2015 (7) TMI 1449 - AT - Income Tax

Denial of TDS credits - AO observed that there was a huge difference between the aggregate amount of TDS claimed as per the physical TDS certificates and the aggregate amounts arrived at on the basis of the date as appearing in Form No. 26AS - CIT(A) directed the A.O. to take up the issue with the AO (TDS) to ensure that the deductor is made to comply with the provisions of TDS including the uploading of correct data or rectifying the data already uploaded so as to match the amounts as per the TDS certificates issued. HELD THAT - We find that the issue has been decided by the Tribunal by following the order of Yashpal Sahwney 2007 (7) TMI 7 - HIGH COURT BOMBAY and the decision of Court on Its Own Motion 2013 (3) TMI 316 - DELHI HIGH COURT . The Tribunal modified the order of ld. CIT(A) and directed the A.O. to ensure that the credit is given to the assessee where the deductor had failed to upload the correct details in Form 26AS on the basis of evidence produced before the Department. Thus we modify the order passed by the ld. CIT(A) and direct the A.O. to proceed with the matter in terms of the directions of the Tribunal as indicated in the above Tribunal order to give the credit of tax deducted at source to the assessee for both the assessment years under consideration i.e. 2010-11 and 2011-12.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in these appeals were:

• Whether the assessee is entitled to claim credit for Tax Deducted at Source (TDS) where there is a significant mismatch between the TDS amounts claimed as per physical TDS certificates and the amounts reflected in Form No. 26AS;
• Whether the Assessing Officer (A.O.) was justified in denying TDS credit on the ground of data mismatch with Form 26AS, especially when the discrepancy involves large amounts;
• The scope of the A.O.'s corrective powers under the CBDT directions in cases of mismatch between TDS certificates and Form 26AS;
• Whether the assessee can claim TDS credit on the basis of valid TDS certificates or other evidence, notwithstanding the deductor's failure to upload correct details in Form 26AS;
• Whether consequential grounds dependent on the denial of TDS credit require separate adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of TDS Credit due to Mismatch between TDS Certificates and Form 26AS

Relevant legal framework and precedents: The legal framework governing TDS credit is primarily contained in the Income Tax Act and related CBDT circulars and directions. The CBDT has issued directions empowering the A.O. to take corrective action in cases of mismatch between TDS certificates and Form 26AS, but typically only in cases involving small amounts. The Tribunal relied on binding precedents from the Bombay High Court in Yashpal Sahwney vs. ACIT and the Delhi High Court in Court on Its Own Motion vs. CIT. These decisions clarify that the assessee's claim for TDS credit cannot be denied solely on the ground of non-reflection or mismatch in Form 26AS if the assessee produces valid evidence of tax deduction at source.

Court's interpretation and reasoning: The Tribunal observed that the A.O. had denied TDS credit because of a large discrepancy between the TDS amounts claimed as per physical certificates and those reflected in Form 26AS. However, the Tribunal noted that the CBDT's corrective powers are limited to minor mismatches and that large mismatches should be addressed by ensuring the deductor complies with TDS provisions, including uploading correct data. The Tribunal emphasized that the revenue has the power to recover tax directly from the deductor if tax has not been deposited, but the assessee should not be penalized by denial of credit when valid evidence of deduction is produced.

Key evidence and findings: The assessee produced physical TDS certificates evidencing the deduction of tax at source. The discrepancy arose because the deductor had failed to upload correct details in Form 26AS, which is a computer-generated statement reflecting TDS credits. The Tribunal relied on the evidence in the form of certificates and the indemnity bond provided by the assessee to establish entitlement to credit.

Application of law to facts: Applying the principles from the cited High Court decisions, the Tribunal held that the denial of TDS credit solely on the basis of mismatch with Form 26AS was not justified. The Tribunal directed the A.O. to ensure that the deductor complies with the provisions of TDS, including rectification of data uploaded in Form 26AS, and to grant credit to the assessee accordingly.

Treatment of competing arguments: The revenue argued that the mismatch was substantial and that the A.O. was empowered to deny credit to prevent misuse or incorrect claims. The Tribunal rejected this argument on the ground that the CBDT's corrective powers are limited to small mismatches and that denying credit without considering valid evidence of deduction would be contrary to law. The Tribunal also noted that the revenue's remedy lies in recovering tax from the deductor, not denying credit to the assessee.

Conclusions: The Tribunal modified the order of the CIT(A), directing the A.O. to grant TDS credit to the assessee based on valid TDS certificates and to ensure compliance by the deductor in uploading correct data in Form 26AS. This direction was applied uniformly for both assessment years 2010-11 and 2011-12.

Issue 2: Consequential Grounds Dependent on Denial of TDS Credit

Relevant legal framework and precedents: Consequential grounds that arise solely from the denial of TDS credit generally do not require independent adjudication once the primary issue is resolved.

Court's interpretation and reasoning: Since the Tribunal allowed the primary ground relating to TDS credit, the consequential grounds became redundant.

Key evidence and findings: No additional evidence was necessary for these grounds.

Application of law to facts: The Tribunal dismissed the consequential grounds as not requiring separate adjudication.

Treatment of competing arguments: None necessary, given the primary issue's resolution.

Conclusions: Consequential grounds were dismissed.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"The department is required to give credit for TDS once valid TDS certificate had been produced or even where the deductor had not issued TDS certificates on the basis of evidence produced by assessee regarding deduction of tax at source and on the basis of indemnity bond."

"The credit of TDS has been denied to the assessee on the ground that the claim for TDS was not reflected in the computer generated form 26AS. The difficulty faced by the taxpayer in the matter of credit of TDS had been considered by the Hon'ble High Court of Bombay in case of Yashpal Sahwney Vs. DCIT ... and the Hon'ble High Court of Delhi in case of Court On Its Own Motion Vs. CIT ... have also directed the department to ensure that credit is given to the assessee, where deductor had failed to upload the correct details in Form 26AS on the basis of evidence produced before the department."

The core principles established include:

• An assessee's entitlement to TDS credit cannot be denied merely due to mismatch or non-reflection in Form 26AS if valid TDS certificates or other credible evidence of deduction are produced;
• The A.O.'s corrective powers under CBDT directions are limited to small mismatches and do not justify denial of credit in cases of large discrepancies;
• The revenue's remedy for deductor's failure to upload correct data lies in recovery from the deductor, not in denying credit to the assessee;
• The A.O. must ensure that deductors comply with TDS provisions, including rectification of Form 26AS data, to facilitate correct credit to the assessee.

On these bases, the Tribunal allowed the appeals and directed the A.O. to grant the TDS credit to the assessee for assessment years 2010-11 and 2011-12, modifying the earlier orders of the CIT(A).