2023 (12) TMI 275 - AT - Income Tax

Denial of TDS credit - TDS is not reflected in Form No. 26AS of the assessee - HELD THAT - We find that there is absolutely no dispute that the interest earned on advances of the contractors were part of business receipts and since the assessee had not commenced its business, the said interest income was duly reduced by the assessee from expenditure during the construction period in this balance sheet. It is not the case of the Revenue that the said interest income would be liable to be taxed under the head income from other sources. Hence, when there is no obligation on the part of the assessee to offer the said interest income to tax as per the provisions of the Act, and the same have been duly reflected in the books of accounts and audited balance sheet of the assessee, the TDS claimed relatable to such interest receipts cannot be denied to the assessee. We find that the CPC had denied the TDS figure only on the ground that the said TDS figure was not reflected in the Form 26AS of the assessee. We find from updated Form 26AS of the assessee, the very same TDS figure of Rs. 10,80,720/- is duly reflected and hence grievance of the CPC has been duly met. Hence, as per rule 37BA for the Income Tax Rules, the assessee shall be entitled for TDS credit - We further find that the similar issue came up in the case of Trikaal Mediinfotech Pvt. Ltd. 2023 (4) TMI 88 - ITAT MUMBAI held that when TDS is made on a particular income which is otherwise not liable for tax, the assessee is entitled for the said credit of the TOS - when the assessee has earned interest on deposit mandatory for acquisition on installation of machinery then the interest was earned by the assessee and is directly incidental to the acquisition in respect of machinery and therefore the same has been rightly reduced from the cost of the machinery, In this way the assessee has indirectly disclosed income and has offered for assessment - Appeal of assessee allowed.

Summary

Issues:
The judgment involves the denial of Tax Deducted at Source (TDS) credit by the Assessing Officer (AO) under section 143(1) of the Income Tax Act for the Assessment Year 2019-20.

Issue 1: Denial of TDS credit by the AO:
The appeal questions the denial of TDS credit of Rs. 10,80,720/- by the AO, which was claimed by the assessee under section 194A of the Act. The contention was that the TDS amount claimed was reflected in Form 26AS uploaded in the Income Tax e-filing portal. The Ld. CIT(A) upheld the denial of TDS credit by the AO, stating that the appellant failed to substantiate the claim and did not provide evidence that the corresponding income was subjected to tax. The appeal was dismissed on this ground.

Issue 2: Justification for TDS credit denial:
The main grievance of the Revenue was that the assessee did not disclose any income corresponding to the TDS claim. However, it was argued by the assessee that the interest income earned on advances given to contractors was linked to its business activity and was duly reflected in the balance sheet. The Revenue's argument was that the interest income should be taxed under "income from other sources." The Tribunal found that since there was no obligation for the assessee to offer the interest income for tax, and it was properly reflected in the books of accounts, the TDS credit related to such interest receipts should not be denied. The Tribunal noted that the TDS figure was indeed reflected in Form 26AS, meeting the requirements for TDS credit eligibility. Citing relevant case law, the Tribunal held that the assessee was entitled to the TDS credit of Rs. 10,80,720/-.

Separate Judgment by Co-ordinate Bench:
A similar issue was adjudicated by a Co-ordinate Bench of the Mumbai Tribunal in the case of Trikaal Mediinfotech Pvt. Ltd. vs. DCIT. The judgment clarified that when TDS is deducted on income not directly liable for tax, the assessee is entitled to TDS credit. The Tribunal highlighted the importance of considering the nature of income and the proper application of tax laws in determining TDS credit eligibility.

In conclusion, the appellate tribunal directed the Assessing Officer to grant the TDS credit of Rs. 10,80,720/- to the assessee, as the denial of the credit was found unjustified based on the facts and legal precedents discussed in the judgment.