TDS credit cannot be reduced by rectification without notice; natural justice requires disclosure and statutory compliance.

Rectification that withdraws earlier granted TDS credit and raises a consequential demand cannot be sustained when made without notice to the assessee or disclosure of the basis for the change. The governing framework for granting TDS credit must be followed, and a unilateral reduction of credit through rectification breaches natural justice. On that reasoning, the full TDS credit was directed to be restored and the related demand annulled.

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Issues: Whether the reduction of TDS credit by way of rectification and the consequential demand could be sustained without notice to the assessee.

Analysis: The assessee had earlier been granted full TDS credit in rectification proceedings, but in the later rectification order the credit was reduced and demand was raised. The reduction was made without issuing any show-cause notice or explaining the basis for withdrawing the earlier credit. Such action was found to be inconsistent with the rectification mechanism and violative of natural justice. The assessment of TDS credit was also required to be examined in accordance with the governing provisions relating to grant of credit for tax deducted at source.

Conclusion: The reduction of TDS credit and the resulting demand were not justified and the relief was allowed in favour of the assessee.

Final Conclusion: The order of the first appellate authority was set aside and the authorities were directed to grant full TDS credit and annul the consequential demand.

Ratio Decidendi: A rectification order that withdraws earlier granted TDS credit and creates a demand cannot be sustained when passed without notice to the assessee and without compliance with the statutory framework governing TDS credit.

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