Siddhartha Nautiyal ORDER
Siddhartha Nautiyal, Member (J)
1. This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-8, Ahmedabad in Appeal no. CIT(A)-4/10209/2018-19, in proceeding u/s. 154 vide order dated 10/05/2019 passed for the assessment year 2016-17.
2. The assessee has raised the following grounds of appeal :-
"1. The C.I.T.(A) erred in not allowing the credit of TDS of Rs. 2,50,100/- brought forward from the earlier year and claimed by the Appellant during the current year in respect of the professional income received by the Appellant during the current year and in dismissing the appeal.
2. The C.I.T.(A) failed to appreciate that if the payer follows mercantile system of accounting and if the recipient like the Appellant follows cash system of accounting, this type of mismatch is bound to happen and the Income tax Department is required to adjust the mismatch in the interest of justice otherwise it will turn out to be not a case of proper taxation but a case of downright misappropriation.
3. The CIT(A) ought to have allowed the appeal of the Appellant.
4. The appellant craves leave to add, amend or alter the aforesaid grounds of appeal at the time of hearing if the need arise
Total tax effect Rs. 2,50,100/-"
3. The brief facts of the case are that the assessee who was a practising advocate, filed its return of income for assessment year 2016-17 showing total income of ` 1,08,85,460/- and claimed TDS credit of ` 12,05,147/- in respect of professional fees received during the year. The assessee has been consistently following cash basis of accounting as per section 145 of the Act, since inception. As per the rectification order passed u/s. 154 of the Act, TDS credit of ` 2,50,100/-, brought forward from earlier assessment year i.e. assessment year 2015-16 was not granted to the assessee. The reason for non-grant of TDS was that the payer/deductor had deducted the above TDS on the basis of "accrual system" when the professional services were rendered by the assessee in assessment year 2015-16, while the assessee has claimed credit for the above TDS in assessment year 2016-17, when the aforesaid amount was "received" by the assessee, since the assessee has been following cash basis of accounting since inception and accordingly, TDS is being claimed in the year when such income is "received" and offered to tax as his income by the assessee, in accordance with the provisions of Rule 37BA read with section 199(3) of the Act. Hence the aforesaid tax credit mismatch is primarily because of the fact that Income Tax Department-CPC gives credit of TDS which stands reflected in the online computer records i.e. Form 26AS of the previous year when tax has been deducted. Since the method of accounting differs between the deductor entities and the assessee, the same results into mismatch between the TDS as is reflected in Form 26AS which is a summary of the TDS deducted during the financial year by various deductors and one that is claimed by the assessee as per return of income. As per the system employed by the assessee, though the expenditure has been booked by the deductors in assessment year 2015-16, but the related payment has not been shown as a receipt/turnover by the assessee in his return of income for assessment year 2015-16 as the amount has not been received till 31-03-2015.
4. All the above facts were explained before Ld. CIT(Appeals), however, he dismissed the assessee's appeal on the ground that credit for the same should have been claimed by the assessee in assessment year 2015-16 itself i.e. in the year when the payer/deductors had deducted tax on the same as per their method of accounting. While dismissing the appeal of the assessee, Ld. CIT(Appeals) made the following observations:
"The TDS credit and the commensurate turnover/income shall be shown in same year wherein the verification is easy and any fraud on revenue can be avoided with definite certainty.
The fact remains that the first appellate authority also doesn't have much of evidences and even if filed have limited mandate to which verification could be done as the preliminary examination of such evidences has not been done by the assessing officer having natural jurisdiction over the case. It is also rioted that there is very limited sphere of power with the department u/s. 143(1) to undertake adjustments in the returned income as per provisions of IT Act, 1961 and entries in Form 26AS are important guiding light for any such action. This is a reality which must be accepted by the appellant in this fast changing world.
The appellant has referred to Rule 37BA r.w.s. 199(3)of the IT. Act, 1961. The statement as per rule 37BA in the system is not complete as the Unique TDS Certificate Number is missing as commented elsewhere in this order Consequently, the provision u/s. 199(3) of the IT. Act is not helping the appellant in this case.
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Therefore, while adjudicating ground no. 1 of this appeal, I direct the AO to give TDS credit in A.Y. 2016-17 for the deductions made in F.Y. 2015-16 by ensuring that the total commensurate amount is brought to tax in A.Y. 2016-17 itself. It is my conscious decision not to accede to the demand of appellant for allowing TDS credit pertaining to A.Y. 2015-16. The ground no. 1 is accordingly disposed off with the direction to AO to issue revised demand notice. The ground no. 1 is dismissed."
5. The limited point for consideration before us is whether in the instant set of facts, the assessee is eligible to claim credit of TDS in assessment year 2016-17, when the assessee offers this income on "receipt" of the same since the assessee is following the cash basis of accounting and offers income on receipt basis. In the case of Shri Anupallavi Finance & Investments MANU/IX/0142/2010 : [2011] 9 taxmann.com 163 (Chennai), the ITAT held that for the assessee, who was following cash basis of accounting, credit for TDS, under section 199 is to be allowed in year in which corresponding income is assessable/offered to tax. In the case of Sasken Network Engineering Ltd. MANU/IL/0422/2021 : [2021] 129 taxmann.com 333 (Bangalore-Trib.), the ITAT held that in terms of section 199, rule 37BA provides that credit for tax deducted at source and paid to Central Government shall be given for assessment year for which such income is assessable/offered to tax. The ITAT held that where income is assessable/offered to tax over a number of years, credit for tax deducted at source shall be allowed across those years in same proportion in which income is assessable/offered to tax. The ITAT Ahmedabad on identical set of facts in the case of Chirag M. Shah in ITA number 825/Ahd/2019 has also held that the assessee is entitled to get credit of TDS in the year in which he has offered to tax the professional fees income on receipt basis i.e. by following cash basis of accounting, even though the client/deductor had deducted tax in earlier years by following an "accrual" basis of accounting. Notably, the ITAT Chennai Bench in the case of Supreme Renewable Energy Ltd. v. ITO MANU/IX/0055/2008 : [2010] 124 ITD 394 held that "when a particular income is received by assessee after deduction of tax at source and said TDS has been duly deposited with the Government and the assessee has received requisite certificate to this effect, then on production of the said certificate the assessee becomes entitled to credit of TDS, even if the assessee has not directly offered said income for tax as the assessee considers that same is not liable for tax."
6. In view of the consistent position on this issue by various Courts, we are of the considered view that the assessee is eligible to claim credit for TDS in assessment year 2016-17, when such professional income has been offered to tax by the assessee on "receipt" basis, since the assessee has been consistently following cash basis of accounting since inception, even though TDS was deducted on such income in the prior assessment year 2015-16.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30-11-2022.
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