2023 (2) TMI 1069 - AT - Income Tax

TDS credit - mismatch in credit of tax deducted at source claimed by the assessee in the return of income - As submitted tax credit claimed by the assessee in the return of income is in accordance with the credit available as per Form 26AS - as per CIT-A assessee is entitled to credit of TDS deducted in respect of interest income and advance received from Kerala Government during the year under consideration - HELD THAT - In the case of Arvind Murjani Brands (P.) Ltd. 2012 (5) TMI 138 - ITAT MUMBAI ITAT held that where amount on which tax was deducted at source is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in year of receipt of amount, in which tax was deducted at source. As decided in M/S. ZELAN PROJECTS P. LTD. VERSUS DCIT, CIRCLE 3 (3) HYDERABAD 2015 (6) TMI 66 - ITAT HYDERABAD where TDS was deducted from mobilisation advance paid to assessee-erection contractor, credit of same was to be allowed, even if no income was assessable to tax as contract was not fully executed in relevant year. As decided in SUPREME RENEWABLE ENERGY LIMITED. VERSUS INCOME TAX OFFICER. 2008 (8) TMI 432 - ITAT MADRAS-C assessee becomes entitled to credit of TDS even if he has not directly offered the relevant income for tax on the basis that it is not liable to tax. In the case of Sadbhav Engineering Ltd. 2014 (1) TMI 233 - ITAT AHMEDABAD held that once the TDS deducted, credit of the same to be given to assessees, irrespective of year to which it relates. In the case of NCC Maytas JV 2013 (9) TMI 1294 - ITAT HYDERABAD ITAT held that a part of TDS cannot be denied on the ground that the corresponding turnover has not been shown in the A.Y. in which credit is being claimed, if income relating to such TDS has already been offered for taxation in an earlier assessment year. Accordingly, in view of the above observations, we find no infirmity in the order of Ld. CIT(A) who has allowed the appeal of the assessee after appreciating all relevant factors. In the result, the appeal of the Department is dismissed.

Summary

Issues Involved:
1. Denial of TDS credit for the assessment years 2017-18 and 2018-19.
2. Applicability of Section 199 read with Rule 37BA regarding TDS credit.
3. Treatment of interest income and advance against funded work as capital receipts.

Detailed Analysis:

Issue 1: Denial of TDS Credit
The Department appealed against the CIT(A)'s order directing the AO to grant TDS credit of Rs. 3,08,68,845/- for AY 2017-18 and Rs. 4,41,49,426/- for AY 2018-19. The Department contended that the CIT(A) ignored the provisions of Section 199 read with Rule 37BA.

Issue 2: Applicability of Section 199 and Rule 37BA
The assessee filed its return declaring total income at Rs. Nil and claiming a refund based on TDS deducted. The AO denied the TDS credit due to a mismatch in the TDS claimed and the amount reflected in Form 26AS. The CIT(A) found that the TDS claimed was duly reflected in Form 26AS and allowed the credit, emphasizing that TDS credit cannot be denied even if the related income is capitalized and not offered in the profit and loss account.

Issue 3: Treatment of Interest Income and Advance Against Funded Work
The assessee argued that the interest income earned from fixed deposits during the construction period was capitalized in the books and reduced from the capital work in progress (CWIP). The CIT(A) agreed with the assessee, citing the Supreme Court's decision in CIT vs. Bokaro Steel Limited and other cases, which held that interest income linked to the setting up of a project should be treated as a capital receipt.

Regarding the advance against funded work, the assessee received an advance from the Government of Kerala for project development, which was shown under "other liabilities" in the balance sheet. The CIT(A) held that the TDS credit should be allowed as the advance was a capital receipt and not part of the income in the profit and loss account.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, emphasizing that:
- TDS credit must be given as reflected in Form 26AS.
- Interest income capitalized and reduced from CWIP is indirectly offered to tax.
- Advances received for funded works are capital receipts, and TDS credit should not be denied based on the non-offering of income in the current year.

The Tribunal dismissed the Department's appeal for both assessment years 2017-18 and 2018-19, affirming the CIT(A)'s order to allow the TDS credit claimed by the assessee.