Assessee claiming TDS credit must include corresponding interest income in return under section 198

The ITAT Mumbai held that when TDS is deducted and reflected in Form 26AS, the corresponding interest income must be included in the assessee's return under "income from other sources" per section 198. The assessee cannot selectively apply different accounting methods by claiming TDS credit while refusing to show the related interest income due to accounting system differences. The tribunal directed that if an assessee takes TDS as tax paid, the corresponding income must be included in the return, preventing cherry-picking between cash and mercantile accounting systems for tax advantages.

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Issues Involved:

1. Condonation of delay in filing the appeal.
2. Taxation of interest income not received by the assessee due to differences in accounting methods.
3. Application of Section 198 of the Income-tax Act, 1961 regarding TDS as deemed income received.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appeal was filed with a delay of 78 days. The assessee submitted a petition along with an affidavit citing medical reasons, specifically renal cell carcinoma, for the delay in filing. The Tribunal found the reasons satisfactory and supported by documentary evidence, thus condoning the delay and allowing the appeal to be adjudicated on merits.

2. Taxation of Interest Income Not Received:

The core issue was the taxation of interest income that was not received by the assessee due to a difference in accounting methods. The assessee followed the cash basis of accounting, whereas the company, PBA Infrastructure Pvt. Ltd., followed the mercantile system. The interest income of Rs. 35,56,571/- was accrued in the company's books and TDS of Rs. 3,55,657/- was deducted and reflected in Form 26AS, but the actual payment was not made to the assessee. The assessee claimed this interest as "income not received" under Section 57 of the Act to avoid a mismatch between Form 26AS and the return filed. The Assessing Officer disallowed this claim, and the CIT(A) upheld the disallowance, leading to the present appeal.

3. Application of Section 198 of the Income-tax Act, 1961:

Section 198 deems tax deducted at source (TDS) as income received by the assessee for computing income. The Tribunal referred to a similar case adjudicated by the Hon'ble High Court of Andhra Pradesh, which established that when TDS is deducted but the corresponding income is not received, the TDS amount is treated as income. The Tribunal noted that the assessee cannot benefit from TDS without recognizing the corresponding income in the return. The Tribunal held that the TDS amount reflected in Form 26AS should be treated as income under "income from other sources," applying Section 198. The Tribunal emphasized that the assessee cannot use the TDS certificate to offset other tax liabilities while refusing to declare the corresponding interest income.

Conclusion:

The Tribunal directed the Assessing Officer to recompute the assessed total income by treating the TDS amount as income, following the principles laid down in the cited judicial precedent. The appeal was partly allowed, reinforcing the application of Section 198 and the treatment of TDS as income in cases of non-receipt of interest due to differences in accounting methods.

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