TDS Credit Cannot Be Denied Due to 26AS Mismatch Under Section 143(1) | ITAT Delhi Declares Such Adjustments Illegal

 

In a significant ruling strengthening taxpayer rights, the Delhi ITAT has held that TDS credit cannot be denied merely due to mismatch between Form 26AS and the return of income while processing under Section 143(1). The Tribunal has further clarified that such denial, without prior intimation to the assessee, is beyond the scope of permissible adjustments and therefore illegal.

This decision addresses a very common and practical issue faced by taxpayers—automatic denial of TDS credit during CPC processing due to minor mismatches, often without giving the assessee any opportunity to explain or rectify the discrepancy.

At the heart of the issue lies the scope of adjustments that can be made under Section 143(1). This provision allows only limited, prima facie adjustments such as arithmetical errors, incorrect claims apparent from the return, or disallowances based on information available in the return itself. However, it does not permit the Assessing Officer or CPC to make debatable or verification-based disallowances.

In the present case, the assessee had claimed TDS credit in the return of income. However, while processing the return under Section 143(1), the department denied the credit on the ground that the TDS did not fully match with Form 26AS. No prior intimation or opportunity was given to the assessee to reconcile the mismatch.

The Tribunal held that such action is not sustainable in law. It observed that mismatch between Form 26AS and the return is not an “incorrect claim apparent from the record” but a matter requiring verification and reconciliation. Therefore, denying TDS credit on this basis falls outside the limited jurisdiction of Section 143(1).

Further, the Tribunal emphasized that principles of natural justice must be followed. If the department proposes to make any adverse adjustment, the assessee must be put to notice and given an opportunity to respond. Denial of TDS credit without such intimation is arbitrary and violates basic procedural fairness.

The ITAT categorically held that such adjustments are illegal under Section 143(1) and cannot be sustained. The assessee was accordingly granted relief, and the TDS credit was directed to be allowed.

This ruling has wide implications, particularly in the era of automated processing, where many taxpayers face unjustified tax demands due to system-driven mismatches. It reinforces that automation cannot override legal safeguards and that adjustments must strictly fall within the scope permitted by law.

From a practical perspective, taxpayers should not accept denial of TDS credit merely due to Form 26AS mismatch. If such adjustment is made without prior intimation, it can be challenged as being beyond jurisdiction under Section 143(1).

Key Takeaways for Taxpayers and Professionals

Mismatch in Form 26AS and return does not automatically justify denial of TDS credit.
Adjustments under Section 143(1) are limited and cannot involve verification or debatable issues.
Prior intimation and opportunity of hearing are essential before making adverse adjustments.
Automated processing errors can and should be challenged where they violate legal provisions.

Conclusion

The Delhi ITAT has drawn a clear line—Section 143(1) is not a tool for making substantive disallowances or denying legitimate credits. Its scope is limited to apparent and undisputed errors.

Bottom Line: No notice, no verification, no jurisdiction—TDS credit cannot be denied under Section 143(1).

 

The copy of the order is as under:

1771914796-R9PQSp-1-TO