Mumbai Taxpayer Wins Case Against Rs 1 Crore Tax Demand Due To TDS Mismatch, Here's How He Did It
Despite declaring the income and paying due taxes, interest under relevant sections was levied as the TDS credit didn’t show up on his Form 26AS.
A Mumbai-based taxpayer faced a Rs 1 crore tax demand after the income tax department’s centralised processing centre (CPC) denied him TDS credit of Rs 96 lakh, Economic Times reported. Despite declaring the income and paying due taxes, interest under relevant sections was levied as the TDS credit didn’t show up on his Form 26AS.
According to the report, he declared a total income of Rs 20.16 crore in his ITR and paid Rs 7.12 crore as tax and interest. To meet this liability, he claimed TDS credit of Rs 4.8 crore, advance tax of Rs 2.2 crore and self-assessment tax of Rs 12.34 lakh.
On Nov. 16, 2022, the CPC processed his ITR under Section 143(1) and denied Rs 96 lakh TDS credit as it wasn't reflected in Form 26AS. This triggered a tax demand of Rs 1.09 crore, including interest under Sections 234B and 234C.
Subsequently, the taxpayer filed an appeal with the Commissioner of Income Tax (Appeals). In the appeal, the taxpayer submitted invoices, TDS advice and bank statements proving receipt of payments after TDS deduction. He argued that the 26AS mismatch was due to the deductor's fault. He also emphasised that Form 26AS is a departmental record and should not solely determine TDS credit eligibility, the ET report stated.
The CIT(A) upheld the denial of TDS credit, ruling that credit could not be given unless the amount appeared in Form 26AS. The body also advised the taxpayer to ask the deductors to correct their e-TDS filings to allow the credit.
Unhappy with this decision, the taxpayer approached the Income Tax Appellate Tribunal (ITAT) in Mumbai. On Sept. 30, the ITAT ruled in his favour and cancelled the tax demand of Rs 1 crore.
During the hearing, Judicial Member Amit Shukla and Accountant Member Girish Agrawal stated that they carefully reviewed all submissions and documents. They emphasised that the case hinges on a simple principle: TDS credit should not be denied solely because it is missing from Form 26AS, especially when evidence proves tax was deducted and paid.
ITAT Mumbai was quoted as saying by ET: “In our opinion the answer must be in the negative. Section 205 of the Income Tax Act, 1961 erects a clear bar against making a direct demand on the assessee to the extent tax has been deducted at source from his income. The moment deduction is shown on the strength of primary evidence, the embargo of Section 205 attaches and the deductee cannot again be called upon to bear the burden.”
ITAT Mumbai also noted that past high court rulings align on TDS credit issues. In Yashpal Sahni v. Rekha Hajarnavis, the court ruled that once TDS is proven, Section 205 bars the revenue from recovering the same tax again from the taxpayer, the report added.
