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TMI Blog2007 (4) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2003-04. In other words, TDS cannot be adjusted on pro rata basis even if the income is shown by the assessee on cash basis but the TDS has been deducted by the payer on the basis of expenses incurred by him on mercantile basis. We, therefore considering the totality of the facts, set aside the order of Ld. CIT(A) and direct the Assessing Officer to allow the claim of the assessee in respect of TDS on the basis of TDS certificate furnished by him. Order Ld JM - HELD THAT: - In my considered view, as per provisions of section 199, the assessee is entitled to the credit in respect of tax deducted at source in the year in which the income is assessable and not in the assessment year relevant to previous year in respect of which tax has been deducted at source. This ground of appeal raised by the assessee in this regard is accordingly dismissed. Order Third Member - HELD THAT:- I am unable to agree with the ld AM that tax deducted at source is advance tax and credit for the same is to be given to the assessee in terms of section 219 of the Income-tax Act. The above section, as rightly pointed out by the learned Vice President, has no application in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate is to be allowed in the year in which such income is disclosed or is otherwise found to be assessable by the Revenue. Thus, I fully agree with the order proposed by the learned Vice President (JM). - VIMAL GANDHI PRESIDENT (AS A THIRD MEMBER), M. A. BAKSHI VICE PRESIDENT AND N.K. SAINI ACCOUNTANT MEMBER For the Appellant : Subhash C. Jain For the Respondent : Smt. Kalpana Kataria, R. K. Goyal, Umesh Chandra ORDER PER N.K. SAINI, ACCOUNTANT MEMBER. This appeal by the assessee is directed against the order of Ld. CIT(A), Ludhiana dated 2-8-2006. 2. Following grounds have been raised in this appeal : 1. That the Ld. CIT(A)-I has not considered the arguments advanced with reference to the deduction of TDS. Even the written arguments have not been considered and the order of Ld. CIT(A)-I is not speaking order. 2. (a) That the assessee is maintaining accounts on cash basis and the Ld. CIT(A)-I has not considered this issue hence the order of the Ld. CIT(A)-I is not in accordance with law. (b) The Assessing Officer has given credit of TDS on proportionate basis to the assessee which is illegal and against the IT Act and this issue ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 203 for the assessment year for which such income is assessable. Therefore, the credit has to be given in the year the income on which TDS has been declared, has been returned for the purpose of assessment. The reliance placed by the Ld. A.R. on the case of Toya Engineering India Ltd. v. Jt. CIT ITAT Mumbai J Bench cannot be of any help to him as in that case, the assessee-company was crediting the value of work-in-progress on the credit side of its P and L Account. The work-in-progress reflected in the accounts of the company was impregnated with the cost and expenditure of the project, plus amount of income earned out of project till such stage. Thus it is clear from the facts of the case as relied upon by the Ld. A.R. for the assessee that the work-in-progress on which TDS was deducted was credited in the assessee s P and L Account. However, from the facts, it is clear that the appellant s case is entirely different. As far as the appellant s case is concerned, the corresponding income for which credit for TDS is being claimed has not been shown as income in the relevant previous year. Therefore, the action of the Assessing Officer is justified and ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable. From the above provisions, it would be clear that any deduction made and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income, deduction was made. In the instant case the deduction was made from the assessee and the benefit of that deduction was available on the production of certificate furnished under section 203 in the assessment which was relevant to the assessment year. The assessee furnished TDS certificate along with return of income and claimed set off against the tax to be paid on the income declared for the year which is relevant to the assessment year under consideration. 8.1 Now the question arises whether the TDS to be adjusted on the basis of TDS certificate or it can be considered in part, i.e., on pro rata basis only for the income declared by the assessee on receipt basis. The tax deducted at source from the income of the assessee is aki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee by observing that in view of the consistent rise in prices and standard of living even of an average family, the expenses claimed to have been incurred by the assessee for household expenses at Rs. 49,000 were to be considered at too a lower figure. The Assessing Officer estimated the household expenses @ Rs. 8,000 p.m. and made the addition of Rs. 47,000. Ld. CIT(A) confirmed the action of the Assessing Officer. Now the assessee is in appeal. 11. Ld. Counsel for the assessee submitted that the expenses shown by the assessee were sufficient to meet the household needs since he was living a simple and not a lavish life. 12. In her rival submissions. Ld. D.R. for the revenue strongly supported the orders of authorities below. 13. We have considered the rival contentions and carefully gone through the material available on record, in the instant case it is noticed that the Assessing Officer while making the estimate of Rs. 8,000 p.m. on account of household expenses had not given any basis. He also did not rebut this contention of the assessee that the school fee of both the children was Rs. 700 p.m. and the children were going to school on cycles, no servant even maid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur part. 18. In the result, appeal filed by the assessee is partly allowed. PER M.A. BAKSHI, VICE PRESIDENT.- [DISSENTING WITH SHRI N.K.SAINI, ACCOUNTANT MEMBER]. I have gone through the order proposed by my ld. brother in the appeal of the assessee for assessment year 2003-04. Whereas I agree with the decision proposed by my ld. brother in respect of disallowances of certain expenses and addition on account of household expenses, I have my reservations in regard to the proposed view relating to allowance of credit in respect of tax deducted at source. Since I have not been able to persuade myself to agree with the proposed view, I am drafting a separate order relating to the issue referred to above. 2. The appellant is an individual and had filed return of income for assessment year 2003-04 on 30-9-2003 declaring income of Rs. 2,91,190. The return of income was processed under section 143(1) on 26-3-2004. Subsequently, assessment was made under section 143(3). Vide para 4 of the assessment order, the Assessing Officer has pointed out that assessee has been following system of accounting on cash basis and has claimed credit for tax deducted at source aggregating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any success in regard to this issue. Hence the present appeal before us. 4. The ld. Counsel for the assessee contended that assessee was entitled to the credit of the entire amount of TDS in the assessment year relevant to the previous year in respect of which tax has been deducted at source. Reliance was placed on the decision of Bombay Bench of the Tribunal in the case of Toya Engg. India Ltd. ( supra), wherein it has been held that the credit was to be allowed to the assessee in the year of deduction of tax at source. It was accordingly pleaded that the appeal of the assessee may be allowed and the Assessing Officer directed to allow full credit for the TDS. 5. The ld. D.R., on the other hand contended that the Assessing Officer has acted strictly in accordance with the provisions of section 199 and has been fair to the assessee to mention that the credit for the remaining amount of TDS would be allowed to the assessee in the year in which the balance income is assessable to tax. The decision of the Bombay Bench of the Tribunal has rightly been distinguished by the CIT(A), it was contended. 6. In the order proposed by my learned brother, reference has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There are number of other judgments relating to this rule of construction but, in my view, it is unnecessary to burden this order with such decisions. 7. Section 199 is relevant for the purpose of credit in respect of TDS. The said section is reproduced hereunder:- 199. Credit for tax deducted.-(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unit-holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable : Provided that- (i)in a case where such person or owner or depositor or unit-holder or shareholder is a person, whose income is included under the provisions of section 60, section 61, section 64, section 93 or section 94 in the total income of another person, the payment shall be deemed to have been made on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable , the section provided the credit shall be given . . . for the immediately following year under this Act. Thus, the Legislature having modified the language of section 199 with effect from 1-6-1987, in my considered view, there is no escape from the view that the credit for TDS is to be given in the year in which the income in respect of which tax has been deducted at source is assessable to tax. 8. It is not disputed that assessee has not offered the income credited by the three parties in respect of which tax has been deducted at source on the ground that income is offered to tax on receipt basis and the amounts have not in fact been received. The Assessing Officer has, in my view, been reasonable to give credit for the tax deducted at source to the extent the income has been offered for taxation by the assessee in the year under appeal. As pointed out earlier, the assessee has disclosed the amount of TDS as income in the year under appeal as provided under the statute and credit to the extent TDS relates to such income has been allowed by the Assessing Officer. 9. The decision of the Bombay Bench of the ITAT in the case of Toya Engg. India Ltd. (supra) has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year in which deduction has been made or in the year in which the income is assessable to tax? 2. The briefly stated facts of the case are that the assessee in the financial year 2002-03 carried business of commission agent in hosiery yarn. The assessee had been following the cash system of accounting and claimed in his return for the assessment year 2003-04 credit for TDS deducted and paid by various parties as per Certificates of such deduction issued to the assessee. However, as entire amount of commission mentioned in TDS Certificates was not actually paid, the assessee only showed the commission, which was actually received, in the relevant period. The position of commission due to the assessee and commission actually received and shown by the assessee, is reflected in charts available in the assessment order. These are reproduced below:- S. No. Name of the Party Amount of receipt credited on accrual basis as per TDS certificate Amount of TDS as per TDS certificate Amount of receipt declared by the assessee in return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis. The Assessing Officer held that the balance credit would be allowable in the year in which the balance income would be shown as assessable. 3. The aforesaid action of the Assessing Officer was challenged in appeal before the Commissioner of Income-tax (Appeals) but without any success. The learned Commissioner of Income-tax (Appeals) agreed with the view taken by the Assessing Officer. The decision of I.T.A.T. Mumbai J Bench in the case of Toyo Engg. India Ltd. (supra) relied before the ld. CIT(A) was held to be distinguishable as in that case, the assessee-company had reflected income in the shape of work-in-progress and credited to the profit and loss account. This way the view that credit for TDS amount relating to income not disclosed as assessable, in the light of provision of section 199 of Income-tax Act, cannot be allowed was upheld. 4. The assessee carried the matter in further appeal before the Income-tax Appellate Tribunal. After hearing both the parties, the learned Members differed in their views on the issue. 5. The learned Accountant Member, after considering the provisions of section 199 held that tax deducted at source was akin to advance tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disclosed was allowed. The ld. Judicial Member was further of the view that tax deducted at source cannot be treated as the payment of advance tax. In this connection, the learned Vice President referred to provisions of section 219 relied upon by the learned Accountant Member and observed that tax deducted at source was not covered by the above provisions. Moreover, when credit for TDS is to be allowed under a specific provision i.e. section 199 of the Income-tax Act, general provisions of section like 219 can have no application. On consideration of provisions of section 199, which is reproduced in the proposed order of learned Judicial Member (Vice President), it has been observed that after amendment of above section with effect from 1-6-1987 credit for TDS is to be given in the year in which the income in respect of which tax has been deducted at source is assessable to tax. The learned Vice President for agreeing with the view taken by the learned Commissioner of Income-tax (Appeals) in the impugned order further observed as under:- 8. It is not disputed that assessee has not offered the income credited by the three parties in respect of which tax has been deducted at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court in the case of CIT v. Sundaram Industries Ltd. [1999] 240 ITR 335. The learned counsel also emphasized that the income was required to be computed as per regular and consistent system of accounting followed by the assessee. Claim of tax deducted at source, according to Shri Jain, was part of system of accounting and as the credit was allowed to the assessee in the past on the basis of assessment year mentioned in the certificate, that system could not be changed in the year under appeal. The learned counsel for the assessee again relied upon the decision of ITAT Mumbai J Bench in the case of Toyo Engg. India Ltd. (supra) quoted before CIT(A) and also on the case of Smt. Varsha G. Salunke v. Dy. CIT [2006] 98 ITD 147 (Mum.) (TM). The ld. Counsel accordingly supported the proposed order of the ld. Accountant Member. 9. The learned D.R., on the other hand, supported the proposed order of the learned Vice President. He argued that the system of accounting followed by the assessee has not been disturbed. As only part of income mentioned in the TDS Certificates was disclosed by the assessee in the assessment year under consideration, the benefit for tax deducted at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned conditions are to be satisfied. It is, therefore, clear that the assessee will not be entitled to have benefit or credit for the amount though mentioned in the certificate for the assessment year if income relatable to the amount is not shown and is not assessable in that assessment year. If instead of entire income referable to amount of tax deducted, only a portion of income is found assessable the benefit has to be allowed only on the portion shown. If balance income, on account of system of accounting followed by the assessee or for some other reason is found to be assessable in future, then the credit for the balance TDS can be allowed only in future when income is assessable. Credit allowed on pro rata basis in the year in which the certificate is issued and also in future where balance or such income is found to be assessable is as per the mandate of provision of section 199. Any amount which has not been assessed in any year but referred in the TDS certificate, cannot be claimed under section 199 of the Income-tax Act. The Assessing Officer and the learned Vice President was right in holding that credit on pro rata basis has to be allowed. This view has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the income pertained to the certificate before giving credit. If he finds that the income of the certificate is not shown, the Assessing Officer has not only to give the credit for TDS in that assessment year and has to defer the credit being given to the year in which the income is to be assessed. 13. The CBDT Circular No. 5 of 2001, dated 2-3-2001 also supports the view that where tax is deducted from the amount which is liable to be assessed and spread over more than one financial year, credit shall be allowed for TDS on pro rata basis and in the same proportion in which such income is offered for taxation in different assessment years. 14. The learned counsel for the assessee while supporting the order proposed by the learned Accountant Member, emphasized that the income must be computed as per system of accounting regularly followed by the assessee, I have no quarrel with the above proposition but I am unable to agree that the credit for the tax deducted at source is to be allowed as per any system of accounting followed by the assessee. In the present case, there is no dispute regarding cash system of accounting followed by the assessee and his income has been comput ..... X X X X Extracts X X X X X X X X Extracts X X X X
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