Denial of TDS Credit Due to Form 26AS Mismatch: ITAT Directs AO to Verify Taxpayer Receipt and Allow Full Credit [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) directed the Assessing Officer (AO) to verify the taxpayer receipt and allow full credit where the Tax Deducted at Source (TDS) credit was denied due to a Form 26AS mismatch.

Sonali Dhawan,appellant-assessee, through the counsel submitted that she had sold a house property for ₹2,76,20,500 to M/s. Jyestha Buildcon Private Limited during the financial year relevant to the impugned assessment year. On this consideration, the buyer deducted TDS of ₹48 lakhs, which was duly deposited through net banking on 17-06-2022, as evident from the sale deed and the taxpayer receipt provided by the buyer.

The assessee filed the return of income declaring capital gains from the sale and claimed credit for the TDS amount. The CPC processed the return, accepted the returned income of ₹2,58,90,550, but denied credit for ₹47,99,525 of the TDS claimed, citing a mismatch with Form 26AS, which reflected only a partial amount.

The assessee argued that the TDS was not only deducted but also deposited, supported by documentary evidence, and that denial of credit merely due to non reflection in Form 26AS, caused by factors beyond her control, was unjustified. Reliance was placed on a Coordinate Bench decision in Mukesh Padamchand Sogani vs. ACIT ,where it was held that TDS credit cannot be denied even if not deposited by the deductor.

It was submitted that her case stood on stronger grounds since the TDS was both deducted and deposited, and the Addl/JCIT(A)’s direction to restrict credit to the amount in Form 26AS should be set aside, with instructions to the AO to grant the full TDS credit claimed.

The departmental counsel was heard and relied on the Addl/JCIT(A)’s order. The Addl/JCIT(A) noted that under Rule 37BA(3)(i), TDS credit must be allowed in the Assessment Year in which the corresponding income was assessable. Since the assessee’s income was assessable in AY 2023-24, TDS benefit was to be given for that year.

The AO was directed to verify the assessee’s submissions, provide an opportunity of being heard, and grant the additional TDS claim as per law, after considering the TDS already credited. The AO was also to check whether the TDS of Rs. 47,99,525 related to income assessable in AY 2023-24 and, if so, allow the further TDS credit based on the relevant Form 26AS.

The tribunal heard the parties and reviewed the records. The assessee’s grievance was that TDS credit should not be limited to the amount shown in Form 26AS but should be allowed based on actual evidence of TDS deducted and deposited.

The two member bench comprising Sandeep Gosain (Judicial Member) and Vikram Singh Yadav (Accountant Member) noted that data may not always reflect in Form 26AS due to technical or other reasons. Where the assessee provided proper evidence, she could not be denied the TDS credit, subject to verification.

In this case, the tribunal directed the AO to verify the taxpayer receipt issued by Canara Bank on 17-06-2022 for Rs. 48 lakhs. If found correct, the AO was to allow the full TDS credit claimed by the assessee in her return.

Accordingly the appeal filed by the assessee was allowed.

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