Case Law Details
Centrum Microcredit Limited Vs ADIT (ITAT Mumbai)
Held that if assessee is not eligible for credit in the year under consideration then credit for the same should be allowed in the year in which tax has been deducted by the deductor.
Facts-
Ground 1. – The appeal of the assessee is concerned the Ld. CIT(A) has disallowed the claim of ESIC and PF on the ground that the amendment to section 36(1)(va) introduced by the Finance Act, 2021 is retrospective in nature. The Ld. CIT(A) also rejected the contention that no adjustment u/s 143(1) of the Act can be made for disallowance of deduction u/s 36(1)(va) of the Act.
Ground 2. – The assessee is aggrieved for allowing TDS credit of Rs.10,65,761/- only as against the claim of TDS credit of Rs.18,50,237/- in the return of income resulting into short credit of Rs.7,84,476/-.
The facts qua, the issue-in-dispute that the interest income receivable by the assessee from securitization trust is offered to tax on accrual basis while deductor claim the deduction of loan payment in the next assessment year on cash basis. As a result, tax is deducted at the source by the deductor in the next assessment year in which deduction payment is claimed as interest expenditure. However, the assessee claims credit for TDS in respect of such interest income which is offered to tax in the year under consideration. Thus the issue in contention is that though the tax has not been deducted by the deductor either on credit or on paid basis, still the assessee is claiming credit of the TDS.
Conclusion-
Ground 1. – We find that the Tribunal in ITA No. 1785/M/2021 for assessment year 20 18-19 in the case of Kalpesh Synthetic Pvt. Ltd. v. DCIT, CPC Bengaluru has held that disallowance of deduction u/s 36(1)(va) is not permitted in the proceedings u/s 143(1) of the Act.
Ground 2. – In light of the case of M/s Stock Holding Corporation India Ltd. v. DCIT it is held that if assessee is not eligible for credit in the year under consideration then credit for the same should be allowed in the year in which tax has been deducted by the deductor.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against the order dated 25.08.2021 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2019-20 in relation to order u/s 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) passed by the Assistant Commissioner of Income Tax Central Processing Centre (CPC), Bengaluru for assessment year 2019-20. The grounds raised by the assessee are reproduced as under:
“1. (a) The Commissioner of Income Tax (Appeal), National Faceless Appeal Centre [hereinafter referred as CIT(A)] erred in confirming the disallowance of Rs. 41,440/- being delayed payment of Employee’s Contribution to Provident Fund (PF) and Rs.14,405/- being Employee’s State Insurance Corporation (ESIC) aggregating to Rs.55,845/- under section 36(1) (va)r.w. section 2(24)(x) of the Income Tax Act, 1961 (Act).
(b) The CIT(A) erred in holding that the amendment made to section 36(1)(va) and 43B of the Act are retrospective in nature and applies to subjected years in appeal.
The Appellant submits that it has filed the further submission during the course of appellate proceeding wherein it pleaded that amendment made in sections 36(1) (va) and 43B of the Act vide Finance Act, 2021 is prospective in nature. However, the submission of the Appellant has not been considered by the CIT(A); hence, the disallowance confirmed by the CIT(A) should be deleted.
2. (a) The CIT(A) erred in confirming the action of the AO in not granting the TDS credit of Rs. 7.84,476/- claimed on the basis of income offered during the subjected year.
(b) The CIT(A) erred in rejecting the above TDS claim on the ground that the payer has deducted the TDS in immediate next year; though the revenue is offered and TDS is claimed by the Appellant during subjected year.
(c) The CIT(A) erred in not appreciating that the TDS credit of Rs. 7,84,476/- is not claimed by the Appellant in subsequent years also; hence, denial of TDS credit is not justified.”
2. Briefly stated, the facts of the case are that the assessee filed its return of income at a total loss of Rs.2,18,88,512/- which was processed by the Central Processing Centre at a total loss of Rs.2,18,32,667/- in terms of section 143(1) of the Act. While processing, the Ld. Assessing Officer disallowed Employees Contribution to Provident Fund (PF) of Rs.1440/- and Employee State Insurance Corporation (ESIC) of Rs.14,405/- aggregating to Rs.55,845/- by invoking section 36(1)(va) r.w.s. 2(24)(x) of the Act. The Ld. Assessing Officer also disallowed TDS credit of Rs. 7,84,476/-.
3. We have heard rival submissions of the parties on the issue-indispute and perused the relevant material on record. As far as Ground No. 1 of the appeal of the assessee is concerned the Ld. CIT(A) has disallowed the claim of ESIC and PF on the ground that the amendment to section 36(1)(va) introduced by the Finance Act, 2021 is retrospective in nature. The Ld. CIT(A) also rejected the contention that no adjustment u/s 143(1) of the Act can be made for disallowance of deduction u/s 36(1)(va) of the Act. The finding of the Ld. CIT(A) is reproduced as under:
“4.25 The appellant has also stated in the written submission that adjustment on account of disallowance of deduction u/s 36(1)va) is beyond the purview of section 143(1). In this regard, it is important to highlight that Sec 143(1) has been amended
“143. ((1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:–
1. the total income or loss shall be computed after making the following adjustments, namely:-
1. any arithmetical error in the return;
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
[(iii) disallowance of loss claimed, if return of the previous year for which set off loss is claimed was furished beyond the due date specified under subsection (1) of section 139;
(iv) disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return;
(v) disallowance of deduction claimed under [section 1 0AA or under any of the provisions of chapter VI-A under the heading”C.-Deductions in respect of certain incomes” if the return is furnished beyond the due date specified under sub-section(1) of section 139; or
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.’
4.26 In this context, it is pertinent to mention that while only prima facie arithmetical adjustments could be made earlier, the amended provisions empower adjustments to be made inter alia on the basis of the remarks indicated in the tax audit report and in the case of incorrect claim apparent from any information in the return. Post-amendment, scope of adjustments under section 143(1) has been widened and enlarged. It provides that total income shall be computed after making adjustments inter alia on account of an incorrect claim, if such incorrect claim is apparent from any information in the return and disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. As regards decision of different courts in respect of adjustment u/s 143(1), it is noted that those decisions were pertaining to the period prior to enactment of the amended provisions of Section 143(1). Hence, the ratio of the said decisions is not applicable in the instant case.
4.27 In this case, adjustment u/s 143(1) has been made on the basis of information contained in the tax audit report. The audit report indicates details of contribution received from employees for various funds as referred to in section 36(1)(va). It gives the details of the due date of payment and actual date of payment to the concerned authorities. It is crystal clear from the chart that employee’s contribution to Provident fund and ESI have been paid beyond the due date specified, which has attracted the provisions of sec 36(1) (va) r.w.s. 2(24)(x) leading to disallowance of the sum to the extent not credited to the employee’s account on or before the due date stipulated in the respective PF Act and ESI Act. Therefore, in view of the remarks in the audit report, adjustments can be made in terms of section 143(1) a). This is also in the nature of incorrect claim which is apparent from the information contained in the tax audit report. In view of the above discussion, I find that the adjustment has correctly been made under section 143(1) (a) of the Income Tax Act. Hence, no relief can be given to the appellant in respect of the above adjustment made under section 143(1) of the Income Tax Act.
4.28 Accordingly, addition on account of disallowance of deduction of Rs. 55,845/- u/s 36(1) (va) made by the AO u/s 143(1) is confirmed and ground no 2 of the appeal is dismissed.”
3.1 However, we find that the Tribunal in ITA No. 1785/M/2021 for assessment year 20 18-19 in the case of Kalpesh Synthetic Pvt. Ltd. v. DCIT, CPC Bengaluru has held that disallowance of deduction u/s 36(1)(va) is not permitted in the proceedings u/s 143(1) of the Act. The relevant finding of the Tribunal is reproduced as under :
“4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.
5. In our considered view, it is quite evident, from a careful look at the related statutory provisions, that there is a material difference in the scheme of processing the income tax return under section 143 (1) (a) as it stands now vis-à-vis as it stood at the point of time when Khatau Junkar judgment (supra) by Hon ’ble jurisdictional High Court was delivered. That was the time when incorrect claims could be disallowed only when such a deduction was “on the basis of information available in such return, accounts or documents is prima facie inadmissible” [see Section 143(1)(a)(iii) as it then stood] and it was in this context that the connotations of the expression “prima facie inadmissible” came up for consideration before Hon’ble Courts above. While the expression used in section 143(1)(a)(i) is materially similar inasmuch as its wordings are “an incorrect claim, if such incorrect claim is apparent from any information in the return”, there are two important things that one must bear in mind- (a) firstly, the expression “an incorrect claim, if such incorrect claim is apparent from any information in the return” is well defined in Explanation to Section 143(1), and; (b) secondly, and perhaps much more importantly, that is just one of the permissible types of adjustments, denying a deduction, under section 143(1)(a) which goes well beyond such adjustments and includes the cases such as “(iii) disallowance of loss claimed, if the return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 1 0AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80- IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return”. So far as the first point is concerned, it must be noted that the expression “incorrect claim apparent from any information in the return”, for the purpose of Section 143(1)(a), is further defined, under Explanation to Section 143(1), and it means that a claim, on the basis of an entry, in the return,—(i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. On the second point, it is useful to bear in mind the fact that the scheme of Section 143(1)(a) thus permits the processing of the income tax return in the manner that the total income or loss of the assessee is computed after making the adjustments for (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 1 0AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return”. The adjustments under clause (vi) above are no longer permissible after 1st April 2018. Clearly, thus, there is a significant paradigm shift in the processing of income tax returns under section 143(1), and the decisions rendered in the context of old Section 143(1)(a) cease to be relevant. Learned counsel thus derives no advantage from the judgments rendered in the context of old Section 143(1)(a)- such as Hon’ble jurisdictional High Court’s judgment in the case of Khatau Junkar (supra). To that extent, we must uphold the plea of the learned Departmental Representative.
6. Coming to the mechanism of application of Section 143(1), we find that the first proviso to Section 143 (1) mandates that “no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode” and, under the second proviso to Section 143(1), “the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made”. The scope of permissible adjustments under section 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Section 143(1), is indeed permissible. It is, however, important to take note of the fact that unlike the old scheme of ‘prima facie adjustments’ under section 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of ‘such adjustments’ [as proposed under section 143(1)], in writing or by electronic mode, and “the response received from the assessee, if any” to be “considered before making any adjustment” makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter- one way or the other, and such disposal of objections is a quasi-judicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi-judicial function that he is performing, and, in performing a quasi-judicial function, he has to set out his specific reasons for doing so. Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same. Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that “As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of Section 143(1)(a)”, and has not even struck off the portion inapplicable. To put a question to ourselves, can such casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications for a quasi-judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. It is important to bear in mind the fact that intimation under section 143(1) is an appealable order, and when consideration of objections raised by the assessee is an integral part of the process of finalizing the intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the first appellate authority sits in judgment over correctness or otherwise of such a rejection of submissions. Whether the statute specifically provides for it or not, in our considered view, the need for disposal of objections by way of a speaking order has to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee, is performing a quasi-judicial function, and the soul of a quasijudicial decision making is in the reasoning for coming to the decision taken by the quasi-judicial officer. While on this aspect of the matter, we may usefully refer to the observations made by the Hon’ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi and Ors., [2021] 4 SCC 516. While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi-judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon ’ble Justice Chandrachud, Hon’ble Supreme Court has made the following observations:
………..Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations since what we have encountered in this case is no longer an isolated aberration. This has become a recurring phenomenon. ………….How judges communicate in their judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary
7. These observations of Their Lordships apply equally, and in fact with much greater vigour, to the quasi-judicial functionaries as well. Viewed thus, reasons in a quasi-judicial order constitute the soul of the quasi-judicial decision. A quasi-judicial order, without giving reasons for arriving at such a decision, is contrary to the way the functioning of the quasi-judicial authorities is envisaged. A quasi-judicial order, as a rejection of the objections against the proposed adjustments under section 143(1) inherently is, can hardly meet any judicial approval when it is devoid of the cogent and specific reasons, and when it is in a standard template text format with clear indications that there has not been any application of mind as even the inapplicable portion of the template text, i.e whether there was no response or whether the response is unacceptable, has not been removed from the reasons assigned for going ahead with the proposed adjustment under section 143(1). In any event, there is no dispute that the precise and proximate reasons for disallowance in all these cases admittedly are the inputs based on the tax audit report. The question then arises about the status and significance of the tax audit report. Can the observations in a tax audit report, by themselves, be justifications enough for any disallowance of expenditure under the Act? As we deal with this question, we are alive to the fact section 143(1)(a)(iv) specifically an adjustment in respect of “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return”. It does proceed on the basis that when a tax auditor indicates a disallowance in the tax audit report, for this indication alone, the expense must be disallowed while processing under section 143(1) by the CPC. It is nevertheless important to bear in mind the fact that a tax audit report is prepared by an independent professional. The fact that the tax auditor is appointed by the assessee himself does not dilute the independence of the tax auditor. The fact remains that the tax auditor is a third party, and his opinions cannot bind the auditee in any manner. As a matter of fact, no matter how highly placed an auditor is, and even within the Government mechanism and with respect to CAG audits, the audit observations are seldom taken an accepted position by the auditee- even when the auditor is appointed by the auditee himself. These are mere opinions and at best these opinions flag the issues which are required to be considered by the stakeholders. On such fine point of law, as the nuances about the manner in which Hon’ble Courts have interpreted the legal provisions of the Income Tax Act in one way or the other, these audit reports are inherently even less relevant- more so when the related audit report requires reporting of a factual position rather than express an opinion about legal implication of that position. In the light of this ground reality, an auditee being presumed to have accepted, and concurred with, the audit observations, just because the appointment of auditor is done by the assessee himself, is too unrealistic and incompatible with the very conceptual foundation of independence of an auditor. On the one hand, the position of the auditor is treated so subservient to the assessee that the views expressed by the auditor are treated as a reflection of the stand of the assessee, and, on the other hand, the views of the auditor are treated as so sacrosanct that these views, by themselves, are taken as justification enough for a disallowance under the scheme of the Act. There is no meeting ground in this inherently contradictory approach. Elevating the status of a tax auditor to such a level that when he gives an opinion which is not in harmony with the law laid down by the Hon’ble Courts above- as indeed in this case, the law, on the face of it, requires such audit opinion to be implemented by forcing the disallowance under section 143(1), does seem incongruous. Learned Departmental Representative’s contentions in this regard that the observations made in the tax audit report, in the light of the specific provisions of Section 143(1)(a)(iv), must prevail- more so when the tax auditor is appointed by the assessee himself, is clearly unsustainable in law. While Section 143(1)(a)(iv) does provide for a disallowance based purely on the “indication” in the tax audit report, inasmuch as it permits “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return”, and it is for the Hon’ble Constitutional Courts above to take a call on the vires of this provision, we are nevertheless required to interpret this provision in a manner to give it a sensible and workable interpretation. When the opinion expressed by the tax auditor is contrary to the correct legal position, the tax audit report has to make way for the correct legal position. The reason is simple. Under Article 141 of the Constitution of India, the law laid down by the Hon’ble Supreme Court unquestionably binds all of us, and the Hon’ble Supreme Court has, in numerous cases- including, for example, in the case of East India Commercial Co. Ltd. v. Collector of Customs [1963] 3 SCR 338, speaking through Hon’ble Justice Subba Rao observed, inter alia, as follows:
….. Under article 215, every High Court shall be a Court of record and shall have all the powers of such a Court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all Courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate Courts can equally do so, for there is no specific provision, just like in the case of the Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer
8. When the law enacted by the legislature has been construed in a particular manner by the Hon’ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that Hon’ble High Court to read it in any other manner than as read by the Hon’ble jurisdictional High Court. The views expressed by the tax auditor, in such a situation, cannot be reason enough to disregard the binding views of the Hon’ble jurisdictional High Court. To that extent, the provisions of Section 143(1)(a)(iv) must be read down. What essentially follows is that the adjustments under section 143(1)(a) in respect of “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return” is to be read as, for example, subject to the rider “except in a situation in which the audit report has taken a stand contrary to the law laid down by Hon’ble Courts above”. That is where the quasi-judicial exercise of dealing with the objections of the assessee, against proposed adjustments under section143(1), assumes critical importance in the processing of returns. It is also important to bear in mind the fact that what constitutes jurisdictional High Court will essentially depend upon the location of the jurisdictional Assessing Officer. While dealing with jurisdiction for the appeals, Rule 11(i) of the Central Processing of Returns Scheme 2011 states that “Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer”. Then situs of the CPC or the Assessing Office CPC is thus irrelevant for the purpose of ascertaining the jurisdictional High Court. Therefore, in the present case, whether the CPC is within the jurisdiction of Hon’ble Bombay High Court or not, as long as the regular Assessing Officer of the assessee and the assessee are located in the jurisdiction of Hon’ble Bombay High Court, the jurisdictional High Court, for all matters pertaining to the assessee, will be Hon’ble Bombay High Court. In our considered view, it cannot be open to the Assessing Officer CPC to take a view contrary to the view taken by the Hon’ble jurisdictional High Court- more so when his attention was specifically invited to the binding judicial precedents in this regard. For this reason also, the inputs in question in the tax audit report can not be reason enough to make the impugned disallowance. The assessee must succeed for this reason as well.
9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be ‘due date’ in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression ‘due date’ has been defined under Explanation (now Explanation 1) to Section 36(1)(va) provides that “For the purposes of this clause, ‘due date’ means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise”, one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowability of deduction or otherwise; it is just a factual report about the fact of payments and the fact of the due date as per the Explanation to Section 36(1)(va). This due date, however, has not been found to be decisive in the light of the law laid down by Hon’ble Courts above, and it cannot, therefore, be said that the reporting of payment beyond this due date in the tax audit report constituted “disallowance of expenditure indicated in the audit report but not taking into account in the computation of total income in the return” as is sine qua non for disallowance of Section 143(1)(a)(iv). When the due date under Explanation to Section 36(1) (va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is “indicative” of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon’ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well.
10. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. As we hold so, we make it clear that our observations remain confined to the peculiar facts before us, that our adjudication is confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such an adjustment was to be permissible in the scheme of Section 143(1), whether the insertion of Explanation 2 to Section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to the assessment years 2021-22 are concerned, the provisions of Section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage.”
3.2 Respectfully following the Tribunal (supra), we delete the disallowance made by the Assessing Officer in terms of section 36(1)(va) of the Act. The ground of the appeal of the assessee is accordingly allowed.
4. In ground No. 2, the assessee is aggrieved for allowing TDS credit of Rs.10,65,761/- only as against the claim of TDS credit of Rs.18,50,237/- in the return of income resulting into short credit of Rs.7,84,476/-. The facts qua, the issue-in-dispute that assessee is a micro finance company and the interest income receivable by the assessee from securitization trust is offered to tax on accrual basis while deductor claim the deduction of loan payment in the next assessment year on cash basis. As a result, tax is deducted at the source by the deductor in the next assessment year in which deduction payment is claimed as interest expenditure. However, the assessee claims credit for TDS in respect of such interest income which is offered to tax in the year under consideration. Thus the issue in contention is that though the tax has not been deducted by the deductor either on credit or on paid basis, still the assessee is claiming credit of the TDS.
5. Before us, the Ld. counsel of the assessee relied on the decision of the Tribunal in ITA Nos. 6425/M/2017, 6426/M/2017 & 1140/M/2017.
6. We have heard rival submission of the parties on the issue-indispute and find that the case of assessee is squarely covered by the order of the Tribunal in the case of M/s Stock Holding Corporation India Ltd. v. DCIT (ITA No. 5796/Mum/2019):
“6. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute involving ground No. 1 (one) of the appeal, is of the assessment year in which credit of tax deducted at source has to be given. In the case, before us the assessee has submitted a list of TDS certificates amounting to Rs. 2,64,87,104/- which is available on page 18 of the paperbook . The assessee has also enclosed a copy of all the TDS certificates amounting to ₹ 2,64,87,104/-, which are available from page 19 to 103 of the paperbook. On perusal of the TDS certificates, we find that one TDS certificate relates to either assessment year 2010-11, and the remaining certificates relates to assessment year 2011-12 i.e. the assessment year under consideration or assessment year 2012-13. The TDS certificates filed by the assessee had been issued mainly by the Government Organisation, Semi-government organization or Public Sector Undertakings and similar institutions . The assessee is seeking credit of TDS on the basis of these TDS certificates, whereas the Assessing Officer has allowed the credit on the basis of Form No. 26AS, which is a statement of deduction of tax at source prepared by the Income-tax Department in terms of section 203AA of the Act in respect of the tax deducted in the case of the assessee relevant to the assessment year under consideration i.e. AY 2011-12.
7. The section 199 under chapter XVII B of the Act, has prescribed provision for giving credit of TDS. The provisions of section 199 of the Act, as it existed prior to 01/04/2008 lays down that credit for TDS will be allowed in the assessment year in which income is assessable. The Tribunal, Chandigarh Bench (third member ) in the case of Pradeep Kumar Dhir Vs ACIT (2007) 107 ITD 118 held that credit for TDS has to be given in the assessment year for which such income is assessable. The Tribunal laid down that the conditions for getting the benefit of the TDS as per section 199 of the Act are that (i) the assessee should produce the TDS certificates (ii) show that income subjected to TDS is disclosed in return of income of the assessment year as “assessable”. 7.1 The section 199 of the Act however has been substituted by the Finance Act, 2008 with effect from 01/04/2008 and as per the substituted provisions, the credit has to be given as per the provisions made in the Income-tax Rules, 1962 (in short „the Rules‟). In terms of, Rule 37BA the credit for tax deducted at source and paid to the central government shall be given for the assessment year for which such income is assessable. In case the income is assessable over a number of years, credit for tax deducted at source shall be allowed across the years in the same proportionate, in which the income is assessable to tax. 7.2 For ready reference, the relevant provision for credit of tax deducted at source during relevant period i. e. section 199 of the Act, is reproduced as under:
―(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or o the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.
(2)Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.
(3) The Board may, for the purpose of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.‖
8. The relevant rule i.e. Rule 37BA in this respect is also reproduced for ready reference:
―Credit for tax deducted at source for the purposes of section 199.
(1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.
(2) (i) where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee: Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.
(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.
(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of –
(i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority: and
(ii) 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.‖
9. The assessee has relied on the decision of the Pune Bench of Tribunal in the case of M/s Mahesh Software Systems P. Ltd. in ITA No. 1288/P UN/2017 for assessment year 2011-12. In the said case the assessee raised bills of ₹ 84,10,000/- on M/s Ashoka Leyland on 28/03/2011 and recorded this invoice in assessment year 2011-12, whereas M/s Ashok Leyland though deducted the tax at source on the said bill, however deposited it with the exchequer in the month of April 2011. The Tribunal (supra) after analyzing section 199 and Rule 37BA concluded as under: ―
7. The AO has relied on sub-rule (1) of section 37BA for denying the benefit of TDS during the year under consideration. This part of the Rule provides that the credit for TDS shall be given to the person to whom payment has been made or credit has been given on the basis of information relating to TDS furnished by the deductor. What is material for sub-rule (1) is the beneficiary of credit for the TDS, being the person to whom payment has been made, which in the instant case is the assessee. The ld. CIT(A) has, in addition, relied on sub-rule (4) of Rule 37BA, which again provides that the credit for TDS shall be granted on the basis of information relating to deduction of tax at source furnished by the deductor. How, this rule prejudices the claim of the assessee is anybody‘s guess. Obviously, the information about the TDS by Ashok Leyland is not denied. Both the sub-rules simply provide for granting of the benefit of TDS. The point of time at which the benefit of TDS is to be given, is governed by sub-rule (3) of Rule 37BA, which unequivocally provides through clause (i) that the credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable‘. It is, ergo, abundantly clear from the mandate of Rule 37BA(3)(i) that the benefit of TDS is to be given for the assessment year for which the corresponding income is assessable. Since the income of Rs.84. 10 lakh, on which tax of Rs.8,41,050/- was deducted at source, is patently assessable in the year under consideration, we hold that the benefit of the TDS should also be allowed in the same year, namely, the year under consideration. We, therefore, overturn the impugned order and direct accordingly.
10. Thus, the Tribunal (supra) has held that the benefit of the TDS has to be allowed in the same year in which the income is assessable irrespective of the year in which tax has been deposited by the deductor. 11. Further, Tribunal Mumbai Bench in the case M/s Greatship (India) Ltd in ITA No. 5562/Mum/2018 for assessment year 2015-1 6, in identical circumstances, observed as under:
7. On the basis of our aforesaid deliberations, we are unable to subscribe to the view taken by the lower authorities that despite the fact that the sales/receipts were accounted for by the assessee during the year under consideration viz. A.Y 2015-1 6, the corresponding credit of TDS of Rs.45,41,995/- was not be allowed to it in the said year. In fact, we are unable to persuade ourselves to subscribe to the view taken by the lower authorities, that the credit for the tax deducted at source (TDS) was to be allowed to the assessee in the immediately succeeding year i.e A.Y 2016-1 7, despite the absence of the assessable income in the said year. Accordingly, we restore the matter to the file of the A.O, with a direction to allow the short/deficit credit of TDS of Rs.45,41,995/- to the assessee in the year under consideration i.e A. Y 2015-16. Before parting, we may herein observe, that the A.O before allowing the credit of the TDS of Rs. 45,41,995/- shall verify the veracity of the claim of the assessee that the sales/receipts corresponding to the TDS credit of Rs.45,41, 995/- were accounted for by it during the year under consideration viz. A.Y. 2015- 16. Also, as a word of caution, the A.O shall take necessary steps in order to ensure that no TDS credit of the aforesaid amount of Rs. 45,41,995/- is/was availed by the assessee in the immediately succeeding year i.e A.Y 201 6-17 in which the same is reflected in its ―Form 26AS.
12. In view of above precedents, we summarise the position of law on the issue that during relevant period Credit for TDS has to be allowed in the assessment year, in which the corresponding income is assessable. It is not relevant in which financial year, the tax has been deposited in Govt. account or in which year TDS certificate has been issued. The relevant thing which has to be verified is for which year the deductor has credited the income to the assessee in the TDS certificate issued and if the income is credited for relevant assessment year then TDS credit has to be allowed even if said TDS credit is appearing in Form No. 26AS in next assessment year.
13. When we analyze the facts of the instant case in above legal background, we find that the TDS certificates under reference filed by the assessee before the Ld. Assessing Officer can be divided in three categories. First category, where the TDS has been deducted by the deductor for assessment year 2010- 11. One TDS certificate, available on page 30-31 of the paperbook , falls in this category. In this TDS certificate, date of credit or payment is not mentioned and only date of deposit of TDS of Rs. 26,956 and Rs. 34,072 in Government Account is mentioned as on 05/03/2010 and 05/04/2010 respectively. In the circumstances, it needs verification as to in which year the corresponding income was assessable in the hands of the assessee.
14. As far as second category of TDS certificates are concerned, we find that in those certificates income has been credited or paid to the assessee in the assessment year under consideration and tax has also been deducted in assessment year under consideration i.e. AY 2011-12 , however same has been deposited in subsequent assessment year i.e. AY 2012-13. If the income corresponding to the TDS is assessable in the year under consideration, then the assessee is eligible for credit of TDS in the year under consideration, irrespective of the year in which TDS was deposited by the deductor. For example, TDS certificate available on page 35 of the paperbook, wherein amount of ₹ 5, 04, 345/-has been credited in the account of the assessee on 31/03/2011, however tax has been deposited in government account on 24/05/2011. In such category of TDS certificates, following the finding of the Tribunal in the case of Mahesh Software Systems Private Limited (supra) , the corresponding income is assessable in assessment year under consideration i.e. AY 2011-12. The section 205 of the Act also support this view. According to the section 205 of the Act, where tax is deductible at the source under the provisions of the act, the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income. Thus, in order to call bar of section 205 into operation, it is necessary to establish the tax has in fact deducted at source and credit of the tax deducted at source must be granted to the payee, even if the payer or deductor has not deposited the tax into Government Account.
15. The third category of TDS certificates, where income has been credited or paid by the deductor in financial year corresponding to assessment year 2012- 13 and tax has also been deducted in the financial year corresponding to assessment year 2012-13. In those cases, the deductor has credited the income to the assessee for assessment year 2012-13, whereas assessee has claiming the credit of said TDS in assessment year 2011-12. We do not understand as how and on what basis the assessee has credited the income corresponding to those TDS certificate in the year under consideration. No documentary evidence in this regard as the corresponding income is assessable or capable of being assessed in the year under consideration, have been filed before lower authorities or before us and therefore onus is on the assessee to establish that said income corresponding to those TDS certificate was assessable in the year under consideration.
16. In view of our finding above, we set aside the finding of the Ld. CIT(A) on the issue in dispute and restore the issue of verification of TDS certificates amounting to ₹ 2,64,87,104 as to in which assessment year income corresponding to the TDS is assessable and allow credit accordingly. For verification of the assessment year in which income is „assessable‟, the Assessing Officer may carry out the inquiries which he deems fit in the circumstances including verifying the previous year relevant to the assessment year in which corresponding bills/invoices are issued by the assessee, the previous year in which services corresponding to bills issued were rendered, when the entries of such bills / invoices were made in the books of accounts of the assessee , the previous year in which such bills/invoices were sent to the TDS deductor etc. We have also noticed difference in amount of TDS credit denied by the Ld. AO and amount challenged in Ground No. 2 of the appeal. The Assessing Officer shall reconcile those amounts and ensure that if credit of particular TDS amount is allowed in the year under consideration, than no credit of said TDS is allowed in any other assessment years. It is the responsibility of the assessee also not to claim the same TDS twice. The ground No. 1 of the appeal of the assessee, is accordingly allowed for statistical purposes.
“17. As far as ground No. 2 of the appeal is concerned, we are of the opinion that in ground No. 1 of the appeal, the assessee itself is claiming for allowing credit on the basis of the year in which income is assessed. The claim of the assessee in ground No.2 is in contradiction with the claim of the assessee in ground No. one of the appeal. When, the assessee has already claimed TDS credit corresponding the income offered in preceding years, though same is appearing in form No. 26AS of the year under consideration, the assessee is not entitled for credit of TDS to that extent. We accordingly, uphold the finding of the Ld. CIT(A) of withdrawing the credit of the TDS amount, credit of which has already been availed by the assessee in preceding assessment years. The ground No.2 of the appeal of the assessee is accordingly dismissed.”
6.1 Respectfully following the same, the issue-in-dispute is restored to the file of the Ld. Assessing Officer for deciding the issue of the TDS credit in the light of the direction given above by the Tribunal in M/s Stock Holding Corporation of India Ltd. (supra). It is undisputed that Department cannot swallow the tax deducted in respect of the assessee and therefore, if assessee is not eligible for credit in the year under consideration then credit for the same should be allowed in the year in which tax has been deducted by the deductor. The ground of the appeal of the assessee is accordingly allowed for statistical purposes.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 06/04/2 022.
In our case party not deducted TDS for A.Y. 2021-22 and we did not claim the same in ITR. But the party deducted TDS in next A.Y. 2022-23 and we claimed that as per Form 26AS.This TDS on income belonging to last year which we show and CPC is saying that this income is not reflected in the current year so no TDS is allowed? our request u/s 154 was also rejected? what to do ?