2025 (1) TMI 1398 - AT - Income Tax

Tribunal Overrules CPC's TDS Credit Cut, Citing Section 154 Violation and Lack of Procedural Fairness; Assessee's Appeal Allowed.

Manjari Housing Projects LLP, M/s. Kalyaniwalla & Mistry LLP Versus The Income Tax Officer, Ward-41 (1) (1), Mumbai

The Tribunal ruled that the Centralized Processing Center's (CPC) unilateral reduction of TDS credit without notice or explanation violated Section 154 of ... CPC unilaterally reducing the TDS credit granted to the assessee - CPC had previously granted full TDS credit in three separate rectification orders but unilateral reduction in TDS credit in the subsequent order - AR submitted that this rectification order has been passed by the CPC, without giving an opportunity to the assessee by way of issuance of any notice or otherwise HELD THAT:- As submitted by the Ld.AR, the CPC has given full credit of TDS in three of its orders. However, in the last order passed u/s. 154 of the Act, the TDS amount has been reduced, which resulted in raising of a demand. It is the submission of the assessee that the CPC has not issued any show cause notice to the assessee before reducing the amount of TDS credit. The said action of the CPC is not in accordance with the provisions of sec.154 of the Act and it results in violation of principle of natural justice also. Accordingly, we are of the view that the CPC was not justified in reducing the TDS credit and raising a demand upon the assessee. Accordingly, we set aside the order passed by the CIT(A) and direct the AO/CPC to allow the full credit of TDS to the assessee and accordingly nullify the corresponding demand raised. Appeal filed by the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the Centralized Processing Center (CPC) was justified in unilaterally reducing the TDS credit granted to the assessee without issuing a notice or providing reasons, thereby violating Section 154 of the Income Tax Act and principles of natural justice.2. Whether the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to restore the issue to the Assessing Officer (AO) for re-examination was appropriate under the circumstances.ISSUE-WISE DETAILED ANALYSIS1. Justification of CPC's Action in Reducing TDS CreditRelevant Legal Framework and Precedents: Section 154 of the Income Tax Act allows for rectification of mistakes apparent from the record. The principles of natural justice require that a taxpayer be given an opportunity to be heard before any adverse decision affecting them is made.Court's Interpretation and Reasoning: The Tribunal noted that the CPC had previously granted full TDS credit in three separate rectification orders. The unilateral reduction in TDS credit in the subsequent order, without issuing a notice or providing reasons, was deemed a violation of Section 154 and the principles of natural justice.Key Evidence and Findings: The record showed that the CPC had consistently granted full TDS credit in prior orders. The sudden reduction in TDS credit was done without any communication or justification to the assessee.Application of Law to Facts: The Tribunal applied the principles of natural justice and the procedural requirements of Section 154, concluding that the CPC's actions were unjustified as they failed to notify the assessee or provide an explanation for the reduction in TDS credit.Treatment of Competing Arguments: The Tribunal considered the argument that the CPC's actions were procedurally flawed and agreed with the assessee that the lack of notice or explanation constituted a breach of procedural fairness.Conclusions: The Tribunal concluded that the CPC's reduction of TDS credit was not justified, and the demand raised was invalid. The Tribunal set aside the CIT(A)'s order and directed the AO/CPC to restore the full TDS credit to the assessee.2. Appropriateness of CIT(A)'s Decision to Restore the Issue to AORelevant Legal Framework and Precedents: The CIT(A) has the authority to remand issues for further examination by the AO under certain circumstances. However, this must be done in accordance with established legal principles and procedural fairness.Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) had acknowledged the procedural errors in the CPC's actions but still chose to remand the issue to the AO. The Tribunal deemed this approach inappropriate given the clear procedural violations by the CPC.Key Evidence and Findings: The CIT(A) did not provide a sufficient basis for remanding the issue, especially in light of the CPC's failure to adhere to procedural requirements.Application of Law to Facts: The Tribunal applied the principles of procedural fairness and determined that the CIT(A)'s decision to remand was not justified, as the procedural errors by the CPC were evident and did not require further examination by the AO.Treatment of Competing Arguments: The Tribunal considered the CIT(A)'s rationale for remanding the issue but found it lacking in light of the clear procedural breach by the CPC.Conclusions: The Tribunal concluded that the CIT(A)'s decision to remand the issue was inappropriate and unnecessary. The Tribunal directed the AO/CPC to allow the full TDS credit and nullify the demand.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The CPC was not justified in reducing the TDS credit and raising a demand upon the assessee. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the AO/CPC to allow the full credit of TDS to the assessee and accordingly nullify the corresponding demand raised.'Core Principles Established: The Tribunal reinforced the principle that any rectification or adjustment made under Section 154 must adhere to procedural fairness, including issuing notices and providing reasons for any adverse actions.Final Determinations on Each Issue: The appeal filed by the assessee was allowed, with the Tribunal directing the AO/CPC to grant full TDS credit and cancel the demand raised. The CIT(A)'s decision to remand the issue was set aside.