2025 (3) TMI 1377 - AT - Income Tax

AO cannot withdraw TDS credit through rectification under section 154 if previously allowed in assessment under section 143(3)

ITAT Delhi held that withdrawal of TDS credit previously allowed in assessment under section 143(3) through rectification proceedings under section 154 is ... Rectification proceedings u/s 154 - rectify the assessment order by disallowing the credit of Tax Deducted at Source (TDS) claimed - HELD THAT:- On identical facts, in the case of Sri A.M. Fazil vs DCIT, Circle-1, Alappuzha [2019 (3) TMI 992 - ITAT COCHIN] held that withdrawal of tax credit which was given in the assessment completed u/s 143(3) by resorting rectification proceedings u/s 154 is legally untenable and cannot be sustained. We hold that the addition by the AO is not a mistake apparent from the record in the given facts of the case and therefore the same is deleted. However, we make it clear that TDS which is given due credit in this assessment year, the same should not be given credit during any other assessment year when income is/was offered for taxation. It is ordered accordingly. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the Assessing Officer (AO) was justified in using Section 154 of the Income Tax Act to rectify the assessment order by disallowing the credit of Tax Deducted at Source (TDS) of Rs. 34,21,484/- claimed by the assessee.Whether the action of the Commissioner of Income Tax (Appeals) [CIT(A)] in confirming the AO's rectification order and directing the withdrawal of TDS credit was within jurisdiction and legally tenable.Whether the assessee was denied a reasonable opportunity of being heard before the disallowance of TDS credit.ISSUE-WISE DETAILED ANALYSIS1. Justification of Rectification under Section 154Relevant Legal Framework and Precedents: Section 154 of the Income Tax Act allows the rectification of mistakes apparent from the record. However, it is established that the provision cannot be used for issues that are debatable or require extensive examination of facts. The Tribunal referenced the case of Sri A.M. Fazil vs. DCIT, where it was held that withdrawal of tax credit via rectification proceedings is legally untenable.Court's Interpretation and Reasoning: The Tribunal found that the issue of whether TDS credit can be withdrawn due to non-reporting of corresponding income is debatable and does not constitute a mistake apparent from the record under Section 154.Key Evidence and Findings: The Tribunal noted that the CIT(A) had relied on a Third Member case, indicating that the issue was debatable. Additionally, the Tribunal emphasized that once TDS is deducted and paid to the government, credit should be given in the year of deduction to avoid complications.Application of Law to Facts: The Tribunal applied the legal principle that debatable issues cannot be rectified under Section 154, concluding that the AO's action was not justified.Treatment of Competing Arguments: The Tribunal considered the Revenue's stance that the TDS credit was not allowable due to non-reporting of corresponding income but found the assessee's reliance on precedents more compelling.Conclusions: The Tribunal concluded that the rectification order by the AO was not sustainable as the issue was debatable and not a mistake apparent from the record.2. Jurisdiction and Legality of CIT(A)'s ActionsRelevant Legal Framework and Precedents: The CIT(A) has the authority to confirm, modify, or annul the AO's orders. However, actions must be within the scope of the appeal and jurisdiction.Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) exceeded jurisdiction by directing the withdrawal of TDS credit, as the matter was not within the scope of the proceedings initiated by the AO under Section 154.Key Evidence and Findings: The Tribunal noted that the CIT(A) agreed with the AO's findings but incorrectly directed the withdrawal of TDS credit instead of addressing the rectification issue.Application of Law to Facts: The Tribunal applied the principle that appellate authorities should not exceed their jurisdiction and found the CIT(A)'s directive to withdraw TDS credit beyond the scope of the proceedings.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument for withdrawal of TDS credit but found it unsupported by the jurisdictional scope of the CIT(A).Conclusions: The Tribunal concluded that the CIT(A)'s order was beyond jurisdiction and not legally tenable.3. Opportunity of Being HeardRelevant Legal Framework and Precedents: Natural justice principles mandate that parties must be given a reasonable opportunity to present their case before any adverse decision is made.Court's Interpretation and Reasoning: The Tribunal implicitly acknowledged the lack of opportunity for the assessee to be heard, as the rectification proceedings were not appropriate for the issue at hand.Key Evidence and Findings: The Tribunal's decision to allow the appeal suggests that the procedural fairness was not adhered to in the rectification process.Application of Law to Facts: The Tribunal applied the principles of natural justice, indicating that the assessee should have been given a fair chance to contest the withdrawal of TDS credit.Treatment of Competing Arguments: The Tribunal did not find any compelling argument from the Revenue to justify the lack of opportunity for the assessee to be heard.Conclusions: The Tribunal's decision to allow the appeal implicitly addressed the lack of opportunity for the assessee to be heard.SIGNIFICANT HOLDINGSThe Tribunal held that the rectification of the assessment order under Section 154 by the AO was not justified as the issue was debatable and not a mistake apparent from the record.The Tribunal emphasized that once TDS is deducted and paid to the government, the credit should be given in the year of deduction to avoid complications.It was held that the CIT(A) exceeded jurisdiction by directing the withdrawal of TDS credit, as this was beyond the scope of the rectification proceedings.The Tribunal allowed the appeal, ordering that the TDS credit of Rs. 34,21,484/- should not be withdrawn in the assessment year in question, but clarified that it should not be claimed again in any other assessment year when the income was offered for taxation.