2025 (6) TMI 889 - AT - Income Tax

Denial of TDS credit - assessee submitted that CPC erred in denying the tax credit by wrongly applying clause (vi) of section 143(1)(a) even though the clause was omitted from A.Y. 2018-19 - HELD THAT - Ideally the matter needs to be restored to the file of CIT(A) since nothing has been dealt with on merits of the case in the instant case We find that firstly the issue of Tax Credit availability is to be verified from Form No.26AS and secondly the legality of adjustment made by CPC passed under the provisions of section 143(1)(a)(vi) of the Act which have already been omitted from A.Y. 2018-19 and under these given facts and circumstances the matter deserves to be restored to the file of Learned Jurisdictional AO for denovo proceeding before whom the assessee shall furnish the requisite details in support of his claim of TDS credit. Needless to say that the ld. JAO shall afford reasonable opportunity of hearing to the assessee and then to decide in accordance with law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the assessee is entitled to the full credit of Tax Deducted at Source (TDS) of Rs. 2,29,099/- as reflected in Form No. 26AS, which was denied by the CPC during processing of the return for Assessment Year 2018-19.
• Whether the denial of TDS credit by applying clause (vi) of section 143(1)(a) of the Income-tax Act, 1961, was legally valid given that this clause was omitted from the statute for the relevant assessment year.
• Whether the delay in filing the appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) was excusable and if the delay should be condoned to allow adjudication on merits.
• Whether the matter should be restored to the file of the CIT(A) or the Assessing Officer for de novo consideration of the TDS credit claim.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to TDS Credit as per Form No. 26AS

Relevant legal framework and precedents: The Income-tax Act, 1961 mandates that tax deducted at source should be credited to the deductee's account and reflected in Form No. 26AS. The assessee is entitled to claim credit for TDS reflected therein unless there is a valid reason for denial. The return of income filed by the assessee declared total income and claimed TDS credit accordingly.

Court's interpretation and reasoning: The Tribunal observed that the assessee, a Non-Resident Indian, had claimed TDS credit of Rs. 3,29,703/- as per Form No. 26AS, but the credit was restricted to Rs. 1,00,604/- by the CPC during processing. The assessee's claim was supported by the statutory document (Form No. 26AS), and the denial of full credit was questioned.

Key evidence and findings: The return of income, Form No. 26AS, and the rectification application filed under section 154 of the Act were examined. The rectification application to claim full credit was rejected. The delay in filing appeal before CIT(A) was due to pendency of rectification proceedings.

Application of law to facts: The Tribunal found that the denial of TDS credit was not justified as the credit was duly reflected in Form No. 26AS. The assessee's claim was prima facie valid and merited consideration on merits.

Treatment of competing arguments: The Departmental Representative did not dispute the factual reflection of TDS in Form No. 26AS but suggested restoration to CIT(A) if delay was condoned. The assessee argued that the denial was erroneous due to incorrect application of a statutory provision.

Conclusions: The Tribunal concluded that the assessee was entitled to the TDS credit as claimed, subject to verification and proper adjudication.

Issue 2: Validity of Denial of TDS Credit under Clause (vi) of Section 143(1)(a)

Relevant legal framework and precedents: Clause (vi) of section 143(1)(a) of the Income-tax Act, 1961, which allowed certain adjustments during processing of returns, was omitted from the statute for Assessment Year 2018-19. Therefore, its application for denying TDS credit in this year was legally questionable.

Court's interpretation and reasoning: The Tribunal noted that the CPC had wrongly applied the omitted clause (vi) to deny the TDS credit. Since the clause was no longer in force for the relevant year, reliance on it was incorrect.

Key evidence and findings: The statutory amendment omitting clause (vi) for AY 2018-19 was a crucial fact. The assessee's counsel produced judicial precedents supporting non-application of the omitted clause.

Application of law to facts: The Tribunal held that the denial of credit based on a non-existent statutory provision was not sustainable.

Treatment of competing arguments: The Departmental Representative did not contest the omission of the clause but preferred restoration for fresh adjudication.

Conclusions: The Tribunal found the CPC's action legally untenable and directed reconsideration without applying the omitted clause.

Issue 3: Condonation of Delay in Filing Appeal Before CIT(A)

Relevant legal framework and precedents: Section 5 of the Limitation Act allows condonation of delay if sufficient cause is shown. Judicial precedents emphasize a liberal approach towards condoning delay, especially where the appeal has prima facie merit and delay is not intentional or due to negligence.

Court's interpretation and reasoning: The Tribunal considered the delay in filing appeal before CIT(A) was due to pendency of rectification proceedings under section 154 and was not deliberate. The Tribunal relied on the Supreme Court's ruling in Inder Singh Vs. State of Madhya Pradesh, which condoned delay of over 1500 days when delay was unintentional and merits were significant.

Key evidence and findings: The delay was explained as caused by pursuit of rectification application and was not willful. The merits of the appeal were significant as denial of TDS credit affected the assessee's tax liability.

Application of law to facts: Applying the liberal approach, the Tribunal condoned the delay and allowed the appeal to be heard on merits.

Treatment of competing arguments: The Departmental Representative suggested restoration if delay was condoned but did not oppose condonation itself.

Conclusions: Delay in filing appeal before CIT(A) was condoned as 'reasonable cause' existed.

Issue 4: Restoration of Matter for De Novo Adjudication

Relevant legal framework and precedents: Principles of natural justice and fair adjudication require that claims supported by statutory evidence be adjudicated on merits. When procedural bars or technicalities prevent such adjudication, restoration for fresh consideration is appropriate.

Court's interpretation and reasoning: The Tribunal observed that the CIT(A) had dismissed the appeal on limitation grounds without considering merits. Since the issue involved verification of TDS credit from Form No. 26AS and legality of CPC's adjustment under a now-omitted provision, fresh adjudication was warranted.

Key evidence and findings: The record showed that the appeal was dismissed in limine and that the assessee had not been heard on the substantive issue.

Application of law to facts: The Tribunal directed restoration to the jurisdictional Assessing Officer for de novo proceedings, with opportunity of hearing and decision in accordance with law.

Treatment of competing arguments: The Departmental Representative agreed with restoration if delay was condoned.

Conclusions: The matter was restored for fresh adjudication on merits.

3. SIGNIFICANT HOLDINGS

"Hon'ble courts in plethora of judgments observed that when consideration of an appeal on merits is pitted against the rejection of a meritorious claim on the technical ground of the bar of limitation, the Courts lean towards consideration on merits by adopting a liberal approach towards 'sufficient cause' to condone the delay."

"The Court considering an application under section 5 of the Limitation Act may also look into the prima facie merits of an appeal. A liberal approach may be adopted when some plausible cause for delay is shown."

"Hon'ble Supreme Court in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 condoned delay of 1537 days sub-serving the cause of justice... delay in filing the appeal by the appellant was unintentional, much less due to any deliberate laches, and was well-explained... In cases where the merits are significant, a more liberal approach may be adopted to allow for the examination of the case on its merits."

"Considering the ratio laid down by the Hon'ble Court in the case of Inder Singh (supra), we are of the view that there was 'reasonable cause' which prevented the assessee in