2017 (6) TMI 545 - AT - Income Tax

Rectification of mistake - not allowing the TDS credit - Held that - The assessee duly fulfills all the conditions as laid down in section 198 r.ws. 199 r.w. Rule 378A of the Act. As find that TDS had been deducted and paid to the Central Government by the deductee and Payment/ Credit of Rent Income has been included in the accounts of the assessee. The deductor had duly filed requisite TDS returns as per Rules and also issued TDS certificate to the assessee and the same was furnished to the AO. Amount of TDS claimed, corresponding to claim of unrealized rent, is duly offered to tax as income of the assessee, in view of section 198 of the Act and also assessed by the AO. As assessee s action is in accordance with provisions of section 199 of the Act and the assessee is eligible for seeking credit of the TDS amount. Hence, set aside the order of the authorities below and decide the issue in favour of the assessee. However, this issue is highly debatable and cannot be acted upon by the revenue - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the assessment order passed under section 154 of the Income Tax Act, 1961.
2. Entitlement to credit for Tax Deducted at Source (TDS) on unrealized rent.

Detailed Analysis:

1. Legality of the Assessment Order Passed under Section 154 of the Income Tax Act, 1961:

The assessee challenged the assessment order passed by the AO under section 154, arguing that it was "bad in law" and should be quashed. The AO had rectified the assessment order by restricting the allowance of TDS credit to the extent of the actual amount of rent received, rather than the total rent including unrealized rent. The CIT(A) upheld the AO's decision, stating that the AO had "rightly given the proportionate claim of TDS credit" based on the provisions of section 199(3) read with Rule 37BB (3)(i)/(ii). The CIT(A) noted that since the unrealized rent had not been assessed to tax, the TDS deducted on such rent could not be claimed as tax deducted and paid to the central government.

The Tribunal, however, found that the issue was highly debatable and could not be rectified under section 154 of the Act. The Tribunal referred to the Supreme Court decision in T.S. Balram, ITO vs. Volkart Bros., which held that a mistake apparent on the record must be an "obvious and patent mistake" and not something that requires a long drawn process of reasoning. The Tribunal concluded that the AO was "wholly wrong in holding that there was a mistake apparent from the record."

2. Entitlement to Credit for TDS on Unrealized Rent:

The assessee claimed full credit for TDS of ?5,86,412, but the AO allowed credit of only ?2,70,411 based on the rental income actually received. The assessee argued that the entire amount of TDS should be credited as the total rental income, including unrealized rent, was offered to tax. The Tribunal agreed with the assessee, stating that "the Unrealized rent is deduction which is claimed u/s 23(1) of the Act, read with Rule 4 of the Rules, from the total rental income offered during the year." The Tribunal emphasized that the unrealized rent is not an exempt income and that the TDS credit needs to be allowed on the total rental income offered to tax.

The Tribunal referred to section 198 of the Act, which states that all sums deducted shall be deemed to be income received for the purpose of computing the income of an assessee. The Tribunal also cited section 199 of the Act and Rule 37BA, which provide that TDS credit should be given for the assessment year in which such income is assessable. The Tribunal noted that the assessee fulfilled all conditions laid down in section 198 r.w.s. 199 r.w. Rule 37BA.

The Tribunal also cited the decision of the co-ordinate bench in the case of Chandrashekar Agarwal, which held that an assessee is entitled to credit for TDS once such income is included in his income, even if the remaining amount is taxable in succeeding years. The Tribunal concluded that the assessee's action was in accordance with the provisions of section 199 of the Act and that the assessee was eligible for credit of the entire TDS amount.

Conclusion:

The Tribunal set aside the orders of the authorities below and decided the issue in favor of the assessee, allowing the appeal. The Tribunal held that the issue was highly debatable and could not be acted upon by the revenue under section 154 of the Act. The Tribunal pronounced the order in the open court on 09-06-2017.