2023 (2) TMI 631 - AT - Income Tax

Benefit of TDS deducted from the advance received from the party in the year in which such advance was offered to tax - HELD THAT - There is no dispute to the fact that the assessee has shown advance of Rs.3.50 crores in the year in respect of which TDS was deducted by the corresponding party. Admittedly, the assessee is not eligible of the amount of TDS deducted on the amount of advance received by the assessee as the corresponding income was not offered to tax. Up to this, there is no dispute raised by the assessee. When the assessee can claim the benefit of TDS i.e. the year in which it offers corresponding income in the income tax return. As per the assessee, it has shown the advance money as income in the Financial Year 2016-17 corresponding to 2017-18. In this regard, we note that sub-rule (3) to the rule 37BA of Income Tax Rule r.w.s. 199 of the Act provides that 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. Accordingly assessee should be allowed the benefit of TDS credit in the AY 2017-18 subject to the verification. Hence, the ground of appeal of the assessee is allowed in the terms of the above direction.

Summary

Issues:
1. Denial of TDS claim by AO.
2. Grant of TDS credit in the relevant assessment year.

Analysis:

Issue 1: Denial of TDS claim by AO
The appeal was filed by the Assessee against the order of the Learned Commissioner of Income Tax(Appeals) regarding the denial of the TDS claim of Rs.7.00 Lakhs. The Assessee contended that the TDS was deducted from an advance given, which was not offered as income in the relevant year. The Assessee argued that the TDS credit should be allowed in the year when the income related to the TDS is offered for taxation. However, the AO did not allow the credit of Rs.7 lakhs, leading to the appeal.

Issue 2: Grant of TDS credit in the relevant assessment year
The Assessee, a partnership firm engaged in civil road construction, had executed work contracts and received an advance of Rs.3.50 crores, on which TDS of Rs.7 lakhs was deducted. The Assessee claimed that the advance amount was considered as income in the Financial Year 2016-17, requesting the TDS credit for that year. The Learned CIT(A) rejected the claim, stating that the Assessee failed to provide sufficient explanation and evidence to support the claim. However, during the appeal before the ITAT, the Assessee reiterated that the advance amount was indeed offered as income in the relevant year.

The ITAT, after considering the arguments, noted that the Assessee had shown the advance amount as income in the Financial Year 2016-17. Referring to the relevant Income Tax Rule, the ITAT concluded that the Assessee should be allowed the benefit of TDS credit in the Assessment Year 2017-18, when the corresponding income was assessable. Therefore, the ITAT allowed the Assessee's appeal, directing the grant of TDS credit in the specified year.

In conclusion, the ITAT ruled in favor of the Assessee, allowing the TDS credit in the Assessment Year 2017-18, as the advance amount had been offered as income in the Financial Year 2016-17.