ITAT Upholds CIT(A)’s Decision on Proportional TDS Credit Restriction Due to Income Mismatch, Orders Reallocation to Prior Years [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)upheld the Commissioner of Income Tax(Appeals)[CIT(A)]’s decision on proportional Tax Deducted at Source(TDS) credit restriction due to income mismatch, confirming that TDS credit could only be granted for income declared in the current assessment year.

Space Developers,appellant-assessee, had claimed a TDS credit of Rs.5,24,600 in its income tax return. However, the Centralized Processing Centre(CPC) reduced this to Rs.4,07,968, based on the proportion of income reported in the return to the income on which TDS was deducted. While TDS of Rs.5,24,600 was deducted on income of Rs.5,24,60,000, the income reported in the return was Rs.4,07,96,898.

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As per Section 199 of the Act, and Rule 37BA of the Income Tax Rules, 1962, the TDS credit was restricted to the portion corresponding to the income declared for tax. The remaining credit was disallowed, and this decision was upheld by the CIT(A).

Aggrieved by the order of the CIT(A),the assessee appealed before the tribunal.

The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member)agreed with the CIT(A)’s decision, which said that TDS credit could only be given for income declared in the current assessment year. The assessee counsel had claimed TDS of Rs.5,24,600 on receipts of Rs.5,24,60,000, which included income from AYs 2021-22, 2022-23, and 2023-24. The CIT(A) confirmed that the CPC was right to limit the TDS credit to the income reported in the current year.

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The tribunal saw no reason to disagree with the CIT(A)’s findings and the CPC’s adjustment, reducing the TDS credit to Rs.4,07,968. However, since part of the income had already been declared in previous years, the bench directed the Assessing Officer(AO) to give TDS credit for the income reported in AYs 2021-22 and 2022-23.

In short,the appeal filed by the assessee was dismissed.

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