Assessee entitled to TDS credit on RBI bond maturity proceeds; AO to allow credit for AY 2023-24 under Rule 37BA(3)(ii)

ITAT, Agra allowed the assessees' appeal and directed the AO to grant TDS credit for tax deducted on maturity proceeds of RBI bonds. The tribunal noted the assessee had already paid tax on interest on an accrual basis for AYs 2018-19 to 2022-23 after claiming proportionate TDS credit and directed the AO to allow the claimed TDS credit for AY 2023-24 subject to verification under Rule 37BA(3)(ii) of the I.T. Rules, 1962, and to determine tax payable or refundable accordingly.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Appellate Authority erred in treating an appeal filed against an intimation under section 143(1) as infructuous because subsequent rectification orders under section 154 were passed by CPC, thereby refusing to adjudicate the grievance on merits.

2. Whether claim for credit of tax deducted at source (TDS) reported in Form 26AS on interest credited on maturity of Government bonds is allowable in the assessment year of receipt where the taxpayer had already offered the same interest to tax on accrual/mercantile basis in earlier assessment years and paid tax thereon.

3. Whether Rule 37BA(3)(ii) of the Income Tax Rules, 1962 governs allocation of TDS across assessment years where the income is assessable over a number of years, and whether the Assessing Officer must verify and allow TDS credit across relevant years accordingly.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Adjudication of appeal against intimation under section 143(1) where rectification under section 154 is subsequently passed

Legal framework: Section 143(1) generates an intimation; section 246A provides remedy of appeal against an order under section 143(1); section 154 permits rectification of mistake apparent from record. The appellate forum's jurisdiction to hear an appeal against an order remains until power is otherwise or validly exercised.

Precedent treatment: The Tribunal referenced limits on rectification power (T. S. Balaram) - rectification under section 154 is limited to mistakes apparent from record and cannot be used to decide debatable questions of fact or law that require investigation.

Interpretation and reasoning: The Court held that the intimation under section 143(1) is a separate order giving rise to a grievance and that the appellate authority (CIT(A)) was obliged to adjudicate the appeal rather than dismissing it as infructuous merely because CPC later passed rectification orders. Dismissing without adjudication on merits was characterised as a technical dismissal not sustainable in law. The Tribunal observed that the taxpayer had a choice of remedies (appeal under section 246A or rectification under section 154) and that filing a rectification application did not oust the appellate forum's duty to decide the appeal brought against the intimation.

Ratio vs. Obiter: Ratio - an appeal against an intimation under section 143(1) cannot be treated as automatically infructuous merely because rectification under section 154 is subsequently undertaken; the appellate authority must adjudicate the appeal on merits unless legally barred. Obiter - observations on the desirability of available remedies and the sequence of redressal.

Conclusion: The Tribunal held the CIT(A)'s dismissal as infructuous to be incorrect; the appeal should have been entertained and decided on merits. The matter was decided accordingly in favour of the taxpayer on this procedural point, leading to consideration of the substantive TDS issue.

Issue 2 - Allowability of TDS credit where interest was offered on accrual basis earlier and TDS was deducted on maturity

Legal framework: Income from other sources declared on accrual basis under section 145; TDS credit is governed by provisions of the Act and Rules, notably Rule 37BA which addresses credit where income is assessable over a number of years; section 193 pertains to TDS on interest. Principle that tax should not be levied twice on same income applies.

Precedent treatment: The Tribunal relied on the settled principle that where income has been offered to tax in earlier years on accrual basis and tax paid, subsequent receipt that merely reflects amounts already taxed should not attract fresh tax to produce double taxation. The decision cites the limited scope of rectification under section 154 (T. S. Balaram) to emphasise appropriate procedural channeling but the substantive position that a taxpayer should not be taxed twice is treated as established and accepted.

Interpretation and reasoning: The assessee had declared interest on accrual/mercantile basis for preceding assessment years (AYs 2018-19 to 2022-23) and paid tax thereon; the bonds matured in the impugned year and tax was deducted on maturity. The CPC disallowed TDS credit in processing the AY 2023-24 return, resulting in an alleged double taxation. The Tribunal examined the computation and accepted that interest relating to earlier years had been offered and taxed. Applying Rule 37BA(3)(ii) and the principle against double taxation, the Tribunal directed the Assessing Officer to allow the TDS credit of Rs.34,37,842 (including the disputed Rs.24,04,000) after verification and to determine tax payable or refundable accordingly.

Ratio vs. Obiter: Ratio - where income is assessable over a number of years and the taxpayer has offered the income to tax on accrual basis in earlier years and paid tax, TDS deducted subsequently on receipt (maturity) should be allowed across the relevant years in the proportion in which the income was assessable, per Rule 37BA(3)(ii), to prevent double taxation. Obiter - comments on practical remedies available to taxpayers and on CPC procedure.

Conclusion: The Tribunal concluded that the assessee was entitled to the claimed TDS credit and directed the AO to allow the full TDS credit claimed in AY 2023-24, including the Rs.24,04,000, after due verification in terms of Rule 37BA(3)(ii), and to pass consequential orders determining tax payable/refundable.

Issue 3 - Application and scope of Rule 37BA(3)(ii) for allocation of TDS across years

Legal framework: Rule 37BA(3)(i) and (ii) provide that credit for TDS shall be given for the assessment year for which such income is assessable, and where income is assessable over a number of years, credit shall be allowed across those years in the same proportion in which the income is assessable.

Precedent treatment: The Tribunal accepted Rule 37BA(3)(ii) as the operative rule to allocate TDS where income is assessable over multiple years and where tax has been deducted and paid at the time of receipt. The Tribunal noted departmental acceptance of accrual reporting in earlier years and the need to apply Rule 37BA for fair allocation.

Interpretation and reasoning: Given that the assessee had earlier disclosed interest on accrual basis and the Department had accepted such disclosures (and tax payments), the Tribunal reasoned that TDS deducted on maturity must be matched with the years to which that interest had been assessable. The AO was directed to apply Rule 37BA(3)(ii) to allow credit across years in the proportion in which the income was assessable, and to effect necessary adjustments so that tax is not payable twice on same income.

Ratio vs. Obiter: Ratio - Rule 37BA(3)(ii) mandates proportionate allowance of TDS credit across assessment years where income is assessable over a number of years; the AO must verify and allow credit in accordance with that Rule. Obiter - observations regarding mechanics of CPC processing and rectification attempts.

Conclusion: The Tribunal directed application of Rule 37BA(3)(ii) and remitted to the AO to allow TDS credit after verification, determine tax consequences and pass an appropriate order, thereby granting substantive relief to the assessee on TDS credit claim.

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