Assessee entitled to TDS credit under Rule 37BA even when income not liable for tax

ITAT Delhi allowed the assessee's appeal regarding denial of TDS credit. The assessee earned interest on contractor advances during construction period, which was properly reduced from expenditure in balance sheet. Revenue did not dispute that interest income was part of business receipts and not taxable under "income from other sources." CPC initially denied TDS credit as it wasn't reflected in Form 26AS, but updated Form 26AS showed the TDS amount of Rs. 10,80,720. ITAT held that when TDS is deducted on income not liable for tax, assessee is entitled to TDS credit under Rule 37BA. The interest was directly incidental to machinery acquisition and properly disclosed.

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Issues:
The judgment involves the denial of Tax Deducted at Source (TDS) credit by the Assessing Officer (AO) under section 143(1) of the Income Tax Act for the Assessment Year 2019-20.

Issue 1: Denial of TDS credit by the AO:
The appeal questions the denial of TDS credit of Rs. 10,80,720/- by the AO, which was claimed by the assessee under section 194A of the Act. The contention was that the TDS amount claimed was reflected in Form 26AS uploaded in the Income Tax e-filing portal. The Ld. CIT(A) upheld the denial of TDS credit by the AO, stating that the appellant failed to substantiate the claim and did not provide evidence that the corresponding income was subjected to tax. The appeal was dismissed on this ground.

Issue 2: Justification for TDS credit denial:
The main grievance of the Revenue was that the assessee did not disclose any income corresponding to the TDS claim. However, it was argued by the assessee that the interest income earned on advances given to contractors was linked to its business activity and was duly reflected in the balance sheet. The Revenue's argument was that the interest income should be taxed under "income from other sources." The Tribunal found that since there was no obligation for the assessee to offer the interest income for tax, and it was properly reflected in the books of accounts, the TDS credit related to such interest receipts should not be denied. The Tribunal noted that the TDS figure was indeed reflected in Form 26AS, meeting the requirements for TDS credit eligibility. Citing relevant case law, the Tribunal held that the assessee was entitled to the TDS credit of Rs. 10,80,720/-.

Separate Judgment by Co-ordinate Bench:
A similar issue was adjudicated by a Co-ordinate Bench of the Mumbai Tribunal in the case of Trikaal Mediinfotech Pvt. Ltd. vs. DCIT. The judgment clarified that when TDS is deducted on income not directly liable for tax, the assessee is entitled to TDS credit. The Tribunal highlighted the importance of considering the nature of income and the proper application of tax laws in determining TDS credit eligibility.

In conclusion, the appellate tribunal directed the Assessing Officer to grant the TDS credit of Rs. 10,80,720/- to the assessee, as the denial of the credit was found unjustified based on the facts and legal precedents discussed in the judgment.

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