TDS Credit Allowable in Year of Income Assessability Despite Form 26AS Mismatch — ITAT Hyderabad

Case Background

R.K. Distilleries Private Limited Vs ITO (ITAT Hyderabad)

The Income Tax Appellate Tribunal, Hyderabad, recently delivered a significant ruling in favour of the assessee in a matter involving denial of TDS credit on account of a mismatch between the TDS claimed in the return of income and the amount reflected in Form 26AS. The Tribunal's ruling reaffirms a well-established principle — that TDS credit must be granted in the assessment year in which the corresponding income is offered to tax, and not necessarily the year in which the deductor reflects the deduction in Form 26AS.

Factual Matrix of the Case

R.K. Distilleries Private Limited, engaged in the manufacture of Indian Made Foreign Liquor (IMFL), filed its return of income for Assessment Year 2020–21 on 29/12/2020, declaring total income of Rs. 1,66,47,890/-. The assessee provided bottling services to M/s. Pernod Ricard India Private Limited (PRIPL) and raised an invoice dated 31.03.2020 amounting to Rs. 5,40,94,027/- for such services.

Following the mercantile system of accounting, the assessee recognised this income in Financial Year 2019–20, i.e., Assessment Year 2020–21, and accordingly claimed TDS credit pertaining to the said invoice in the same assessment year.

However, PRIPL — the deductor — accounted for the transaction and deducted tax at source in the subsequent financial year, i.e., Assessment Year 2021–22. This created a discrepancy between the TDS credit claimed by the assessee and the amount reflected in Form 26AS for Assessment Year 2020–21.

Processing and Demand Raised by CPC

When the CPC, Bengaluru processed the return under Section 143(1) of the Income Tax Act, 1961, it restricted the TDS credit to the amount appearing in Form 26AS. As a result, an additional demand of Rs. 13,15,270/- was raised against the assessee.

The assessee filed a rectification application under Section 154 of the Act on 29/12/2020. However, the AO/CPC, Bengaluru rejected the same vide order dated 12/04/2022, declining to grant any relief.

CIT(A) Proceedings

The assessee carried the matter before the Commissioner of Income Tax (Appeals), but the relief sought was not granted there either. While the CIT(A) acknowledged the factual position — that the assessee had declared the relevant income in Assessment Year 2020–21 while the deductor had accounted for the corresponding expense and TDS in Assessment Year 2021–22 — the CIT(A) directed that PRIPL should revise its return so that the TDS credit for the assessee gets appropriately reflected in Form 26AS.

The assessee challenged this reasoning before the ITAT, Hyderabad.

Arguments Before the Tribunal

Assessee's Contentions

Shri Preetham Mahankali, CA, the Learned Authorised Representative for the assessee, submitted the following arguments: