ITAT directs AO to grant tax credit as claimed, stresses due process in rectification proceedings.

The ITAT allowed the appellant's appeal, directing the AO to grant tax credit as claimed and compute interest accordingly. The ITAT emphasized the importance of due process in rectification proceedings and proper grant of tax credits.

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Issues:
Appeal against appellate order on tax demand, TDS credit withdrawal, nullity of order under section 154, restoration of TDS credit, cash basis of accounting, credit for TDS not granted, interest levy.

Analysis:
1. The appeal was filed against the appellate order by the National Faceless Appeal Centre for the assessment year 2019-20, where the appeal against the assessment order by the Assistant Director of Income Tax was partly allowed. The appellant raised 9 grounds of appeal, including objections to tax demand, withdrawal of TDS credit, and failure to consider the cash basis of accounting for claiming TDS credit.

2. The appellant, a limited liability partnership assessed as a firm, filed its return of income claiming a tax credit of TDS. However, the Central Processing Centre allowed a lower TDS credit in the intimation under section 143(1). The appellant sought rectification, but the TDS credit was further reduced, leading to the appeal before the CIT-A.

3. The appellant argued that it follows a cash system of accounting, where professional fees are accounted for based on cash or receipt basis. The discrepancy in TDS credit claimed and reflected in Form 26AS arose due to different accounting methods followed by the appellant and its clients, leading to the appeal for proper TDS credit.

4. The CIT-A confirmed the disallowance of TDS credit due to typographical mistakes in the appellant's ITR form. Despite rectifying some entries, the overall TDS credit was reduced, and the appellant failed to produce TDS and TAN details for verification, resulting in dismissal of the appeal on this ground.

5. The appellant contended that proper notice must be given if a rectification under section 154 reduces the refund, which was not provided in this case. The appellant insisted on being granted the full tax credit claimed initially.

6. The ITAT carefully reviewed the orders and found that the reduction of the appellant's claim in the rectification proceedings violated the provisions of section 154(3) as no proper notice was issued. The ITAT directed the AO to grant tax credit to the appellant as per the claim made in the return of income.

7. The ITAT allowed grounds 1-8 of the appeal, directing the AO to grant tax credit as claimed by the appellant. Ground 9 regarding the levy of interest was deemed consequential, and the AO was directed to compute the interest in accordance with the law.

8. Consequently, the appeal of the appellant was allowed with the specified directions, emphasizing the importance of following due process in rectification proceedings and ensuring proper grant of tax credits as claimed.

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