Disallowed TDS Credit cannot be Added Twice to Income of Assessee as it Amounts to Double Addition: ITAT [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowed Tax Deducted at Source (TDS) credit cannot be added twice to the income of the assessee as it amounts to double the addition of income. 

HCL Comnet Systems & Services Ltd, the respondent assessee was a resident corporate entity and was stated to be engaged in the business of providing remote infrastructure management services and telecommunication services. 

The revenue appealed against the order passed by the Commissioner of Income Tax (Appeals) for deleting the disallowance made by the assessing officer under Rule 8D(2)(iii) of the Income Tax Rules, 1962. 

Anuj Garg, the counsel for the revenue contended that the reasoning based on which the Commissioner of Income Tax (Appeals) had deleted the major part of the disallowance made by the Assessing Officer was unsustainable and not as per the law. 

It was further submitted that the disallowance made by the assessing officer was as per the law and should be restored. 

Aditya Vohra and Arpit Goyal, the counsels for the assessee relied on the decision made by the Commissioner and contended that the exempt income earned by the assessee was from dividends on the mutual fund and no exempt income had been earned during the year on the strategic investment. 

It was also submitted that as per settled legal principle, under the rule 8D(2)(iii) of the Income Tax Rules could be applied only regarding the investments yielding exempt income and the disallowance made by the assessing officer was not as per the law. 

The bench observed that in the absence of any opening and closing balance of mutual funds, no disallowance under Rule 8D(2)(iii) of the Income Tax Rules can be computed. 

It was further observed that the strategic investments made by the assessee had not yielded any exempt income during the year and they cannot form part of the average value of investment for computing the disallowance. 

The two-member bench comprising Saktijit Dey (Judicial) and M. Balaganesh (Accountant) held that once a certain amount claimed as TDS credit was disallowed, the assessee’s claim of pre-paid taxes to that extent gets reduced. Therefore, there was no need for making any further addition of the corresponding amount to the income of the assessee as it amounts to the addition of the same amount twice while dismissing the appeal filed by the revenue. 

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