2025 (5) TMI 1337 - HC - Income Tax

Denial of credit for TDS - directions be issued to the respondent to pass an order granting refund of tax due after adjusting the TDS which was deducted in respect of payments received or accrued during financial year FY 2006-07 along with up to date interest. HELD THAT - As in absence of the Revenue locating the record the information as provided by Sigma Freudenberg NOK Pvt. Ltd. was required to be considered to reach a conclusive finding regarding deduction and deposit of TDS as claimed by the petitioner. It is material to note that the AO has not controverted any of the facts as set out by Sigma Freudenberg NOK Pvt. Ltd. in its response to the verification sought by the AO. In the peculiar circumstances of this case it would be necessary to accept the said communication as correct. We consider it apposite to dispose of the present petition directing the AO to consider the response furnished by Sigma Freudenberg NOK Pvt. Ltd. as correct unless it determines otherwise and process the petitioner s request on the aforesaid basis as expeditiously as possible and preferably within a period of eight weeks from date.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the income tax demand raised for Assessment Year (AY) 2007-08 can be deleted by taking into account the Tax Deducted at Source (TDS) certificate submitted by the petitioner.

2. Whether the Assessing Officer (AO) was justified in rejecting the credit for TDS claimed by the petitioner despite the submission of detailed TDS certificates and confirmation from the deductor regarding deposit of TDS to the government.

3. Whether the AO's refusal or failure to process the petitioner's application for rectification under Section 154 of the Income Tax Act, 1961, was legally sustainable.

4. The extent and manner in which verification of TDS credits can be conducted when records are not available on the TRACES portal for the relevant financial year.

5. The appropriate course of action when the Revenue is unable to locate or verify records on its portal but the deductor provides detailed evidence of TDS deduction and deposit.

Issue-wise Detailed Analysis:

Issue 1: Deletion of Income Tax Demand by Accounting for TDS Certificate

Legal Framework and Precedents: The Income Tax Act, 1961, mandates that tax deducted at source must be credited to the deductee's account and reflected in their tax computation. Section 143(1) governs processing of returns, and Section 154 provides for rectification of mistakes apparent from the record. Section 221(1) relates to recovery of tax demand. The deductee is entitled to credit for TDS if valid certificates are produced and the tax has been deposited with the government.

Court's Interpretation and Reasoning: The petitioner filed its return for AY 2007-08 declaring income and claimed credit for TDS as per Form 16A issued by Sigma Freudenberg NOK Pvt. Ltd. The AO, however, rejected this credit in the intimation under Section 143(1), leading to a demand. The petitioner's subsequent application under Section 154 for rectification was not processed. The Court noted that the AO's rejection was solely because the TDS credit was not reflected in the TRACES portal data for FY 2006-07.

Key Evidence and Findings: The petitioner submitted detailed TDS certificates from Sigma Freudenberg NOK Pvt. Ltd., which included comprehensive particulars of payments, TDS deducted, surcharges, education cess, dates, cheque numbers, bank branch codes, and deposit dates. Sigma also confirmed by communication to the AO that the TDS was deducted and deposited to the government's credit.

Application of Law to Facts: Despite the AO's inability to verify the TDS credit on the TRACES portal (which only had data from FY 2007-08 onwards), the Court found that the detailed documentary evidence provided by the deductor was sufficient to establish that TDS had been deducted and deposited. The AO's failure to process the rectification application on the ground of portal data unavailability was not justified.

Treatment of Competing Arguments: The Revenue argued that verification was not possible due to lack of records on the TRACES portal and ITR information for the relevant period. The Court rejected this as a complete bar to verification, noting that physical verification from banks and other records could be undertaken. The AO had not initiated such an exercise.

Conclusion: The Court held that the income tax demand raised without accounting for the TDS certificate was erroneous and directed the AO to accept the TDS credit as claimed, unless it finds otherwise after due verification beyond the portal data.

Issue 2: Validity of AO's Non-Processing of Rectification Application under Section 154

Legal Framework and Precedents: Section 154 of the Income Tax Act allows rectification of mistakes apparent from the record. The AO is duty-bound to consider such applications and pass orders expeditiously.

Court's Interpretation and Reasoning: The petitioner filed an application under Section 154 in 2016, which remained unprocessed for several years. The Court observed that the AO's inaction was indefensible, especially given the petitioner had supplied all relevant documents and the deductor had confirmed TDS deduction and deposit.

Key Evidence and Findings: The petitioner's reminder dated 14.01.2018 and subsequent communications were ignored. The AO only issued a recovery notice under Section 221(1) in 2020 without resolving the rectification application.

Application of Law to Facts: The Court emphasized the AO's statutory obligation to process rectification applications and found that the failure to do so violated the petitioner's rights and statutory provisions.

Treatment of Competing Arguments: The Revenue's argument that verification was pending was not accepted as a justification for inaction over a prolonged period.

Conclusion: The Court directed the AO to process the rectification application promptly, taking into account the deductor's confirmation of TDS deduction and deposit.

Issue 3: Verification of TDS Credits in Absence of Portal Data

Legal Framework and Precedents: The TRACES portal is a tool for verification of TDS credits but does not constitute the sole repository of proof. Documentary evidence and confirmations from deductors are valid means to establish TDS credits.

Court's Interpretation and Reasoning: The AO's communication with the Deputy Commissioner of Income Tax (TDS) revealed that TRACES data was available only from FY 2007-08, not for FY 2006-07. The Court held that inability to verify on the portal does not preclude verification by other means such as bank records and deductor confirmations.

Key Evidence and Findings: Sigma Freudenberg NOK Pvt. Ltd.'s detailed tabular statement and certification of TDS deduction and deposit were accepted as credible evidence. The Court noted no contradiction or denial from the AO regarding these facts.

Application of Law to Facts: The Court found that the AO's failure to undertake alternate verification was a procedural lapse. It directed the AO to rely on the deductor's communication unless proven otherwise.

Treatment of Competing Arguments: The Revenue's reliance on TRACES portal data as the only source of verification was rejected.

Conclusion: The Court mandated that the AO accept the deductor's detailed confirmation as correct for crediting TDS, subject to any contrary finding after due verification.

Issue 4: Direction for Expeditious Disposal of the Petitioner's Claim and Refund

Legal Framework and Precedents: The Income Tax Act requires timely processing of refunds and rectification claims. Prolonged delay violates principles of natural justice and statutory mandates.

Court's Interpretation and Reasoning: The petitioner's refund claim had been pending for over a decade and a half. The Court referred to a prior coordinate bench order directing the Revenue to act on the deductor's information to reach a conclusive finding.

Key Evidence and Findings: The Court noted that the Revenue had not controverted the deductor's communication and had only cited record unavailability as a reason for delay.

Application of Law to Facts: The Court found it necessary to direct the AO to process the petitioner's request expeditiously and preferably within eight weeks from the date of the order.

Treatment of Competing Arguments: The Revenue's inability to locate records was not accepted as an excuse for further delay.

Conclusion: The Court disposed of the petition with directions for the AO to consider the deductor's response as correct unless proven otherwise, and to process the petitioner's claim without undue delay.

Significant Holdings:

"If the respondent/revenue is unable to locate the record, then the information given in Annexure P-8 by Sigma should be worked on to reach a conclusive finding qua deduction of tax at source as claimed by the petitioner."

"In the peculiar circumstances of this case, it would be necessary to accept the said communication as correct."

"The AO is directed to consider the response furnished by Sigma Freudenberg NOK Pvt. Ltd. as correct, unless it determines otherwise, and process the petitioner's request on the aforesaid basis as expeditiously as possible and preferably within a period of eight weeks from date."

The Court established the principle that detailed documentary evidence and confirmation from the deductor regarding TDS deduction and deposit must be accepted by the AO as valid proof for crediting TDS, even if electronic records on the TRACES portal are unavailable for the relevant period.

Further, the Court emphasized the AO's duty to process rectification applications under Section 154 expeditiously and not to allow technical or procedural lacunae to delay justice.

On the final determinations:

- The income tax demand for AY 2007-08 raised without accounting for the TDS certificate was held to be unsustainable.

- The AO was directed to delete the demand after crediting the TDS as per the deductor's communication.

- The petitioner's application under Section 154 was to be processed promptly.

- The Revenue was directed to complete verification and refund proceedings within eight weeks.