The Assessing Officer (AO) denied the tax credit, on the basis of Section 199 of the Income Tax Act, 1961 read with Rule 37BA of the Income Tax Rules, 1962, stating that it has been deposited for AY 2011-12, as per the information furnished by the deductor-customer and hence, the credit can be allowed only on that basis.
The assessee appealed to the CIT (Appeals), who upheld the stand of the AO.
Aggrieved, the assesse appealed to Pune Bench of ITAT.

Relevant Legal Provisions :