1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
(a) Whether the Centralized Processing Centre (CPC), Bengaluru, was justified in proportionately disallowing the credit for Tax Deducted at Source (TDS) claimed by the assessee on account of the discrepancy between the gross receipts as per Form 26AS and the total receipts offered to tax in the return of income;
(b) Whether the intimation issued under section 143(1) of the Income Tax Act, 1961, by the CPC, reducing the TDS credit and consequently the refund claimed by the assessee, was beyond the jurisdiction of the CPC and was liable to be set aside;
(c) Whether the assessee's explanation and reconciliation of the differences between the gross receipts in Form 26AS and the receipts declared in the return of income were sufficient to justify the full claim of TDS credit;
(d) Whether the appellate authority (Commissioner of Income Tax (Appeals)) erred in sustaining the disallowance of TDS credit without proper verification of the assessee's submissions and reconciliation.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Justification of Proportionate Disallowance of TDS Credit by CPC
Relevant Legal Framework and Precedents:
Section 143(1) of the Income Tax Act empowers the CPC to process returns and issue intimation regarding the acceptance or modification of the return. Rule 37BA provides for restriction of credit of TDS where there is mismatch between the receipts declared in the return and the amounts reflected in Form 26AS. Explanation (a) under section 139(9) treats a return as defective if the gross receipts shown in Form 26AS exceed the receipts declared in the return, and corresponding income is not offered to tax.
Court's Interpretation and Reasoning:
The CPC disallowed TDS credit claimed by the assessee to the extent of Rs. 23,10,058/-, proportionate to the difference between gross turnover as per Form 26AS and total receipts offered to tax in the return. The CPC reasoned that TDS credit cannot be allowed in respect of receipts not declared as income. The Commissioner of Income Tax (Appeals) upheld this disallowance, relying on the Form 26AS data which showed TDS of Rs. 1,26,64,229/- against payments of Rs. 2,23,12,720/-, whereas the assessee had claimed TDS credit of Rs. 1,49,74,282/-.
Key Evidence and Findings:
The CPC's intimation and CIT(A)'s order emphasized the mismatch between Form 26AS and declared receipts. The assessee's gross receipts declared were Rs. 60.81 crores, whereas Form 26AS showed Rs. 69.98 crores. TDS credit was proportionately restricted accordingly.
Application of Law to Facts:
The CPC and CIT(A) applied the statutory provisions correctly in principle, restricting TDS credit to the extent of receipts declared as income. The principle underlying section 139(9) and Rule 37BA is to prevent credit of TDS on income not offered to tax.
Treatment of Competing Arguments:
The assessee contended that the difference arose due to TDS being deducted on GST amounts and timing differences caused by parties following cash basis accounting, leading to TDS deduction in a year different from the year of accounting of receipts. The revenue authorities rejected these explanations without detailed verification.
Conclusions:
While the CPC and CIT(A) correctly applied the law to restrict TDS credit, the rejection of the assessee's explanation without verifying the reconciliation was premature.
Issue (b): Jurisdiction of CPC under Section 143(1) to Reduce TDS Credit
Relevant Legal Framework and Precedents:
Section 143(1) provides for summary processing of returns and issuance of intimation for acceptance or modification within limited scope. Detailed scrutiny and verification are to be conducted under section 143(3). The assessee relied on various High Court decisions holding that detailed verification and adjustments beyond certain limits are not permissible under section 143(1).
Court's Interpretation and Reasoning:
The assessee argued that the intimation under section 143(1) reducing TDS credit was beyond the jurisdiction of CPC because the issue required detailed verification and reconciliation, which is not permissible under section 143(1). The Tribunal noted that the issue involved complex reconciliation and factual verification, which the CPC is not empowered to undertake at the summary stage.
Key Evidence and Findings:
The intimation reducing TDS credit was based on a mechanical comparison of Form 26AS and declared receipts without detailed inquiry. The assessee's response to the defective return notice provided explanations and reconciliation for the differences.
Application of Law to Facts:
The Tribunal found merit in the assessee's contention that such detailed verification is beyond the scope of section 143(1) and should be undertaken only under section 143(3) proceedings.
Treatment of Competing Arguments:
The revenue contended that the CPC's action was justified as the return was defective under section 139(9) and the mismatch warranted adjustment. The Tribunal, however, emphasized the need for proper verification and adherence to jurisdictional limits of section 143(1).
Conclusions:
The intimation under section 143(1) reducing TDS credit without detailed verification was held to be beyond the jurisdiction of the CPC.
Issue (c): Sufficiency of Assessee's Explanation and Reconciliation Regarding Differences in Gross Receipts
Relevant Legal Framework and Precedents:
The assessee's burden is to explain discrepancies between Form 26AS and declared income to claim full TDS credit. The law allows for reasonable explanations including timing differences and accounting practices.
Court's Interpretation and Reasoning:
The assessee submitted a detailed reconciliation showing differences due to TDS on GST amounts, cash basis accounting by parties, timing differences, and inadvertent claims. The reconciliation included party-wise details and supporting invoices. The Tribunal observed that the CIT(A) did not verify these submissions properly before dismissing the appeal.
Key Evidence and Findings:
The reconciliation chart submitted by the assessee demonstrated that the difference of approximately Rs. 9.18 lakhs was due to inadvertent claims and other explainable factors, and thus the disallowance should be limited accordingly.
Application of Law to Facts:
The Tribunal held that the assessee's explanation warranted detailed examination and verification by the revenue authorities before denying TDS credit.
Treatment of Competing Arguments:
Revenue rejected the explanation without detailed inquiry, relying on the mismatch alone. The Tribunal emphasized that rejection without verification was improper.
Conclusions:
The assessee's reconciliation and explanation were prima facie sufficient to warrant further verification and reconsideration.
Issue (d): Error of CIT(A) in Sustaining Disallowance Without Verification
Relevant Legal Framework and Precedents:
Section 250(4) and (6) require the appellate authority to verify facts and evidence before confirming any disallowance or adjustment. The appellate authority must conduct a fair hearing and consider the assessee's submissions thoroughly.
Court's Interpretation and Reasoning:
The Tribunal found that the CIT(A) sustained the disallowance mechanically without verifying the reconciliation and explanations submitted by the assessee. The order did not reflect any independent fact-finding or inquiry.
Key Evidence and Findings:
The Tribunal noted that the CIT(A) had dismissed the appeal relying solely on the Form 26AS data and CPC intimation without examining the detailed reconciliation and supporting documents submitted by the assessee.
Application of Law to Facts:
The failure to verify facts and evidence before confirming disallowance amounted to procedural impropriety and miscarriage of justice.
Treatment of Competing Arguments:
Revenue argued that the CIT(A) acted correctly based on available data. The Tribunal rejected this, emphasizing the statutory duty of the appellate authority to verify facts.
Conclusions:
The Tribunal held that the CIT(A) erred in sustaining the disallowance without proper verification and remanded the matter for fresh adjudication.
3. SIGNIFICANT HOLDINGS
The Tribunal's crucial legal reasoning includes the following verbatim observation:
"On perusal of the findings of Ld. CIT(A), it is found that the assessee had made explanatory submissions and reply before the First Appellate Authority, however, the decision of the Ld. CIT(A) was without verifying the facts by himself or through the Ld. AO, therefore, in the interest of justice, the reconciliation prepared and submitted by the assessee before us, needs further verification by the revenue authorities."
Core principles established by the Tribunal are:
- The CPC's jurisdiction under section 143(1) is limited to summary processing and cannot undertake detailed verification or adjustments requiring scrutiny under section 143(3).
- Where there is a discrepancy between Form 26AS and declared income, the assessee is entitled to explain the difference through reconciliation and supporting evidence.
- The appellate authority must verify the facts and evidence submitted by the assessee before confirming any disallowance, as mandated under sections 250(4) and (6).
- Mechanical disallowance of TDS credit based solely on Form 26AS without considering the assessee's explanation amounts to procedural impropriety.
Final determinations on each issue:
(a) The proportionate disallowance of TDS credit by CPC was justified in principle but required detailed verification of the assessee's explanation.
(b) The intimation under section 143(1) reducing TDS credit was beyond the jurisdiction of the CPC as it involved detailed verification not permissible at that stage.
(c) The assessee's reconciliation and explanation for the difference in gross receipts were prima facie sufficient to merit further verification.
(d) The CIT(A) erred in sustaining the disallowance without verifying the facts and evidence, necessitating remand for fresh adjudication.
Accordingly, the Tribunal set aside the order of the CIT(A) and remanded the matter for fresh consideration in accordance with law within three months, directing that the assessee be given a reasonable opportunity of hearing and cooperate in the proceedings.
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