TDS credit requires proof of actual deduction; absence of supporting records justified verification before credit was allowed.

TDS credit on interest income depends on proof that tax was actually deducted and reflected in the prescribed records. Although section 205 bars a direct demand on the payee to the extent tax has been deducted, that protection does not dispense with the need to substantiate deduction on record. Where the assessee cannot produce TDS certificates or sufficient documentary evidence, the credit is not granted on the existing material and the matter may be remanded for verification by the Assessing Officer.

---

---

Issues: Whether credit of tax deducted at source on interest income could be granted to the assessee when the TDS certificates were not produced and the assessee had not furnished sufficient documentary evidence of deduction, and whether the matter required verification by the Assessing Officer.

Analysis: The assessee claimed TDS credit on interest received from Indian borrowers on a grossed-up basis and relied on the contractual tax gross-up clause and the bar under section 205 of the Income-tax Act, 1961. The statutory scheme under sections 199, 203, 203AA of the Income-tax Act, 1961 and Rules 37BA, 31 and 31AB of the Income-tax Rules, 1962 was noted to show that credit depends upon deduction and the relevant information furnished by the deductor and reflected in the prescribed records. The earlier judicial principle that deduction at source bars a fresh direct demand on the payee was accepted, but the assessee still had to substantiate that tax was in fact deducted by the payer. As the record did not contain adequate proof of deduction or corresponding income details, the issue needed factual verification.

Conclusion: The claim for TDS credit was not finally granted on the existing material and was sent back for verification by the Assessing Officer, with the assessee to establish deduction of tax at source.

Ratio Decidendi: TDS credit can be allowed only when deduction at source is substantiated on record; in the absence of such proof, the matter may be remanded for verification, and section 205 bars direct demand only to the extent tax has actually been deducted.

---