Assessee gets TDS credit for year income assessed despite timing mismatch under Section 199 Rule 37BA(3)

ITAT Mumbai allowed the assessee's appeal regarding TDS credit claim. The assessee recognized income in one financial year while the client deducted tax in the subsequent year when making payment, creating a timing mismatch. CIT(A) had dismissed the appeal citing this difference between Form 26AS and claimed TDS credit. ITAT held that under Section 199 read with Rule 37BA(3) of IT Rules 1962, TDS credit should be given for the assessment year in which corresponding income is assessable, following its own precedent in the assessee's case.

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Issues Involved:
1. Entitlement to TDS credit for the assessment year 2018-19.
2. Applicability of Rule 37BA(3) regarding TDS credit.
3. Consistency with previous ITAT decisions on similar facts.

Detailed Analysis:

1. Entitlement to TDS Credit for the Assessment Year 2018-19:
The assessee, a shipping company providing offshore oilfield services, contested the shortfall in TDS credit granted by the Centralized Processing Center (CPC), Bangalore. The CPC granted TDS credit of Rs. 17,51,85,759/- against the claimed amount of Rs. 17,80,18,807/-, resulting in a shortfall of Rs. 28,33,048/-. The assessee argued that the entire amount should be credited as the corresponding income had been fully offered to tax.

2. Applicability of Rule 37BA(3) Regarding TDS Credit:
The Commissioner of Income-tax (Appeals) [CIT(A)] dismissed the assessee's appeal, stating that the shortfall was due to the TDS amount not being reflected in Form 26AS. The CIT(A) noted that the discrepancy arose because the assessee's client deducted tax in the subsequent financial year, not the relevant year. Thus, the CIT(A) held that the TDS claim was not acceptable as per the provisions of Rule 37BA(3), which mandates that TDS credit should be granted for the assessment year in which the income is assessable.

3. Consistency with Previous ITAT Decisions on Similar Facts:
During the appellate proceedings, the assessee's counsel cited a previous ITAT decision in the assessee's favor for A.Y. 2015-16 (ITA No. 5562/Mum/2018, dated 8.01.2020), where the ITAT had adjudicated a similar issue. The ITAT had ruled that as per Section 199 read with Rule 37BA, TDS credit must be allowed in the year the corresponding income is assessable. The ITAT emphasized that credit for TDS cannot be separated from the year the income is assessable, as doing so would distort the tax/interest liability.

The ITAT in the present case reiterated that Rule 37BA(3)(i) clearly states that TDS credit should be given for the assessment year in which the income is assessable. The ITAT also referenced a similar decision by the Pune Bench in the case of Mahesh Software Systems P. Ltd vs. ACIT, where it was held that TDS credit should be allowed in the year the income is recorded, even if the TDS was deposited in the subsequent year.

Conclusion:
The ITAT concluded that the CIT(A) had not adjudicated the claim in accordance with Section 199 and Rule 37BA(3). Following the precedent set in the assessee's own case and other judicial decisions, the ITAT directed the Assessing Officer (A.O.) to allow the TDS credit as claimed by the assessee. The ITAT emphasized that the credit for TDS and the corresponding assessable income are inextricably linked and must be considered together in the same assessment year. Consequently, the appeals for both A.Y. 2018-19 and A.Y. 2019-20 were allowed.

Order Pronouncement:
The appeals of the assessee were allowed, and the order was pronounced in the open court on 14.10.2022.

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