The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Reliance Infrastructure by allowing the Tax Deducted at Source (TDS) credit of Rs 40.43 crore deducted by Tata Power on payment to Adani Electricity, on transfer business.
Reliance Infrastructure, the assessee, has appealed the CPC’s decision to deny it a TDS credit of 40.43 crores related to the tax that Tata Power Company Ltd. (TPC) had deducted from payments made to Adani Electricity Mumbai Ltd. (AEML). The AEML Form 26AS contained the TDS credit for the same. The assessee had claimed the TDS credit in both its first and updated return of income.
For the AY 2020–21, Adani Electricity Mumbai Ltd. did not claim credit for the TDS of Rs. 40.43 crore that was recorded on their Form 26AS. Instead, AEML moved the TDS credit to Rinfra’s PAN in the income tax return since Rinfra had promised to pay taxes on the associated income, which did not belong to Adani Electricity Mumbai Ltd. and had not been included in Rinfra’s return of income or been accounted for.
Therefore, Adani Electricity Mumbai Ltd. had acknowledged that Rinfra owned the revenue and the associated TDS credit by transferring the credit to Rinfra’s PAN.Since the TDS credit did not appear in the assessee’s Form 26AS, the CPC did not provide credit for the TDS of Rs. 40.43 crore claimed in its return when processing the original and revised returns of income.
On behalf of the assessee, Jitendra Sanghvi contenetd that the deductee had provided evidence and that the AO and CIT of Adani Electricity Mumbai Ltd. had issued a certificate stating that neither the income nor any TDS had belonged to AEML and that the income had actually been transferred to the assessee in the return of income that AEML had filed.
On behalf of the revenue, Riddhi Mishra argued that when an appropriate system was established and a requirement under Rule 37BA was present, those requirements needed to be met in order for the assessee to be eligible for the TDS credit. She further argued that Rule 37BA’s criteria could not be circumvented.
The appeal was allowed by the two-member bench of Amit Shukla, (Judicial Member) and M S Padmavathy S, (Accountant Member), who both agreed that harmonious construction should be used when reading Section 199(1) of the Income Tax Act in light of the requirements set forth in Rule 37BA.
‘The legislature’s intention was to grant credit for the tax deducted at source on behalf of the person whose income the deduction was made, not to deny the credit if the income on which tax had been deducted at source was assessible in the hands of a person other than the deductee”, the bench noted.
The Bench observed that, “It is not even disputed by the department that the assessee is entitled for credit for TDS. Either some mechanism should be devised by the department to address such grievances in such circumstances or authorised the Assessing Officer to examine it and allow; or the strict conditions provided in Rule 37BA should be read in the provisions of Section 199(1) to make it workable in genuine cases where department is sure no double credit is allowed or claimed. Because Rules should not frustrate the main provisions of the Act.”
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