SIFY TECHNOLOGIES LIMITED ,CHENNAI, INDIA vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 LTU CHENNAI, CHENNAI, INDIA

PDF · subscribers
ITA 2520/CHNY/2026Status: DisposedITAT Chennai05 November 2026AY 2022-2311 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the issue of TDS and TCS credit requires verification on merits, which was not adequately done by the CPC or the Ld.CIT(A). The Ld.CIT(A) erred in relegating the assessee to rectification proceedings under Section 154 when the appeal was already seized of the matter. The Tribunal noted that the assessee had sought time to file a reconciliation before the Ld.CIT(A), which was not considered. The Tribunal found that the restriction of credit by the CPC, particularly the proportionate restriction under Rule 37BA, was based on a premise that required factual examination. The Tribunal also acknowledged the grievance regarding the absence of a prior opportunity. Therefore, the Tribunal restored Grounds 2 and 3 to the file of the jurisdictional AO. The assessee is directed to furnish a deductor-wise and collector-wise reconciliation of receipts in Form 26AS with the income offered, explaining the differences, along with current Form 26AS and supporting material. The AO is to verify this and grant credit as per Section 199 and Rule 37BA, considering income offered and reflection in Form 26AS. If credit relates to income assessable in another year, the AO must record a finding. The AO shall afford a reasonable opportunity of hearing. Grounds 2 and 3 are allowed for statistical purposes.

What were the facts?

The assessee, M/s. Sify Technologies Limited, filed its return of income for Assessment Year 2022-23 on 24.11.2022, declaring a total income of Rs.79,73,84,430/- and claiming a refund of Rs.71,27,23,840/-. The CPC processed the return under Section 143(1) of the Income-tax Act, 1961, issuing an intimation on 29.07.2023. The CPC made an addition of Rs.28,24,478/- to the total income concerning Section 43B expenses, granted TDS credit of Rs.77,92,97,591/- (against Rs.88,13,39,454/- claimed), and TCS credit of Rs.22,99,105/- (against Rs.23,70,405/- claimed). This resulted in a reduced refund. The assessee appealed to the Ld.CIT(A), who dismissed the appeal. The assessee is now before the ITAT.

What were the issues?

1. Whether the Ld.CIT(A) erred in law and on facts by not allowing full credit of Tax Deducted at Source (TDS) amounting to Rs.88,13,39,454/- appearing as per the Annual Tax Statement/Form 26AS, while taxing the corresponding receipts offered to tax by the Appellant, and whether the restriction of TDS credit to the extent of Rs.10,20,41,863/- was justified, particularly when the corresponding income was offered to tax and credit was reflected in Form 26AS, and if the CPC failed to grant an opportunity of being heard, violating principles of natural justice, and if the CBDT instructions regarding validation of TDS credits were not followed, turning on Section 199 of the Act read with Rule 37BA of the Income-tax Rules, 1962. 2. Whether the Ld.CIT(A) erred in law and on facts by not allowing full credit of Tax Collected at Source (TCS) amounting to Rs.23,70,405/- appearing as per the Annual Tax Statement/Form 26AS and claimed by the Appellant, and whether the restriction of TCS credit to the extent of Rs.71,300/- was justified, and if the CPC failed to grant an opportunity of being heard. Assessee's Contentions: - Full credit of TDS and TCS should be granted as they appear in Form 26AS and the corresponding income has been offered to tax. - The restriction of credit by the CPC was incorrect and violated principles of natural justice as no opportunity of being heard was provided. - CBDT instructions regarding validation of TDS credits were not followed. - It may not be possible to claim credits for TDS updated subsequent to filing the return. Revenue's Contentions: - The Ld.CIT(A) noted that credit for TDS is granted strictly based on TDS claimed in the return and reflected in Form 26AS at the time of processing. Credit is not automatic and is subject to verification as per Section 199 and Rule 37BA. - The proper course for TDS updated after filing the return is rectification under Section 154. - System-based restriction of credit does not require a separate personal hearing. - The CPC cannot assume reconciliation in the absence of system-aligned reporting.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 43B,Section 199,Section 37BA,Section 154,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI ABY T. VARKEY & SHRI S. R. RAGHUNATHA

For Respondent: Shri Beesam Narasing Rao, JCIT
Hearing: 24.09.2026Pronounced: 04.11.2026

आदेश /O R D E R

PER S.R. RAGHUNATHA, AM :

This appeal has been filed by the assessee against the order of the Learned Addl/JCIT(A), Panaji [hereinafter referred to as “the Ld.CIT(A)”] dated 25.02.2026, arising out of the intimation dated 29.07.2023 issued u/s.143(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Assistant Director of Income Tax, Centralized Processing Centre, Bengaluru [hereinafter referred to as “the CPC”] for the Assessment Year (AY) 2022-23.

:-2-: ITA. No.2520/Chny/2026

2.

The brief facts of the case are that the assessee is a company engaged in the business of internet, corporate connectivity and networking services. For the AY 2022-23, the assessee filed its return of income on 24.11.2022 declaring a total income of Rs.79,73,84,430/-, claiming credit of tax deducted at source (TDS) of Rs.88,13,39,454/- & tax collected at source (TCS) of Rs.23,70,405/-, and claiming a refund of Rs.71,27,23,840/-. The CPC issued a communication u/s.143(1)(a) of the Act on 01.03.2023 proposing an adjustment on account of a difference between the tax audit report (TAR) and the return of income in respect of sums allowable u/s.43B of the Act, to which the assessee responded on 28.03.2023 explaining that there was no mismatch on a net basis. The return was thereafter processed by the CPC vide intimation u/s.143(1) of the Act dated 29.07.2023, wherein:

(i) an amount of Rs.28,24,478/- was added to the total income on account of difference in disclosure between the return and the TAR in respect of expenses allowable u/s.43B of the Act, thereby determining the total income at Rs.80,02,08,900/-; (ii) TDS credit was granted only to the extent of Rs.77,92,97,591/- as against Rs.88,13,39,454/- claimed, resulting in a short grant of Rs.10,20,41,863/-; and (iii) TCS credit was granted only to the extent of Rs.22,99,105/- as against Rs.23,70,405/- claimed, resulting in a short grant of Rs.71,300/-.

3.

Consequently, the refund was determined at Rs.65,86,91,800/- as against Rs.71,27,23,840/- claimed. In the details of unmatched TDS/TCS forming part of the intimation, the CPC has indicated, against several deductors, that Form 26AS contained only a partial amount of the credit claimed, and against certain other deductors, that the credit was restricted applying Rule 37BA of the Income-tax Rules, 1962 (“the Rules”), by reference to the income offered, the gross receipts and the TDS reflected in Form 26AS.

4.

Aggrieved, the assessee preferred an appeal before the first appellate authority. Before the Ld.CIT(A), the assessee filed written submissions on the issue of the adjustment u/s.43B of the Act and, on the issue of TDS credit,

:-3-: ITA. No.2520/Chny/2026

sought further time to collate and reconcile the voluminous data involved. The Ld.CIT(A), however, dismissed the appeal on all grounds. The relevant findings of the Ld.CIT(A) are extracted below:

“7.2 … The issue relates to processing of return under section 143(1). At the time of processing, CPC grants credit strictly based on: • TDS claimed in the return of income, and • TDS reflected in the system (Form 26AS/Annual Information Statement) as on the date of processing. Section 199 clearly provides that credit for TDS shall be given in accordance with Rule 37BA and subject to verification. Credit is not automatic merely because income is offered to tax. … As regards TDS updated after filing of return, the proper course available to the appellant is to seek rectification u/s 154 once the credit reflects correctly in the system. Processing u/s 143(1) cannot grant credit beyond system-validated data. Regarding alleged violation of natural justice, it is pertinent that section 143(1)(a) permits adjustments based on apparent information in the return. System-based restriction of credit as per available data does not require separate personal hearing. … 7.3 … If there is any subsequent correction by the collector or updating of Form 26AS after processing, the appellant is at liberty to seek rectification under section 154. No infirmity is found in the action of CPC in restricting TCS credit as per system data available at the time of processing. Accordingly, Ground Nos. 3 to 3.3 are dismissed. 7.4 … The appellant’s contention that it is a “mere disclosure mismatch” cannot be accepted unless the return computation fields clearly demonstrate that the amount was already added back in the prescribed manner. In the absence of system- aligned reporting, CPC cannot assume reconciliation. … If the appellant believes that there is factual double disallowance due to reporting error, the appropriate remedy lies in rectification u/s 154 with proper reconciliation statement. No illegality is found in the adjustment made by CPC. Accordingly, Ground Nos. 4 to 4.4 are dismissed.”

5.

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:

“A. General grounds 1. The order passed by the Ld. CIT (A) under section 250 of the Act is incorrect, contrary to law, facts and circumstances of the present case and made in violation of principles of equity and natural justice.

:-4-: ITA. No.2520/Chny/2026

B. Grounds on Merits 2. Non granting of full credit in respect of Tax Deducted at Source (“TDS”) appearing as per Annual Tax Statement. 2.1. The Ld. CIT (A) erred in law and on facts by not allowing full credit of Tax Deducted at Source (“TDS”) amounting to INR 88,13,39,454/- appearing as per Annual Tax Statement while taxing the entire corresponding receipts offered to tax by the Appellant in its return of income. 2.2. The Ld. CIT (A) ought to have allowed full credit of TDS claimed by the Appellant in the return of income amounting to INR 88,13,39,454/- and duly appearing as per Annual Tax Statement/ Form 26AS for the subject AY. 2.3. The Ld. CIT (A) erred in not granting full credit of TDS amounting to INR 88,13,39,454/- appearing as per Annual Tax Statement/ Form 26AS. 2.4. The CIT(A) erred in confirming the order of the AO who has incorrectly restricted the TDS credits which are duly reflected in the Form 26AS to the extent of INR 10,20,41,863/- [i.e., INR 88,13,39,454/- less INR 77,92,97,591/-]. despite the fact that the entire corresponding income, in respect of which such TDS was deducted and reflected in Form 26AS, had already been duly offered to tax by the Appellant in its return of income. 2.5. The Ld. CIT (A) ought to have appreciated that it may not be possible for the Appellant to claim credits for TDS which have been updated subsequent to filing of return of income based on revisions/ late returns filed by the deductor. 2.6. The Ld. CIT(A) ought to have appreciated that the CPC failed to grant an opportunity of being heard to the Appellant before restricting the credit for TDS, which is in violation of the principles of natural justice 2.7. The Ld. CIT (A) ought to have appreciated that CPC erred in not following the instructions of the CBDT vide Clause 8 of the Centralized Processing of Return Scheme, 2011 whereby the TDS credits are to be validated based on Annual Tax Statement/ Form 26AS. 2.8. The Ld. CIT (A) ought to have considered that the Appellant had offered the corresponding receipts to tax in its return of income and hence the corresponding TDS credits ought to be granted to the Appellant as per Section 199 of the Act read with Rule 37BA of the Income Tax Rules, 1962. 3. Non – grant of TCS credit appearing as per Form 26AS: 3.1. The Ld. CIT (A) erred in law and on facts by not allowing full credit of Tax Collected at Source (“TCS”) amounting to INR 23,70,405/- appearing as per Annual Tax Statement/ Form 26AS and claimed by the Appellant in its Return of Income. 3.2. The Ld. CIT (A) incorrectly restricted the TCS credits which are duly reflected in the Form 26AS to the extent of INR 71,300/- [i.e., INR 23,70,405/- less INR 22,99,105/-] as appearing in the Annual Tax Statement/ Form 26AS at the time of filing the return of income. 3.3. The Ld. CIT(A) ought to have appreciated that the CPC failed to grant an opportunity of being heard to the Appellant before restricting the credit for TCS, which is in violation of the principles of natural justice

:-5-: ITA. No.2520/Chny/2026

3.4. The Ld. CIT (A) ought to have appreciated that CPC erred in not following the instructions of the CBDT vide Clause 8 of the Centralized Processing of Return Scheme, 2011 whereby the TCS credits are to be validated based on Annual Tax Statement/ Form 26AS. 4. Disallowance under 43B of the Act 4.1. The Ld. CIT(A) erred in law and on facts in upholding the addition of bonus payments amounting to INR 28,24,478/- to the total income of the Appellant. 4.2. The Ld. CIT(A) ought to have appreciated that the CPC had made the said addition without considering that the Appellant had already disallowed the said amount in its return of income, thereby resulting in a double disallowance of the same amount. 4.3. The Ld. CIT (A) ought to have appreciated that the disallowance made by Appellant in Clause 11(c) of Part A – OI of the Income tax return (“ITR”) amounting to INR 1,09,98,848/- is higher than the disallowance reported as per Tax Audit report amounting to INR 81,74,370/- which includes the excess allowance of INR 28,24,478/- claimed in Clause 10(c) of Part A – OI in ITR. 4.4. The Ld. CIT (A) ought to have appreciated that the disallowance of INR 1,09,98,848/- was disclosed in Clause 11(c) of Part A – OI instead of claiming less deduction in Clause 10(c) of Part A – OI, resulting in net effect of zero and as such it is merely a disclosure mismatch which does not warrant disallowance. 4.5. The Ld. CIT (A) ought to have appreciated that the addition towards bonus payments would result in double disallowance since the Appellant had already disallowed the same in the return of income.”

6.

At the time of hearing, the ld.AR for the assessee, relying on the written submissions filed, submitted on Grounds 2 and 3 that the assessee had claimed TDS credit of Rs.88,13,39,454/- and TCS credit of Rs.23,70,405/- as reflected in Form 26AS against income duly offered to tax, but the CPC granted credit of only Rs.77,92,97,591/- and Rs.22,99,105/- respectively. The ld.AR contended that the first proviso to s.143(1)(a) of the Act mandates an opportunity before any adjustment is made, that the restriction of credit, which directly affects the tax liability of the assessee, was made without any such opportunity, and that the assessee suffered prejudice since the income was accepted as returned while the corresponding credit was curtailed. The ld.AR submitted that the intimation, to that extent, deserves to be set aside and the differential TDS credit of Rs.10,20,41,863/- and TCS credit of Rs.71,300/- be restored. In support, the ld.AR relied on the order of the Hon’ble Bombay High Court in Rallis India Ltd. v. Central Processing Centre (Writ Petition (L) No.37314 of 2025), the order of

:-6-: ITA. No.2520/Chny/2026

the Chennai Bench of the Tribunal in the case of Faurecia Emissions Control Technologies India Pvt. Ltd. and the order of the Delhi Bench of the Tribunal in Haft Propbuild Pvt. Ltd. v. ITO (ITA No.8910/Del/2019, order dated 03.08.2022).

7.

On Ground No.4, the ld.AR submitted that the assessee had claimed Rs.37,73,354/- in clause 10(c) of Part A-OI of the return as the sum allowable u/s.43B of the Act out of disallowances of earlier years, as against Rs.9,48,876/- reported in the TAR, but had correspondingly disallowed Rs.1,09,98,848/- in clause 11(c) of Part A-OI as against Rs.81,74,370/- reported in the TAR. The excess claim of Rs.28,24,478/- in clause 10(c) was thus exactly offset by an equal excess disallowance in clause 11(c), and the net effect on the total income was nil. The ld.AR contended that s.143(1)(a)(iv) of the Act permits an adjustment only where a disallowance indicated in the TAR has not been taken into account in computing the total income, which is not the case here, and that the adjustment results in the same amount being disallowed twice. It was submitted that the reconciliation furnished before the CPC and the first appellate authority was not considered, and the adjustment of Rs.28,24,478/- deserves to be deleted.

8.

Per contra, the ld.DR supported the order of the Ld.CIT(A) and prayed that the same be upheld.

9.

We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record. Ground No.1 is general in nature and requires no separate adjudication. Grounds 2 and 3 relate to the short grant of TDS and TCS credit, and Ground No.4 relates to the adjustment of Rs.28,24,478/- made with reference to s.43B of the Act. We take up Ground No.4 first, as it turns purely on figures available in the return and the TAR.

10.

Section 143(1)(a)(iv) of the Act permits the CPC to make an adjustment for disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. The question, therefore, is

:-7-: ITA. No.2520/Chny/2026

whether any disallowance indicated in the TAR has been left out of the computation of total income in the return. The undisputed figures are as follows:

37,73,354 As per return – allowed u/s.43B out of earlier years’ disallowances [cl.10(c), Part A-OI] 1,09,98,848 As per return – disallowed u/s.43B for the current year [cl.11(c), Part A-OI] As per return – net addition on account of s.43B 72,25,494 9,48,876 As per TAR – allowable u/s.43B out of earlier years’ disallowances As per TAR – disallowable u/s.43B for the current year 81,74,370 As per TAR – net addition on account of s.43B 72,25,494

11.

It is evident from the above that the net amount added to the income on account of s.43B of the Act is identical, at Rs.72,25,494/-, whether computed as per the return or as per the TAR. The excess deduction of Rs.28,24,478/- claimed in clause 10(c) of Part A-OI has been neutralised by an equal excess disallowance in clause 11(c) of Part A-OI. Thus, the entire disallowance indicated in the TAR has been taken into account in computing the total income returned, and what exists is only a difference in the manner in which the figures were placed in the two fields of the return. Such a difference in presentation, which has no effect on the total income, does not fall within the scope of s.143(1)(a)(iv) of the Act. The adjustment made by the CPC results in the very same sum of Rs.28,24,478/- being disallowed a second time, which is not permissible. The Ld.CIT(A) has not found the figures furnished by the assessee to be incorrect; he has declined relief on the ground that the reporting was not system-aligned and that the assessee may seek rectification u/s.154 of the Act. The availability of an alternative remedy cannot be a reason for the first appellate authority to sustain an adjustment that is not authorised by s.143(1)(a) of the Act, once the issue is squarely before it in appeal. The decision in Goetze (India) Ltd. v. CIT, referred to by the Ld.CIT(A), concerns the making of a fresh claim before the AO otherwise than by a revised return, and has no application here, as the assessee has not made any new claim but has only demonstrated that no part of the TAR disallowance was omitted. We, therefore, direct the AO

:-8-: ITA. No.2520/Chny/2026

to delete the adjustment of Rs.28,24,478/-, after verifying the above figures from clauses 10(c) and 11(c) of Part A-OI of the return and the corresponding clause of the TAR. Ground No.4 of the assessee is allowed.

12.

Coming to Grounds 2 and 3, the ld.AR has first urged that the intimation be set aside for want of prior opportunity. We find that the copy of the order of the Hon’ble Bombay High Court in Rallis India Ltd. (supra) placed before us is an order dated 01.12.2025, by which the Hon’ble High Court, while granting time to the Revenue to file its reply, granted ad-interim relief restraining recovery pursuant to the intimation, without prejudice to the contentions of the parties. That order does not decide the question raised before us. The order of the Chennai Bench in the case of Faurecia Emissions Control Technologies India Pvt. Ltd. placed before us is the order in ITA No.861/Chny/2017 dated 09.01.2023, wherein, on the claim of TDS credit pertaining to a merged entity, the Tribunal directed the AO to grant credit in accordance with law after the assessee substantiates its claim. In Haft Propbuild Pvt. Ltd. (supra), the Delhi Bench set aside a denial of TDS credit by the CPC made without prior notice to the assessee. In the present case, we do not consider it necessary to decide the larger question whether the restriction of tax credit while determining the refund is an “adjustment” attracting the first proviso to s.143(1)(a) of the Act, since, for the reasons that follow, the claim is in any event required to be examined afresh on merits, where the assessee will have full opportunity. The grievance of the assessee regarding the absence of prior opportunity stands redressed thereby.

13.

On merits, the details of unmatched credits forming part of the intimation show that the short grant of TDS arises broadly on two counts. Against a large number of deductors, the CPC has recorded that Form 26AS, at the time of processing, reflected only a part of the amount claimed. Against certain other deductors, the CPC has restricted the credit by applying Rule 37BA of the Rules, comparing the income offered by the assessee with the gross receipts reflected in Form 26AS, and allowing credit only in that proportion. Section 199

:-9-: ITA. No.2520/Chny/2026

of the Act read with Rule 37BA(3) of the Rules provides that credit for tax deducted at source shall be given for the assessment year for which the corresponding income is assessable, and where such income is assessable over a number of years, credit shall be allowed across those years in the same proportion in which the income is assessable. The proportionate restriction applied by the CPC proceeds on the premise that the excess of the gross receipts reflected in Form 26AS over the income offered represents income not assessable in this year. That premise is a matter of fact. The difference may well be on account of items such as indirect taxes forming part of the amounts on which tax was deducted, receipts already offered to tax in an earlier year, advances, or amounts to be offered in a later year, each of which has a different consequence under Rule 37BA(3). Equally, credits that came to be reflected in Form 26AS only after the date of processing, on account of revised or belated statements filed by the deductors, can be verified only with reference to Form 26AS as it now stands. None of these aspects has been examined either by the CPC or by the Ld.CIT(A).

14.

The Ld.CIT(A) has held that credit is not automatic merely because income is offered to tax and that the remedy of the assessee lies in rectification u/s.154 of the Act. We agree that credit u/s.199 of the Act is subject to verification and is to be granted in accordance with Rule 37BA of the Rules. However, the very fact that the claim requires verification of a reconciliation between the receipts reflected in Form 26AS and the income offered shows that the issue is not one that can be confined to a rectification of a mistake apparent from the record. The first appellate authority, once seized of the issue in appeal, was required to examine it on merits, and could not decline to do so by relegating the assessee to proceedings u/s.154 of the Act. We also note that the assessee had specifically sought time before the Ld.CIT(A) to file a reconciliation of the TDS credits, and the appeal was decided without that reconciliation being on record. In these circumstances, we are of the view that the matter requires verification at the level of the jurisdictional AO.

:-10-: ITA. No.2520/Chny/2026

15.

Accordingly, Grounds 2 and 3 are restored to the file of the jurisdictional AO. The assessee shall furnish a deductor-wise and collector-wise reconciliation of the receipts reflected in Form 26AS with the income offered in the return for the AY 2022-23, explaining the difference between the two, along with Form 26AS as currently available and such supporting material as may be required. The AO shall verify the same and grant credit of TDS and TCS, up to the amounts claimed in the return, in accordance with s.199 of the Act read with Rule 37BA of the Rules, to the extent the corresponding income is found to have been offered to tax in the AY 2022-23 and the credit is reflected in Form 26AS. Where any part of the credit is found to relate to income assessable in another year, the AO shall record a finding to that effect so that the credit is allowed in the year in which the corresponding income is assessable, in terms of Rule 37BA(3)(ii) of the Rules. The AO shall afford a reasonable opportunity of being heard to the assessee before passing the consequential order. Grounds 2 and 3 of the assessee are allowed for statistical purposes.

16.

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the court on 04th November, 2026 at Chennai.

Sd/- Sd/- (एबी ट�. वक�) (एस. आर. रघुनाथा) (ABY T. VARKEY) (S. R. RAGHUNATHA) �या�यक सद&य/Judicial Member लेखा सद&य/Accountant Member

Digitally signed by EJTADA DURGA EJTADA DURGA NARESH चे�नई/Chennai, NARESH Date: 2026.11.13 11:46:02 +05'30' (दनांक/Dated, the 04th November, 2026.

:-11-: ITA. No.2520/Chny/2026

आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3.आयकर आयु-त/CIT– Chennai/Coimbatore/Madurai/Salem 4. +वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF

More judgments on Section 43B

All 7,161 judgments and leading authorities on Section 43B →

Recent GST High Court judgments

Search GST case law →