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2025 (3) TMI 717 - AT - Income TaxTDS credit claimed based on discrepancies between the turnover reported in the books and Form 26AS - revenue proportionately reducing the TDS claim to match the turnover reported in the books - assessee contends that the difference between turnover as per books and turnover as per Form 26AS is solely due to the inclusion of GST in Form 26AS whereas in its books of accounts GST is excluded as it is merely a statutory liability and not part of income - CIT(A) dismissed the appeal on the ground that the assessee itself admitted that the tender amount always included GST and did not provide a bifurcation thus concluded that the deduction of TDS on the gross invoice amount was in line with the contractual terms HELD THAT - We find merit in the assessee s contention that GST cannot be considered as part of income as it is a tax collected on behalf of the government and does not accrue to the assessee as revenue. The CBDT Circular No. 23/2017 dated 19-07-2017 explicitly clarifies that TDS should not be deducted on the GST component if it is separately indicated in the invoice. In the present case it is evident that government departments who are customers of the assessee deducted TDS on the gross invoice amount including GST leading to a mismatch between the turnover reflected in Form 26AS and the turnover recorded in the assessee s books. CPC while processing the return u/s 143(1) proportionately restricted the TDS credit based on turnover as per books thereby creating a tax demand instead of granting the refund claimed by the assessee. Upon reviewing the data we observe that while the assessee claims the entire difference arises due to GST at 18% in certain cases the percentage difference does not exactly match the GST rate. We find that the CPC acted beyond its jurisdiction by making such an adjustment u/s 143(1) as the verification of TDS credit requires detailed examination which falls within the scope of scrutiny assessment under section 143(3) rather than summary processing under section 143(1). The CIT(A) also failed to appreciate this jurisdictional issue and did not independently verify whether the amounts reflected in Form 26AS were duly accounted for in the assessee s books. Assessee s claim regarding GST is prima facie correct but further verification is necessary in cases where the percentage difference does not match 18% exactly. Accordingly we direct the AO to verify whether the amounts on which TDS was deducted have been duly included in the total income of the assessee. If it is established that the income corresponding to the TDS credit has been fully accounted for in the books the AO shall grant full TDS credit as per Form 26AS. Appeal of the assessee is allowed for statistical purposes.
ISSUES PRESENTED and CONSIDERED
The primary issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS Erroneous/Proportionate Disallowance of TDS Credit The relevant legal framework involves Rule 37BA of the Income Tax Act, which mandates granting TDS credit as per Form 26AS. The Court noted that the CPC disallowed Rs. 20,25,542/- of TDS credit, leading to a tax demand instead of a refund. The Court found merit in the assessee's argument that the mismatch arose due to the inclusion of GST in Form 26AS, which should not be considered part of the income. The Court emphasized that GST is a statutory liability and not revenue accruing to the assessee. Jurisdiction of CPC under Section 143(1) The Court examined whether the CPC had the jurisdiction to make such adjustments under section 143(1), which is meant for summary processing and not detailed verification. The Court concluded that the CPC acted beyond its jurisdiction, as the verification of TDS credit requires detailed examination, which falls under scrutiny assessment (section 143(3)) rather than summary processing. Application of CBDT Circular No. 23/2017 The Court analyzed the application of CBDT Circular No. 23/2017, which clarifies that TDS should not be deducted on the GST component if separately indicated. The Court found that the CIT(A) failed to apply this circular correctly, as the government departments deducted TDS on the gross invoice amount, including GST. Violation of Natural Justice The Court considered the assessee's argument that the authorities ignored detailed submissions and evidence. The Court agreed that the CIT(A) did not independently verify whether the amounts reflected in Form 26AS were duly accounted for in the assessee's books, thus failing to uphold the principles of natural justice. SIGNIFICANT HOLDINGS The Court held that the assessee's claim regarding GST is prima facie correct, but further verification is necessary in cases where the percentage difference does not match 18% exactly. The Court directed the Assessing Officer (AO) to verify whether the amounts on which TDS was deducted have been duly included in the total income of the assessee. If it is established that the income corresponding to the TDS credit has been fully accounted for in the books, the AO shall grant full TDS credit as per Form 26AS. The Court also set aside the order of the CIT(A) and restored the matter to the file of the AO for fresh verification and adjudication in accordance with the Court's directions. The appeal of the assessee was allowed for statistical purposes, emphasizing that the demand raised by the CPC was not justified under the law, given the errors in TDS deduction on the GST component by government departments.
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