2025 (12) TMI 1095 - AT - Income Tax

TDS credit shown in Form 26AS despite not claimed in return: s.199 right upheld, verification remanded for income taxed

Whether TDS credit can be denied solely because it was not claimed in the return was the dominant issue. The ITAT held that, where TDS is reflected in ... Denial of credit of TDS - since the assessee did not claim the TDS credit in the return of income, the same could not be granted in view of Rule 37BA(4) of the Income Tax Rules, 1962 - HELD THAT:- It is not in dispute that TDS is reflected in Form No.26AS in the name of the assessee. Section 199 of the Act clearly provides that credit for tax deducted at source shall be given to the assessee from whose income such tax has been deducted. In our considered view, the omission to claim the credit in the return is purely procedural in nature, and the substantive right u/s 199 of the Act cannot be denied merely on such technicality. Before granting the credit, the Ld. AO must verify whether the income corresponding to the said TDS has been offered for taxation by the assessee. In the interest of justice, we therefore deem it appropriate to restore the matter to the file of the AO with a direction to verify the TDS reflected in Form No.26AS and grant due credit to the assessee after verifying whether the corresponding income has been offered for taxation in the return of income. Appeal of the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether credit of tax deducted at source reflected in Form No. 26AS can be denied in processing/appeal merely because the assessee failed to claim such TDS credit in the return of income. (ii) Whether grant of TDS credit requires verification by the Assessing Officer that the income corresponding to such TDS has been offered to tax by the assessee, and the appropriate relief to be granted. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Denial of TDS credit for non-claim in return despite reflection in Form No. 26AS Legal framework (as discussed by the Court): The Court examined Section 199 of the Act, which treats TDS paid to the Central Government as payment of tax on behalf of the person from whose income deduction was made, and contemplates grant of credit accordingly. Interpretation and reasoning: The Court noted it was undisputed that the TDS amount was reflected in Form No. 26AS in the assessee's name. On reading Section 199, the Court held that the statute clearly provides for credit of TDS to the person from whose income it was deducted. The Court reasoned that failure to claim the credit in the return was an inadvertent omission and purely procedural, and that such omission cannot defeat the assessee's substantive right flowing from Section 199. Therefore, credit could not be denied merely on the technical ground of non-claim in the return. Conclusion: The Court rejected the view that TDS credit must be denied solely because it was not claimed in the return, where the TDS is reflected in Form No. 26AS in the assessee's name and Section 199 substantively entitles the assessee to such credit. Issue (ii): Need for verification of corresponding income and nature of relief Interpretation and reasoning: While holding that the procedural omission should not bar credit, the Court simultaneously held that credit should be granted only after the Assessing Officer verifies whether the income corresponding to the stated TDS has been offered for taxation by the assessee. The Court considered such verification necessary before allowing credit, to ensure linkage between the TDS and the income offered. In the interest of justice, the Court found it appropriate to remit the matter for verification rather than grant credit outright on the appellate record. Conclusion: The matter was restored to the Assessing Officer with a direction to verify the TDS reflected in Form No. 26AS and to grant due credit after verifying that the corresponding income has been offered for taxation in the return. The assessee was permitted to produce relevant documents for the verification. The appeal was allowed for statistical purposes.