Assessee Denied Chance to Present Case on TDS Credit for Client Funds, ITAT Rules for Fresh Hearing [Read Order]

The Income Tax Appellate Tribunal (ITAT), Lucknow Bench, has set aside three appellate orders concerning the assessment years 2014–15, 2015–16, and 2016–17, after holding that the assessee was not given a fair opportunity to be heard on the issue of TDS credit related to interest income from government client funds.

In these cases, the Commissioner of Income Tax (Appeals), NFAC, New Delhi had directed the Assessing Officer to examine the assessee’s claim for TDS credit under Section 199 of the Income Tax Act, read with Rule 37BA of the Income Tax Rules. However, this direction was issued without issuing any notice or giving a chance to present submissions on the matter during appellate proceedings. The assessee contended that such action amounted to a violation of the principles of natural justice.

Uttar Pradesh Rajkiya Nirman Ltd, the appellant, submitted that the interest income in question was earned on client funds provided by the Central and State Governments for specific construction projects.

These funds, it argued, do not belong to the company, and as per government orders, any interest earned is either refunded or adjusted against the cost of construction. Accordingly, although the interest is initially recorded along with TDS entries in the books, the actual taxable income offered excludes this component.

The assessee explained that the bank interest reflected in the books was transferred to the respective client accounts, and thus, the TDS credit was claimed only against the tax deducted on such transferred income. It stressed that it should not be denied credit merely because the gross interest was not taxed in its hands.

The Tribunal agreed with the assessee’s submission that it was not granted a reasonable opportunity to present its case. Citing the principle that no adverse direction should be issued without hearing the affected party, it remanded the matter back to the CIT(A) for fresh consideration of all issues, including other additions such as disallowance of gratuity, bonus, service tax, and discrepancies in reported income figures.

The Bench, comprising Kul Bharat (Vice President) and Anadee Nath Misshra (Accountant Member), instructed the appellate authority to pass a fresh order after duly hearing the assessee.

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