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2010 (9) TMI 695 - AT - Income TaxTax deducted at source (TDS) credit - Assessee was following mercantile system of accounting - even the method of accounting has nothing to do in giving credit to the TDS - admittedly, the assessee has not offered the corresponding income for taxation and the Assessing Officer has not made any addition also - Decided against the assessee order of CIT(A) set aside.
Issues:
- Whether credit for tax deducted at source (TDS) should be given when the corresponding income was not offered for taxation. - Applicability of the decision in Progressive Construction Ltd. vs. JCIT in I.T.A. No. 482/Hyd/2001 dated 23.11.2006. - Impact of the amendment to section 199 of the Income-tax Act, 1961 by Finance Act, 1987. - Influence of the system of accounting (cash vs. mercantile) on the credit for TDS. Issue 1: Credit for TDS without corresponding income for taxation: The Department contended that credit for TDS should not be given if the income was not offered for taxation, citing the decision in Pradeep Kumar Dhir where the Tribunal held that TDS credit cannot be claimed on income not assessed. The Tribunal emphasized that TDS credit should align with the income assessable for taxation, as per section 199 of the Act. The Third Member's opinion supported this stance, stating that the system of accounting does not affect TDS credit eligibility. Issue 2: Applicability of Progressive Construction Ltd. vs. JCIT decision: The assessee relied on the Progressive Construction Ltd. case, arguing that TDS credit should be given upon production of the certificate for the relevant assessment year. However, the Tribunal noted that the Progressive Construction Ltd. decision did not consider the 1987 amendment to section 199, which altered the timing of TDS credit to align with the assessable income year. The Tribunal found the Third Member's decision in Pradeep Kumar Dhir more authoritative due to its majority opinion. Issue 3: Impact of the 1987 amendment to section 199: The amendment to section 199 by the Finance Act, 1987 modified the language to provide TDS credit for the income assessable for taxation, rather than for the immediately following assessment year. The Tribunal emphasized that TDS credit should correspond to the income subject to taxation in the relevant year, as per the amended provisions. Issue 4: Influence of accounting system on TDS credit eligibility: The assessee attempted to differentiate the case based on the accounting system used, claiming that the mercantile accounting system should impact TDS credit eligibility differently from the cash system. However, the Tribunal clarified that the method of accounting does not affect the TDS credit allowance, reiterating that TDS credit should align with the income offered for taxation. In conclusion, the Tribunal upheld the Department's position that TDS credit cannot be claimed if the corresponding income is not offered for taxation. The decision in Progressive Construction Ltd. was deemed less persuasive due to not considering the 1987 amendment to section 199. The Tribunal emphasized that TDS credit must align with the income assessable for taxation, irrespective of the accounting system used. As a result, the appeals of the Revenue were allowed, setting aside the CIT(A)'s order and restoring the Assessing Officer's decision.
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