Tribunal overturns CIT(A) decision, directs full TDS credit grant to assessee

The Tribunal allowed the appeal, overturning the CIT(A)'s decision and directing the Assessing Officer to grant the full TDS credit of Rs. 1,00,081/- to the assessee for the relevant year. It was held that under the cash system of accounting, TDS credit should be allowed in the year of deduction when the corresponding income is offered for taxation.

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Issues Involved:
1. Disallowance of TDS credit amounting to Rs. 1,00,081/-.
2. Applicability of cash system of accounting for TDS credit.
3. Proportionate credit of TDS as per Rule 37BA and Section 199 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of TDS credit amounting to Rs. 1,00,081/-:
The assessee, a firm engaged in the profession, filed its return of income declaring Rs. 1,21,28,560/-. During assessment proceedings, the A.O. noted that the assessee claimed TDS of Rs. 1,00,081/- without offering the corresponding income to tax, as it was not received in the previous year. Consequently, the A.O. disallowed the TDS claim under Section 199 of the I.T. Act, 1961. The CIT(A) partially upheld this disallowance but directed the A.O. to give proportionate TDS credit. The assessee appealed, arguing that the entire TDS credit should be allowed in the year of deduction.

2. Applicability of cash system of accounting for TDS credit:
The assessee contended that it follows the cash system of accounting and had offered the corresponding income to tax in A.Y. 2015-16. The Tribunal, referencing the case of Chander Shekhar Aggarwal vs. ACIT, noted that under the cash system, the assessee is entitled to credit for the entire TDS amount in the year it is deducted. The Tribunal found merit in this argument, noting that the income corresponding to the TDS was offered to tax in the subsequent year, and thus, the TDS credit should be allowed in the year of deduction.

3. Proportionate credit of TDS as per Rule 37BA and Section 199 of the Income Tax Act:
The CIT(A) had directed proportionate TDS credit based on Rule 37BA and Section 199, which allow credit across years if the income is assessable over multiple years. However, the Tribunal emphasized that this rule applies to advance payments assessable over several years, not to cases where the cash system of accounting is followed. The Tribunal cited the decision in Peddu Srinivasa Rao and Sadhbav Engineering Ltd., which support the view that TDS credit should be given in the year of deduction if the income is offered in that year.

Conclusion:
The Tribunal concluded that the CIT(A) erred in denying the full TDS credit of Rs. 1,00,081/-. It set aside the CIT(A)'s order and directed the A.O. to allow the full TDS credit for the year under consideration. The appeal of the assessee was allowed, affirming the principle that under the cash system of accounting, TDS credit should be given in the year of deduction when the corresponding income is offered to tax.

Order Pronouncement:
The appeal was allowed, and the order was pronounced in the open court on 24.12.2021.

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