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Facts
The assessee filed its return of income, claiming TDS credit. The CPC, Bangalore processed the return under section 143(1) and restricted the TDS credit, leading to a tax demand instead of a refund. The assessee argued that the mismatch was due to TDS being deducted on the gross amount including GST, and that CPC had no jurisdiction for such an adjustment under section 143(1).
Held
The Tribunal held that GST is a statutory liability and not part of income, and thus TDS should not have been deducted on the GST component. The CPC acted beyond its jurisdiction in making the adjustment under section 143(1). The order of the CIT(A) was set aside, and the matter was restored to the AO for fresh verification.
Key Issues
Whether the CPC has the jurisdiction to proportionately restrict TDS credit under section 143(1) due to a mismatch in turnover arising from TDS deduction on GST component; and whether TDS credit can be denied due to deductor's error in calculating TDS on gross amount including GST.
Sections Cited
143(1), 143(3), 250, 37BA, 156, 253
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
Year: 2023-24 Om Yash Projects Ltd., Income Tax Officer, Office No. 1113, Aaron Spectra, बनाम/ Ward-3(1)(1), v/s. Rajpath Rangoli Road, Bodakdev, Ahmedabad Ahmedabad-380054 �थायी लेखा सं./PAN: AACCO4734C अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : Shri Kaushik Kejriwal & Ms. Kushboo Shah, C.A. Revenue by : Shri Rignesh Das, Sr. DR सुनवाई की तारीख/Date of Hearing : 10/03/2025 घोषणा की तारीख /Date of Pronouncement: 12/03/2025 आदेश/O R D E R
PER MAKARAND V. MAHADEOKAR, AM:
This appeal has been preferred by the assessee against the order passed by the Learned Additional / Joint from the office of the Commissioner of Income Tax (Appeals)-2, Guwahati [hereinafter referred to as "CIT(A)"] under section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"], dated 26.11.2024, in connection with the intimation under section 143(1) for the Assessment Year (A.Y.) 2023-24, issued by the Centralized Processing Center (CPC), Bangalore, dated 09.01.2024.
2 Facts of the Case
The assessee is engaged in the business of EPC (Engineering, Procurement, and Construction) contracts for State and Central Government projects. The company procures work orders through government tendering processes.
The assessee filed its return of income for A.Y. 2023-24, declaring total turnover as per books of accounts at Rs. 1,07,22,34,247/-, whereas total gross receipts as per Form 26AS stood at Rs. 1,16,87,23,656/- The assessee claimed TDS credit of Rs. 2,46,82,297/-, reflecting the deduction made by government authorities. The CPC, Bangalore processed the return under section 143(1) and restricted the TDS credit to Rs. 2,26,56,755/-, disallowing Rs. 20,25,542/- by proportionately reducing the TDS claim to match the turnover reported in the books. As a result, instead of processing a refund of Rs. 1,79,440/-, CPC raised a tax demand of Rs. 21,23,920/-.
The assessee challenged CPC’s adjustment before the CIT(A), arguing that the entire TDS credit should have been allowed as reflected in Form 26AS. The assessee also argued that the TDS disallowance was erroneous since the mismatch arose due to the deductor’s method of deducting TDS on the gross invoice amount (including GST). Further the assessee argued that the CPC had no jurisdiction to proportionately restrict TDS credit under section 143(1), as such an adjustment requires detailed verification under scrutiny assessment (section 143(3)). The assessee also argued that the CPC failed to correctly apply CBDT Circular No. 23/2017, which clarifies that TDS should not be deducted on the GST component if separately indicated.
3 5. The 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. Therefore, th CIT(A) concluded that the deduction of TDS on the gross invoice amount was in line with the contractual terms and CPC was justified in restricting TDS credit in proportion to turnover as per books.
6. Aggrieved by the order of CIT(A), the assessee is in appeal with following tabulated grounds of appeal:
Sr. Relevant Issue Ground of Appeal
No. Section(s)/ Rules of the IT Act
1. Rule 37BA Erroneous/Proportionate On the facts and circumstances of the case Disallowance of TDS Credit as well as law on the matter, the CIT(A) has erred in proportionately reducing the TDS credit based on turnover discrepancies between books of accounts and Form 26AS, even though the assessee has claimed TDS correctly as per Form 26AS. This action is contrary to the provisions of the Income Tax Act, which mandates granting TDS credit as per Form 26AS.
2. Other Failure to Consider Circular On the facts and circumstances of the case No. 23/2017 Properly as well as law on the matter, the CIT(A) failed to properly apply Circular No. 23/2017 dated 19-07-2017, which explicitly states that tax should not be deducted on the GST component if it is separately indicated. The gross receipts as per Form 26AS include GST, and TDS was incorrectly deducted on the GST component.
3. Other Violation of Natural Justice The authorities ignored the detailed submissions and evidence furnished by the appellant, including bifurcation of income as per books and Form 26AS, which clearly demonstrated that the turnover mismatch arose solely due to the inclusion of GST in Form 26AS figures.
4 4 156 Request to delete the The demand of Rs. 21,23,920/- was raised erroneous demand without due consideration of the legitimate TDS claims made by the appellant. The adjustment of TDS credit based on a turnover mismatch, which is due to an incorrect reporting practice by the deductor, is both illogical and against the principles of justice. Hence, the demand raised needs to be deleted. 5 Other No Default by the Assessee The assessee has neither claimed excess TDS nor underreported turnover in its books. Where error lies with the deductor (government department) in calculating TDS on gross receipts inclusive of GST, this cannot penalize the assessee. 6 Other Precedent and Established The CIT(A) has failed to consider judicial Legal Principles Ignored precedents where courts have held that TDS credit cannot be denied to an assessee due to errors or discrepancies in Form 26AS arising from deductor-side issues. 7 253 Prayer - The appellant prays that the Hon’ble ITAT direct the revenue authorities to grant full TDS credit as claimed in the return of income, as the demand raised and the proportionate reduction of TDS are not justified under law. - The appellant craves leave to add, alter, modify or delete any or all the grounds of appeal during the appeal proceedings.
The assessee also raised following additional grounds of appeal:
Sr. Relevant Issue Ground of Appeal
No. Section(s) of the IT Act 1 143(1) Disallowance On the facts and circumstances of the case as well made by CPC, as law on the matter, the Centralized Processing ITD u/s 143(1) of Center of the Income Tax Department has erred in the Act is beyond disallowing the TDS credit claimed by the Assessee its jurisdiction. Company on a proportionate basis.
7. During the course of the hearing, the Authorised Representative (AR) of the assessee submitted that the CPC erroneously disallowed a portion of 5 the TDS credit claimed by the assessee. It was explained that the assessee, being engaged in executing government contracts, issues invoices to government departments, which include GST. However, the government departments (customers) deducted TDS on the gross invoice amount, including GST, instead of the taxable value (excluding GST). As a result, Form 26AS reflected a higher turnover compared to the assessee’s books, leading the CPC to proportionately restrict the TDS credit while processing the return under section 143(1), thereby raising a demand of Rs. 21,23,920/- instead of granting the rightful refund.
7.1 To substantiate its claim, the assessee submitted sample copies of invoices before us, demonstrating the bifurcation between taxable value and GST. The AR further contended that the CIT(A) failed to correctly apply CBDT Circular No. 23/2017 dated 19-07-2017, which explicitly states that TDS should not be deducted on the GST component if it is separately indicated in the invoice. Since the government deductors (Customers) erroneously included GST while deducting TDS, the CIT(A) ought to have directed CPC to grant full TDS credit instead of restricting it proportionately. By not granting the full TDS credit as reflected in Form 26AS, the CIT(A) acted contrary to the clarifications issued by the CBDT. The AR also placed on records two letters from Customers namely Executive Engineer, Panam Project Division Godhra Department and Watrak Project Canal Division confirming the fact that they have deducted tax on GST element of the invoice amount.
The assessee also placed reliance on the decision of the Co-ordinate Bench in Escorts Ltd. vs. DCIT (ITA No. 2436/Del/2005, order dated
6 11.05.2007), wherein the Bench held that TDS credit cannot be denied merely due to a mismatch between turnover as per books and Form 26AS, and that credit for TDS must be given in the year in which the corresponding income is assessable, provided the TDS has been duly deposited with the government.
The Departmental Representative (DR) on the other hand relied on the order of CIT(A).
We have heard the parties and perused the material on record. The primary issue in dispute pertains to the proportionate disallowance of TDS credit by the CPC, which was upheld by the CIT(A). The 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. 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.
We further note that the CPC, while processing the return under section 143(1), proportionately restricted the TDS credit based on turnover as per books, thereby creating a tax demand of Rs. 21,23,920/- instead of 7 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. Specifically, for the following parties:
Sr. PARTY Income as per Income as per Difference % Difference No. NAME Books 26AS (26AS - Books) w.r.t Books Represented by GST as claimed by the assessee 1 EXECUTIVE 23,02,10,549.00 21,92,86,304.00 1,09,24,245.00 -4.75% ENGINEER PANAM PROJECT DIVISION - GODH 3 EXECUTIVE 76,73,01,276.00 86,18,44,716.00 -9,45,43,440.00 12.32% ENGINEER WATRAK PROJECT CANAL DIVISION 2 EXECUTIVE 7,26,34,602.00 8,57,08,829.00 -1,30,74,227.00 18.00% ENGINEER SUJALAM SUFLAM- GWRDCL 12. In case of Executive Engineer Panam Project Division – GODH, the difference is -4.75%, which is lower than 18%; Executive Engineer Watrak Project Canal Division, where the difference is 12.32%, also lower than 18%; and in case of Executive Engineer Sujalam Suflam-GWRDCL, where the difference exactly matches 18%, supporting the assessee’s argument. This indicates that while GST contributes to the turnover mismatch, further verification is required to ensure that all amounts on which TDS was deducted are duly accounted for in the assessee’s total income.
8 13. The CIT(A) has relied on the terms of the contract to conclude that TDS was correctly deducted on the gross invoice amount, including GST. However, we find that the terms of the contract do not change the nature of GST as a statutory liability, distinct from taxable revenue. GST, by its very nature, cannot be considered part of the assessee’s income, and its inclusion in Form 26AS does not justify the proportionate disallowance of TDS credit. The government deductors’ failure (i.e. failure of assessee’s customers)) to bifurcate GST while deducting TDS does not alter the legal position that GST is not part of income and must be excluded while computing tax liability.
The assessee has relied on the decision of the Co-ordinate Bench in Escorts Ltd. vs. DCIT (ITA No. 2436/Del/2005, order dated 11.05.2007), wherein the Bench held that TDS credit cannot be denied merely due to a mismatch between turnover as per books and Form 26AS, and that credit for TDS must be given in the year in which the corresponding income is assessable, provided the TDS has been duly deposited with the government. We find that the CPC acted beyond its jurisdiction by making such an adjustment under section 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.
In light of the above, we hold 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. Accordingly, we direct the 9 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. However, if discrepancies beyond GST-related differences are found, the AO shall determine the correct taxable income and allow proportionate TDS credit accordingly. In view of the above, the order of the CIT(A) is set aside, and the matter is restored to the file of the AO for fresh verification and adjudication in accordance with our directions.
Accordingly, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 12th March, 2025 at Ahmedabad.