2025 (6) TMI 1931 - AT - Income Tax

Proportionate credit for TDS - as per revenue sales return is not explained by the assessee whether the sales return are net of TDS or gross amount - AO said assessee has reported only part of the turnover and not entire turnover - HELD THAT - AO is erred in allowing credit for TDS on proportionate basis even though the assessee has offered the income in total for the year under consideration. The reasons for the AO to allow proportionate TDS is difference in turnover as per Form 26AS and turnover reported in the books. The assessee has explained the said difference with the sales return. If we consider sale return then the turnover declared by the assessee tallies with the turnover reported in Form 26AS with reference to TDS credit as per section 194 O of the Act. Although these facts has been explained to the learned CIT (A) but the learned CIT (A) based on assumption and presumption rejected the explanation of the assessee on the ground that if at all sales turnover is there then the assessee must have replaced with other goods or refund gross amount including TDS amount. TDS has been deducted by the e-platform operators at the time of sales whereas the money is returned to the buyer after e-platform operators deducted TDS. Therefore in our considered view the reasons given by the CIT (A) to reject the explanation of the assessee is on assumption and presumption but not based on fact. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Assessing Officer was justified in allowing TDS credit on a proportionate basis rather than as claimed by the assessee based on Form No.26AS, in light of Rule 37BA of the Income Tax Rules, 1962 and section 194O of the Income Tax Act, 1961?

- Whether the sales return reported by the assessee, on which TDS was deducted by e-commerce operators, should impact the quantum of TDS credit allowable to the assessee?

- Whether the learned CIT (A) was correct in upholding the Assessing Officer's proportionate disallowance of TDS credit despite the assessee's explanation and reconciliation of gross sales, sales returns, and net sales?

- The interplay and reconciliation between TDS provisions under the Income Tax Act and the corresponding provisions under the GST Act regarding collection of tax on gross versus net sales through e-commerce platforms.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of TDS Credit as per Form No.26AS vis-`a-vis Proportionate Credit by Assessing Officer

The relevant legal framework includes section 194O of the Income Tax Act, which mandates e-commerce operators to deduct TDS at 1% on the gross amount of sales or services facilitated through their platforms. Rule 37BA of the Income Tax Rules, 1962, provides that credit for TDS shall be allowed in the year in which income relatable to such TDS is declared.

The Assessing Officer, while processing the return, observed a discrepancy between the total receipts reported by the assessee (Rs. 1,20,51,834) and the total receipts as per Form 26AS (Rs. 1,41,61,845). On this basis, the Assessing Officer allowed TDS credit proportionately (Rs. 1,38,211) rather than the full amount claimed (Rs. 1,62,412).

The assessee contended that the total income declared includes net sales after accounting for sales returns and that the TDS credit claimed corresponds to the gross sales as per Form 26AS. The assessee argued that Rule 37BA is not applicable in this scenario because the income relatable to the TDS has been declared in full after adjusting for sales returns.

The Tribunal found that the Assessing Officer erred in allowing only proportionate credit based solely on the turnover reported in the financial statements without considering the reconciliation submitted by the assessee. The assessee's gross sales, sales returns, and net sales reconciled with the TDS deducted by the e-commerce operators as reflected in Form 26AS. Therefore, the Tribunal held that the full TDS credit claimed by the assessee should be allowed.

The Court emphasized that the Assessing Officer's reliance on the difference in turnover figures without appreciating the sales return explanation was misplaced. The Tribunal noted that the assessee had declared income relatable to the entire TDS claimed, satisfying the requirement under Rule 37BA for allowance of credit.

Issue 2: Impact of Sales Return on TDS Credit

The assessee reported sales returns amounting to Rs. 23,87,202, on which TDS was already deducted by the e-commerce platform operators. The Assessing Officer and the learned CIT (A) took the view that since sales returns occurred, the TDS credit should be proportionately reduced, reasoning that if the assessee refunded the gross amount including TDS to the purchaser, the credit for TDS on that amount should not be allowed.

The learned CIT (A) further held that if the sales return was replaced by goods, no adjustment to TDS credit was necessary, but if a refund was made, the TDS credit should be proportionately reduced. This reasoning was based on an assumption that the assessee refunded the amount including TDS to the purchaser, thereby negating the TDS credit.

The Tribunal rejected this presumption, holding that the assessee explained the sales return and its accounting treatment adequately. The Tribunal observed that the e-commerce operators had deducted TDS on gross sales at the time of sale, but the refund to buyers occurred subsequently. Therefore, the TDS deducted remained valid and the credit should not be proportionately curtailed on the basis of sales returns alone.

The Tribunal found that the learned CIT (A) erred in relying on assumption and presumption rather than facts, as the assessee had reconciled and substantiated the sales return and net sales figures. Consequently, the Tribunal directed that full TDS credit as per Form 26AS be allowed.

Issue 3: Treatment of Competing Arguments and Application of Law to Facts

The assessee's argument was grounded in statutory interpretation of section 194O and Rule 37BA, supported by reconciliation of turnover figures including sales returns. The assessee also referred to section 52 of the GST Act, highlighting that GST TDS is collected on net sales, whereas income tax TDS under section 194O is on gross sales, underscoring the correctness of claiming TDS credit on gross sales as per Form 26AS.

The Revenue's contention was that the assessee did not clarify whether sales returns were net of TDS or gross, and that if the gross amount was refunded, the TDS credit should be proportionately reduced. The Revenue relied on the learned CIT (A)'s order to uphold the Assessing Officer's approach.

The Tribunal critically examined both positions and found the Revenue's reliance on assumptions unsupported by record. The Tribunal emphasized that the assessee had disclosed and reconciled sales returns and net sales, and had declared income corresponding to the TDS credit claimed. The Tribunal applied the law strictly as per statutory provisions and factual matrix, rejecting the Revenue's approach of proportionate disallowance without proper basis.

3. SIGNIFICANT HOLDINGS

- "The Assessing Officer is erred in allowing credit for TDS on proportionate basis, even though the assessee has offered the income in total for the year under consideration."

- "If we consider gross sales, sales return and net sales declared by the assessee, it tallies with the total sales achieved through e-commerce platform operators on which TDS has been deducted."

- "The reasons for the Assessing Officer to allow proportionate TDS is difference in turnover as per Form 26AS and turnover reported in the books. The assessee has explained the said difference with the sales return."

- "The learned CIT (A) without considering the relevant facts, has simply upheld the order of the Assessing Officer."

- "The TDS has been deducted by the e-platform operators at the time of sales whereas the money is returned to the buyer after e-platform operators deducted TDS. Therefore, in our considered view, the reasons given by the learned CIT (A) to reject the explanation of the assessee is on assumption and presumption, but not based on fact."

- "Since the assessee has explained the reasons for difference in turnover and further made out a case that the total income pertains to TDS credit of Rs. 1,62,412/- has been offered to tax for the year under consideration, in our considered view, the Assessing Officer ought to have allowed TDS of Rs. 1,62,412/- as per Form 26AS."

Core principles established include that TDS credit under section 194O and Rule 37BA must be allowed in the year in which income relatable to such TDS is declared, and that sales returns, duly accounted for and reconciled, do not justify proportionate disallowance of TDS credit where the gross sales and TDS deducted thereon are properly reflected in Form 26AS and income is declared accordingly.

Final determination was that the appeal filed by the assessee is allowed, setting aside the orders of the Assessing Officer and CIT (A), directing that TDS credit of Rs. 1,62,412/- as per Form No.26AS be allowed in full for the assessment year under consideration.