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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI A.T. VARKEY & SHRI PRASHANT MAHARISHI
PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the assessee, is directed against the order of the Commissioner of Income-tax (Appeals)-XXVIII, New Delhi dated 17.10.2013 for the assessment year 2011-12.
The grounds of appeal taken by the assessee reads as under: “1 That the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in holding that while processing the return of income u/s 143(1) of the Act, the learned Assessing Officer was correct in law in raising a demand of Rs. 11,37,710/- including interest of Rs. 2,74,677/- as outstanding and that too without providing any opportunity
2 That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in holding that the tax credit granted by the learned Assistant Commissioner of Income Tax of tax deducted at source of Rs.71,20,267/- was in accordance with law, despite the fact the tax deducted at source in respect of which assessee has furnished TDS certificates and were in relation to the assessment year 2011-12, aggregated to Rs. 80,16,290/- which was not disputed and was thus entitled to credit of such TDS u/s 199 of the Act.
2.1 That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that the credit of the tax granted of Rs. 71,20,267/- instead of Rs. 80,16,290/- was without any basis or material and was thus unsustainable. Infact even the learned Commissioner of Income Tax (Appeals) has given no basis for restricting the credit of the tax deducted at source to Rs. 71,20,267/- and thus levy of interest u/s 234C of Rs. 2,74,677/- and aggregate demand of Rs. 11,37,710/- is unsustainable.
3 That the order passed by the learned Commissioner of Income Tax (Appeals) is not only arbitrary and is without application of mind but is contrary to law.
3.1 That the learned Commissioner of Income Tax (Appeals) in her zeal to dispose off the appeal arbitrarily even ignored that the assessee had filed applications under section 154 of the Act on 17.7.2012 and 4.2.2013 which has not been disposed off by the learned Assessing Officer and that on similar basis her predecessor had directed the learned Assessing Officer for the Assessment Year 2009-10 and 2010-11 to allow the claim of credit of tax deducted at source as per deduction certificates filed by the assessee and otherwise mandated by law.
3.2 That the learned Commissioner of Income Tax (Appeals) has absolutely given no basis or brought any material on record and ignored the ratio of the judgment of the Delhi High Court in the case of All India Federation of Tax Practitioners vs. UOI reported in 352 ITR 273 which directed the revenue to allow the credit of tax deducted at source, which in the instant case aggregated to Rs. 80,16,290/-.
3.3 That the learned Commissioner of Income Tax (Appeals) has erred in failing to appreciate even the written submissions of the assessee dated 30.08.2013 and 21.10.2013.
./2013 4 That furthermore the interpretation placed by the learned Commissioner of Income Tax (Appeals) of section 199 of the Act read with Rule 37BA(3) of the Income Tax Rules is entirely erroneous and wholly unsustainable in law and overlooks the facts of the instant case and has arbitrarily ignored that it is not a case where the assessee has not included any income on which tax has been deducted at source. 4.1 That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that the order of ITAT in the case of Lloyd Insulation (India) Ltd. has no application. The finding that the assessee had claimed credit in respect of the tax deducted at source without including the same in the income is based on factual misconception of facts and without looking that no credit has been claimed in respect of income which has not been included in the total income. 4.2 That even on the theory propounded by the learned Commissioner of Income Tax (Appeals), the assessee could have at the best be held to be not eligible for the credit to be given of Rs. 4,40,249/- i.e. of Rs. 4,89,168/- less Rs. 48,917/- and thus the order of the Commissioner of Income Tax (Appeals) is not only arbitrary but is without application of mind. 5 That even otherwise the learned Commissioner of Income Tax (Appeals) has overlooked that the assessee had furnished a complete reconciliation to establish that each of credit is duly reflected in 26AS statement and that only a sum of Rs. 4,10,870 alone had not been reflected in 26AS statement in respect of which too the assessee furnished confirmation as well as TDS certificates and the learned Assessing Officer could not be justified in not granting the credit thereof. 6 That further the learned Commissioner of Income Tax (Appeals) has completely overlooked that no interest under section 234C was chargeable and as such interest levied and charged of Rs. 2,74,677/- was erroneous.
Brief facts of the case are that during the year, the assessee had filed a return on 27.9.2011 declaring an income of Rs.8,83,87,370/-, which was revised on 2.2.2013 to an income of Rs.8,84,12,370/- enhancing the total income by sum of Rs.25,000/-. The AO in an intimation dated 27.9.2011 u/s 143(1) allowed credit of TDS of Rs.71,20,267/- as against claim of TDS of raised a demand of Rs.11,37,710/- including interest u/s 234C of Rs.2,74,677/-. Against the aforesaid order assessee appealed before CIT(A) who vide the impugned order dated 17.10.2013 dismissed the appeal of the assessee and as such the instant appeal.
The basic issue raised in this appeal arising from Ground Nos.4 to 4.2 of Grounds of Appeal challenges the conclusion of the CIT(A) viz-a-viz section 199 read with Rule 37BA(3) of the Income Tax Rules’ 1962 (“Rules”).
5. The CIT(A) has observed that as per the provisions of section 199 read with 37BA(3), TDS credit is to be given in the manner as under:
i) Credit for tax deducted at source and paid to the Central
Government, shall be given for the assessment year for which such income is assessable; and ii) where tax has been deducted at source and paid to the central
Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
1.4.2009 and is therefore applicable from assessment year 2009-10.
Reference has been made to cases of Lloyd Insulation (India) Ltd. & CO 201/D/2011 and Smt. Varsha G. Salunke vs. DCIT 98 ITD 147 (Mum) Having regard to the above she concluded that before getting benefit of TDS following twin conditions needs to be satisfied as per section 199 of the Act are:; a) The assessee should produce the certificate for the amount of tax deducted at sources; b) Show that income subjected to TDS is disclosed in the return of the assessment year as ‘assessable’.
The CIT(A) has therefore concluded 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 shows and is not assessable in that assessment year. She has held that 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 and if balance income, on account of system of accounting followed by the assessee or for some other reasons is found to be assessable in future, then assessable.
The counsel for the assessee submitted that provisions of section 198 mandates that all sums deducted under chapter XVII would be deemed to be income received as such, once the TDS has been deducted. He further submitted that that as per provisions of section 199 of the Act any deduction of tax under chapter XVII and paid to the central government shall be treated as payment of tax on behalf of the person from whose income deduction of tax was made. He also submitted that provision of Rule 37BA is inapplicable where assessee is following cash system of accounting since if TDS is deducted however payment is not received in the subsequent assessment years, the TDS deducted would never be allowed to such an assessee though the assessee is entitled for such TDS as per section 198/199 of the Act. In support he placed reliance on the decision of Ahmedabad Bench in the case of M/s Sadbhav Engineering Ltd. vs. DCIT ITA No(s).
610/Ahd/2008, 1834/Ahd/2009, 2054/Ahd/2009, 1835/Ahd/2009, 2055/Ahd/2009 and 2053/Ahd/209 A.Y(s) 2005-06 to 2007-08 dated 19.12.2015 and Visakhapatnam Bench in the case of ACIT vs. Peddu Srinivasa Rao Vijayawada A.Y. 2006-07 dated 3.3.2011. The ld. DR supported the conclusion of the CIT(A). material on record. It is noticed that in the instant case assessee as adopted cash method of accounting. He furnished his return of income claiming credit of TDS of Rs.79,91,290/- which was further revised to Rs.80,16,290/-.
The AO restricted the credit of Rs.71,20,267/- in the intimation u/s 143(1) of the Act. The CIT(A) has upheld the restriction inter-alia on the ground that credit of TDS is to be allowed in terms of Rule 37BA(2) of the Rules and as such the credit would be allowable on pro rata basis in the year in which the certificate is issued and also in future where balance of such income is found to be assessable as per the mandate of section 199 of the Act. She has held that any amount which has not been assessed in any year but referred in the TDS certificate cannot be claimed under section 199 of the Act.
Sub-section (1) of section 199 of the Act provides that “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. In view thereof, since the tax was deducted at source by the deductor and the amount was deposited by the deductor on behalf of the assessee, the said sum is deemed to be the payment of tax made on behalf of the assessee. Also, section 198 of the Act provides that all sums deducted in accordance with Chapter XVII- be deemed to be income received. Thus, section 198 of the Act specifically provides that tax deducted at source shall for the purpose of computing income of an assessee will be deemed to be income received by the assessee.
Thus, there is no justification not to grant credit of tax deducted and deposited to the account of Central Government by the deductor to the assessee from whose income, such tax has been deducted by the deductor, more particularly when such TDS stands duly declared as income by the assessee. The conclusion of the CIT(A) to grant proportionate credit is also not in accordance with the cash system of accounting followed by the assessee. The CIT(A) in her order has laid much emphasis on Rule 37BA of the Rules. Rule 37BA as inserted w.e.f. 1.4.2009 reads as under:-
“Credit for tax deducted at source for the purposes of section 199: 37BA.(1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority. (2) [(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee: Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).]
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person. (iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody. (3)(i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. (4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of- (i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority; and (ii) the information in the return of income in respect of the claim for the credit, Subject to verification in accordance with the risk management strategy formulated by the Board from time to time.]”
A reading of the aforesaid will make it apparent that Rule 37BA(1) of the Act provides rules relating to have credit for the purpose of section 199 of the Act as is provided in section 199(3) of the Act. Rule 37BA(3)(i) of the Act provides that credit for tax deducted at source and credited to the account of Central Government shall be given for the assessment year for the assessee is entitled to get credit of the tax deducted at source once such income is included in his income. The admitted facts of the case of the appellant is that the tax deducted at source has been offered as income by the appellant in his return of income and therefore, having regard to even the rules, the assessee is entitled to credit of the tax deducted at source. The assessee before the CIT(A) had provided an illustration whereby it was submitted that assuming an assessee follows cash system of accounting and raises an invoice of Rs. 100/- for the services rendered in financial year 2010-11 on his client and the said client deposits TDS of Rs. 10/- to the credit of the account of the assessee and issued a certificate of TDS to the assessee and thus, it was submitted that an amount of Rs. 10/- was since deducted in respect of the assessee, the said sum is income of the assessee which is assessable to tax. It was submitted that once an income is assessable to tax, the assessee is eligible for credit despite the fact that remaining amount would be taxable in the succeeding years. We are in an agreement with the above submission that the TDS deducted by the deductor on behalf of the assessee and offered as income is to be allowed as credit in the year of deduction of tax deducted at source. Rule 37BA of the Act provides that credit for TDS should be allowed in the year in which income where tax has been deducted at source paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. In our considered opinion, this rule is only applicable where entire compensation is received in advance but the same is not assessable to tax in that year but is assessable in a number of years.
However, such rule has no applicability, where assessee follows cash system of accounting. This can be supported from the illustration that suppose as assessee who is following cash system of accounting raises an invoice of Rs. 100/- in respect of which deductor deducts TDS of Rs. 10/- and deposits to the account of the Central Government. Accordingly, the assessee would offer an income of Rs. 10/- and claim TDS of Rs. 10/-. However in the opinion of the revenue, the assessee would not be entitled to credit of the entire TDS of Rs. 10/- but would be entitled to proportionate credit only.
Now let us assume that Rs. 90/- is never paid to the assessee by the deductor.
In such circumstances, Rs. 9/- which was deducted as TDS by the deductor would never be available for credit to the assessee though the said sums stand duly deposited to the account of the Central Government. Rule.
37BA(3) of the Act cannot be interpreted so as to say that TDS deducted at income of the assessee but is not eligible for credit of tax in the year when such TDS was offered as income. This view is otherwise also not in accordance with the provisions contained in section 198 and 199 of the Act.
The proposition as laid out by the CIT(A) and learned DR before us therefore cannot be countenanced. In arriving at the above conclusion, we also derive support from the decision of Visakhapatnam Bench in the case of Peddu Srinivasa Rao (supra) has held as under:
“8. We have carefully perused the provisions of section 199 of the Act and according to the pre-amended provisions of section 199, the credit of deduction made in accordance with the relevant provisions of this chapter and paid to the Central Government, shall be given for the amount so deducted on the production of the certificate furnished u/s 203 for the assessment made under this Act for the assessment year for which such income is assessable. But in the amended provisions the words "for the assessment year for which such income is assessable" has been omitted. Meaning thereby, that the legislature was quite conscious about the facts and hardships faced by some assessees, while making the amendments in section 199 and in amended provisions nothing has been stated about the year in which the credit of TDS is to be claimed. As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions 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. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessees, irrespective of the year to which it relates. The pre-amended and the amended provisions of section 199 are extracted hereunder: "Section 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 unitholder 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: (3)
./2013 The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub- section (2) and also the assessment year for which such credit may be given. Section 199. (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 of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be. (2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made."
Infact the above view has also been followed by Ahmedabad Bench in the case of Sadhbav Engineering Ltd. (supra) wherein it was held as under:
“26. We find that the Visakhapatnam Bench in the case of Peddu Srinivasa Rao (supra) has held as under: ……. The ld. DR could not cite any contrary decision or any other good reason for which the aforesaid decision of the Co-ordinate Bench of the Tribunal should not be followed by us. Respectfully following the aforesaid order of the Tribunal, we set aside the orders of the lower authorities and direct the AO to allow credit for the TDS to the assessee. Thus, the ground of appeal of the assessee is allowed.”
12. For the reasons stated above, the claim of the assessee is allowed in as much as it is held that the assessee would be entitled to credit of the entire TDS offered as income by the assessee in his return of income. The grounds raised are therefore, allowed.
Ground Nos.2, 3 and 5 of the Grounds of Appeal essentially are regarding restriction of credit of TDS. The learned counsel for the assessee submitted that the authorities below has restricted credit of TDS despite the of Rs.4,10,870/- for which, confirmations have been furnished by the assessee. Having regard to the above submission, we feel it appropriate that the issue be restored to the file of the Assessing Officer with a direction that the credit be allowed to the assessee of the entire TDS in respect of which, TDS certificate has been furnished by the assessee in accordance with section 198 read with section 199 of the Act. Thus the grounds are therefore, allowed for statistical purposes.