MRIGESH GAURAV,BANGALORE vs. ITO WARD 42(2)(4),, MUMBAI

After considering other heads of income and deductions under Chapter VI-A, the assessee declared total income of Rs. 2,38,160/-.The assessee further submitted that though TDS of Rs. 24,75,737/- was deducted by the employer and reflected in Form 26AS, the CPC while processing the return under section 143(1) allowed credit of only Rs. 1,62,025/-, thereby granting short credit of Rs. 23,13,712/-. The assessee contended that TDS credit should be granted in full. In support of this contention, reliance was placed on judicial precedents including PILCOM v. CIT (Supreme Court) [Civil Appeal No. 5749 of 2012], DCIT v. Escorts Ltd.[15 SOT 368 (Del)], and Arvind Murjani Brands (P) Ltd. v. ITO [137 ITD 173 (Mum)], wherein it was held that credit of TDS cannot be denied merely because the corresponding income is claimed to be exempt or not chargeable to tax in India.

The Ld. CIT(A), after considering the submissions of the assessee and examining the material placed on record, observed that the assessee was an employee of Shell India Markets Pvt. Ltd. and though he was deputed to the USA for a Mrigesh Gaurav, Mumbai short-term international assignment, the salary continued to be paid through the Indian payroll and was reflected in Form- 16 issued by the employer. The employer had deducted tax at source on the entire salary income and deposited the same with the Government. The Ld. CIT(A) further observed that the assessee had not produced sufficient evidence to demonstrate that the salary income for services rendered outside India had been offered to tax in the United States or that relief under the provisions of the India–USA DTAA was applicable. According to the Ld. CIT(A), since the salary was paid in India and the employment continued with the Indian employer, the same was taxable in India. On this reasoning, the Ld. CIT(A) held that the assessee had wrongly excluded a portion of salary income from taxation in India. Accordingly, the Ld. CIT(A) directed the Assessing Officer to tax the entire salary receipts as reflected in Form-16 and grant credit of TDS as per Form-16 and Form 26AS. Consequently, the appeal of the assessee was partly allowed subject to the above directions.

Aggrieved by the aforesaid order of the Ld. CIT(A), the assessee is in appeal before us raising various grounds challenging the jurisdiction exercised by the Ld. CIT(A), the adjudication of issues beyond the scope of proceedings arising from intimation under section 143(1), alleged enhancement of income without issuing notice under section 251(2), and the finding that salary earned for services rendered outside India is taxable in India without considering the provisions of section 90 of the Act and Article 16(1) of the India–USA DTAA.

In support of the contention, the Ld. AR placed reliance on the decision of the co-ordinate bench in the case of Mridula Jha Jena v. ITO (ITA No. 4844/Mum/2024 dated 07.01.2025), wherein on similar facts the Tribunal held that salary earned for services rendered outside India by a non- resident is not taxable in India merely because the salary is credited to a bank account in India.

The Ld. Departmental Representative (DR), on the other hand, relied upon the findings recorded by the Ld. CIT(A). The Ld. DR submitted that the assessee had not produced any evidence to demonstrate that the salary income in question had been offered to tax in the United States or that the conditions of the relevant Double Taxation Avoidance Agreement were satisfied. It was therefore contended that the Ld. CIT(A) was justified in holding that the salary received by the assessee from the Indian employer and reflected in Form-16 is taxable in India, and accordingly directing the Assessing Officer to tax the entire salary and grant TDS credit as per Form-16 and Form 26AS.

We have heard the rival submissions of both the parties and perused the material placed on record. The controversy arising in the present appeal emanates from the intimation

The first aspect which arises for consideration is the scope of adjudication in an appeal arising from an intimation issued under section 143(1). It is a settled principle that the processing of return under section 143(1) is a limited exercise involving only prima facie adjustments permissible under the statute. The adjustments contemplated under section 143(1) are restricted to the categories specifically enumerated therein such as arithmetical errors, incorrect claims apparent from the return, disallowance of certain deductions, etc. In the present case, the intimation issued under section 143(1) had resulted in short grant of TDS credit to the assessee. The grievance raised by the assessee before the Ld. CIT(A) was primarily confined to the said adjustment relating to non-grant of full TDS credit reflected in Form 26AS. Thus, the controversy before the first appellate authority arose in the context of the adjustment made during processing of return under section 143(1).

On perusal of the impugned order, it is noticed that the Ld. CIT(A), while adjudicating the appeal, proceeded to examine the taxability of the entire salary income reflected in Form-16 and eventually directed the Assessing Officer to tax the entire salary receipts and grant TDS credit accordingly. In our considered view, such a direction effectively results in enhancement of income, because the assessee had originally offered only a portion of salary income to tax on the ground 13 The provisions of section 251(1) confer powers upon the CIT(A) to confirm, reduce, enhance or annul the assessment. However, section 251(2) specifically mandates that before enhancing the assessment, the assessee must be given a reasonable opportunity of being heard by way of a show cause notice. In the present case, nothing has been brought on record to demonstrate that the Ld. CIT(A) had issued any specific show cause notice proposing enhancement of the income of the assessee before directing the Assessing Officer to tax the entire salary receipts. In the absence of such notice, the direction issued by the Ld. CIT(A) cannot be sustained to the extent it amounts to enhancement of income without complying with the mandatory requirement of section 251(2) of the Act.

The assessee has contended that during the relevant year he was deputed by his employer to the United States of America on an international assignment, and that the salary attributable to services rendered outside India is not chargeable to tax in India having regard to the provisions of section 5(2) read with section 9(1)(ii) of the Act and Article 16 of the India–USA DTAA. In support of this contention, reliance

At the same time, the Revenue has contended that the assessee has not produced any material to demonstrate that the salary income in question has been offered to tax in the United States or that the benefit of the Double Taxation Avoidance Agreement is otherwise available.

On careful consideration of the rival submissions and the material available on record, we find that the factual aspect regarding taxation of the impugned salary income in the United States has not been properly verified by the lower authorities. The applicability of the provisions of the Act as well as the benefit under the India-USA DTAA would necessarily depend upon the factual verification regarding:

The grievance of the assessee originally arose on account of short grant of TDS credit while processing the return under section 143(1). It is well settled that credit of tax deducted at source is to be granted in accordance with section 199 of the Act read with Rule 37BA, subject to verification of the corresponding income and the details reflected in Form 26AS or other relevant records. Therefore, once the issue regarding taxability of the salary income is examined and determined, the Assessing Officer shall grant appropriate credit of TDS as reflected in Form-16 and Form 26AS, in accordance with law.

Considering the totality of facts and circumstances of the case, we deem it appropriate to set aside the issue relating to taxability of salary income and grant of TDS credit to the file of the Jurisdictional Assessing Officer for limited verification. The assessee is directed to produce necessary evidences before the Jurisdictional Assessing Officer to demonstrate that the salary income attributable to services rendered outside India has been offered to tax in the United States or is otherwise eligible for relief under the provisions of the India–USA DTAA.

The Jurisdictional Assessing Officer shall verify the evidences furnished by the assessee and decide the issue in accordance with law after providing adequate opportunity of being heard to the assessee. The Jurisdictional Assessing Officer shall also take into consideration the judicial

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