TDS Credit Cannot Be Denied for 26AS Mismatch: ITAT Hyderabad Sets the Record Straight
In a crucial ruling addressing a very common issue faced by taxpayers, the ITAT Hyderabad has held that TDS credit cannot be denied merely because it is not reflected in Form 26AS, if the corresponding income is offered to tax.
The decision brings clarity and relief in cases where timing differences between income recognition and TDS deduction create artificial mismatches.
Background of the Case
The assessee declared income of ₹1.66 crore for AY 2020–21 and claimed TDS credit of ₹28.12 lakh.
However, the CPC restricted the credit based on Form 26AS mismatch and raised a demand of ₹13.15 lakh.
The mismatch arose due to a timing issue:
• The assessee, following the mercantile system, recognized income in March 2020
• The deductor, however, deducted TDS in the subsequent financial year
This created a situation where income was taxed in one year, but TDS appeared in Form 26AS of another year.
Core Issue Before the Tribunal
The key question was:
– Can TDS credit be denied in the year in which income is taxed, merely because it is not reflected in Form 26AS for that year?
This issue has widespread relevance in cases involving year-end accruals.
Tribunal’s Key Finding
The Tribunal ruled in favour of the assessee and held that TDS credit must be allowed in the year in which the corresponding income is assessable.
This position is clearly supported by:
• Section 199 of the Income-tax Act
• Rule 37BA(3) of the Income-tax Rules
Form 26AS Is Not Conclusive
A significant observation of the Tribunal was that:
– Form 26AS is only a statement and cannot override statutory provisions
Linking TDS credit solely to Form 26AS leads to incorrect computation of tax liability and defeats the scheme of the Act.
Avoiding Double Taxation
The Tribunal highlighted a fundamental principle:
– Denial of TDS credit in the correct year results in double taxation
The assessee would be taxed on income in one year and may receive credit in another year, creating an unfair tax burden.
Such an outcome is contrary to the basic framework of the Income-tax Act.
Direction to the Assessing Officer
The Tribunal directed the AO to:
• Allow TDS credit in AY 2020–21
• Verify that the same credit is not claimed again in subsequent years
This ensures that while relief is granted, duplication of credit is avoided.
Practical Implications for Taxpayers
This ruling is highly relevant in situations involving:
• Mercantile system of accounting
• Year-end accrual of income
• Delayed TDS deduction by deductors
• Mismatches between books and Form 26AS
Taxpayers should ensure:
• Proper documentation of income recognition
• Evidence linking TDS to the income offere
• Consistency in claiming TDS credit
Key Takeaway for Professionals
Professionals should remember:
• TDS credit is governed by year of income, not Form 26AS
• CPC adjustments based solely on 26AS can be challenged
• Proper representation can help avoid unjust tax demands
Conclusion
The ITAT Hyderabad’s ruling reinforces that substance prevails over system-generated statements.
Form 26AS is a useful tool, but it cannot dictate taxability or deny legitimate credit.
For taxpayers, the decision offers relief from mechanical disallowances. For professionals, it provides a strong precedent to challenge mismatches.
In essence, TDS follows income-not the timing of its reflection in Form 26AS.
The copy of the order is as under:
1774610825-qhzEq4-1-TO n
