ITAT Mumbai: TDS Credit Reflected in Form 26AS Cannot Be Denied Due to Procedural Omission in Return of Income

In a significant ruling that reinforces the principle of substantial justice over procedural technicalities, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has held that an assessee cannot be denied credit for Tax Deducted at Source (TDS) merely because such credit was not claimed in the Return of Income (ROI), provided the credit is duly reflected in Form 26AS.

The decision in Daiwa Capital Markets India Private Limited Vs ACIT serves as a crucial precedent for cases where legitimate tax credits are withheld by the Revenue Department due to inadvertent omissions by the assessee during the filing process.

Case Background and Factual Matrix

The dispute pertains to the Assessment Year (A.Y.) 2013-14. The assessee, a private limited company, filed its original return of income on November 22, 2013, claiming a TDS credit amounting to Rs. 1,78,80,099, which matched the Form 26AS available at that time. Subsequently, a revised return was filed on March 2, 2015.

During the interim period between the filing of the original return and the revised return, a deductor, specifically Prime Focus Ltd, deducted tax at source amounting to Rs. 73,24,074 and deposited it with the Central Government. However, the deductor failed to inform the assessee of this deposit. Consequently, the assessee, being unaware of this specific deduction, inadvertently failed to claim this additional TDS credit in the revised return of income.

Crucially, while the assessee missed claiming the credit, they had duly offered the corresponding income of Rs. 7,32,40,740 (pertaining to Prime Focus Ltd) to tax in their returns.

The Assessment Proceedings

The case was selected for scrutiny, and an assessment order under Section 143(3) of the Income Tax Act 1961 was passed on January 19, 2017. The Assessing Officer (AO) made certain Transfer Pricing adjustments, which were later contested. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] eventually deleted these adjustments.

It was during the proceedings to give effect to the CIT(A)'s order—commonly known as Order Giving Effect (OGE)—that the assessee discovered the discrepancy. Upon reviewing an updated Form 26AS, the assessee realized that Prime Focus Ltd had indeed deposited the TDS of Rs. 73,24,074.