2026 (4) TMI 117 - AT - Income Tax

TDS credit follows the year of income assessability; later Form 26AS reporting cannot defeat substantive entitlement.

TDS credit must be allowed in the assessment year in which the related income is assessable, because section 199 of the Income-tax Act and Rule 37BA(3) ... Denial of TDS credit pertaining to services rendered - year of assessability of income - deductor depositing the tax and reflecting the credit in Form 26AS in the subsequent year. HELD THAT: - The Tribunal followed its earlier decision in M/s. Greatship (India) Limited [2020 (2) TMI 21 - ITAT MUMBAI] and held that credit for tax deducted at source is to be allowed for the assessment year in which the related income is assessable. Since the subject income was accounted for by the assessee during AY 2020-21, the corresponding TDS credit could not be denied merely because the deductor accounted for the transaction and deducted tax in the subsequent year, resulting in a mismatch with Form 26AS. The Tribunal, however, directed that while allowing the credit, the Assessing Officer must ensure that the same TDS credit is not availed again in the immediately succeeding year. [Paras 9, 10] The Assessing Officer was directed to allow the TDS credit in AY 2020-21, subject to verification that no duplicate claim of the same credit is made in AY 2021-22. Final Conclusion: The appeal was allowed. The Tribunal held that the assessee was entitled to the TDS credit in AY 2020-21, being the year in which the related income was assessable, with a direction to prevent any duplicate credit in the succeeding year. Issues: Whether the assessee was entitled to TDS credit in the assessment year in which the corresponding income was offered to tax, despite the deductor depositing the tax and reflecting the credit in Form 26AS in the subsequent year.Analysis: Section 199 of the Income-tax Act, 1961 and Rule 37BA(3) of the Income-tax Rules, 1962 provide that credit for tax deducted at source shall be given for the assessment year for which the income is assessable, and where income is assessable over more than one year, the credit is to be allowed in the same proportion. The assessee had accounted for the service income in the relevant year, while the deductor accounted for the expenditure and deducted tax in the next year, causing a mismatch in Form 26AS. The Tribunal applied the statutory rule that TDS credit follows the year of assessability of the related income, and the mere fact that the deductor reported the tax in a later year could not defeat the assessee's substantive entitlement.Conclusion: The assessee was entitled to the TDS credit in the year in which the corresponding income was assessable, and the denial of credit on the basis of the Form 26AS mismatch was not sustainable.Ratio Decidendi: Credit for tax deducted at source must be granted in the assessment year in which the related income is assessable, and it cannot be shifted to a different year merely because the deductor reported or deposited the tax later.